Show Notes
In this episode of Startups For The Rest Of Us, Rob and Einar Vollset talk about their alternative form of startup funding, Tiny Seed. They talk about why they started an accelerator, and some of the key differentiators that separates them from typical accelerators.
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.
Einar: And I’m Einar.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Nice job catching that man. I didn’t brief you in advance that you had to say your name, huh?
Einar: […] is Mike supposed to say something on or not?
Rob: Mike’s not on. For listeners out there, who don’t know you. Your name is E-Y-N-A-R. I call you A-Y-N-A-R.
Einar: It’s close as my wife gets. I think that’s fair.
Rob: Good. You and I have started–we’ve co-founded Tiny Seed together. That’s at tinyseed.com. But folks may not have heard of you. I know that you are a multi-time founder. You went through YCombinator in 2009. You’re a developer as well. You’re a CS professor at Cornell. You’ve done quite a bit of stuff and you, these days, you kind of work in private equity, right? You’re like a private equity scout?
Einar: Yeah, kind of. I sort of got into that space after my last exit and actually have what I jokingly call a service startup investment banker. Most of the stuff I do is help fund their exits when they’ve got a SaaS business or a tech-enabled service business between […], $2 million, and $15 million as ARR, something like that.
Rob: Right. That’s where you and I have connected on Tiny Seed. Folks listening to the podcast kind of already know a little bit of Tiny Seed, it’s the first startup accelerator designed for bootstrappers. We try to give founders a year of runway, it’s a remote accelerator. It’s an idea that has been floating around for years and I never wanted to do a lot of the investor side and didn’t really have the expertise to raise a funding round and that kind of stuff. And then you and I connected back in April at MicroConf in Vegas and this was something that intrigued you to start what became Tiny Seed.
I think folks who listened know why I’m doing it. This is just a continuation of everything I’ve done for the past 15 years or whatever, it’s me putting more money where my mouth has been. But for you, what’s your interest in being part of something like Tiny Seeds?
Einar: I think there’s just a gap in the market there for those kinds of companies. I think in terms of funding structure and in terms of support. The way that I think about this base is it’s very similar to where companies like Y Combinator or First Round were in 2005, 2006. It’s becoming more and more clear to me that there are incredible businesses to be built which can be super profitable and sort of take care of their investors, and their founders, and their employees and everything that sort of fall outside the traditional VC sort of funding structure with a series of pre-seeds, and seed, and A, and B, and C.
I really think that given what you’ve built on MicroConf and your community and the fact that the institutional capital is coming in or interested in buying those kinds of companies potentially, I think that’s an exciting opportunity, and honestly, yeah, I just want to help people be able to take their business from just a sidebar project to something they can dedicate their time, full-time toward.
Rob: Yeah. You came up with a really good example early on. You said, “How many founders do meet at MicroConf or at other conferences who are basically trying to do it on the side?” A lot of folks have a spouse, they have house, they might have a kid, they have a full-time job, they have responsibilities…
Einar: Mortgage.
Rob: …and they have mortgage, yup. They just can’t—I say, can’t—but it’s really, really hard to offset that and either move to the Bay area with some other tech center for three months to do an accelerator or to try to raise a round of funding in the side or they’re tooling away on an idea and three months later, it’s no better off when they started.
Einar: I think the standard pro-typical YC startup founder—at least that’s the way it used to be, maybe it’s a little bit different now—but it’s like, you’ve got to be 23, willing to work 80-, 90-hour weeks and just give up everything else. Of course, I don’t think that’s the only way to build a profitable business and I’d really like to support that.
Rob: That makes sense. I kind of jokingly have called what we’re starting with Tiny Seed, I’ve been calling it Startup Funding For The Rest of Us because it kind of fits in the model. Startups For The Rest of Us, the whole point of the name of this podcast is that folks who listen to it want to build startups but we aren’t in that mainstream, “Let’s raise venture funding.” Like you said, 90-hour weeks, series A, series B, $100 million or $100 billion valuation, some of us don’t want to do that, and it’s that alternative.
I think the key thing is, a lot of us have noticed, you noticed, I’ve noticed, we have other folks that are launching similar things that are similar to Tiny Seeds. It’s like we’re all noticing this tectonic shift in both bootstrapping in that bootstrapping is getting harder especially SaaS because it’s getting more competitive. It’s not impossible but it’s harder than it was two, three, four, five years ago, so it’s getting harder. Funding sources are becoming more prevalent. There’s more money being thrown at things and in fact, so much money being thrown into venture capital and private equity that it’s spilling over and looking for either places to go, where is the opportunity for that money to go. I’ll speak for myself here, I believe this is a great opportunity, a great place for it to go that is virtually untapped today.
Einar: Yeah, I think so. I think I get super hard if you have a SaaS business that’s doing $2000-$3000, $4000-$5000 a month, it’s not enough to live on in most places. Certainly not where I live, in the Bay area. But going out and raising funding for those kinds of businesses is also impossible if you’re not giving it the time of the day from a traditional VC because they’ll look at the business and say, “Oh, it’s a nice lifestyle business you have there.” Your other sources of funding tend to be, “Okay, friends and family.” If you have wealthy friends and family that’s great but on the other end you often end up with kind of a ad hoc set of angels and it’s hard to do. That’s actually aligned incentives for founders and investors that are trying to operate in the space.
Rob: Yeah, that’s right. What’s interesting is that something I don’t think, if you’re not in the space, then you don’t realize how quickly things have changed and that they are constantly changing. I grew up in the Bay area until—I’m trying to think—it was the mid-90s and then I went to college in Sacramento and I still have ties to the place, I never did a startup there, but I very much know how the Bay area works.
I remember, in the 90s, when I was, let’s say, late teens, early 20s, and just thirsting to do a startup it was like, you could have friends and family contribute money and I had no friends and family with any money so that was off the plate for me. You could try to find angels and of course, there was no angel list back then, so it was literally going to meetings. There was meetings and such and there were angel groups and then there was venture capital obviously, because a lot of cheques were written in the late ‘90s. But as far as I know that was kind of it.
If you wanted to start a software startup at the time, there were no accelerators until 2005, that’s only 13 years ago, and we were just talking, there was no debt financing for SaaS until maybe two years ago. There was Lidar Capital, Bigfoot Capital and a few others, but you couldn’t get freaking debt financing from a bank.
Einar: No, you couldn’t go to a bank and say, “Hey, I have this SaaS business. It’s maybe making freaking $20,000, $30,000 a year. Can you lend me enough money to do anything?” that was never going to work. I did YC in 2008 and even then, people were still like, at the time, the original terms were like $5000 + $5000 x the number of founders for 6% or 7%, something like that.
The people who were in the angel and VC investing world, they laughed at that. They were like, “What are you talking about? Of course, that’s nowhere near enough money to do anything with. What are you even bothering about?” But I think YC really proved that that model that, “You know what, yeah, with a little bit of money and some grit you can go after this.” I sort of think the opportunity is similar but in a different place where what we’re going after is not the next Facebook or Instagram or whatever, it is the next $20-$50 million SaaS business that you probably haven’t heard of unless you work in the industry where it’s prevalent or is being used.
Rob: Even in our financial models, having SaaS apps grow into a $3-, $4-, $5-million business is still a pretty nice win. It’s a nice win from an investor perspective but it’s also really good win for the founder or founders themselves because they can either, they’re given the profit margin. You’re experienced with quite a few SaaS apps, the next profit on these things is substantial, and so whether a founder decides to exit and sell the business or whether they decide to just pull distributions off of it, there’s a lot of—I think there’s rewards to be had that would almost be laughed at or at least chuckled at in the Bay area because it’s like, “Oh, lifestyle business right? $5 million a year?” But man, if you’re pulling $2 million off that, that’s life-changing for a lot of us.
Einar: I think the margins, once you get to a certain size and you decide to focus on cash flow instead of necessarily growing at all cost, again, the margins will be at 30%-50%. I think the fundamental shift that we’re seeing and trying to leave behind is you can align both investors and founders in a better way. Instead of saying, “Okay, the only way anyone gets paid is by exits.” In that case, the VC or whatever who’s private funding you will sort of try to push you to try to grow as quickly as possible and have a biggest exit as possible. But if you could have a bigger structure that’s supported by the fact that this SaaS app business often throw off this kind of cash then you could do a profit share as well as an equity piece. It sort of aligns the founders and the investors and I think in a good, nice way.
Rob: I think all that to say, while we are talking about Tiny Seed today, you and I both think we foresee that as the future moves forward that this is a shift and that there will obviously, there’ll still be venture capital and accelerators the way we know it today but it’s like this new market opens up and this alternative funding where we’ve traditionally had bootstrapping, and venture capital, and there was angel along the way, and you could self-fund. We did talk about how self-funding is different or the same as bootstrapping but there’s this new kind of third option that I believe has viability. Half of my angel investments are essentially in startups like this. They’re in these SaaS apps that I never thought or hoped would become unicorns but if they get to 5 million, 10 million ARR—annual run rate or annual recurring revenue, whichever you prefer—it’s a win for all of us.
Einar: Yeah, absolutely. I think there’s are just a lot more business like that out there. I think, even just from United States but even worldwide, there are industries that has so many things left to automate and basically turn into a SaaS process that they could be an order of magnitude more of this kind of businesses than there are fees […] firms and business ideas.
Rob: Yeah, it’s like the long tail of startup funding, isn’t it?
Einar: Yeah.
Rob: Totally interesting.
Einar: It’s not like people aren’t raising money to go out and build these kinds of businesses, they are, it’s just that certainly, the way I think this can be done in the Valley now is you basically, towards the end of your decks, throw up, “Oh,” you know, and two slides that says, “And now when we go to the moon, we’d become $1 billion company.” Even if you don’t necessarily believe it. For the founder that can raise money that way, that’s great. But it doesn’t necessarily then align with the investor. Because the investor, in the traditional structure, if you put in $500,000 in the say, non-cap safe or something, then you’ll end up, even if the company gets to say, $10 million and they’re starting at $5 million in cash every year, and the founder just decide to hold on to it then as an investor you get nothing. Even in acquisition you might just get your $500,000 back with interest. It’s easy to look at it from the founder side and say, “These are founder family terms.” But in order to make this really a growth market, you need to align both the investors and the founders in a good way.
Rob: That’s a good point you bring up. I think we’re seeing different models. [12:56] VC has their model in the way they structure it. You see the debt financing, like I said, Lidar Capital and Bigfoot Capital, I think there’s a few others, and that’s different and those require a personal guarantee on the part of the founder.
Einar: In some cases, yeah. I don’t want to speak for every single debt financing deal but a lot of them do, yeah.
Rob: Alright. What you and I have arrived at through conversations with both investor side and the founder side is this model is really pioneered by Rand Fishkin with SparkToro. He essentially open sourced the terms. If you search SparkToro fundraising terms. I’m an angel investor in SparkToro, full disclosure, but we adopted those or something very close to it because it makes sense from an investor perspective. The return is there and you’re not going to have that safe situation you just talked about where you put in $500k and you get nothing back if they hold onto it. But at the same time, it’s almost by definition is founder-friendly because Rand came up with it. Maybe he and his cofounder but it’s like, he wouldn’t have accomplished something that wasn’t in his interest.
Einar: Exactly. I think the model that he came up with is pretty brilliant. It’s sort of what we were looking for and trying to structure and it’s been super helpful to talk to him and talk why he did it and get his thoughts on it. But I think fundamentally, what it does is, it essentially allows the founder to decide to reinvest upgrade operating cost into the company as it’s growing if that’s what they want to do. Then only when they decide, “Okay, I’m going to start taking cash distributions and taking more capital off the company, only at that point does the investor start to dissipate. I think that aligns investor and founder incentives really well.
Rob: That makes sense. One question I have for you, I know the answer but I’m going to ask it, so we can talk it through. You and I could’ve just started a seed fund which is, for the listeners, you raise some money and you write some cheques to some founders, to some companies and maybe you fund one this month and one in three months. You build a portfolio but that’s kind of how a fund works but we have opted to start an accelerator which is having a cohort or a group of companies that come together and they go through it. It’s similar to the YC or the Tech Stars or 500 Startups model and there’s a lot more mentorship and it’s like a program.
Typical accelerator, you move to a location and it’s three months long. We’re going to do a remote accelerator and it’s going to be 12 months long, assuming that you hit some milestones and such, but why did we do that? Why are you interested in doing that instead of just doing the traditional kind of seed fund approach?
Einar: I think the key difference is that having done YC, I know how powerful it is to have a cohort that can support you, that are basically going through the same stuff that you’re doing, and I think that it and of itself is super valuable. Of course, there’s always some bound to be some sort of an internal competition among the founders which that’s also helpful in some way. I think having a defined structure around it and saying, “Okay, we’re also going to come in and provide world-class mentorship.” that’s honestly, probably pretty opinionated about, “This is the best way how to do 80% of what you need to do with content. This is how you do 80% of what you need to do with paid advertising or SEO or whatever.” I think that sort of structure adds more value to the founders themselves and make them more likely to succeed which is ultimately what we’re looking for.
As you know, we’ve had inbound interest from founders which have probably companies that are too big to really make sense in the current structure and they just wanted mostly for the mentorship. I think that’s valuable in and of itself and just makes the companies more likely to succeed.
Rob: Yep, good answer. It’s like you’ve been asked that question before or something.
Einar: It’s almost like I’ve been on the phone and told that story a number of times already.
Rob: Yeah, it’s well-rehearsed at this point. Obviously, we’ve talked about how—I guess we haven’t said this explicitly—but I don’t think something like Tiny Seed would have worked or could have worked 10 years ago. I don’t think SaaS […] true enough and I think the community was there, I don’t think there are other places for the money to go. I think there’s a bunch of reasons, oftentimes we hear about three or four startups all going after the same thing at once, like when Fitbit and, what was the watch, Pebble was on Kickstarter, and the Apple watch—why is everyone coming up with watches? Because it was a confluence of factors. It was, finally, the stuff was cheap enough; the hardware, finally the screens were good enough. There’s stuff that comes together where suddenly it’s like, “You couldn’t have done this three years ago.” I don’t know if Tiny Seed would have been successful a few years back, but I feel like the reception and the response we’ve gotten so far both from investors and companies, it kind of indicates to me that hopefully, this is the right time for this.
Einar: Yeah, I think so. I mean, obviously […].
Rob: I know. That’s the thing I’ve been trying to be careful with is, I certainly want to blog or when I talk in the podcast, I don’t want to sound like, “Hey,” I’m just tooting my own horn and saying, “Yeah, this is a tectonic shift, so you should buy into this.” But the whole reason that you and I are basically going all in on this thing when we have a bunch of other things we could be doing, is that we believe, by definition, we believe it’s a tectonic shift, that this is what’s happening. That’s how we can justify going all in on it, right?
Einar: Yup, yup.
Rob: One question that I’ve been asked about Tiny Seed is how it’s different than a typical accelerator. Why would they go with Tiny Seed versus any of the others 500 Startups or YCombinator, any of the others you could find, and we have six here—I’m guessing over time there’d be more—but one I mentioned already is that we’re going to be remote by default. We’ve talked about doing probably three in-person gathering where we get everybody together. Imagine we do one early on because having that facetime with people kind of starts to solidify a cohort. It is remote.
The advantage that it has—obviously, it’s advantages and disadvantages. Because the disadvantage is you don’t have that face-to-face time all the time like you would with a typical accelerator, the advantage is much like starting your fully-remote company is our talent pull and our essentially, the companies we can back are much more far reaching. It’s folks that you and I run into at MicroConf that perhaps can’t…
Einar: I think in part is it’s a more scalable model. Not to disparage accelerators but to be honest with you, some accelerators are in part seem to be more geared towards being a booster for the city they’re in rather than trying to help the companies in an optimal fashion. Really, I think with a remote model, basically, you keep the social support network that you need for founders going through this anyway. They already have that in place with their family and friends. You also keep expenses low, that’s a big part of it as you go through it. If you have the years’ worth of runway, it’s better to not have to move somewhere, or not to have to uproot your family and friends and your expenses to have a journey […].
Rob: You touched on differentiator number two is that, unlike most accelerators that are three months long, we look to do it for a year basically, to have this cohort and this community built over the course of a year. You get 10 companies or 12 companies or whatever and they’re on 2-4 calls a month, there’s some office hour calls, it’s all Zoom video stuff, but they build that mastermind relationship, that friendly competition or even just that friendly, the you-have-my-back kind of relationship. It gives you runway to quit that day job because that’s what the funding is for, but it gives you that 12 months, we know how long SaaS takes.
I was just talking to someone, and I realized that venture capitalist gives you a lot of money and then they want your timetable to compress. They want you to do more in a shorter amount of time, but they can get fed up by saying, “Well you have a bunch of money. Go do that.” If you’re running Instagram or Twitter or whatever else, maybe that can happen but SaaS, traditionally doesn’t work like that. Slack, it works like that. There’s a couple of other SaaS apps. Most SaaS apps, we’ve seen it over and over, years and years and years. It takes 6 months, 12 months to get traction and then it takes years over time to compound and grow. Our view is that the longer we are able to allow people to build this, the better off the results will be.
Einar: I think it also ties into, “What is the nature of most accelerators? What is the goal that comes out of it?” The goal on […] YC is that you raise your next funding and that takes about three months and you have enough things to show that you can raise the next series of funding versus what we’re hoping to do is you don’t necessarily have to step on that venture track. You can basically build a profitable, sustainable business. We think 12 months is probably what it takes to go from something small to something that potentially can cover your expenses, so you don’t have to go back to your day job or start consulting.
Rob: Yup. The third differentiator really is this lack of series A pressure. Series A is the first venture round people raise. We’re giving multiple options. These founders, as we’ve said, can pull dividends out and they’ll get a percentage and the investors are going to get a percentage. Over time, I’m sure some will exit at some point, it’s not something that we’re going to force or push people into but sometimes getting […] event is really the right choice for the founder. Obviously, they and the investors would make out there.
Einar: I think it’s probably misunderstood by people who aren’t in sort of the Silicon Valley VC world. Like, how much a part of the founder’s job on the venture track is to raise money? There’s is series A, but now there’s a series pre-seed and then a series seed, and then a series A, and then series B, and the series whatever. Essentially, most of the time, you raise just enough money so that you run out of money in 18 months. Then once you’re done fundraising, you maybe have six months, and then you have to start fundraising again for the next round because you’re trying, like you said, to compress as much as possible and go as fast as possible in order to grow as fast as you probably can. Because that is the only model that works for that kind of venture investment.
Rob: Yep. As I was saying. Tiny Seed companies, they just have to pay dividends, they could exit, or some may decide that they could raise another round. This is not something that we would say, “No, don’t do that.” It’s going to be the right option for some companies. But it’s just having the optionality to do it or not do it. It’s like, “Make a good choice.”
Einar: Exactly. Probably maybe six months in you’re like, “Oh, holy crap. This is a much bigger opportunity than I thought.” in which case, okay, we’ll be supportive. We will say, “Okay. We’ll help you re-enter the VCs. We’re excited about being part of the next round.” That’s fine too but there’s no expectation about you wither do that or die trying.
Rob: Yup. I have six investments that I would essentially call this model, this more sustainable, sane, startup model and one of them has done exactly that. They have raised subsequent round because the opportunity got big really quick and it was unexpected at the start. Certainly, the right choice for them.
The fourth key differentiator is, this one’s interesting. I’m wondering if this going to be controversial, but I don’t have a bias against single founders and I know that a lot of accelerators do. I think the phrase I’ve heard is like, “The journey is hard. The journey is long to get to $1 billion. Most single founders aren’t able to do it.” In my experience, I’ve seen a lot of single founders be very successful at sustainably building these seven and low eight figure businesses.
Einar: I think that’s true. I think in part, it’s sort of a historical artifact because of what happened in ’05, ’06. Basically, it was YCombinator and Paul Graham really there, who sort of espoused this almost hard-plan rule that you had to be two at least. You are never going to make it without being two founders. That actually, I think, impacted every single subsequent accelerator and seed investment around. But I’m with you. The people I see that are successful in the space are usually, it’s one person, at least one lead person then maybe later a cofounder that comes on board.
Rob: Yeah, it’s pretty interesting. The fifth differentiator is release seven-figure ARR, so millions, multiple millions and low eight-figures, so let’s say, 10 million to 20 million. I think you and I have kind of talked about, “Hey, if we think SaaS company has a potential and even non-SaaS,” We’re not going to be 100% SaaS, I bet we’ll have others that are not, but that is definitely an area of our expertise, if they can get between $1 and $20 million, that’s a win for a lot of people. It can be a win for the founders, it can be a win for employees if they have equity and certainly, it can be a win from our perspective as well.
Einar: I think that makes sense, that’s the key differentiator. You have to have an investment structure which I don’t think really fundamentally exist. Currently, you have to have an investment structure that can support those kinds of success.
Rob: Yeah, that’s right. That’s where we’ve had to go, I’ll say, go back to first principle and say, “What is founder-friendly? What also works from a financial model perspective?” Because we won’t get investors. The fund will not exist if we can show that, “Hey, there’s a good likelihood that there will be a really good return for you.” and for us, we’re putting in time, we’re putting in money, we have to believe that ourselves or else it’s not worth doing.
Einar: It’s a risk-reward thing. It’s easy to look at from the founder side and say, “Oh, this is the percentage. I’m giving up too much, too little,” whatever. But fundamentally, for most investors, the question isn’t like, “Do I do this or nothing?” It is, “Do I do this, or do I put this in my buddy’s real estate investment trust where okay, the return isn’t this high, or the potential return isn’t this high but it’s much less risky than backing a basically a small SaaS business?”
Rob: The last differentiator we’ll talk about today as we’re coming close on time. I’ve been talking with my wife, Sherry, for quite some time. A lot of folks know her as Zen founder and she’s a psychologist and also now, essentially a consultant to startup founders and executives and entrepreneurs about staying sane while building a company.
We’ve been throwing around this idea of the sane startup. It’s a startup that values people over results. It has reasonable work hours expectations, so it’s not 90-hour weeks. It’s a startup that allows you to build something interesting and fun and profitable and lucrative, but you avoid burnout while doing that. You maintain your family relationships, your friend relationships, that you grow at a healthy clip instead on a […]. Some startups out there, they grow at an unhealthy clip to the point where they’re doing shady things, they’re doing unlicensed insurance sales or they’re sacrificing their employees. Something a sane startup, I think has ample vacation time, and it just cares about people on general.
We’ve seen these, there’s examples up in Baremetrics I would say, Buffer, that’s how we grew Drip, SparkToro I imagine is going to be that way, Basecamp, Balsamiq. I love this idea, whatever we call it, whether we call it Sane Startup or not, it’s a company that cares about its people over the results but can be a successful and profitable company.
Einar: On top of that, it can do it in sort of the non-traditional places. It can do it in a mid-sized town somewhere that isn’t coastal. I think that’s a big part of it too is, you don’t have to be in Silicon Valley in order to have this kind of success from a business.
Rob: Yup. That’s a big piece to it. I think that’s where we’ve talked about is the untapped potential of this. There is a lot about location and then there’s a lot about kind of quality of life that I think we can have the best of both worlds. That’s our hypothesis here is, we can have the best of these worlds and yet still build profitable businesses that are interesting, fund to work on, and all that stuff.
Thanks so much, Einar, for joining me today. If folks want to keep up with you online, aside from going to tinyseed.com where they can follow you and I, where would they hit you up online?
Einar: You should check out @einarvolsett on Twitter. It’s probably the easiest. I sort of went off that for a bit but I’m seemingly back on now. That’s my […].
Rob: Oh, goodie. You can do that, and I will not argue with people on Twitter. That’s kind of my status quo. Your name is Einar Vollset and we will link that up on the show notes as well.
Einar: Cool.
Rob: If you have a question for us, you can call our voicemail number 1-888-801-9690 or you can email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative 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 419 | VC Prospecting Emails, Building Features vs. Integrations 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 on topics including VC prospecting emails, building features vs. integration, buying software businesses and more.
Items mentioned in this episode:
- RobWalling.com
- TinySeed
- ZenFounder Ep.193-“Productivity Hacks”
- Flippa
- All Side Projects
- 1Kprojects.com
- FE International
- QuietLight Brokerage
- Empire Flippers
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: And we’re here to share our experiences help you avoid the same mistakes we’ve made. What’s going on this week sir?
Mike: Well, I’m in the midst of polishing up by a bunch of screenshots for Bluetick to distribute with product listings that I’m posting on various websites at the moment. I started doing it and I realize the screenshots that I could take that would take me like two seconds to do just from various places inside the app don’t really tell a story about the app itself or any of the screens themselves because you kind of have to have used the product in order to understand certain pieces of it.
I kind of backed off a little bit and said okay, well how can I tell a story with these screenshots? I was like, most of the screenshots are actually like smaller versions of the screen itself and then like descriptive text around it and arrows arose and it kind of tells more a marketing story around what the product will do for you as opposed to like just strict screenshots that you see on a lot of those websites.
Rob: I agree. I think taking screenshots and making them palatable is such an art and just trying to take a screenshot of like an entire screenshot of a whole screen in your app almost never works. There’s just too much information, there’s no context, you don’t know what’s going on. It a very developer thing to do because we’ve seen screenshots and inspects before mockups inspects.
When I’ve seen screenshots that wind up being really helpful, it tends to be this really highly cropped thing that’s just one corner of the screen, is high resolution and like you said, it has some type of helper text. It takes a lot of time I guess is what I realized to make good screenshots. Much like making a good explainer video, it seems like you’re cranking out in a few hours tends to take a lot of time to do something like that.
Mike: Yeah, those things take a couple of days. I actually allocated a day earlier this week to basically create a new explainer video and that was just not enough time. I’ve done them before. I knew that it took more time but I guess I was overly optimistic about how long it would take.
Rob: Yup. I kind of always end up with those things. This blog post called How I Created 4 Startup Explainer Videos for $11 and that’s at robwalling.com in my essays section. I ran through how I created some pretty LoFi explainer videos for Drip and why I did that. It’s definitely a bootstrapper’s approach because it was time consuming.
I think I spent a full day from the time I wrote the copy until I recorded. I recorded four different ones but then as far as I can repurpose a bunch of a copy and the parts, basically the animations can repurpose them. Not something I’d recommend if you have the budget to just hire someone professional but definitely something that a scrappy bootstrap startup should probably think about.
Mike: How about you, what’s going on this week?
Rob: I’m having a tough week this week man. Sherry’s out of town she’s with her family. Her dad is pretty ill and it’s been a long time coming. It’s been more than a year of stuff kind of degrading there. So she’s out of town and I’m trying to figure out, I tend to do really well with just me and three kids and I can do it for about four days and then things just drop off a cliff. On the fifth day I wake up tired and then I think the kids are tired of me, kind of tired of each other and I kind of start running out of patience and it’s just this vicious cycle I’ll say.
At the end of the week, it’s Friday right now when we’re recording, we’re doing an emergency recording session because, I’m supposed to record next week but I’m going to be out of town. I think that’s the other thing, I usually don’t enjoy being on the road very much and I’m pretty much on the road for almost the next two weeks. So it is what it is, these are just times and stuff that I have to do. I think it’s stuff that will certainly help with TinySeed and a lot of it is work stuff and being face to face with some folks where it’s important.
For now, I’m just kind of looking forward to getting back here for Thanksgiving and getting pass this week. It’s probably been one of the I’d say worst weeks of maybe the last quarter. It’s not like some catastrophic lifelong trough. But last several months, this has been a tough one.
Mike: Yeah I’ve realized earlier this week that my kids have days off from school this week, next week and the following week. I’m just like, do you kids ever go to school?
Rob: Yeah, it’s like who’s going to watch these kids while they do that? Oh me, I’m just going to work less. Already an announcement to the listeners, you and I have been on the mic for almost 30 minutes and I’ve been interrupted twice by my kids. One kid is home sick and another kid I homeschool part time. But since Sherry’s not here, I’m home schooling full time and on and on. It’s just enough interruption that you can’t actually get anything done. So I feel your pain with the kids home.
Mike: It’s a good thing you don’t write code.
Rob: Maybe there’s a reason I don’t write code anymore.
Mike: It could be. Maybe that’s the trick, I don’t know. I forget who, there was somebody who commented on—I think it was Alex Yumashev he’s like, “Oh I was able to only spend 1% of my time on my phone this week.” and somebody asked him how he did it and he’s like, “Well, I had a third kid.”
Rob: That’s a good way to do it. So today we’re answering some listener questions. Our first one is about how to handle VC prospecting emails and it’s from a long time listener he says, “Hey guys, I got the email below and I was briefly excited and when I clicked on the link and opened up a form where I’m asked about my company’s earnings.” The gist of the email is it’s from a what looks like a venture capital firm and it says, “I’d like to speak to you about a financial opportunity regarding your SaaS business. As an acquisition advisor, I’m seeking to acquire business in this space season.”
So I don’t know this much of VC, it’s almost like private equity right? We may want to acquire you. So back to the original email he says, “Based on his email and the form that was presented, it seems like he’s not really interested in my company, he’s just casting a broad net seeing what’s out there. I think it would be interesting for you guys to discuss A, what to do if you get half asked acquisition related emails like this and B, what to do with all those VC emails, venture capital emails. People seem to get looking to connect when you have no interest in venture capital. Keep up the good work on the show.”
So what do you think? There’s two separate things here. I think anyone who’s built any type of business got any traction winds up on any list anywhere eventually gets these emails. I remember in the latter days right before the acquisition of Drip, I was getting probably three or four of the VC emails a month and I was getting I’d say maybe one a month of acquisition related, maybe it was one every six weeks but there was definitely a pretty steady flow of them. So what do you think about these?
Mike: I guess if we separate these two because as you said, they are two entirely different questions. The part about VC just looking to connect like on LinkedIn or sending emails. I get a bunch of these emails like, “Hey, can we hop on a call and talk about your business?” And I’m just like, “No, I don’t have time to talk to you and even if I did, this isn’t a good fit.” I’m just blunt with them and it’s like, spend your time someplace else because it’s just not going to happen. A lot of times, I will just let the email go and I’ll just ignore it and then if they send me a couple of follow ups, I think if I get like two follow ups, I have a cold emails folder that I just dump these into and then if it gets to at least two and it still looks like they’re still going to continue to email me then I’ll just respond and say, “Look, this is not a good fit. It’s not going to work. I’m just not interested. So take me off your email list.”
For the other ones if it’s like a situation that he described where it’s an acquisition related email and they’re asking questions about finances and stuff, my advice in that situation is really just like ask what their range of interest is because what you don’t want to do is you don’t want to go and fill out a form that gives all the information about your business because they may be looking to use that to justify a purchase price or to lowball somebody else’s business or something along those lines. You just don’t know what that data is going to be used for and there’s no trust. So why would you give over that information.
But if they’re actually really looking for those types of businesses, then they know how much they’re willing to spend. They know what their budget is and they know that below a certain threshold, they’re not going to be interested and they know that above a certain threshold, it’s probably not going to work because they’re not looking for a business that’s at large because they’re just not going to be able to pay for it. Ask them what their range is and if you fall within that range, then you might want to have a conversation with them. But otherwise, I don’t see any real obligation to start forking over information that is very specific to your business without actually going down the path of formal offers and all that other stuff. But if you’re not interested at all, you can say, “Hey look, it’s not a good time. Maybe let’s keep in touch.” But I don’t know if I’d entertain them. Just don’t spend a lot of time on them is really what the bottom line is.
Rob: I think that’s a great advice. I think especially the venture capital emails, I mean they call it junior partner, but just a junior person that is prospecting, it’s cold outreach.
Mike: Like an intern. That’s what you mean, intern.
Rob: An intern, exactly. That’s really what it is. They might be called the junior partner but that’s essentially what it is and it’s like, “Go find some deals.” So, with the venture capital stuff, I pretty much like you, I just put that all into a folder somewhere in case in the future ever I decided by some crazy thing that I was going to raise venture capital which is never on my radar. But at least then you have all the names you could reach back out to.
The acquisition stuff I agree with you. I used to respond directly like you said and just be like, “What are you looking at? What ranges are you looking at?” I mean basically what you said, I would never fill out a form like that and if that’s their requirement, then delete. It’s done. I feel like you don’t have to feel like they’re back to in a corner or something because they’re sending you this email. You don’t have any obligation to do any of this. Also, when those come into my inbox, I would tend to put them in my this week folder.
So I talked this week on ZenFounder I guess it’s last week when this was live but the ZenFounder podcast I did a solo episode where I talked about productivity hacks. One of my productivity things in Gmail is that I have this label and it’s _thisweek and the reason it’s underscore is so it goes to the top the list. Anything that is not time urgent for me or is someone else putting something on my to do list that does not need to urgently get done, I throw into this thisweek folder.
And then once a week, I have a 30-minute time box that pops up and says, “Go through this week folder.” And then, I would go through all these and respond and I would try not to let it get into some big back and forth because that’s how people suck time from you. They don’t do it necessarily intentionally but they do it because it is in their best interest and not necessarily in yours. That’s the biggest thing I would think about. You don’t have to respond to every email and even if you do, like you just said Mike, don’t spend a ton of time on this. That’s the key. So thanks for the question.
Our next question, it’s another anonymous question and he says, “Hey Rob, congratulations on selling Drip. I’ve been following you and Startups for the Rest of Us for a few years and consider you some kind of a role model. Thanks so much for all the useful tips and inspiration. I have a question, I’ve built a SaaS. It works well in the German market. Now that we’ve entered the English speaking market, it’s become clear that it’s scheduling feature, like scheduling for appointments is a deal breaker for most of our trial users. We don’t have it built yet so I’m thinking now if we should build the feature from scratch which would be a lot of work and distraction and it would be essentially expensive for us. Or, should we build an integration with some of the existing big players like say Calendly or Acuity or I’ll say YouCanBook.me. What is your opinion or experience with this? Thanks a lot for your time.” What do you think?
Mike: So this is something I’ve actually looked at for Bluetick and the path that I’m going down is to integrate with other ones who do exactly that. You could invest all the time and effort of building your own version of it from scratch but that is a value add to your products, not necessarily a core feature. For those other products, it’s their core feature. So you may be able to attract certain types of users who aren’t already using those but at the same time, there are huge numbers of people who already have those products in place and they work really well and they’ve got a lot of support infrastructure and customer validation and users, all the stuff that goes with supporting an entire product that does just that.
For you to replicate that inside of your own app is like a small piece of it is probably not the wisest move in the world. So I would lean towards going with an integration of some kind and if down the road it makes sense to build your own version of it so that your incoming customers don’t also have to have a subscription to those, then maybe that makes sense at that point. But I wouldn’t start there, I wouldn’t try to rebuild an entire application that other companies do and that’s all they do.
Rob: Yeah, I would agree with that advice. This is what we’ve seen with the all in one tools much like the infusion Infusionsoft or even the Hubspot where they have built all this functionality into one and so I guess I’ll speak to Infusionsoft itself if you’ve used it and you’ve tried to use their shopping cart, their affiliate management, their landing pages, their CRM, they’re not very good.
The core email stuff is decent and they were the innovator in the visual builder, but it’s a pretty rough product outside of that, I’ve never use those things. I’ve heard it from dozens and dozens of Infusionsoft customers who said, “Yes, I’ve tried their shopping cart and it’s not configurable and it’s kind of a kludge.” And so, that’s what we have to think about, are you going to build something that is a worst in class but is literally just a checkbox so the people say, “Oh, they have the scheduling feature.” the moment you build it, people are going to say, “Oh, Calendly does this and I can check this one box and I can put this buffer around my times or I can do it only every other day or I can do weekly this and that.” Suddenly it’s like you are almost on the hook to build this best in class product.
So I think that if you want to do that, you can make it a very deliberate decision to do that over the long term and think three years down the line. Do you want to still be maintaining that and adding to it and expanding it because it’s not a one-time build. Not only are you going to have to get it to feature parity with your competitors but then as they get better here and after they implement those features. So it really will be like having two products. Now, if you had funding or you’re going after huge market or growing very fast, then maybe that is the right choice.
Maybe it is the right choice to not send people off to sign up for Calendly or Acuity or YouCanBook.me because you would want to maintain those dollars, you don’t want to retain them. Having someone go and pay for those other subscriptions would actually be a loss of value to you and you need to capture as much value as you can. But when you’re a bootstrapper and you’re a small team and you’re going based on revenue, I would say by default, integrate first and do a pretty quick integration. Then do a kind of a V2 integration which is the next level up and is even better. Then if everything catches on, you’re six months down the line and you really have realized this is the core feature, then maybe you evaluate building it.
That’s a very common path to what you see even bigger startups do is first they go integrate and then they circle back and they build out the core features in the app that are the most popular. The most popular integrations become core features in the app but then you at least have more data and you kind of have a longer timeframe to think about it. You’re not making this rash decision of like, “Everyone’s requesting it over the course of this month. Let’s commit ourselves to this thing which lasts years.” you’re going to impact your product roadmap for literally years if you do that.
So I’m on the same page as you. I would integrate first and then I would think about what is does it look like improve that integration and then what does it look like to eventually if we need to build that out. But to do it very deliberately and to give yourself more time for again as to the ramifications of what that means. So thanks for the question, hope that was helpful.
Our next question is about going in circles, no traction, no investors so Gabriel Popan. He says, “Hey Mike and Rob, thanks the great show. I’ve been listening for a couple months now. I’m catching up on older shows as well. I’d appreciate some advice or starting point on this, on the single developer of a note taking app, I’ve reached to the point where the app needs a team and some funding to move forward. I would like to apply for seed investment. But given the fact that investors like to see among other things traction, some customer base etcetera. I know that the chances are slim for me to get investment. I did my homework and I am able to articulate the key differentiators properly. Right now, I cannot get any traction with the current state of the app. it’s not consumer ready. So I’m stuck in this loop. I’m reluctant to apply for seed investment as a single developer as I know this does not look good to investors. All I have is a website, screenshots, a blog, a demo and a deck. I know that’s not enough but I also know that this has some potential. How do you break out of this loop?” So Mike, I’ll totally let you handle this first. He has a lot of I know statements in here that I question if they’re factual.
Mike: I was going to call this out, I was going to call this out like, how do you know that it’s not enough. It seems to me like the core problem here is that you need money in order to be able to take the products to the next level and there are some customers there. There’s a customer base which looks like you’re getting some traction with it. How do you know that you’re not going to get the money unless you ask for it.
Rob: But he said he doesn’t have a customer base.
Mike: Oh he doesn’t?
Rob: No, he said, “The current state of the app is not consumer ready,” that all he has is a marketing website, screenshots, a blog, a demo and a deck. So he doesn’t yet have, I’m assuming zero paying customers at this point.
Mike: Does that mean he doesn’t have a product either?
Rob: He says, “I can’t get any traction with the current state of the app.” So that tells me there’s code written. I don’t know item maybe the UI is bad, maybe it’s just not usable yet. He said it’s not consumer ready, I don’t know what that means.
Mike: I wonder if this is a mobile app or like a web app.
Rob: It says note taking which tells me it might be both. Note taking app you think of like Evernote or something it’s like you kind of have to be mobile and web.
Mike: Right. Honestly, I would wonder more about whether it’s the space as opposed to the app itself because there are a lot of note taking apps. And there’s a lot of them that are free. That’s the thing, there’s so much competition and I feel like it’s like project management software or blog trackers. Developers for whatever reason love to build blog trackers.
Rob: To do lists.
Mike: Yes, to do lists, blog trackers, those are the things that every developer decides, “All these other ones suck and I’m going to create my own and it’s going to be better than all of them.” and the reality is that like, everyone has different tastes and that’s why there are so many of them and it’s hard to build like mass market appeal with any of them because everyone just has these different tastes associated with it.
It’s so easy to get into this space because the bar is really low to build most of those apps. I’m not saying that’s not complicated and there’s not a lot to it, it’s just that it’s fairly straightforward in terms of the technical challenges that you have to overcome. So everyone says, “Well, I can build one that’s better than that and it will do exactly what I want.” The problem is, everybody who uses those apps has slightly different needs and therefore that’s why the market is so incredibly fragmented.
I’m with you, I think that there’s a lot of “I knows” in here that are probably not justified but at the same time like, I don’t know how much traction you’re going to get with an app like this or how you would go about pitching this to investors to begin with without getting that traction. You even look at Evernote, I’ve used Evernote before, I still have my account but I barely use the product anymore. And why is that? It’s just like I got away from it and I found other things that I like better. So there’s huge term problems as well in those types of apps and I don’t know how you overcome those types of things.
Rob: Yeah, it’s definitely an investment play and I think that’s the struggle. Trying to build an app in a crowded space like this even with differentiators, you have to validate that that differentiation matters to anyone before anyone is likely to give you investment. Honestly in your shoes, this is what accelerators are made for. It’s made for people who have ideas and either no traction or maybe a little bit of traction. That’s why YC started. You can come with an idea.
I know a lot of people come in beyond that but you got put your hustle pants on in all honesty. You either need to apply to an accelerator if this idea is that big, you need to have a network of people who are willing to invest in you because of your past history. I’m guessing that that’s not the case, you would have already done that. You need to teach yourself to code or if you’re already a developer, nights and weekends.
I mean we’ve all done this years and years of nights and weekends I did to get stuff off the ground. If you’re not a developer, then work aside hustle, save enough money, hire a developer, have them bill that. I mean there are ways to get this done, they’re hard. It’s hard work. That’s what startups are. There is no easy answer. So you break out of this loop by just saying that you’re not going to give up until you have something to show people. If you truly believe that this is something that that’s going to be a differentiator.
That’s my first two thoughts one is I think accelerators are ideal for this. Number two, I think you’re going to have to hustle way harder than you’re letting on in your email. I’m not saying you’re not hustling, but you’re certainly not presenting that in the email that you’ve just gone to the mattress that are pulling out all the stops because that’s what it’s going to take to watch an app like this. My third thought is, have you validated this with anyone? Does anyone else care about the note taking differentiators you’re talking about.
So I would be literally going to local coffee shops and just ask if it’s a B2C app, I would just start asking people. I would approach people. I would be on forums. I would start on indie hackers, be on hacker news but I would also if this is a note taking app for veterinarians, I would be on the veterinarian forums. I would buy that ticket to the conference where you need to approach people that might use this app.
It’s just like have the conversations and try to invalidate your hypothesis. Your hypothesis is that these key differentiators are going to so differentiate your note taking app that it’s going to have all this traction and it’s going to grow big and grow fast. I think you need to validate that assumption.
Mike: The one thing that you mentioned in there that I think is actually something for him to key in on is the, you’ve mentioned the note taking app for veterinarians. The way this is presented to us is that it’s a generic note taking app. I think if your knee is down to a particular type of industry or market vertical or even a position in a company, that would probably be a great place to go.
I have seen apps that are specifically designed for the person who changes your tires at the car shop. They have apps that are specifically set up so that they can take notes on, “Oh, you last came in for your car and this is what things look like and this is what we should look, or this is what we should reach out to you about in the future because we see that there’s like a degradation on the muffler or something like that and it looks fine now. But what about in six months, what about in a year? Maybe we should send you a coupon or something like that.” Those are the types of things that you’re going to want to key in on to find who the audience is that’s actually going to pay for it. Then you have your value propositions and everything else.
Rob: Yeah. This is a hard place to be. This is what every early stage entrepreneur, this is where almost all of us find ourselves in unless you have a Cinderella story. You’re Mark Zuckerberg and you’re at Harvard and you’re hacking away and suddenly your app is growing 9 million percent a month or whatever. That almost never happens, almost never. It’s always this struggle. It’s the untold struggle and I think that does us all a disservice because when you get to the point where Gabriel is at, you don’t realize all the hustle you have to put into it to get any type of escape velocity.
The untold hours and nights and weekends and the sacrifice that it’s going to take and the fact that it may not work out. You may spend the next six months or a year of nights and weekends and then realize, “This is no different than Evernote. I can’t get any traction.” or “This is different but nobody cares.” or “It was different, but Evernote implemented my feature and now I have to start over from scratch.” and this is the path that you’re going to travel as a founder.
I really think you want to ask yourself, “Is this what I’m signing up for? Is this something that I want to do?” because it is a life long journey I believe. From the time I first launched something in 1999 until I was even able to quit my job is for myself full time it was 10 years I think. There are some tough times there. I think all of us, each of us, each successful entrepreneur has that story to tell. Hopefully it’s not 10 years for you, hopefully it’s gotten shorter now that there’s better information out there. But I want you to think in terms of years, not months when you’re thinking about trying to build a successful business. That was a good question, thanks for sending it in.
Our last question of the day is all about buying a software business. It’s from Alex Bush and he says, “Hey Rob and Mike, thanks for making such a great podcast, very educational. I am entrepreneurial myself but so far, I’m in the consulting world trying to save up as much FU money as I can to go full time with my own business. I’m focusing on selling services and educational materials for iOS developers. I listened to a few of your episodes lately about taking on investment and it got me thinking about acquiring a business rather than building one from scratch. So question for you, how would you go about this? Specifically, how do I find an online or software business for sale? How do I approach them? How do I find all the info? How do I get all the data like their user base, their accounting books, what they’ve done for marketing etcetera that I need about them to make an educated decision. What are the price ranges I’m looking at for a profitable business. So far, I have found Flippa, flippa.com and it is very interesting but some of the prices in bids there seem to be too good to be true. How would I vet them? Is it even a good place to look?” what do you think Mike?
Mike: I’m going to give a couple of links in addition to Flippa for you. One of them is allsideprojects.com and you’ll find things there that have various price ranges and there’s different tags and stuff that you can sort and it does look like you can buy various websites and apps and products over there. But there’s also a new one that I saw, it was on products on Product Hunt, it’s called one 1kprojects.com and its pitch is, “Neglected side projects for less than $1,000.”
So you can go there and take a look and see what they have there and they’ll tell you what the MRR is, what the price is, what the product does and kind of who it’s aimed at. You can get a good sense of at least whether or not it’s worth your time looking at, but that’s the place that I would probably start over Flippa. It’s relatively new, I remember I saw it was within a month ago. So it’s relatively new.
I can’t voucher the quality of anything that you find there but it seems like they’re getting a fair amount of traction and the site looks pretty clean and polished. so I would imagine that they’re heading in the right direction because there’s a lot of people out there with projects that they started working on and they just didn’t go anywhere or they’re down to a certain point they just can’t make it work. So that’s a place I would start.
Rob: That’s a cool idea. I hope this sticks around. I’ve seen a lot of these things crop up over the years and then they just go away because they don’t make enough money. But I like this idea because of how many side projects people start and shut down. It’s like wasted value. You know how economists look at like, I think it’s like Christmas as this huge waste of economic value because you buy things for people that they don’t want and then they either have to sell them for less or they return them and they get store credits instead of getting value.
That’s why I see people building side projects shutting them down and then all these other people are coming in and saying, “I really wish I could take over a side project.” so I hope that this kind of thing sticks around. It’s kind of cool and it’s neat that they’re at a low price point. I mean I guess if they get traction, they’ll expand out because certainly sometimes there are things that I suppose could be worth more than $1,000 but I love that idea as you said, allsideprojects.com and 1kprojects.com. We will include links to those in the show notes.
The other thing I think you could look at and even five or six years ago, I wouldn’t have had this suggestion but there are a handful of basically website or app brokers. They do both, they do ecommerce websites and information products and software and all that stuff. There’s a handful of them that are pretty damn good and they’re specializing in this kind of stuff. So FE International is one and quietlightbrokerage.com is another and empireflippers.com. Those are the three that I tend to recommend to people.
You get on their lists and they get new listings each week. You kind of got to go through and look at them. Now those are going to be I would say definitely higher quality and also higher cost to something like Flippa. I have bought many websites, web apps on Flippa. Some of them are complete junk and scams. I had to spend a bunch of time vetting them even then sometimes it did mark out but the cost was so low that in the end, it was very much a net positive for me but it was a lot of time that I spent vetting.
It wasn’t just you walk down the street and find this amazing deal on this amazing piece of real estate, that never happens. If you’re a real estate investor, you spend a ton of time learning the market, learning how to negotiate, learning how to vet things, learning how to do the work and what it’s going to cost, same thing here. If you’re going to buy an app, you need to educate yourself. So don’t think that you’re just going to walk up and on the first day, find a great deal that you don’t have to vet and everything’s laid out for you.
Especially the cheaper you get, the more risk that there’s going to be. You just have to be willing to take that risk. So I have always been a proponent of buying or I say always, since my first acquisition worked out in 2005 and I realized, oh my gosh, this is like the shortcut. Forget all this building stuff. I mean as fun as the building is, it’s also super stressful. It takes too long and you never know if it’s going to work and it takes a year or two to get the product market fit. Whereas if you can acquire something that’s already halfway there or already has product market fit, honestly I think you are definitely ahead of the game by thinking in those terms.
Mike: Well I think that about wraps us up for the day. If you have a question for us, you can call it in our voicemail number 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 418 | Creators Versus Fans
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about creators versus fans. They discuss some cautionary tales of building products on someone else’s platform and the potential risks.
Items mentioned in this episode:
Resources
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching, and growing software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Mike: Things are good this week. Fall is in full effect as the leaves fall off the trees, we live near a lake and the view of that gets better for us. It’s kind of definitely feeling the season’s change and kind of gearing up to do more work in Winter. I took late Spring, Summer and an early Fall off. I’ve been off work since I left Drip in April, so it’s been about six months. Now, I’m kind of starting to ramp up little bit on Tiny Seed, tinyseedfund.com which is the accelerator that I mentioned on the show a few weeks back and things are picking up and going really well with that.
We’re in fundraising mode in essence and that’s going, I will say, quite a bit better than I thought it would. The hypothesis is I think this is needed in our space, I think that bootstrappers and people who want to kind of fun strap things needs and some funding and better funding source and some guidance, and then that there will be people who are interested in supporting that, and based on our models, making money obviously, because it’s an investment. But you don’t know, it’s a hypothesis when you start.
Then the more that we’ve talked to people it’s like, “This is really interesting.” This is something that I feel the momentum building as we speak and I’m pretty excited about that. It’s exciting for me to be working on something new. I haven’t done anything new since starting Drip which is 2012. It’s fun to do that.
Mike: Awesome. On my end, last month, I started doing some paid advertising through the one paid ad that I was doing. I added about 600 email addresses to my mailing list and they’re still kind of working their way through an email campaign that I have set up for them. I have no idea what my eventual conversion rate will be on them. But we just have to just kind of see how that all shakes out. I’m kind of looking at what other things I can do in November and then December and January etc. I’m kind of looking forward to the future, but we seem to have had some reasonable success so far with that.
Rob: Sounds good. How are you feeling about Bluetick? Are you optimistic? Are you in a rut or in a valley right now? What’s your sentiment?
Mike: I don’t know. It’s hard to separate, I’ll say, the business side of things from the personal side of things. Last week I mentioned that I was diagnosed with sleep apnea and I got a CPAP machine and my sleep has started to get noticeably better already. It’s hard to say whether or not like, I don’t want to call it apathy but it’s just like general tiredness, it’s been more than a year or so, just general exhaustion working on it.
It’s not that I’m not excited to work on it or that I don’t want to, it already got things going or make good progress on it, but with the sleep, I feel more energetic just in general. I’m thinking that that’s actually like I said, I’m trying to differentiate between, “Is it just utter lack of sleep? or is it like, “How the product is going.” Obviously, there’s a correlation between them but at a financial level, Bluetick has kind of been meandering. It doesn’t have like hockey stick growth. It goes up some months and goes down some months and it’s just not where I want it to be. But it’s also been really hard to make any substantial progress on it because of the lack of sleep.
Rob: It’s tough, right?
Mike: Yeah. I’m looking at it, saying, “Well, if I can actually start sleeping and get more productive days on a consistent basis…” because before I would have maybe two or three out of a month which is awful. You can’t make progress like that. This week alone I’ve had like three. Obviously, a 300% increase but yeah, I’ll see how it goes and I think that I’ll probably know more in a couple of months.
Rob: Yeah. That makes sense. Like I said last week, it’s tough to have that chronic stuff that you’re fighting against. It’s hard enough to start a company like this without also having to fight another battle on another front. A colleague of mine said, “I can have a tumultuous work life if my personal life is calm and supportive and I can have a tumultuous personal life if my work life is calm and supportive. But if both are in tumult at the same time, it’s just too much.” That’s when people melt out, that’s when you either leave the job, you get a divorce, bad things happen, and you have to make a change, or you come to a breaking point. It sounds like you have the challenge on the business front and then on the personal front—and it’s not easy fighting both those battles.
Mike: like I said, I’m consciously optimistic at this point. The sleep issues will be at least partially resolved and then my expectation/hope is that those will translate into more consistent progress on the Bluetick side. We’ll just see how it goes because I mean honestly, even with sleep, it may not eventually work out. I don’t know, we’ll see how it goes.
Rob: What are we talking about today?
Mike: Well, I have a subscription to Medium and one of the articles that hedge…
Rob: You’re the one.
Mike: Yes, I’m the one.
Rob: You’re the one person that subscribed to it. Did you just do it to get rid of the annoying pop-ups?
Mike: There were articles that I actually wanted to read, and there’s various authors who I read a bunch of their stuff and, it just kind of made sense. It was one of those things where I can pay the $50 a year or not, but if I don’t, then there are certain articles like I go to click on them and they say, “Oh, you can’t read this because you need a Medium subscription.” and yes, I know that there are ways around it but I didn’t really care. It’s $50 a year, I’m totally cool with helping to support those authors. That’s just kind of my point of view on it. It wasn’t enough that I was like, “Oh, I don’t want to pay this, they’re dastardly.” or something like that. It’s just like, “Yeah, whatever.” It’s not that big a deal to me.
Rob: Yeah, I wouldn’t do a work around. If I believe in the content, I pay for the content. I think at this point in our careers, we need to a: value creators and b: not be such cheap bastards that you’re not going to pay somebody $4 a month to help support what’s going on. If it’s a big corporation trying to take a bunch of money from me, then of course, I’m going to fight that tooth and nail. But assuming that some of this is distributed to the writers themselves or at the office themselves, that’s the point of it, I don’t see a reason to try to do some lame work around.
Mike: Yeah, and that was it. Knowing that it was going to support those authors. I will admit that I used those workarounds early on because I was like, “Well, is the content that’s behind the pay wall, is that the same?” or similar quality and everything else like, “Is it the same type of stuff or is it just like completely different.?” It’s the same type of stuff it was just, I want to read it based on what the headline was or what the first couple of paragraphs were and I was like, “Oh, I actually want to read the rest of this.” It’s worked out.
I’d totally renew my subscription when it comes up. If you’re interested in learning more about that, score Medium and you start reading a few different things. Some of them are really interesting and some of them aren’t. But I mean you’re kind of supporting, I think all of the authors that you read their articles because I think that they track what you read and how much you read it and they attribute the money that you pay on a monthly basis to whichever people that you read their content.
Rob: Yeah, and it’s tough because when Medium came out it’s kind of like, “What? How are you going to do this at Williams? You’ve obviously had success with Blogger and Twitter, but this seems like a real tough gamble.” But he raised a bunch of money, buckets of it, because he’s at Williams and really hasn’t found a business model that’s made it work and then when they went to pay, and they started the ads, and they started the pop-ups it’s like, “It’s predictable.” and it’s irritatingly predictable.
It’s another Silicon Valley company that launches with no business model, that in the end just went pissing off or screwing their users, and that’s frustrating to me. It’s a similar thing to, I mean I can throw out dozens of examples, but one that reminds me is Outright which is an accounting software and it was free. It’s an accounting software that’s free. I remember even the CEO, when they launched I said, “How can this be free?” and he’s like, “Well, we want it to be free for everyone and we think that should just be table stakes and then we’re going to charge for tax preparation and these other things and that’s going to make it work.” Well, that was his line but really what they’re trying to do is get a bunch of users and then sell.
Because they sold to GoDaddy and it’s a [shit] product now. It’s terrible, they haven’t touched it. I think we used to use it for academy stuff, we had to switched to Zero. I had three or four accounts at Outright and it’s terrible.
Mike: No, we still use it.
Rob: Do we? I hate that program and it used to be good, but they decided to Silicon Valley model of, “We don’t care about our users. We’re going to launch. We need a bunch of free users. Look, here, we have an exit.” and that’s the difference. I don’t disagree when people have an exit. I mean I’ve sold companies but do it in a way that you don’t screw your employees, you screw your customers, you screw your partners, don’t do that. Have some something. I don’t know if it’s ethics or morals or it’s just like, do the right thing by people and that’s where I get irritated. I’m not saying Medium has gone that far. But I am annoyed every time I go there and there’s some annoying pop-ups.
Mike: I think that there’s a correlation between like the Silicon Valley startups. You and I, we started this podcast kind of in direct opposition to those because as you said, it’s predictable. This happens almost every time. They build a product, they don’t really know who they’re going after, or who’s going to buy it, or who’s going to pay the money, or how they’re going to make money and then they do a bunch of stuff. They get users, they use that to get to the next funding level and eventually, they turn around and bite the people who got them there.
Whether that’s because they sold the company to somebody else and they just say, “Okay, it’s not my problem anymore.” or they do things like put in annoying ads and pop-ups because they didn’t have any business model to begin with, or they’re like Facebook and they start selling all your personal information. It’s predictable every single time.
Rob: Right, or Twitter. Remember they just screwed all the developers who were using their API at one point, remember that? They just said, “Yeah, we’re not going to do that anymore.” Or Google who used to give us the best search results and now the top five of any given search results are a bunch of ads that they say are sponsored in small writing, but my kids don’t know that those are ads, my mom doesn’t know those are ads, she thinks they’re results. Google was always against pay-to-rank and that’s exactly what they’re doing now. We’ve just named five companies who’ve all done this off the top of our heads. We could probably name 50 more. Shall we get back to the episode?
Mike: Sure. Know that our next episode will be a rant. But actually, the topic that we’re going to be talking about today was this article that I found on Medium. It’s named, The Power Struggle for Dungeons & Dragons’ Soul. I thought it was interesting because I read this article and it was all about how originally TSR was the company and Gary Gygax and his team, built dungeons, dragons as to what it was. They sold it to Wizards of the Coast in ’97 and Wizards of the Coast has basically owned it ever since.
Throughout that time, they have done various things to promote the game but at the same time, they own the license to the rules, the content, all the stuff that they distribute. But Dungeons and Dragons has always been like this world that was created or a style of gaming that was created and then people build their own stuff and bring their own stuff to it. There’s this really big do-it-yourself culture inside of Dungeons and Dragons.
I would say there’s a very strong analogy you can make between something like that where you’ve got a platform and you have all these creators who are kind of adding on to it and like the world of software where you have the Twitter API and then there’s all these people that are saying, “Hey, I can use that to create this or I can do that.” so they build on it and then the platform creator turns around and bites them.
In reading through this article, the one thing that struck me was that the analogies are so strong. The very first thing they said was, “Oh, the Dungeons and Dragons rules tend to be complicated and software will help you avoid that minutia.” so software developers came in and started saying like, “Hey, I’m going to build this tool for the game and distribute it.” and Wizards of the Coast said, “Well, yeah. Here’s an open gaming license.” They created this back in the year 2000 and they basically licensed some of their content to be distributed within those tools. The problem is, it wasn’t all of it.
Rob: Yeah, that’s right. It was the gaming engine and to be honest in 2000, that was revolutionary. It was the third edition of Dungeons and Dragons. It was the rules engine itself, but you couldn’t take their proprietary monsters or their proprietary spell names. There’s a bunch of stuff they kept behind. But man, that sparked a huge kind of revolution in terms of all these games. I used to say, “I want to build my own role-playing game.” and a bunch of people want to do that.
You have to come up with all your own game mechanics. I can’t use the 3D6 or the 118, I guess it’s 3D18 ability score, strength, intelligence, wisdom, constitution the ones that Dungeons and Dragons uses because they’re copyrighted, and they’re protected. They opened that up which now 18 years later it seems like, “Yeah, of course they should have done that.” but no one had done that before.
I mean there’s always been massive kind of in-fighting even within the creators themselves like Gary Gygax kind of co-created DnD with this guy Dave Arneson. Dave Arneson sued him every other year for five years in a row about who owned what. It was just super unclear. It was just riddled with lawsuits and has been from the start.
Mike: If you go back and look at the history of it a little bit in terms of what the open gaming license is. Well, I’ll actually have this linked into the show notes. But they have things in here like, “What do you mean by free in terms of the open gaming license?” They actually talk about the concept of free as in beer which is just it’s fascinating that there’s that. They borrowed a lot from open source licenses because they said like with some of the text of their manuals, you could take that and put it directly in.
Normally, it would be a copyright violation and they said, “No. These sections of the manuals, you can copy word-for-word and distribute them but these other things you can’t.” so they restricted certain pieces of it but not all of it. The vast majority of it, you can do whatever you want with it and republish it but then, there’s small sections of it that are actually important sections that you can’t do anything with. It’s almost like an API where you got access to a lot of things but there’s certain things they hold back because they want to basically be in control of them. It’s really not any different than like Twitter saying, “Okay you can have this API but we’re not going to give you the ability to create polls via the API. Only we can do that.”
Rob: This is a tough one. Where are we headed with this? Because I can get into, I believe, if I was Wizards of the Coast, I would hold some stuff back because it’s their business model. Their business model is selling content. It’s selling a game engine and it’s selling content around that game engine, adventures and then expansions to the game mechanics, new classes, new spells all that stuff. They held all that back because if they give it all away, that’s their business, you know I mean. Are we going to debate that part or are we headed in a different direction with this?
Mike: Well, I think it’s just an interesting question of what as a creator of the platform are you holding back from your customers or users versus what they’re allowed to do with it. Because like the things that they hold back for example, you can play the game without them. It’s just that they’re also the popular pieces of it that people want to use like certain sub-races or what have you. I think this is going to be more of a discussion about, “How do you treat your users?” for one. Wizards of the Coast offered their own set of tools in the marketplace called DnD Beyond and they allow people to distribute their own content through it, but they also compete with them at the same time.
Do you trust, I’ll say, the platform vendors? If you put something on Apple’s ecosystem, are you guaranteed that they’re not going to compete against you. Of course, the answer to that is no. They can create anything they want and so could Microsoft or Twitter or what have you. But certain companies are more likely to, I’ll say, leave pieces of the business alone because they know that they want third party vendors to come in and develop on their platform and they don’t want to squash them. They want to kind of foster that. Because as soon as they start squashing these smaller vendors, people are going to take notice and say, “Well, if you’re going to build exactly what we put on your platform and develop, and you see that it’s successful, you create your own version of it and then bundle it…” back in the situation of Microsoft being threatened to be broken up into four different business units back in 2000 because they’re abusing their monopoly position of the distribution engine.
Rob: Wizards of the Coast, when I look at it, the amount of stuff they’re giving away is shocking. The stuff they give away on dndbeyond.com, they have a free plan, that’s all I have. I can pretty much play the game with all that. I mean you can download that the starter rule book and all the materials for free as PDFs legally off of their site. Now, I paid whatever it is, $14 or $15 for it on Amazon, The Dungeons and Dragons starter set for fifth edition because I wanted to print versions of it, I don’t want to print it all out and always be trying to flip around through it on my iPad. But you could get this for free and then even like the expanded spells and expanded monsters are all on DnD Beyond in electronic format for free and it’s fully searchable.
In my opinion, they have done a great job of expanding the free bubble. Expanding the free circle because the free circle was almost nonexistent 10 or 15 years ago. It just keeps getting bigger and bigger but as a result, they then have to have other things around it that they can add to that. My son and I are casual DnD fans, we play it, we like it but we’re not buying all the supplements and all the extra stuff because we don’t have time to consume all of that. For the casual gamer, it’s great. I am spending some money. We buy miniatures and we buy other stuff that I think helps the ecosystem.
But if you’re intense about it, if you’re a hardcore gamer, a hardcore Dungeons and Dragons player, then you’re going to buy that expansion stuff and that’s the gamble Wizards had to take because to me it’s a gamble. Can you make up the lost revenue back giving this other stuff away with the expectation that people are going to buy the other stuff you put out. I think that’s part of what we’re talking about here, right? If you’re building on someone else’s platform, you’re taking a gamble. If you build a platform, how much of it can you release for free without cannibalizing your business model.
Mike: One of the things I find interesting is that there’s nothing that I’ve found that is I’ll say a concession for purchasing their content in another form for example. If you buy some of the books themselves, you can’t then plug in a license key or anything like that into their online system that provides you access to the content that you already bought.
Rob: You bought a physical copy. You’re just saying they don’t give you the digital copy free with the physical. Is that what you’re saying?
Mike: Right.
Rob: Yeah, I mean they could do that if they wanted. But I don’t feel like they’re required to do that, do you?
Mike: I don’t. But if you’re paying a subscription for it which is like there’s the free plan and then there’s the paid plan. But the paid plan doesn’t give you the access to the things that you already purchased in physical form, that’s my point. It’s like they’re charging you a subscription fee to allow you more things inside of the software and it’s like you can create more characters for example. If you want to see a particular monster that’s in a book you already purchased, you can’t have access to that. You have to buy the digital copy of the book which is another $30 to $50 or whatever. You’re basically paying for twice.
Rob: But if you wanted a digital format then don’t buy the physical one, like that’s what I would say. Your subscription is $3 a month or $5 a month, it’s not expensive and that gives you capabilities of the software itself. But then there are these tomes that they spend thousands and tens of thousands of person hours developing with art and all this stuff, it’s expensive to write that stuff. If they wanted to give that away as an all access pass, to me, that’s another tier all together and my guess is someday they might do that.
The Kindle Unlimited or comiXology Unlimited where you can just pay $5 or $10 a month and you get access to not everything in the Kindle store, but you get access to the ones that people make available. They could do that and then it’s a content subscription. I think that the subscription you have with DnD Beyond is more about the capabilities of the software, isn’t it?
Mike: No, if you go in and do you log in and you say, “Okay, let me take a look at the monsters,” there’s like official monsters and stuff like and you go to click on some of them that says, “Oh, you have to purchase the monster manual in order to see this.” It’s like, “Well, I have a physical copy of it. I already purchased it. You’re just allowing me to see it now inside of the software.” Do you see what I’m saying? You already purchased the content.
Rob: You purchased it in paper format though. It’s not their obligation to give it to you in all 17 formats that exist. Should you get a PDF, an EPUB, a Kindle version, when you buy the paper copy? I don’t think that they need to do that, they can.
Mike: I’m not saying that they do, yeah, I totally agree with you. I hear you. I completely agree with what you’re saying but the problems they’ve, I’ll say. created is that they started publishing these things like two or three years before they came out with their online version, so that’s a problem that they’d like basically just looked at and said, “Yeah, we’re not going to deal with this at all.” The whole article is basically about one, them basically pissing off their fan base because of that, because these people have invested $300, $400 or $500 into buying the books and then Wizards of the Coast comes along and says, “Hey, use our online software. You can’t use things that other people have developed because it has the copyrighted material in it. You can’t use those tools. “
It’s like, “How do you use software to basically just search for stuff? ” for example, something simple like that. They’re like, “Yeah, you can’t do that.” And then they compete with you side by side and they take 30% of whatever it is. You can use some other source material, publish it on the market place and they will take 30% of it.
Rob: Sure, it’s an app store model.
Mike: Sure.
Rob: Right, but they compete with you. You’re actually competing with them, if you think about it. They own the license, they own the marketplace. They could just say, “No user-generated content. Go use…” I forget, “…drive through RPG. ” and there’s all these other peripheral market places. They made the choice to let people publish their stuff and to let other people compete with them. You don’t have to put your stuff on there, right?
Mike: No, you don’t. But there’s two different licenses you can choose from when you decide to create something in their world and one of them is the open gaming license, the other one’s the DnD Beyond license. DnD Beyond license lets you use things from their world, but you can only publish it in DnD Beyond. If use the open gaming license, you have to publish it elsewhere. It’s not even allowed in DnD Beyond.
They’ve got a split license system that they think seems to have solved the problem, but it doesn’t solve every problem, of course. Like I said, it kind of comes down to what is the vendor doing that you are not going to be able to work around? What are the things they’re doing that are not fair to you as a creator on that platform? What are they not allowing you to do?
Rob: Yeah, that makes sense. Let’s get back to the point, because we’ve kind of dug through this, but let’s bring this around to software. How does this apply? Where are we going with this in terms of startups?
Mike: Yeah, so as I said there’s a lot of analogies between this particular situation and software where as I said, Twitter is cracking down on their API right now. I get, in certain cases, you have to do that to prevent abuse and right now, Twitter’s cracking down a lot on apps that are bot related, because they don’t want tons of bots on their platform, they want people.
And then there’s others the similar situations where like you got WordPress plugins for example, or Microsoft Office add-ins, or Gmail plug-ins, you are very much reliance upon the vendors’, I’ll say, good graces to allow you to continue doing that and are they going to build a product that does the same thing as yours? TweetDeck, for example competes with other Twitter automation products. Stripe is starting offer in app dashboards and that competes with things like Baremetrics and ProfitWell. I think it’s, I’ll say, a cautionary tale of, “be careful what you wish for,” in terms of the marketplace because you might get it.
Rob: Yeah, that’s right. I think it’s very difficult. The platform is viewed as this holy grail, “If you can build a platform everybody else is building on, then you’ll make a lot of money.” That’s something a lot of Silicon Valley companies strive for. It is also a headache. It is hard to manage because once you have a platform people are building on, those creators—well, they’ve spent money and they have a right to expect that you’re not going to turn around screw them, and sometimes for the greater business, you make the decision to turn around and screw them and that sucks.
I see both sides of it when I look at what Wizards is doing DnD Beyond, I think overall, they are pushing forward, and they are doing the best they can. I don’t think they’re out to screw people. I do think that the licensing stuff is a challenge. I don’t think there’s anything they can do to not piss at least somebody off, when you have tens of thousands of people dealing with, creating or whatever, someone’s going to be upset about something. I’m not saying no one should be upset.
But then on the flip side, when you look at Twitter and Facebook and Google, some of the other things we’ve mentioned, they have done things that I feel like are, I don’t know, downright evil in terms of the sense of don’t be evil, that they’ve really just purely to grow their own bottom line and keep shareholders happy, do things to their ecosystem that, frankly, they said they wouldn’t do or they implied they wouldn’t do and then they turn around and screw a lot of people. They put people out of business, they do real damage. I see both sides of it. I think sometimes the creators and the builders on these platforms get a little too whiny about it or a little too entitled of like, “Well, Wizard shouldn’t be able to do this,” and I don’t necessarily agree with some of that, but I also see the other side of it.
Mike: Yeah, I mean I feel like they’re entitled to do whatever they want, but at the same time, you kind of have to respect the position you’re in is because of the people that you kind of invited to use the platform. I think what’s a little irksome about this is they aren’t really clear about what the future holds. When you’ve got this black box of how it operates and what the future road map for it looks like, it’s hard to make your own decisions about what to do with your business. If you’re a creator and you’re putting things out there and you’re trying to build a business from it and they’re not real clear about what their intentions are for the future, it makes it hard for you to make decisions. Ultimately, the fate of your business, to some extent, is in their hands. They can come out of left field and kill you at any time and there’s very little that you can do to stop it. You can complain but, that may only go so far.
The bigger problem is that, if you don’t have a good understanding of what’s going on inside the company, you can’t predict the future or tell when their business is suffering from the outside and they could be put in a position where they have to make tough choices that are going to hurt you, in order to just either become profitable or simply to stay in business and sometimes, I think their hands are tied as well.
Rob: Yeah, that’s a good point. Typically, I keep saying that Silicon Valley startups, I’m not trying to be generic and paint everybody with a brush, but it does tend to be these heavily funded startups that are clawing after market share and just burning through cash. When I hear one of them is having financial difficulties, either just rumored or they’re a public company and so you know that they’re missing earnings like Twitter has been and Yahoo was, and we hear these companies in trouble. As soon as I hear that, I think to myself, “They’re going to scratch, claw, and screw everyone they can including their users, including their customers, including their partners in order to somehow turn this around. ” They’re doing it for the survival. Once I hear that I’m always backing away like, “Okay, I’m going to be using this tool less.”
I’m just kind of waiting for them to turn around and kind of make decisions that are going to be negative for everyone else’s experience. This is the hard part about building on someone else’s platform. Remember when Facebook—the games came out, Facebook apps, I guess, and then there were all these games like, what was it, FarmVille.
Mike: Yep, FarmVille, Candy Crush.
Rob: FarmVille just got huge instantly and it was like, “Oh my gosh, the company that built that, this is amazing,” and I remember thinking this isn’t lasting, Facebook isn’t going to let it last,” and then they didn’t, remember? And then they tweaked the algorithm on the news feed and all these companies went from whatever it was, down to 10% of their revenue overnight, and that’s it. You fall as quickly as you go up. I don’t view that as a sustainable business. I mean, it’s really, really hard.
I can think of very few platforms that you can build your business on and count that it’s not going to change and screw you in the next two year. Especially if they’re heavily funded and they don’t have the revenue model worked out yet and they eventually want to go public. Eventually, they’re just going to figure out a way to take more money from you, you won’t have a choice or to just build the same functionality you’ve built and usurp you and you won’t have a choice.
Again, building on someone else’s platform is not something you shouldn’t do, but know that you’re going to get screwed at some point and figure out what your exit strategy is before that happens. That’s how I would approach it.
Mike: You’re saying get out no matter what as quickly as possible.
Rob: My personal thing. If I were to build on the next Facebook or Twitter or even Amazon, like people launching Amazon, launching their ecommerce shops on Amazon, I know they get traction fast. But have you seen how many Amazon private label things there are now? I used to buy Duracell and Energizer batteries on Amazon, now they have Amazon Basics. They’re cheaper, I think they arrive the same day here in Minneapolis if I order them. Luggage, I almost bought an Amazon Basics luggage because it was cheaper, it was nice it was highly rated. They are basically looking at all these categories and they’re just figuring out a way to basically screw their vendor.
Again, I’m not saying you shouldn’t do that. But if you get in and you get traction, count that that’s not going to last. That’s not a 10-year business. There’s no chance Amazon will let you take that kind of profit margin for 10 years. They’re going to figure out a way to take it from you.
Mike: I find that odd. On one hand, I get it because they’re a public company and they’re always looking for ways to make more revenue and push their stock price everything. But at the same time, if you develop a reputation for doing that, does it hurt your chances as a platform provider? I think with Amazon, at the moment, the answer is no. But longer term, 10 or 20 years down the road is that going to hurt them? I don’t know the answer to that. I think it depends a lot on specifics of which platform and kind of what it does.
Rob: That makes sense. It depends on, “Are you so big that it doesn’t matter. ” Obviously, Twitter was not, Twitter hasn’t figured out. I mean, they’re struggling. Amazon may be, they may be big enough that it doesn’t matter. Salesforce sucks. I never tried to integrate with them. It’s a 9-month process. They try to charge you a bunch of money just to integrate, it’s insane.
Everyone whom I spoke to, all the SaaS vendors, except for maybe one, got months into the process and eventually just gave up and put their hands up. People had invested hundreds of hours and built the whole thing and then just walked away from it, but they’re still successful. They are big enough that they can kind of do what they want. I think it goes both ways.
Mike: I guess the question for the people listening to this is like, “What do you do when you get to that point? ” I think your thinking is definitely, sell out as quickly as possible and get out. I think that’s a risk, that’s a basic risk profile. You’re not comfortable with the risk.
Rob: And mitigation, totally. Here’s the thing, these are great. If you think of WordPress plugins and Microsoft Office add-ons, the Gmail plugins, even Salesforce add-ons, whatever. I mean if you’ve built a little lifestyle business and you get a couple hundred grand in revenue, the odds of them squashing you are pretty low. But as soon as you’ve built kind of a high six, or seven, or an eight-figure business and you’re really cranking it, and you’re hiring employees, and you’re growing and all that stuff, that’s when it’s like that’s not going to last. I don’t know of many platforms that are going to let you just sit there and do that.
Mike: Right. That kind of goes to the thing I said earlier, what happens 10 or 20 years out, and they’re small enough that you’re not going to grow into this massive business entity in that 10 or 20 years, or if you have no intentions of doing that then it probably doesn’t make nearly as much of a difference. But if you do have plans for that then developing your own platform is probably a better way to go than leveraging theirs.
Rob: Yeah and that’s the struggle. From both sides of it, if you’re building your own platform, you’ll have to manage these challenges. Know that if you get a bunch of developers or a bunch of people using, or consuming, or creating, you’re eventually going to make someone mad. You’re going to piss somebody off. If you have 10,000 people, five are going to be mad at any given time or maybe it’s 500 that are going to be mad.
That’s probably okay, it’s just people’s opinion. You get groups of people and that’s going to happen. But you try to do right by them and you try to have a long-term vision about taking care of the people who made you what you are. If you’re building on someone else’s platform and I think we have talked that through, there are risks. It’s not that you shouldn’t do it, just be aware of the risks going in. Don’t be naive and think that because someone’s offering something for free that they’re not trying to get a bunch of users and sell.
Mike: I think the quote that sticks out from the article is for fan creators, the new status quo is all about dodging wizards hovering mallet. They gave an example of somebody who would put something out there and technically violated their copyright terms of service inside of the license, but Wizards of the Coast was selling it and making 30% off of it for over a year and then they decided, “Well, yeah, we don’t want you doing this anymore.” and then they killed it.
Rob: I wonder if they decided that or if nobody had noticed.
Mike: It was one of their top selling products. It was one of the top selling products in the marketplace. How do you not notice that?
Rob: I don’t know. I’d want to dig in, I mean I’m not trying to defend Wizards, they’re a big company. I’m not trying to say that they’re on the right, but I’m always a little hesitant when I read things like this. These stories, it’s easy to be dramatic and kind of throw stones at the big 98-pound gorilla. I would like to hear more about that. If everyone inside knew about it and they’re like, “Oh, we’re just going to make 30%.” I don’t think 30% on that thing made a damn bit of difference to them. I don’t think that’s why they were doing it. I don’t think Wizards were just like, “Yeah, but we’re going to make money. Let them infringe on our copyright.” I think the fact that it sold for a year and then was taken down is pretty dang unfortunate though, that sucks. It doesn’t look good.
Mike: Right. And I think that’s the question that people have. Well, if they’re going to let this go on, if you make a mistake, for example, and you create a larger business out of it and you start hiring employees and they don’t tell you early enough on that, “Hey, there’s been a mistake here or you’re violating copyright.” Your business would not get to that point. Let’s say, you got it to $15,000 a month and you hired two or three people, and then suddenly they come in a year later and say, “Well, this is wrong. You can’t do this.” and then it’s like, “Okay, well, now what?”
Rob: Right. Yeah, that was a good one. Thanks for bringing that article in. It’s always nice to discuss. It’s a little bit different and it’s definitely a form of philosophical conversation, but I do think that it’s fun to think through and fun to put into the mind set up of this goes on in a lot of different ecosystems. Sometimes it’s a hobby and sometimes it’s business and startups, and what does that look like from both sides, and what are some things you should be aware of as you kind of plan for what you’re building.
With that, I think we’re wrapped up for the day. If you have a question for us, call our voicemail number 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. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 417 | Pulling Out Profits, Building Features vs. Integrating, Marketing a Podcast, 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 on topics including how to market a podcast, what to do with business profits, building features vs. integrating and more.
Items mentioned in this episode:
- MicroConf
- ZoomAdmin
- Big Snow Tiny Conf
- Business of Software Conference
- FemtoConf
- Brian Casel “Tiny Conferences”
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. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
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