Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about bootstrapping versus funding. It is a common question new entrepreneurs ask themselves and based on an article on the subject, the guys comment and elaborate on some of these questions.
Items mentioned in this episode:
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: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Well, there is a book recommendation that you’ve given awhile ago called, The Hard Thing About Hard Things. I’ve commented it, I’ve bought the book, but I haven’t read it yet. I’ve been kind of diving into that a little bit. I find it fascinating probably more so from a historical perspective because Ben Horowitz, who’s the author, he’s talking about his journey through the startup after he had left PayPal, and running this other company, and they basically only had one customer that was providing 90% of the revenue and basically spun that business off into its own separate entity and got rid of a bunch of assets with it, and talks about he built up the company from there.
What I find fascinating about it is that the new company is called Opsware. I remember back in those days when I was doing sales demos and presentations and stuff, I was actually in some cases, competing against Opsware.
Rob: That’s a trip. That book–it is brutal. Have you finished it?
Mike: I’ve not, no.
Rob: I was so stressed. It’s a good book but I don’t know if I could listen to it again because what he has to go through to grow and keep his company from basically going under and then he sells it for $1 billion or multiple billions of dollars and then he starts Andreessen Horowitz—that part is not in the book but he talks a little bit about it—but he is the Horowitz of Andreessen Horowitz. I remember listening to it and being like, “Yup, I could not have done this. I would have imploded.” It is, The Hard Thing About Hard Things is a good title for it.
Mike: Yeah, definitely. I do not think that I would have wanted to go through all the stuff that he’s gone through especially just the financial challenge of trying to go public at the time that he did, right after the economy kind of cratered. What did he say? Like there was 200 plus IPOs the year before and then there was 6 or 12 or something like that the year that he did it. Wow!
Rob: It’s crazy. He went public, he didn’t get acquired, I forgot what…
Mike: No, he went public first and it was in a bad environment. The reason they went public was because they couldn’t get anymore investment capital from investors. Then it was a bunch of years later, like 2007 or something like that where they ended up selling to HP for, I think, it was $1 or $2 billion.
Rob: Got it. That was my memory, but I have forgotten they went public. It’s agonizing. It really is the shoot for the $1 billion exit. You don’t need to be a several hundred-million-dollar revenue journey raising venture capital and all that stuff. A lot of it just did not sound like something I ever want to experience in my life, even for payout like that. I don’t it’d be worth it.
Mike: How about you? What’s going on this week?
Rob: Well, you and I just had a conversation before this episode started recording. We are evaluating potentially having sponsorships on Startups For The Rest Of Us. If you are a company, whether you’re a startup or if you think that you would be interested in reaching the Startups For The Rest Of Us audience—it’s a lot of bootstrappers but it’s also a lot of people running six and seven figure businesses, drop us a line at questionsforstartupsfortherestofus.com and just put “Sponsor” or “Sponsorship” in the subject line, and we’ll talk about it.
Obviously, as a listener, we’re been doing this for eight years, and we appreciate the trust that you put in Mike and I to produce high-quality content and to deliver value to you. We have no intention of “screwing up” the podcast by adding a bunch of sponsorship roles in the thing and interrupting your flow, but we are at a point where it does cost us money and it does cost us time away from our businesses to do this, so we’re just evaluating it. It’s a preliminary thing, we definitely have not made up our mind about it, but we do want to explore this as an option.
Mike: Again, that email address is questionsforstartupsfortherestofus.com and just put “Sponsorship” or “Sponsor” in the subject line, and we’ll take a look at it. Again, we’ll just kind of evaluate how things go. To reiterate what Rob had said, we appreciate you guys listening and we don’t want to screw up the whole thing. I think like a lot of things that we’ve done at MicroConf every year I think is just kind of a play it safe approach, but at the same time, look for ways to change things to make things better.
Rob: Yeah, we’ve experimented a lot with things at MicroConf over the years. Some have worked, some haven’t. But one thing that I think we’ve done a good job is recognizing when they work and don’t and basically changing it up when things don’t. Even if we try it, if it suddenly becomes a […] or something like that, I could imagine pivoting.
Today, we’re going to be running through an article by a listener and commenter name Don Gooding. The title of his article is Bootstrapping versus Venture Capital: 19 Questions to Ask. But what I find interesting about the article is it’s not just about venture capital, it is about angel investment as well. But before we get there, we have a comment from Adam on episode 406, and 406 was five episodes ago when you and I discussed, “Should bootstrappers raise money?” was the title of the episode. Adam said, “I’m so glad you jumped in, Mike, and said something about Rob hitting 21k MRR saying that it wasn’t a fair comparison.” Because I believe I was saying, “Drip hit 21k MRR quickly and if it took me four years to get there then I would’ve […] it down.” And you said, “Well, that’s not a fair comparison because you’re in a different place and if you’re building something on the side, maybe it is four years.”–to that point.
Back to Adam. He says, “I’m still trying to hit 21k MRR after four year, but I don’t think I’m failing at what I’m doing. Maybe an episode on what you think that growth is, that people should be aiming for, this was a good episode. A follow-up question to Mike would be, why have you or have you not fun strapped Bluetick?”
Mike: Oh, that’s a good question that I don’t have a good answer for.
Rob: It’s something evaluated, no?
Mike: Oh, yeah. I’ve looked at it a couple of times. I had a few conversations privately with people I know who have raised money, and just asked them what their take on it was, what their experiences was after going through it, what were the drawbacks, what would they have done differently. I got a sense that it was going to be rather complicated and time-consuming, and I didn’t have the time to spend on it. I continue to kind of look at it and continue to think about but it’s not something where I’ve said, “Yeah, I definitely want to do that. I’m all in. I’m going to dedicate the next X weeks or months whatever going out and raising funding.”
I’ve probably spent a lot more time working on getting Bluetick to a better place. I think I have been open about the fact that early on, I had hired a bunch of contractors to build a lot of the core infrastructure of Bluetick. Quite frankly, it was not done very well so there’s a lot of things that are generally screwed up and it makes it difficult to make changes. I would prefer to move fast if I can help it, but the problem is a lot of the architecture and the choices that were made at the time make that difficult. I have a hard time pulling away from those things and doing some of the clean-up work to basically make myself be able to move faster.
Because I feel like if I had like a pile of money, I would feel obligated to expand things a lot quicker and maybe even more than I’m possibly comfortable with, and I just know that there are certain parts of the app that if I were to dump 50 or 100 users on it all at once, it’s not going to scale very well. There are certain processes that need to run and it’s just not going to take a large influx of people very well. It can do it, I’d probably have to tweak a couple of settings to make it happen, but I’m not real comfortable doing that. I think it’s partly out of obligation, partly out of complexity and the time that I would have to spend on it.
Rob: You have technical debt already.
Mike: Yes. I think you have technical debt as soon as you write a single line of code.
Rob: Well, not if it’s fully unit tested, though. I think of […] there’s that, I don’t if it’s a joke or it if it’s truly the definition but it’s like, “Legacy code is code that is not highly unit tested.” Yeah, you have a little bit of technical debt but to hear that it’s hard to make changes, that’s a real bummer to hear given how early stage you are, and that you’re a technical founder. That’s the whole point of us being technical founders, that’s our skill set, we shouldn’t have that.
Mike: Maybe I should caveat that a little bit more. It’s not that it’s hard to make changes, it’s that I feel uncomfortable making changes to certain places because they’re not as well unit tested as I would like them to be. The software does a lot. There’s some changes I’ll just push out. It’s just like, “Hey, this is a frontend UI changes, it’s not that big of a deal.” But then when you get into things like, how mailboxes are stored and how the data is synchronized, I’m real hesitant to make changes to those because there is, in one particular case I can think off the top of my head, there was literally no way for me to unit test it whatsoever.
It’s hard to justify going in there and just making whole scale changes that would make things easier because I know that it’s working and if it breaks, it does a lot of work every second, and things could go seriously sideways very, very quickly. The new build server I put in place a couple of weeks ago would actually make rolling back pretty easy, but then I’d have to go through and figure out what in the code broke. Again, it’s not easy to unit tested that piece.
Rob: Yeah, I feel like, “Next time, should we just build, I don’t know, simple project management that just pulls things out of databases. It’s that no connections to any external sources and no queues. I don’t want any queues, I want everything synchronize.
Mike: Honestly, that’s part of it is the queues and stuff that I have to deal with. Queues processing, storing data, being able to filter certain things out and, “Oh, somebody deleted this piece of data.” It kind of sucks to have things moving while you’re also writing the code on it. I’m sure you went through this with Drip. There’s so much…
Rob: That’s SaaS though.
Mike: I know. It’s like open heart surgery–it feels like sometimes.
Rob: Yeah, every time we did anything meaningful to scheduling or, I mean there’s all kinds of stuff that’s so easy to screw up. If you can figure out a way to smoke earn—not smoke test—but to get you in a test on that stuff because the fact that you don’t feel comfortable making changes to a part of your app, that’s going to be a hindrance forever. It’s not going to get better, it’s only going to get worst especially if it grows, if you start hiring people, that’s a big red zone there that I think you need to think about remedying early.
Mike: Yeah. […] is there’s a component that I’m using where to get into the technical details of it, there’s a C# Class and I have to serialize it. In order to do that, in order to store the data. The problem is they’ve marked it as sealed which means I can’t inherit from it, which means I can’t really do anything with it. I’ve been working with them to try and figure out like, “Is there a way I can get an interface for this or something like that so that I can create it?” Because they don’t have a public constructor for it because it’s a sealed class, it’s encapsulated in the assembly, I can’t narrow from it either. I really don’t have any other options other than faking it which is what I’ve done so far. I basically have my own object that very, very closely mimics theirs, but it’s not perfect, and that’s the problem. I’ve found a few edge cases here and there, it’s kind of scary. I’m hoping it will come up with a solution sooner rather than later, but I’ve been working with them for probably six months on it.
Rob: One minute while I update my spreadsheet. Let’s see, apps to not start as an unfunded single founder, email marketing for writer, cold email outreach–the list is getting longer and longer. It’s like, these things don’t seem that complicated when you look at it from the outside. “I want to build an ESP. This is going to be a piece of cake.” said Derek and I before we wrote code.
Mike: I think anything where you have an outside dependency that you don’t completely control or have complete access to, that’s where it gets hard. Or you’re relying on events coming in to the system and you have to do data processing on.
Rob: Alright. Well, let’s keep moving on with this episode. Our second comment on episode 406 was from Don Gooding. He linked over to a few articles he’s written and one of them which we’re going to discuss today. His comment was, “I write a lot about bootstrapping versus venture capital or angel funding. They’re definitely a bunch of issues to consider both early and later. I hope you’ll consider the following posts helpful and not spammy.” and I do consider them helpful. He links to three different articles. His blog is fourcolorsofmoney.com. Don, if you’re listening, register the 4colorsofmoney and also, redirect that over because I tried that as well and it just goes nowhere.
He linked to the first article which is, Bootstrapping Versus Venture Capital: 19 Questions to Ask–we’re going to talk about that today. He also linked to another article called, The Bootstrap to Funding Pivot Playbook which is about bootstrapping first and then raising funding later. He talks about revenue financing in that one. Then his last article is, Revenue-Based Financing: Five Different Options and he walks thru them which is pretty interesting.
His site is called Four Colors of Money because he looks at bootstrapping, he looks at grants, he looks at grant and equity–those are the four colors. He’s obviously—having read through it—pretty knowledgeable about this stuff. Again, we will include those three links in the show notes. You can always go back on those comments on episode 406 if you wanted to see his full comment.
But today, we are going to talk through his article Bootstrapping Versus Venture Capital: 19 Questions to Ask. We won’t have time to go through all 19 question, but the idea here is to think about whether you can and should bootstrap or whether you need to raise funding.
His first question is, “How much of your own capital do you have. Do you have a way to self-fund it?” Self-funding and bootstrapping sound like they’re the same thing, but they’re different. Bootstrapping is truly having almost no money. A few hundred dollars, a thousand dollars, a couple thousand dollars, and then growing a business based purely on its revenue and profits.
Self-funding is if I have $1000 in the bank or $200,000 in the bank, or I had another business that was throwing off money or another income stream that was throwing off money that I could then take and start my next business from.
Self-funding is a lot of what I did. In the early, early days, I bootstrapped everything right out of consulting revenue but spent very little money. Then the more business revenue I had, I stayed consulting during the day full-time, and I took that business revenue and used it to self-fund the next thing, and the next thing, and the next thing, and each of them got bigger and bigger. It took me a long time to get from having .net invoice doing $300 a month, 10 years later, even longer, 11 years later, it’s Drip doing seven figures a year and having exit.
I didn’t have to raise during that time because I self-funded, but it took me a lot longer than if I had come up with an idea and just raised funding early on. That’s kind of how I think about the trade-offs is I believe it takes longer if you’re in a self-fund unless you do have a rich uncle or a trust fund. But his first question to think about is how much capital on your own do you have that you can invest in the business?
Mike: I feel like this is more of a runway question because the money itself, you either have to when the business itself is generating money, how much is left over for you to leave versus how much are you going to be able to put back into the business. If you’re running a business on the side or on nights and weekends and stuff like that, then you presumably have a full-time job, and that is keeping your self alive and your family fed while the business is getting the rest of the profits. But at some point, things are going to transition, and you have to make some choices about like what your future looks like, do you have enough money to be able to spend $1000 on ad words or something like that to test out a market? You may even need that money early on.
That comes down to the fundamental question that he’s got here is, how much of your own capital do you have? Can you afford to run experiments early on? Do you have more time on your hands or do you have more money? This is getting more at the money side of the equation. If you have plenty of time, if your timeline is five years, you can take as long as you want to do most things. Certain industries of course will move very quickly, and competitors will swoop in, not ideal if you’re trying to take five years to do it but certain ones you can do that.
I think Patrick McKenzie, with Bingo Card Creator, he slowly built that up. Nobody else wanted to get into market because there wasn’t a lot there. But he was still able to make a pretty good business out of it. He just took a really long time to do it.
Rob: His next few questions look at ways that if you don’t have the money to self-fund, ways to look around and see if you can essentially raise funds but not from venture capitalists or angels. His second question is, how likely it is you can raise funds from family or friends. Third question is, “Can your product support a Kickstarter style campaign?” which I believe a lot of people overlook. Info products and even some software, not B2B, but have to really be B2C in general can use Kickstarter as well as obviously physical products would be a great way to do it. His fourth one is, “Will customers pay you well in advance of you delivering your product or service?” Can you essentially pre-sell it? His fifth one actually is, “Does it qualify for a grant?” I don’t think that applies to most of our listeners nor any business I’ve ever started, but it is one of the colors of money that he talks about.
Mike: You know, I’ve thought about this kind of crowd funding. I’ve heard people gone down that path, not on Kickstarter, but someplace else, I can’t remember the name of it.
Rob: Like Indiegogo or something?
Mike: I think, yeah, it was Indiegogo. The general consensus was people are much more willing to fund individual ventures and things where there’s a physical product. But when it comes to software, people are not particularly interested. Maybe that’s just because it’s kind of self-selecting where the people who are building those generally are targeting them at businesses versus if you’re going to do something where it’s like, “Oh, this is a way to organize baseball cards,” or something like that, if it’s something that has a wider appeal and it’s a non-business use, you’ll find the hobbyist into that or the people who are prosumers, so to speak, they are going to be into it, and they would probably fund it. But if you’re going to try and create a CRM or something like that, who’s going to fund that? I can’t think of anyone who would want to willingly throw in money unless it was for their own business at which point, it’s not really for the greater good so to speak.
Rob: Totally. When I look back at the 173 Kickstarter projects that I’ve backed. Mike, did you hear what I just said?
Mike: Oh my god.
Rob: Oh, no. That’s the number of successful projects I’ve backed. I’ve 185 Kickstarter projects. Oh, the humanity, Mike. It’s so embarrassing. I just love Kickstarter. But I don’t think I’ve backed a single piece of software. My taste, it’s a lot of graphic novels, it’s a lot of table top games, it’s a lot of little tech gadgets. There was a Kano–the open source computer that I could teach my kids how to put computers together and do that stuff. A lot of it is some learning, some teaching, and some gadgetry and stuff. I think that my gist is that my taste are not uncommon. I do agree that in trying to launch a project in Kickstarter would be hard. But there are a lot of listeners who are not just trying to do B2B software as we’ve talked about.
I’m going to skip over a couple of these questions. But another couple of questions that I think are interesting to ask because they imply that you should probably raise some type of at least angel and potentially go after venture funding. One is, “Do you think it will take more than $100,000 and/or longer than one year to develop your product or service to the point that it is generating revenue?” Another question is, “Does your business have network effects where only one or two companies will end up with 80% or 90% of the market?” because that’s a super protectable. There’s a moat around that product or around that business. That is something that can very likely be fundable.
Another questions is, “Do you have large capital equipment or other fixed investment needs that aren’t debt financeable?” those three would obviously imply that you probably need to raise some kind of funding.
Mike: Well, I look at those things as potential disqualifiers as well because if it’s a network effects type of business where only a couple of companies are going to end up with a large percentage of the market, to me, that’s kind of a disqualifier unless you’re going to go raise money, and which I guess is kind of what he’s saying, but you have no idea if other people are going to answer in there who have a lot more clout than you. That’s why you should probably go raise funding if you’re going to go for something like that. But you’re also going to look at that particular thing and say, “This is a disqualifier for me. I’m not just going to go in that direction because I don’t want to raise money.”
Rob: Another good one I like that he asks is, “Do you have potential customers that will see your small sizes of risks? For example, a potential career–a limiting decision.” In other words, if you’re selling to banks, large institutions, they’re going to require that you have some kind of backing, right? I shouldn’t say require. They’re going to be unlikely to go with a single founder building software out of his/her garage.
I remember talking to someone at Gumroad actually, because Gumroad was kind of bootstrapped early on, and they raised a big round, I believe it was 7 million if my memory serves me right. I was saying, “Why did your raise the round?” He said, “Well, we wanted to become a credit card processor.” And to actually process credit cards, you need a bunch of money in the bank. They just won’t let a bootstrapper do that, or a self-funded company do it. I think that’s definitely a case if you’re trying to start a Stripe or even a Gumroad which seems it could be a bootstrappable company, there maybe a case where you need to pony up and raise a little bit of money.
Mike: That’s just a social proof of creditability factor. You’ve got people who have been willing to invest $7 million in you than it serves to the banks as like, “Oh, these people have convinced these other seemingly smart people to give them $7 million. Clearly, they’re onto something and they know what they’re doing.” Doesn’t mean that that’s true, it just means that that’s what their perception is. You’re really just playing off their perceptions.
I think there’s certainly situations where you can either skirt that or use it to your advantage for a relationship or something like that. If the […] that you’re getting after like you get an introduction into them. That way, you’re not going in completely cold. If you can get those introductions from somebody that they trust, then that’s going to help out a lot. That’s a place where if you go into different reseller channels, and there’s tens of thousands of resellers across the world, that their sole business is to go in and sell software to other businesses.
There’s a bunch of large value-added resellers like Dell and HP, in companies like that where they have entire channel programs set-up such that they’re going to and work with small businesses or they will escort small businesses into a deal in order to provide the credibility, and then everything goes down on their paperwork.
That’s how Dell and HP have, like massive services businesses, it’s because they have all the relationships already, they have sales fields reps, they walk in because they have a relationship or they can just make a phone call and say, “Hey, I’m your Dell rep and I’d like to come in and talk to you.” And then they talk to you and find out what your problems are, and they escort a small partner in the door.
If you can get some of those relationships, you can basically get escorted in. You don’t need to have that $7 million in the bank or you don’t have to hire 300 sales people or call center in order to do outbound cold calling in order to find your leads. You can leverage those partners to help walk you in.
Rob: His last few questions are really surrounding this topic of, “Are you a fit for angels and VCs?” One is, “Will your business support growing sales by 50-100% annually for 5-7 years? Will annual sales reach $15-$50 million with that timeframe?” high-growth, right?
Another question is, “Are you comfortable selling your business in order to provide your investors their return in five to seven years?” or maybe earlier for VCs. “Are you comfortable sharing control of and decision making for your company with investors? Is your team plan and pitched in the top 10 percent of companies seeking financing in your region?” All interesting things to think about.
Mike: I think that a lot of those are hard questions to answer too. I’ll say they’re very personal questions and depending on the time and day that somebody asked you, you might also change your mind. It could be hard to come up with a solid answer that you stick with.
Rob: Yup. I would agree. I think these are good things to think about. I think long time listeners of the podcast will have heard us discuss these types of thought processes before. Well, if you’re new to the podcast, you probably think, “Boy, these guys really talk about funding a lot for a bootstrapping podcast.” because in the past five episodes we’ve talked about it twice.
But I do think that it’s becoming more and more relevant. I don’t expect us to talk about it every five episodes by any stretch, but it does seem to be this emerging trend that is coming into the startups space. I think back to 2007 to 2009 or ’10, and I was using a lot of email marketing in my info products, and then I started bringing them into software products and kind of the startups space, it was definitely this emerging trend that I recognized. I talked about it at BOS.
Split testing was something I had seen in info and people in the startups were not doing that, that also became a trend that took off. There’s a bunch of things that have come from different angles. Even customer development and a lot of lean startups stuff was taken from the automotive. You see these trends coming in.
While startups and software have traditionally been VC funded and the trend that you can I have been a part of is this bootstrapping and self-funding kind of spearheading it, I would say, or I mean at least part of the folks who have really driven it over the past eight plus years. I think we look back and the first time I had said “fun strapping” on the podcast was in 2013 or 2014. It’s becoming just a little bit more common for folks to raise a round and not go institutional, which is another trend that I see, not infiltrating because that sounds like it’s a bad thing, it’s just another trend in the space. I think we’re just continuing the dialogue about it to keep abreast of what we see is happening.
Mike: Yeah. Things just change over time. As time goes on, the entire software space has become more and more competitive. I mean, eight years ago when we started podcasting, it was easier to launch products in terms of getting in front of customers. Now, there’s lots of competitions. You have to have a more polished product, it’s got to be further along, it’s got to solve more of the customer’s problems because they’ve got other things that they can pay attention to.
It just makes it, I’ll say a little bit more challenging to launch a product today than it is yesterday, than with the day before. As time goes on, I think that that trend is just going to continue. I say that the natural evolution is you have to have more resources in order to launch something. It’s kind of where the industry is headed. I’m not going to say that that’s where it will end up and that you’re always going to have to raise funding in the future because I don’t think that’s true. But I do think that there are certain types of businesses where it makes a lot more sense to raise some funds than it is to not, especially with certain life circumstances as well.
Rob: Yup. The good news is that it’s easier, I would say, than it has been in the past to get some type of small amount of funding with a lot fewer strings attached than say, 10 years ago. On the flipside, like you said, I believe there’s always going to be bootstrapping. That’s not going to go away. There’s always going to be folks who are hacking away, launching small software products, getting a lot of learning, getting some revenue. I think that’ll last forever and I think that’s a really great thing.
I’ve said this before, we live at an amazing time in history where even 30, 40 years ago, you couldn’t do any of this, and 100 years ago it’s even worst. But now, someone with some type of technical acumen can basically start a whole side business and really never leave their house and have this thing making money while you sleep. It’s always been the big draw I think for a lot of us. Part of it might eb the adventure and the active creating, I think that’s a big deal, but to be able to literally make money from nothing more than your skill and your computer is just mind-blowing. When I think back to being a kid, I was in junior high in high school and it was like, “Well, I don’t really want to work in a cubicle but were my options?” Right? In the mid to late ‘80s. This stuff was just coming about and I didn’t know much about it but the fact that we live at this age–consider ourselves lucky.
Mike: I think at the end of the day when you’re trying to evaluate whether or not to raise funds, it’s all about that trade-off of time versus money. Do you have money to burn? Burn is probably not the great way to put it, but do you have money to spend in order to learn quickly or are you okay taking a much longer time to do it, and doing things slow and steady based on what your financial situation is like, your personal life, and how much time you have available. That’s going to be different for everyone. That’s what generally governs these types of decisions for most people. I think that about wraps us up for today.
If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us 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 410 | Customer Development for Dummies
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about customer development. Based on a Sujan Patel article, the guys walk through 5 tips for doing customer development the right way.
Items mentioned in this episode:
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 build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’ve been drinking coffee.
Mike: It’s not whiskey?
Rob: It’s not whiskey. It’s 10:00 in the morning, so I was hoping it wouldn’t be whiskey. Mike, I don’t drink coffee very much anymore. I’m having coffee right now so this is going to be good.
Mike: I have a coffee cup that says, “This is probably whiskey,” on it.
Rob: Nice. I like that.
Mike: Anyway, we’re here to share experiences, help avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: Aside from drinking just a tiny bit of coffee this morning, which will hopefully come across as making me energized and sharp rather than wandering all over the place and to crazy tangents, I’ve been listening to a book called Valley Of Genius. It is the history of Silicon Valley, all the way back into the, I believe it’s 50s and 60s as Fairchild Semiconductor came up. It’s told in the words of the people who were involved. There’ll be a chapter telling the history and there’s a chapter or a bunch of quotes from Steve Jobs and Fairchild himself, and a bunch of people who worked in Atari, Nolan Bushnell and people who worked there.
Right now, I believe I’m in the early 80s. I don’t know when it’s going to end, if it’s going to keep going all the way to Facebook and Google or where it goes. I’ve really enjoyed books like this. I grew up there and I remember a lot of orchards and stuff that wasn’t developed and all these concrete tilt up started coming. My dad was in construction and he’s in charge of building a lot of fabs for Intel and they shipped that overseas. Then it was biotech. Then it’s was dot com stuff in the 90s. Then it became just more data centers.
It has a special place for me because I was there but even if you’re not, it’s not like you need to have lived there to get something out of this. It is purely history book. This is a fascinating telling of how these things all developed and really how Silicon Valley became Silicon Valley pretty much by accident. If you’re interested in that kind of history and hearing how things developed, Valley of Genius. It’s a decent book.
Mike: On my end, I’ve got a book recommendation that was sent to me from Keith Gillette and he runs tasktrain.app. He suggested Slicing Pie based on a previous episode where we talked about finding co-founders and how to split equity. I looked into it and it’s a very interesting book.
The Slicing Pie book talks about how to divide equity between co-founders based on a variety of different factors in it. Seems like it’s generally applicable to just about any situation. The general concept is that you divide the equity based on people’s contributions and if you believe in your startup, you’ll probably going to work more on it and you’re going to put more time, effort, and resources into it. But at the end of the day, it’s a gamble. You’re essentially placing bets with your time and money and those are essentially translated into equity points for lack of a better way to put it. Those equity points are divided among the co-founders and that’s how you come out with a final equity split.
I think it’s a fascinating way of looking at it. I didn’t dig into all the details. I’m sure there’s some interesting edge cases but definitely want to say thanks to Keith for sending that over to us.
Rob: Yeah. Definitely, appreciate it. I read that book or at least skimmed it when I first came out because I believe the author sent it to me or maybe he sent it to us. This was a few years ago. I thought it was interesting, although it was probably not an approach I would take.
I’m trying to remember even what it was but I think it was all the founders were starting off and it was a developer and a marketer and you’re just dividing. It’s three developers or whatever and I’ve always felt when I started businesses, we’ve always had brought different things to the table but might not just be task-based.
It’s like, “Oh, so-and-so has $1000 to bring to the table.” That really set things different. Or, “So-and-so has an audience they’re bringing and we’re going to build that on it,” and that has a lot more value than, say, building a certain feature or whatever. I think it’s a good model and frankly, it’s the only book I know that’s been written on this topic. It’s something to be thinking about. What are we talking about today?
Mike: Today’s we’re going to be talking about customer development. The title of this episode is actually Customer Development For Dummies but this is based on an article that was written by Sujan Patel on his blog and we’ll link that up in the show notes.
Sujan was a speaker at MicroConf Growth Edition in 2017 but he talks about customer development in a way that I think that most people can at least get a few takeaways from it and obviously, we’ll add our own perspectives on different pieces of this particular blog post.
Rob: And we’ll, of course, link that up in the show notes. It’s an article at sujanpatel.com and it’s called Five Tips For Doing Customer Development The Right Way.
Mike: His first tip is to talk to your customers, which I think is one of those intuitively obvious things that most of us try to do but I wouldn’t say that we’re all necessarily successful at it. But he’s got a lot of advice in here about how he went about approaching the market for when they were developing Mailshake and they going out to talk to customers.
The one thing that I think he pointed out here which is extremely interesting was that if you’re just trying to validate a product, you don’t have customers yet. So, instead you have to talk to new customers, you can go out and talk to the customers of your competitors, which I think is a really fascinating idea. It’s not just because it’s brutally obvious if you don’t think about it, but I hear a lot of people say like, “Oh, if I don’t have customers, who do I go talk to?” I think that’s just a perfect piece of advice for those people.
Rob: Yup and as a strategy, he says to find your competitor’s customers, going to a site like Capterra or GetApp where people are rating your competitors, and you’ll notice that most of the sites let people connect their LinkedIn or Twitter profiles, then you can reach out. He said, reach out to 30 or 40 people and in his experience, you’ll get 20%-30% success rate, and then ask what they like or don’t like about your competitor’s product. I think it’s a pretty clever hack.
Obviously, you could use something like BuiltWith or Datanyze but those are really expensive sales prospecting tools where you can get list of folks who were using things and this should be more of a freeway. Takes a little bit more time on your end, but more of a freeway to reach out to competitor’s customers.
There’s a lot of value in talking to competitor’s customers and even former employees of competitors, frankly, is an interesting avenue. I guess you wouldn’t get as much customer development. Maybe you can find out more about internal processes or at least approaches if that’s something that you need. It’s probably not something you need this early on but it’s something to keep in mind as you grow.
Mike: The other thing I like about talking to customers or prospective customers and ask them what they don’t like about the products is that it gives you a punch list of challenges that they’re probably having with those products and you can cater your own development to trying to solve those. That’s not to say that, that is going to lead directly to success but if you hear enough people saying the same things over and over that are bad about a particular competitor, then you can use that as a marketing point as well as an engineering point to say, “We are going to make sure that we solve this so that when people are looking for an alternative to this because they are so angry about this particular thing that happens, then we’re the obvious choice for them.”
Rob: Here’s a pro-tip. If you start doing customer development like this and you get the feeling or you get the sense that you’re going to have to build your entire competitor feature set, then make changes, adjustments, or additions in order to get the customers, that’s a red flag. Building out features that’s going to take forever. The best kind of market that you can get into is where a competitor or competitors are bloated and have huge feature sets but a lot of different niches or a lot of different verticals are using say, 20% or 30% of it and that 20% or 30% is broken but it’s the best option.
An example of that is QuickBooks. QuickBooks is a huge tool. It can do inventory management. It can do invoicing, AR, and AP. It can do all this accounting stuff. There’s probably a slice of small businesses that just need a pretty simple, kind of based like freelancers, where they just need some basic invoicing and keeping track of expenses. That’s where startups like Xero and LessAccounting came up, and they just built that part of it. They didn’t have to build inventory management because they were just pulling off of that part that didn’t work.
Another example is Infusionsoft. As we were growing Drip, we realized Infusionsoft has landing pages, shopping carts, affiliate management program, payment processing I believe is built-in, then they had email marketing, they had marketing automation, they had CRM, they had a lot of stuff. We did not build all of that. We just needed to be really good at the email marketing and marketing automation, and we were able to pull a lot of customers from Infusionsoft.
So, two examples of how I view markets. If you had to build all of the Infusionsoft or all of QuickBooks, you just can’t do it. It’s going to take you years to do it.
Mike: That leads to the natural question to ask while you’re talking to those customers is, what things do you not use at all? Or do you use very little? That will help give you an idea of some sort of relative ranking of the features of the competitor that you probably have to implement versus the ones that are probably complicated and going to take a long period of time to develop but most customers don’t use. If it’s not used by 80% of the customers, you probably get away without it.
Rob: Yup and one question that I ask during Drip customer development was, what’s your biggest pain point with tool X? Whether that was Infusionsoft or whether it was MailChimp or HubSpot or Marketo or Ontraport, what do you like the least about it or what do you wish they would fix or what do you wish they would add or how could they do better? AWeber is on that list as well.
The cool part is I started seeing patterns of, “Well, I like MailChimp and AWeber and they’re solid tools, but they don’t do this. You can’t tag people, you can do automations.” Someone said, “I like Infusionsoft but it’s really buggy. The Campaign Builder is too complicated. It’s way too expensive for what it is. Didn’t like the $2000 upfront.” There’s some real specific things that everyone referenced back to. If you’ll notice, that’s what we attack really early on with our marketing. We’re like these guys but better, we’re like this but different. It wound up being something that in 10, 20, 30 conversations that I had, could translate into our entire marketing message.
Mike: Yeah and you’ll find that there’s definite hot spots in those areas as well. As you said, you talked to 30, 40, 50 people, you start to hear the same things over and over again, and you just know where to focus your time and effort.
The next tip that Sujan has is to track your competitor’s pros and cons. I think that goes a little bit back to the previous one where there’s a difference between feature set versus what people like and what they don’t like, and what things they wished that the competitors had. The feature set is what they advertise versus how well they mash the customers’ expectations in terms of the pros and cons. There’s obviously some overlap in the feature set in that but there’s a definite difference between how the customer feels about the features versus what their marketing message is saying.
Rob: Yeah and Sujan says to google things like competitor’s name review, like QuickBooks review or QuickBooks testimonials, and visit as many results as you can trying to come up with a list of the top 10 things people like about each of the competitors as well as what they don’t like.
This is a way to do it without having conversations and I would view this as day zero research. You’re trying to put together a list or get a sense of the pros and cons of your competitors and you’re going to do this for multiple competitors. It’s not just one in general. Typically, more than one competitor has a decent market share.
The next step for me would be then to start having those conversations with either people who have signed up for your early bird list. Even if you don’t have customers, you can ask them, “What do you expect? What do you want? Do you use one of these competitors? Do you use QuickBooks? Do you use Infusionsoft and what do you think about them?” Or, if you don’t have that yet, start building it today and then go and do what we talked about in the previous step which was to go to Capterra, GetApp, and start having conversations with your competitor’s customers.
Mike: The other thing he recommends is that you track the changes to this list over time. I think that’s also an important piece that I’ve not really thought about in the past but tend to agree with them because the technology is going to change over time. The entire market itself is going to change over time. As time plods on, there’s going to be a set of features that is standard across all of your competitors and you need to make sure that you have those features. If you don’t, you’re going to end up being left behind.
That’s not say you should always copy every single feature that your competitors have but if you’re the only one who doesn’t have a particular feature, you might want to seriously consider adding it.
Rob: Tip number three from Sujan is to test before you build. He talks about how Hiten Shah does a really good job of going through a lot of testing. If you want to see someone who is really at the top of the game of pre-validating products and doing customer development, go to hitenism.com––it’s called Product Habits now. Sign up for his email list and just watch what he does because Hiten is, like I said, one of the best at this.
Mike: The reason why you want to test these things before you start building them is that you don’t want to waste a lot of time on building stuff that nobody’s going to use or that isn’t actually solving a problem that your customers have. If you’re just blindly copying a competitor, for example, they may have implemented a feature that they didn’t necessarily know that their customers wanted. They may have just said, “Oh, we think that they need this or somebody mentioned this and we’re going to build it,” and then you spend several weeks or a couple of months building something that, because you didn’t test the market, you didn’t know that nobody needed it either. You’re just copying somebody else. You want to find places where you can save time, not waste it.
Rob: You know why I realize is that we didn’t even really define customer development when we started. Some folks may have heard that and they may have an idea of what it is but there is a pretty solid definition because Steve Blank, who’s a serial entrepreneur and he’s now a professor or was a professor, was it Stanford or Berkeley, somewhere in California. He developed this concept called customer development.
It’s a four-step process. It’s customer discovery to start with. There’s a lot of conversations proposing an MVP, trying to figure things out. Then there’s customer validation once you start building it. And then it’s customer creation which is where you’re scaling and then you’re bringing in customers. And then it’s company building, which is where you scale operations and stuff.
If you google what is customer development, there is a pretty nice diagram of all that and we don’t need to go into those pieces for you to understand it, but just in case you are listening, thinking, “What is this customer development term?” it really just means we are focusing really on the first and second steps here, which are the conversations with your customers and then trying to find product-market fit. I think maybe Sujan is really focused on even just the first step in this article, because second, third, and fourth is more company building, scaling, and organization.
Mike: We talked a little bit about the types of ways that you can test things before you start building them. One that I used during the validation process for Bluetick was, I created a set of Balsamiq mockups and then showed those to people. Instead of building codes and instead of creating CSS mockups or Photoshop mockups of exactly what the app was going to look like, I just sketch it all out using Balsamiq and was able to link the pages together. You can see how the application was going to work without writing any of the code for it. It took me probably 20-30 hours or so to put that together, but that’s a lot less time than it took to build the application and put something that was completely functional together.
During the process of showing it to people, I got a lot of questions about, “Oh, what does this piece do?” or, “How would I go about doing this other action over here,” and it gives you a sense of where your design essentially is going to either fall short of what their expectations are or other areas where you should probably spend a little bit more time on it.
Rob: Sujan suggests getting a wireframe and going to sets like in five-second test or user insights, usertesting.com is another one, and that will give you UX stuff but it won’t tend to give you customer insights like you’re talking about, Mike, where you are actually talking to a group who you knew was interested in the solution that you’re going to be providing. I think yours is harder to do but it’s more valuable in my opinion.
Tip number four is to go to conferences or events where your customers are. This is an obvious one but one that a lot of people overlook. I think you can get a ton of value in a two- or three-day conference. You could talk to 50 or 100 people if you scheduled well. Maybe not 100, that actually sounds like a lot but maybe let’s say 30 or 40 people really quickly in person if you really made a point of having your stuff together, you’ve been having mock-ups.
I was at a startup pitch, was a competition. It was more like a demo day for local accelerator here in town the other day. Someone was talking about something and then pulled out an iPad Pro and was like, “Here, let me just walk you through.” He had, it was either mock-ups or maybe it was an actual app running on it. It was kind of funny to see him just pull it out during a conversation as we were having drinks and it got a better picture of what he was up to. Frankly, I was able to give him feedback of like, “Oh, I was confused by that,” or, “I don’t see my people would use that,” or, “That screen’s really nice.”
Mike: I have something that you can actually show to people. It leaps and bounds above just explaining it to them. When you’re explaining it to them, they’re going to have their own vision in mind of what the thing’s going to look like, how it works, and what it does even. You might say something like, for Bluetick it’s an email automation follow-up software or something like that. They’re going to have in their own head this impression of what something like that does based on their previous experiences and it doesn’t necessarily reflect what you are building. So keep in mind that if you can show them anything at all as opposed to leaving it up to their imagination, you’re going to be much further along.
The other thing Sujan points out is that in an informal setting such as a conference or an event, is much more conducive to getting feedback from people because if you’re getting people on to webinar and you’re doing a sales demo or something like that, people have a tendency to hold back a little bit. In an informal situation, you get, I’d say a little bit more honest feedback because they’ve realized they’re not really being sold to and they’d like to help you out. They want to give you feedback that is going to help you. In just any informal setting, that alone is going to help do that.
Rob: And his fifth tip for customer development is to live a day in the life of your customer. He talks about dogfooding your own product. It helps you smooth out the rough edges. This is one of the benefits of scratching your own itch. Scratching your own itch has been thrown around since 37signals said, “Hey, this is all you got to do because that’s what we did, and look, it worked.” It is cool. It is easier if you can do that but it’s not required. It’s not required to scratch your own itch to build a great product. I’ve seen it done for people entering a market that they’re not part of. However, either way, whether you’re scratching your own itch or not, you should dog food that product. You should try to use it as if your customer was using it.
If I recall, dogfooding was coined by—was it Bill Gates or someone at Microsoft because he learned that the CEO of a dog food company would eat the dog food to test it. Bill Gates was like, “We need to basically eat our own dog food which means we need to use our own software to make it better.” So if you’re curious about where that term comes from, that’s at least my anecdotal memory of where it comes from.
Mike: I experienced this first hand with Bluetick. It was a lot harder when I was working on AuditShark just because there’s only so many servers that I have, for example, so scaling things up is a little challenging in terms of using the app for a large number of servers. With Bluetick, I’ve used it to go out and do email follow-ups. It’s interesting to see the places where I’m running into challenges and whether it’s UI- or UX-related issue, things were just not as quick.
For example, there’s a bunch of shortcuts that have been added and it’s explicitly because I found that it was too many clicks to click between different things. Not one customer ever really said that to me but I also knew just from using it, that it was painful to do that if I had to use the main navigation without those shortcuts.
Those are the types of things that you’re going to find and by finding those things that are painful for your customers to use, you’re also going to be able to fix them and prevent them from moving off to other products because they get so fed up with those and they say, “Oh, this has got UI or UX issues and I can’t get around or it takes me too long to do my job.” You don’t ever want your customers to feel using your tool is a chore because you’re trying to solve problems for them and save them time and money. If you’re causing them more headaches, it’s just not worth it for them and they’ll move on to something else.
Rob: Right and using your own product shouldn’t just be done in the early days because once you have customers, you need to use it on an ongoing basis in a perfect world. That’s where, if it is something you use, you have that leg up because you will get in there and you’ll notice things that bother you about it that don’t bother your customers, and it keeps your product at that really high level of refinement, high usability.
You’ll notice a tiny, like a little misspelling or a like a four-pixel difference between this and that and it’s just something that, if you can catch that, because no customer is going to screenshot that and send it into you. Maybe a typo they will, but there’s just these little things that I used to see in Drip all the time when I was using it. It was like, “Man, that bothers me that that is not perfect.” I would send it over to our design team and say, “Hey, we got to fix this little thing.” It came across as a refinement rather than a complaint. It was like, “Let’s make this tool better.” All that’s safe if you’re able to use a product on a daily or weekly basis you think that there’s a lot of value there.
Mike: Just over time, just by doing that it will naturally get better and smoother over time. That’s really what you’re looking to do is just smooth out the rough edges there and make it a nice, clean experience. When people get that experience from one product and have used others where they didn’t get that experience, they talk about it.
Rob: That about wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us 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 409 | Defining Product/Market Fit, Using Inexpensive Developers, When to Quit, and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include defining product market fit, using cheap developers, when to quit, and more.
Items mentioned in this episode:
- The Quiet Light Podcast w/ Rob Walling
- FounderCafe
- Closer Sharing
- Sean Ellis: 40% “very disappointed”
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: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from dan@closersharing.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us 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 408 | Should You Take on a Co-founder?
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer the questions, should you take on a co-founder? The guys discuss the difference between hiring and being a partner, how to begin a partnership, and how to do if you’re a good fit.
Items mentioned in this episode:
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 build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: 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: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.
Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.
I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.
Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.
Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”
Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.
Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.
Rob: Good for you, man.
Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.
Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.
Mike: Yes, hopefully not.
Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.
Mike: Oh, you’re old.
Rob: Yeah.
Mike: You’re old.
Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.
Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.
I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.
I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.
eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.
Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”
Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.
Mike: Oh, I haven’t thought about that. Darn those people.
Rob: What else is going on with you?
Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.
It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.
It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.
Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.
Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.
Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”
Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.
Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.
Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.
Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.
In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.
Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.
Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.
They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.
The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?
Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.
I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.
Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.
Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.
That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.
Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.
But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.
I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”
Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”
I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.
I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.
Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.
There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”
I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.
If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”
Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.
Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?
Rob: Yup.
Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.
In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.
Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.
Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.
I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?
I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?
Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?
I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?
If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.
I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.
Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.
Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”
Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.
It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.
I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.
I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.
Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.
I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.
Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?
Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”
I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?
I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?
Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”
You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.
But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.
The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.
Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.
If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.
Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.
Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.
The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.
If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.
Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.
I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.
I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?
It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.
Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”
Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.
Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us 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.