Show Notes
In this episode of Startups For The Rest Of US, Rob and Mike answer a number of listener questions on topics including monetizing B2C, selling a small SaaS,and insurance. They also get a update from a past listener’s question.
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 build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Speaking of mistakes, Mike, you’ve got on a podcast with me today and that was your first mistake. So don’t make the same mistake that Mike has just made.
Mike: 436 times in a row?
Rob: Exactly. You’d think you’d learn. Fool me once, shame on you. All right. Who is the only non-Jedi in the original Star Wars trilogy to use a lightsaber?
Mike: The only non-Jedi? That would have been Han Solo.
Rob: Nice. Which movie and what was he doing?
Mike: Empire Strikes Back and he was slicing it to open to keep Luke warmer after freezing.
Rob: There it is. Well done, Mike. I thought they smelled bad on the outside. What is the word this week, sir?
Mike: That was not a great lead-in.
Rob: Not at all. We lost our three listeners.
Mike: Well, I have an article that’s going to be in the SaaS Mag on email follow-ups. It’s coming out I think in the next week or two. We are at MicroConf this week and my understanding is that the magazine is going to be distributed at MicroConf by FE International, who is a MicroConf sponsor.
I’ve been working on the article since the fall at some point. It’s very different than working with online articles where can do all the editing and you just publish it versus something that’s actually printed and then months later it’s actually printed.
Rob: We have lead time on them because they’ll have them sure printed overseas and they get shipped here, they have all that layout and all that stuff. It’s tough. I’ve heard when I’ve contributed articles to a magazine, it’s like 3–4 months lead time.
Mike: Yeah and my wife used to work in the magazine industry at EH Publishing and that what they did is the same thing. She never knew what date it was because they had to work three or four months in advance, so all of her work was three or four months out and she’s just like, “What is today? I have no idea what the month even is,” so she’d always gets confused about that.
It should be coming out next week. I haven’t seen the final article but it should be good. It will be interesting to see that in print.
Rob: Congratulations. That will be good. And as you said, we have at MicroConf day, we’re hanging out emceeing and doing all that kind of stuff when this episode comes out. I also wanted to mention again that next week in a sense, I’ll be in London with my family and I’m thinking about putting together a bootstrappers’ meetup with Sherry. So if you have an evening between April first and sixth, go to robwalling.com/london, fill out a quick three-question survey to figure out if we can pull something together. I believe we’re staying in the West End of London, so we’ll probably be within that vicinity. I hope to see you there.
Mike: Cool. I would recommend that we should never have MicroConf scheduled in late March ever again. That is the worst time ever.
Rob: I know. This is the first time we’ve done it early and it will never happen again. I think you and I have both just had experienced great pain of trying to pull it together.
Mike: Yeah. Part of it is just because of the beginning of the year and obviously, taxes kind of factors into it but my health insurance is right up for renewal about this time. So, I’ve got all this paperwork to go through for that. Between my business, my wife’s business, then personal taxes, and all the stuff going on with MicroConf, it’s just really, really hard to keep up with everything.
Rob: And then it’s one last month to sell tickets. I think you and I have to start thinking about the first of the year, like, “Hey, MicroConf’s in a few months,” but that didn’t work this year because we had 90 days from the first of the month, so we just had to push everything on a different time scale. Given that I’m cranking on all this TinySeed stuff, which we have mental goals to get a bunch of stuff done by MicroConf, if we had another month, things would be just so much better. In the past, we’ve often done MicroConf like April 30th and I think if we can get as close to that date as possible, that’s where we want it to be.
Mike: One last thing on MicroConf, if you’re listening to this and are coming to Starter Edition this year, we have a new addition. We have a MicroConf community ambassador I want to introduce you to. This is Marie Poulin. She has spoken at MicroConf this past year and she’s also attended the previous two years.
What we wanted to do is we wanted to have essentially a community ambassador in place that people could go talk to. I get the impression that some people are a little hesitant to come talk to you and me directly just because we’re involved in the conference itself, but at Started Edition it really made a lot of sense to bring somebody else in who could act as the interface and the ambassador, either on their behalf and make them feel comfortable to coming to MicroConf. Not that we don’t do that ourselves but I do sense some hesitation from some people in talking to us just because they’re just starting out.
Rob: Sure and we can’t talk to everyone and we can’t gather everyone. The first year we did the conference, if I recall, it’s like 110 people. You and I could almost single-handedly—seemingly stayed up until 4:00 AM every night which we did—almost talked to everyone there, almost get everyone gathered, and try to build that community. That was a lot of hustle in the early days but given that we had back-to-back conferences, both of the conferences were substantially larger than that and since they are bigger, there’s more moving parts, you and I are just busier than we used to be with stuff. This makes a lot of sense is to have another person. Zander does as much as he can, too, although he tends to be running a lot of the logistics and such, but to have someone else who can help connect to people and who they feel comfortable gathering around, I think is a really good idea. You’ve come up with that idea yourself?
Mike: Yeah, I did. I reached out to her and asked her if it’s something she’d be interested in doing, she said yes, and it kind of worked things out.
Rob: That’s cool. I think we are both excited to have Marie hanging out and building some community at MicroConf Starter.
Mike: What are we talking about this week?
Rob: This week we’re going to be running through some listener questions, some comments, we actually have a callback to a question we discussed a few weeks ago. It’s a pretty good mix today. Several voicemails which, as you know, I like.
The first question is actually a comment from Michael Needle. And he says, “You guys so crush it. I’ve written before and you responded to at least one of my questions on-the-air. I just listened to the latest episode about SaaS KPIs and I wanted to say that you nailed it. This info came at exactly the right time for a project I’m working on, so thanks for keeping the podcast going and keeping it so relevant. I’m always learning something from you guys, but today it was really helpful. Thanks.”
Really, I appreciate that. It’s nice when we hit someone right where they are at that time.
Our next email is a follow-up from Zamir Khan who had emailed a few weeks ago about his B2C SaaS app called VidHug, which he built as a scratch around itch and has a little LTV and that kind of stuff. He asked us if he was crazy and you and I discussed it for a while. He says, “Hey guys. Thanks so much for answering my question on the podcast and in such great detail. I have to admit, when Mike first answered yes to my, ‘Am I crazy?’ question, my heart sank, but I soon realized it was a joke. You guys really got me.”
“I was actually bracing myself the whole time for a take that I would strongly disagree with, but it never came. I pretty much agree with everything you guys said and giving myself a finite timeline, likely the end of the summer if not earlier, to scale VidHug beyond the point you talked about, for example, $5000 a month. If not, then I’ll put in the word to remove myself from it and make it a mostly passive income stream if that’s possible.”
“Recently, the experience I’ve had that I think is another downside of B2C is it’s extremely important to set support expectations. I’ve got customers in multiple time zones and they’re all working on an important special occasion. I can’t afford, from a mental standpoint, to take all of that on, so I’m putting in work to set up some real expectations when we’ll be available to respond, et cetera.”
“I appreciate now that in a B2B North America-focused business, that problem is quite easier to manage. Even still, I imagine setting support expectations as something a lot of new founders don’t get right away. Things like having a live chat widget on your site. I have one from Drift and I’m removing it. The value-add hasn’t been great in terms of talking to customers, where it seems to signal that we’re available at all hours even when it shows offline. People aren’t understanding that. I love to hear your take on setting support expectations chat versus email, et cetera.”
I don’t know. In all honesty, I think he’s doing a good job of it. I think just setting them is the right step to letting people know how long it will take you to respond. With some businesses, I think chat works great. When I was still a single founder, I would never put chat on the site. It’s just too interruptive. If you’re trying to write code and get other things done, you push them towards email. People do tend to think deeper about what they’re going to email about, whereas with chat, they can just start typing as soon as they have any thought. If you’re B2C and you’re a high-volume-low-cost thing, you really do need to think about narrowing that focus down to just the critical chats to get through. If you’re higher-priced, it might be a lot less of an issue.
Mike: I think if you are going to have that support, if you get a true support system in place—there’s lots of direct apps out there that will do it; there’s Zendesk, there’s Teamwork Desk, there’s Groove, there’s all kinds of different things out there—just about any one of them should respond to an email with a ticket number or should be able to and give them a ticket number, and tell them, “This is what you should expect in terms of a response time.” If you don’t set that expectation with them through email, they send the email, and they don’t hear back from you, it’s very easy for them to say, “Oh, I haven’t heard from you guys in three hours. I’m going to send another email,” or five minutes. There are people out there who will send you an email and five minutes later they’re like, “I haven’t heard from you, yet.” So, you need to set those expectations and having some sort of automatic reply with a ticket number and saying, “Hey, this is when you’ll hear back from us, and this is the days of the week we will respond to tickets.” That’s going to go a long way.
Rob: I wouldn’t do that from the start. I would do it when it becomes a problem. It’s nothing personal because I personally find them irritating when I get the response. It’s like, “I don’t want that.” If it’s not a problem, don’t clutter people’s inboxes. Thanks for the feedback and input and best of luck. Moving forward, feel free to update us at the end of the summer, based on what happens with VidHug. I think we’re all curious to hear about it.
Our next email is actually another follow-up. Zee has asked us about insurance and what insurance does a SaaS app need, I believe was the question a few weeks ago. You and I have discussed it. He says, “Hey guys. Thanks for taking my question and the feedback. I actually did find Founder Shield and got liability insurance through them before hearing your response on the podcast today. Funny that you mentioned it but yes, they are awesome, highly recommended.”
“This biggest thing was not just the personal insurance but the cyberdata security. As you grow your SaaS, I think it’s important to protect yourself, especially if you’re doing B2B and storing a good amount of data. The insurance was not too bad, roughly comes out to between $1500 and $3000 per year, depending on your policy, up to around $1–$3 million in protection. Hope that’s helpful as a follow-up. Thanks again. You guys are doing an awesome job. Keep it up.”
I always love to hear the follow-up. You and I can have ideas and thoughts and experience because I’ve used Founder Shield, but it was couple of years ago. It’s cool. We get better as the community gets better.
Mike: Yeah. Things change over time and you don’t necessarily always have the context from when you first did something versus what recent updates are. Sometimes we’ll grandfather people or sometimes we’ll change policies and you don’t necessarily notice because you’re just still a customer operating under some slightly different agreement that was in the past. So, it’s good to hear these types of updates.
Rob: For our first question of the day, we have a voicemail about monetizing a B2C app.
Gurpreet: Hi, Rob and Mike. This is Gurpreet. I’m calling you from India. I have a question regarding a new side project that I have just started. Check out the website flowlog.app. This is a personal productivity tracker, which was inspired from a recent podcast that I heard on the Tim Ferris show of a great writer called Jim Collins. He has a system to log his creative hours and so on. I’m making an app around it.
My question is more around monetization. This is a side project for me and I’m not planning to earn big money from this, but I would like that my expectation would be that in a reasonable period of time, let’s say about six months or so, that app should start generating $3000–$5000 a month so that I can continue working on it, developing it, maybe spend some resources on marketing and so on.
My question is, what, according to you, is the best way to do that? One way that I could think of is have a free app on the app store but have a subscription model for certain advanced features. That is one. It would have to be a very small amount $2–$5 a month, or I could just set up a Patreon page and see the people who are benefiting from this app might want to donate something. Can you share your thoughts or how would you think about it?
Rob: For listeners following along, it’s a personal productivity app, so very much B2C. It’s based on Jim Collin’s system that he talked about on the Tim Ferris podcast, and it’s flowlog.app. What do you think, Mike?
Mike: I think the question he’s trying to answer is what’s the best way for him to get the app to generate between $3000 and $5000 a month in 3–6 months. The thoughts that he had were maybe putting it out as a free app on the app store, maybe having a subscription model for advanced features, or maybe doing a Patreon page, what sorts of things would we think about in terms of going in that direction.
I think putting the free app on the app store, it’s a great idea in terms of getting distribution. The problem is determining which features you’re going to charge people for and how you’re going to get essentially traction there to the point that people are going to pay for it. I would be careful about, in terms of the subscription model, is I would not charge $2–$5 a month. I would charge a yearly fee instead of a monthly fee.
If you’re charging $2 or $5 a month, then what you’re going to end up with is people sign-up for a month or two and then they’re going to churn out versus those people who sign-up whether it’s because they’re aspirational or because they’re really committed to tracking that stuff and they want to get the full experience. You’re going to have a lot less charge-backs, a lot less churn. It’s going to be easier to deal with if you charge on an annual basis.
There’s a bunch of apps that I pay for on an annual basis but if I were paying for on a monthly basis, I would probably think twice just because sometimes, I’ll fall off the wagon, so to speak, and stop using it for a little bit, and then I’ll come back to it later. But with an annual plan, they can always come back to it later. If they’re going to charge for it every month, if they stop using it for even a couple of weeks, they may very well second-guess it and say, “Oh well, I’m not going to continue paying for this because I haven’t used it.”
Those are the things that I would probably think about. You have to do some customer research to figure out whether or not the features that you want to charge for are going to be worth it for people to pay for them. That’s going to take some customer development. You’re going to have to talk to people and without using your app, I don’t know exactly what those features would be.
Beyond that, you could also go the route of trying to charge outright for it. But I feel like that’s probably longer-term, potentially losing proposition because you have back-end stuff that you need to keep running to store their data or be able to export it, do reports on, those types of things are probably going to be a support burden for you that you’re not going to want.
Rob: I don’t think I have anything to add. B2C is really hard. I think $3000–$5000 a month in six months is extremely, extremely ambitious. You would have to just catch a lucky break to grow this to that if you’re charging, as you said, $60 a year or $100 a year. I guess that’s the thing.
Let’s say you were able to pull off $100 a year. You do only need to sell 30 people a month on it to be able to use it. If you use a freemium model, you’re going to get about 1%–3% to sign up. That means you need 10,000 people to get between 100 and 300 and that’s every month. I guess if you’re charging $100 a piece at that point and you could pull it off, then that would be a substantial amount of money because 100 times 100 is 10,000. But I think that getting 10,000 people that download your app every month, and I think the price sensitivity of this group, means that you’re not going to be able to charge $100. With some more realistic numbers, I feel it’s doable but very difficult and you’re going to have to catch a lucky break. You’re almost going to have to have Jim Collins endorse it, link to it from his website, or tweet about it and then get some momentum. Interesting stuff needs to happen.
So these are those plays where it’s a little more hit-based, meaning, it’s not exactly but it is more similar to writing a hit song or making a movie that everyone likes. It is B2C rather than building a more boring B2B app that has that repeatable process that we know how to execute on, whether it’s inbound or outbound sales, you do this marketing, you optimize your funnel, and this and that. It’s more erratic and it’s more difficult to accomplish with mobile.
I don’t want to discourage him from doing it. I think if you’re super interested in doing it, you want to do it as an experiment, and you don’t need that much money, I wouldn’t have the expectation of $3000–$5000 in six months. I think it’s one thing. I think you can make that as your high-end goal. If you achieve it, that’s awesome. Let us know. But I think it’s much more realistic to build this and make a few hundred dollars a month by the time you get down the road.
But again, it depends. You just have to get in. You’ll know more than us in two weeks or four weeks or whatever when you get this app in people’s hands. It’s like what is the price sensitivity and how are other apps like this charging? Can I only charge $30–$50 a year? How many people can you get in? And all that stuff. Definitely, I wish you the best of luck and hope it works out.
Mike: My other comment that I would add on, that I agree with you on the fact that it’s probably going to take longer than that 3–6 months to get there. There’s also the trajectory to consider because very early on, you’re not going to make as much money the first month.
Let’s say you make $50 or $100. You want to progressively be making more money as time goes on versus having a giant spike either early on or later on in the 3–6 months time frame that you’re looking at that is going to peak and then come back down. Maybe you hit it for one month but then it drops. I don’t know what that’s going to look like for your app or for these types of apps, but that’s something to be careful of is what does the trajectory looks like over time.
Even if you’re selling, let’s say, annual subscriptions. Let’s say you sold 10 annual subscriptions this month and 20 the next month. As long as those are continuing to go up, you’re going to get there at some point. But you want to make sure that you’re on that trajectory. If you’re not, then it’s a problem.
Rob: Thanks for the question and best of luck. Our next voice mail is about whether to sell a small SaaS app that’s doing about $100,000 a year versus continuing to run it.
Adam: Hey guys. My name is Adam. I have a SaaS Ruby on Rails app. I just hit yesterday $100,000 ARR, which is awesome. I have a question about choosing to have someone acquire an app versus running it myself. The question is, what is the true value of this thing that accrued? I actually talked to FE International and it looks like you get a bump for SaaS, but the multiples for a small company like mine seems to be two to an app.
So if I made $50,000 in net income from that $100,000 ARR—that’s without paying myself—they would say that it’s worth maybe $130,000. But for me, if I continue to run it, I’m going to make all those cash flows from the future cash flows for the business. It seems like I would be a sucker to sell it for 2½ times net income because if I run it for the next 10 years, I’ll get 10 times my current income and probably going to continue to grow. Are the valuations really, really low for small businesses like us?
I see companies traded on the stock exchange and they’re getting these huge multiples like 20, or 30, or 100. Is it true that we’re getting screwed as small micropreneurs and we only get 2½ of our income? Is that ever a big deal for a developer who’s running a company? Would you ever want to sell it for 2½? It seems the buyer really gets the benefit, not the seller. Could you talk about these issues? Even with success, what is the value of this thing even if you’ve made it to $100,000 ARR? Thanks so much. Sorry for the long message. Bye.
Rob: So just to clarify, 2½ times net profit sounds low to me. I would thing for a small SaaS app like this, you should get 3½, and if it’s growing, you should get between 3½ and 4 even for a small app like this.
But I don’t think that counters his point. He’s basically saying, 2½, 3½, whatever, he sees things on the public market trading at 10 or 100 times net multiple. And shouldn’t he just run it for 10 years and get 10 years of of running rather than taking 2½, 3½, whatever it is? What do you think, Mike?
Mike: I think one of the things to keep in mind is that your operating in this price range, I would say, where the multiple is going to be different based on where you’re at. If you have a business that has a, I think you’ve mentioned, $50,000 net income, if somebody takes it over, they’re probably going to have to put somebody in, which essentially reverses the earnings of that particular business, which again, is totally true. But if you had, let’s say, 10X that, you had $500,000 of net income, the difference in value of that business versus something that only brings in $50,000, is going to be very, very different.
That’s something to definitely keep in mind because there are certain ranges where, if a business is making just $50,000, it’s not going to be worth nearly as much as something that has $500,000 of disposable income. They can use that money to bring somebody in, pay them, and they still got $400,000 left to play around with to do other things, marketing, bring on more people, do growth experiments, all kinds of different things.
The other thing that I think he had mentioned was comparing it against larger businesses. Again, the earnings of those large businesses like public companies and things that you see in the stock market, they’re making a lot more money, so they are going to naturally be priced higher. Those are the things I would definitely keep in mind.
The thing that he didn’t mention at all was the fact that if you are going to run this for the next 10 years, for example—you said that you get to keep all of the net earnings from that, that is true—is the business going to be the same in 10 years? Is it going to grow? Is an event going to happen at some point during those 10 years that it’s going to wipe out a substantial portion of the market? Is Google going to launch a product that competes directly in your space? Or is a funded company going to do the same thing?
There’s all these things that create risk for your business moving forward. For a SaaS app, that risk is heavily reduced because people are already on a subscription and it’s easier to mitigate those types of risks, but it is still a risk. And because of the scale that you’re working at right now, it presents too much of a risk. I suspect that’s why there’s probably that 2½ multiple versus, like what Rob would said, either expect a three or four.
But you would have to keep in mind that something could happen tomorrow and your entire business goes away. You could get sued, or somebody could take the domain, or somebody could say, “Oh well, your app name is actually a trademark and we own that. We’re going to come after you and sue you for $100,000.” For only making $50,000 a year, that’s pushing it in a really tough spot. Those types of events factor in a risk over the next 10 years and you have no idea what those actually come out to be. It may happen, it may not, but there are factors you have to consider.
Rob: Yup, I agree. I think people with a first-time app feel like it will run forever. Ten years is forever in this space. This is why the small business analogy, like when people say, “I’ll just build a business. It’s like a bakery, or like a gymnasium, or a grocery store,” it doesn’t work the same with SaaS apps and technology because the stuff changes so fast. In 10 years, you said it all.
The apps that I had that were making money in 2005–2010, I sold all of them and a lot of them have basically shut down, not because of the code didn’t still work but it was often because the code is so out of date that no one can maintain it now. It’s a classic ASP or it’s like ASP.NET version 3.0 and you have to completely rewrite the product to keep it updated. If you don’t do that, then you just ran out of the ability to find developers.
Or Google makes an SEO change that completely decimates your product. I had this happen multiple times. I know dozens and dozens of founders who’ve have their business just turned upside-down overnight after years of building it into a five-, six-, or seven-figure annual business.
You can have new competitors, the market can change, you can have industries that get wiped out. Let’s say you have a job board for truckers. I’m just making stuff up here. The trucking industry is going to have a real issue, or at least truckers are, over the next 10–20 years as self-driving trucks come around.
There’s all these factors that you don’t think when you have your first app and you feel like no one can touch it. “There’s no chance that this Twitter client or this Facebook client that I’ve built is going to get completely decimated when they decide that they’re not going to support my API calls anymore,” which they do all the time. We’ve seen people within our community have apps, have to do layoffs, and get hit pretty hard revenue-wise by people churning out because you can’t provide the value anymore. Or if you run an ESP. If you don’t maintain it, you get on blacklist. Now your deliverability is not as good. On and on and on. You and I could sit here and name your name to getting sued. There are all these things that just happen the longer you do it.
I’m not saying that you should sell for 2½ or 3½ or whatever you can get for it. What I’m saying is don’t think that you’re going to run this business for 10 years without a substantial amount of work over that time. You may not have any work right now for six months, maybe nine months, then it will start sliding. Something will change out there.
If you want to put in that work, then great, but don’t think that you can just coast for 10 years and that your business isn’t going to get turned upside-down, let’s say, every 18-48 months. It’s a big range but it depends. I don’t know if you have APIs you’re relying on, who your competitors are, what space you’re in, but every couple of years you’re probably going to get this big curveball and if you’re doing something else and can’t pay attention to it, bad things happen.
That’s really why people sell for those “lower” multiples, is because there’s risk and because you want to take that cash flow ahead of time. Take this several years of cash flow and just put it into your next thing. Typically, it’s buy that next thing or buy out your own time so that you can then build the next bigger idea that can last longer. That’s what a lot of people do. Not necessarily bigger in terms of head count but bigger in terms of net profit, I think.
Mike: Yeah. I want to second that. I was not saying that you should take this because of all the risk involved. It’s more of, just be aware that that’s why some people do it and, to Rob’s point, sometimes where people will just want to take that money off the table and take a year or two of net earnings in order to be able to do other things. If that’s something you want to do, then great. If not, then you could continue to run it. Just be aware that there’s risks no matter what you do. There’s risk if you sell it. It could become huge and blow up or it may not. You may decide to run it for 10 years and it never grows beyond having a net profit of $60,000–$70,000. It’s high enough that you don’t want to get rid of it, but low enough that it’s hard to live off of that based on where you’re currently settled down.
Rob: Yeah and I think the idea of public companies are valued at 10 or 100 times, yeah, that’s true. Most are not of 100. Those are the outliers. We look at Amazon. Let’s get rid of Amazon because they […] special way. Let’s not look at the hot-hot, hyper growth, 50 million subscriber tech companies. They’re completely outliers. Look at the median price-to-earnings ratio or look at the bottom 50% and it starts to become a little more realistic. It still doesn’t tend to be down around 2–4 in the range that we’re talking about, but you’ll see a lot that are in that more 5–10 times annual earnings, which is in the ballpark. It’s within the order of magnitude we’re talking about.
And there’s the public companies. To be a public company, you have […] and all this crazy stuff you have to apply to, so you’re not going to do it if it’s going to be the same multiple. There’s so much scrutiny and all the stuff that comes along with it, so unless it had some type of premium, then you wouldn’t do it.
These are good things to think about. I think the other thing I drew out is, Mike, when I started buying apps in, let’s say, 2005–2011 time frame when it was really the heyday of me acquiring a bunch of stuff, the multiples were 12–18 months of net profit. There really was no FE International, there was no Quiet Light, there is no Empire Flippers. If they were around, we didn’t know about them.
It was all like Flippa, it was like deals on forums, it was called email, and that was the multiple. There was so much risk. There was potential for fraud, which I think has been greatly removed in our space and that is why I like the fact that we have these brokers now. I like the fact that the multiples have risen. It’s certainly a bummer from an acquirer’s perspective but I do think the whole community benefits by the fact that the multiples are where they are today.
Mike: We were just talking about how things were different then. Those were also the days where you had a Blockbuster card.
Rob: That’s true.
Mike: I’m just saying. That how old you are.
Rob: Exactly. No. That’s such a good point because you know, Mike, Blockbuster could have thought, “Why don’t we just run this thing for 20 years and just collect the revenue off of Blockbuster?” and now they’re bankrupt because Netflix came in and ate their lunch. It’s a perfect example. Blockbuster, I believe, was a public company. It’s just another example of how quickly things are eaten up by technology these days.
Mike: That’s actually exactly what happened to them because they had the opportunity to buy Netflix for $1 million or I forget how much it was, but they had an opportunity to buy Netflix at one point and they decided not to because they’re like, “Oh yeah, this is not going to fly and we’ll eat their lunch,” and it turned out it went the other way.
Rob: Yeah. Cool. So, good question. Thanks for sending that in. Our next question talks about what a SaaS app should look like at $10,000 MRR, $20,000 MRR, and beyond.
Adam: Hi guys. This is Adam again. I have a second question. I heard you say in one of your old podcast that the goal for probably Startups For The Rest Of Us listeners is to get your app to $10,000, or $20,000, or $30,000 MRR. Could you guys discuss what your business should look like at different MRRs, like when do you hire your first employee? When you do hire a customer support person?
Right now, I’m just doing everything myself with an offshore developer. That’s like $8300 MRR. What do you recommend at $5000 MRR? Could you say like, “$5000 MRR your company probably is like you have a full-time job and you’re in your basement weekends.” And then $10,000 and $15,000 and at $20,000 like the stages of growth based on the MRR, that would help a lot for me to get some kind of benchmark. Thanks so much guys for what you do. You’re awesome.
Rob: Mike, I will let you kick this off, but I think the answer is, “It depends.” It depends pretty heavily. There are people that can live on $5000 MRR. In that case, you’re not in your basement work the day job. But if you live in California, then maybe you are.
I also think it depends a lot on the app. Some apps need a ton of support. If you’re building an ESP, people have a ton of questions. It’s like Baremetrics where you just opt-in to Stripe and you […] off and then you have charts.
I bet in the early days, Josh didn’t need very many support people and could take that way, way further. And if you’re building a complicated app, it takes a lot of stuff to get set-up. Preface that and then kick it over to you.
Mike: I agree with you on the ‘it depends,’ and I think part of the problem is that we don’t necessarily have a lot of data points because so many different businesses are different from one another. For example, you Rob Walling. Your starting resources are going to be very different than the listener, or myself, or pretty much anybody else on the planet because it’s not just about the money that you have available. It’s also about the relationships the you have, the code or technology that you already have, the experiences that you have, and sometimes the relationships you have with certain people allow you to get into channels that other people would not.
By virtue of talking about those, you’re going to have to hire for different things than somebody like me or any given listener is going to have to hire for different things. The restraints on each individual are going to be different, based on whether you have a spouse, whether you have kids, whether you have a sick parent that you have to take care of on Thursday afternoons. All those things factor into it. It makes it hard to come up with a over reaching generalization that is globally applicable.
That said, you can come to certain, as you said, revenue benchmarks of $5000 and $10,000 and say this is probably where you might want to start thinking about this. It doesn’t mean you do it. It just means you start thinking about those things. I think when it gets to that stuff, anywhere between, I’d say, $3000–$5000 you probably want to start thinking about outsourcing support, when you get up to $10,000, you should probably be full-time on it, but again, it depends on whether or not you’re going to be able to support yourself when you are full-time on it.
I heard probably from Balsamic talk about this and I think it was at a business and software talk where he said that he held off on his first first hire until after he got to a point where he was just literally not sleeping because he could not possibly do all the stuff that was required of him. It’s interesting because its almost 10 years ago where that happened. It was around the beginning of 2009 and he was getting to the point of 2500 customers on a weekly basis. He was getting so much money coming in but he just could not keep up with the business. He’s like, “I have to hire somebody.”
If you do the math on it, 2500 customers in a week, I don’t remember how much Balsamic was selling for at the time. I’ll say $40 or $50 but at that rate, that’s a substantial amount of money. And that’s on a weekly basis. Not even a monthly basis. So you can figure $60,000-$80,000 on a monthly basis, something like that. That’s where he got to before he started bringing in one person and it’s because he didn’t want to hire. At some point you have to. Certain scales of problems are so large you have to do things that maybe you don’t want to. But at the same time, those things are sometimes good for the business.
Rob, I’ll let you jump in. Where do you think? At $10,000 it’s pretty not standard but that’s kind of the benchmark most people use for going full-time on it. But what does $15,000 mean? What does $20,000? What does $25,000 mean?
Rob: It really does depend on where you live, how far you can take that in, where you’re hiring out of. Let’s say you’re in Chiang Mai, Thailand, you can live on $2500 a month, you can hire people there or in your same time zone, full-time developers for $1500–$2000 a month, then you can move way faster if you want to. Or you can just bank money like crazy.
So, it does depend on are you doing this as a lifestyle thing? When I think back to my experience, I had some apps where I didn’t really want them to grow. I just wanted to rake in the $3000-$20,000 a month they were throwing off and just maintain that. I had no aspirations to 5X or 10X that, and that’s a great lifestyle business. If that’s your goal, then do that.
But if you do want to get as big as possible, you want to create as much value financially for yourself as possible, you want to grow it to $100,000 a month, and when you get into this seven figures and you have a SaaS app in a seven-figure revenue range, even high six figures but certainly if you get into seven figures, that is where the exit multiples change because there’s private equity that is willing to start talking about revenue multiples instead of net profit. So, it doesn’t become this 2½–3½ range. It can be 1½–3 times your top line revenue. But you have to get big enough that it’s worth them even having a conversation with you.
All that to say, there’s two totally different paths. I would say do support as long as humanly possible and don’t hire a support person until you feel like, “I’m either really tired of this, I’ve learned all I can from my customers, or I don’t want to do this anymore.” I can see hiring a support person well before $10,000. I can see hiring when you’re at $5000 if you just can move faster by not doing the support.
At $15,000 or $20,000 I would probably remove myself from development as much as possible, unless it’s something you really want to do. But if you want to maximize growth, stop doing it, hire someone who’s good. You have budget to do that. If you want to do it, that’s fine. You’re not going to grow as fast. Just know that that’s what you’re doing. You don’t have to. That’s the beauty of what we’re doing. We’re bootstrapping. You can do what you want.
When you get into the $30,000 or $40,000 that’s when you can either just be raking in buckets of money, which is awesome, or you can start thinking long term about, “Okay, now how do I double from here?” because I think it’s $83,333 is where you hit that $1 million a year. How do I get from $30,000 or $40,000 to $80,000, where are my plateaus up ahead and who do I need to hire to stay out ahead of that?
That’s typically when you start thinking about hiring someone to head up marketing or growth because the founders are often doing it up until that point. If that’s what you want to do, then focus. But if you want to rise up that one level to where you’re managing product, engineering, marketing, customer success, and sales, then that’s in that range where I think you have budget to hire someone who’s good at growth and is not someone junior you’re going to have to train, is expensive, much like a knowledgeable developer is expensive.
So those are the trade-offs. We could walk through a hypothetical example. I don’t know that it’s any more helpful than that. I think to me it’s like keep the team duty opposite to what’s venture fund companies do, which they try to grow headcount super fast and spend the money.
I think keep the team as small as possible, unless you’re putting yourself under undue stress, unless you’re more stressed than you should be, unless things are falling through the cracks. That’s where you’ve taken it too far. But in general, the more profit, the better because it just gives your optionality. It gives you optionality is take more money off the top. It gives you optionality to hire someone when you need it.
If you have $10,000 a month that you’re just throwing into that business bank account, that’s great. If you decide to […], “Oh my gosh, our competitor’s doing this and we really need a head of sales or a head of customer success or whatever,” you have the option to do that.
Mike: And I think that’s the entire point of the whole question is what are the different options? I think Rob just laid out a bunch of different places where, at those points you have those options, and it really boils down to what you want to do with the business, where you see it going, and what you don’t want to actually do inside the business. Those are the things you hire out at whatever those points along the way are.
Rob: So thanks for those two questions, Adam. I hope our discussion was helpful.
Mike: I think that about wraps us up for the day. If you have a question, you can call it into us at our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for ‘startups’ and visit startupsfortherestofus.com for a full transcript to each episode. Thanks for listening and we’ll see you next time.
Episode 436 | How to Respond to Customer Suggestions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to respond to customer suggestions. The topic was inspired by a Tweet by Ken Wallace, the guys give six approaches they use to tackle this issue as well as some additional thoughts.
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 Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Rob?
Rob: Things are going good. We’re in the midst of interviewing and talking with founders who have applied to be part of TinySeed. As I mentioned before, there’s quite a few applicants to go through, and we’re having a lot of conversations and we’re coming up on our mental deadline of when we want to get everybody on board. We have started making offers to founders as things come together and as it becomes obvious that we’re a mutual fit for each other. That’s the thing, it’s not just do they have the chops or do they have the traction to get in, but are we going to be able to help them? Are they fit for us? I think that I’m trying to do as much evaluation of them as I’m trying to do of us.
We’ve had some folks apply who have traction but it’s like, “I just don’t know that we can help you.” It’s businesses that are perhaps outside of our expertise, outside of our mentor’s expertise. All that said, we have had five companies accept offers which feels really good, just to start making our way towards that. MicroConf is coming up here real soon. It’s about a week-and-a-half away from when we’re recording. I’m actually out in London the following week with the family. It just feels like there’s a lot going on right now.
Mike: Yeah, for sure. It’s interesting that you are evaluating whether or not you can help them, not just whether or not they have traction. It’s interesting seeing some of the questions, for example, that come in to people asking about whether MicroConf is a good fit for them as well. There are certain people who are just evaluating, for example, the station at the conference, like, “You really shouldn’t be going there because it’s not applicable to you or you’re not going to get the benefit out of it that you’re looking for.” I talk some of them out of it or talk them into the right direction. Some people is just not a good fit for it. Same thing with sponsorships as well. Some people will say, “I’m interested in sponsoring,” and I have to talk them out of it because it’s not going to do them any good, and I really don’t think that it’s good for us to accept sponsors where it’s not a good fit for the audience either.
Rob: Exactly. Are you in this for the long term or are you in it for a quick buck, so to speak. We could accept people into TinySeed that have, “Oh, you have tens of thousands of dollars of MRR,” but we’re not going to be able to help you that much. In the short term, that might be the right choice, but in the long term, they’re not going to get out of it what they deserve and what they should get out of it.
You’re just ding your reputation. Same thing with sponsors. You could sell a $5000 or $10,000 sponsorship, but if they don’t like it and they don’t get the value out of it, then you’ve caused yourself a problem to your reputation. Same thing running a SaaS app. Their customers will come to you and they could be your biggest customer. In the early days, a $500 a month deal is game changing for you when you’re doing a couple grand a month.
In the short term, that might be the right fit. But in the long term, if it’s not, it’s a real problem. I think that’s the thing. You and I have played long ball on so many fronts. Not only with the podcast doing 436 episodes, but with MicroConf talking attendees or talking sponsors out of it, with our apps, with Micropreneur Academy, with FounderCafe. I mean, we have turned away a lot of people. I actually think it’s a good policy to have.
Now, it means that the growth-at-all-cost mindset were not growing at all cost, because we’re not going to do it at the cost of our long-term relationships. I think that if you’re in this for decades, that it’s the right call to be smart about this, and to evaluate from both sides of the aisle so to speak.
Mike: I couldn’t agree with you more.
Rob: How about you? What’s going on?
Mike: Well, I have a upcoming webinar that I wanted to actually share with the audience. Remember probably three or four weeks ago, I had mentioned that there were some publications and stuff that I was going to be hopefully getting into, but I wanted to hold off on that. One of them that I want to share with the listeners is on April 29th at one o’clock. I’m going to be doing a webinar called Personal Email Strategies to Drive Traffic, Engage Leads, Close Deals, and More. That is going to be through hr.com.
I’ll link that up in the show notes, but I’ll work with them to put that on the calendar for them. I’d say it’s a big win just because of the size of their audience, but also working with anybody who’s got a 2-letter domain name. That’s interesting in and of itself.
Rob: Yeah. It’s just a URL that you’re doing your webinar at, it’s web.hr.com/u9vo.
Mike: Yeah, that’s just a short code, I’m sure.
Rob: We’ll link it up in the show notes if you want to do it.
Mike: Yeah, maybe we should. People have to remember that. Do you say U9VO or do we something special. I don’t know. Various conversations.
Rob: I mentioned that me and the family are going for my kids’ spring break, I believe, that we are headed to London for about a week after MicroConf. Sharon and I were thinking about putting together just an informal London bootstrapper’s meet up probably two hours on an evening. If you’re in London, I will be in London between April 1st and the 6th, head to robwalling.com/london and I have just a simple three-question Google form there that’s like, “What nights can’t you make it? What’s your name if you have one? What’s your email address?” That’ll be fun. We’ll put it together if it makes sense. If only one person responds, then maybe we won’t go to the effort of it.
I’m looking forward to it. I’ve been to London at least once. Trying to think if I’ve been twice, but our kids really wanted to go, because just of all the stuff these days. They read about Sherlock Holmes. They are fans of Harry Potter. Even Shakespeare, they have that familiarity. One of them was in a play with that. There’s just so much cool stuff there and we really haven’t taken the kids there or taken them to a lot of European cities. It feels like a good time to get out and go.
Mike: Cool. I almost went to London about probably four or five months ago, I think. I almost went there and then I realized I was in the wrong line and I would have gone out of the airport and into London itself instead of getting on my connecting flight.
Rob: Nice. That would’ve been fun if you missed your flight and then hung out in London. Saw the Eye and the Shakespeare Theater and all that.
Mike: Yeah. I’m sure that my connecting flight would have been thrilled with that.
Rob: It would have been a blast. What are we talking about today?
Mike: Today, we’re going to be talking about how to respond to customer suggestions. I say suggestions because it also incorporates feature requests as well. This can broadly apply across different types of businesses whether you have a SaaS app, or a downloadable app, or productized service, or something like that. We’ve talked about how to solicit feedback from your customers back in Episode 119, but it’s been awhile since we had a dedicated podcast episode about this. We’ll link up Episode 119 in the show notes.
The idea for this episode comes from a tweet stream that Ken Wallace had put out. Ken Wallace runs MastermindJam which you can find over at mastermindjam.com. I’m going to summarize a lot of what he said because he had hit a stream of 18 tweets. I’m going to summarize that a little bit and condense it. His basic thought process was questioning how to respond to customer suggestions. He said that for his business, customers tend to be entrepreneurs and transparency is big. It tends to lead naturally into, “Let’s dig into that.” For context, MastermindJam is a service that connects entrepreneurs with other entrepreneurs who are in similar types of businesses and lets them find other people who they wouldn’t otherwise normally find in order to form a mastermind group.
The question starts out where he’s offered a suggestion by a customer and he starts explaining why he does it in a particular way, what he’s tried in the past, and what he intends to do in the future. This approach worries him because there are times when he persuades the customer to agree with him and that’s where he thinks there’s a missed opportunity because he essentially talked the customer out of a particular way of doing something when they came to him with a suggestion.
Understand that there’s a lot of reasons why the customer might concede that point. They might be tired of debating the topic with him or they may leave the can they’re so entrenched in whatever the particular suggestion is. The person thinks, “Oh, I’m not going to convince him to change, so I’m just not going to bother,” or they don’t have the time and they just think, “Oh, this isn’t worth arguing over.” Its fundamental problem boils down to how do you know why it is that they agreed with you.
Rob: They may also agree because they actually agree and because he truly convinced them that it’s a better way. That’s another option.
Mike: Right but the lack of clarity there is what concerns him because if people fall into any of those previous camps where they didn’t necessarily actually agree with you, but they just say, “Agreed,” to move on the conversation or end it because they’ve got other things to do, then how does he know that? What are some recommended approaches to responding to that type of information?
What Ken wants to know is when a customer gives you a feedback or a suggestion like this, what should happen next in the conversation? What’s your response be and how should the conversation go from there? His belief is that if you just say something like, “Thanks for the suggestion I’ll take that in consideration. Where can I follow up with you?” it seems very patronizing. I think you chimed in and you talked about drilling into the five whys a little bit. I want to back up a little bit and take a look at a much broader approach to this.
Rob: Yeah, I would agree. He basically said, “Should I drive into the five whys?” The thing is, I actually started writing a response and it was more of a full-blown out like how I would handle it. I hate Twitter because it’s 280 characters. I eventually just stopped and gave in and said, “I’m not going to do that,” because we are going to talk about this for 30 to 40 minutes today and I bet we will cover it well but not even cover everything. To try to respond in a series of 10, 20, 30 tweets or whatever to truly summarize the nuance of this question, I felt like wasn’t going to going to do it. I just boiled it down to, “Yes, ask more questions. Thank them.” I tended to not commit to anything on the phone, but we’ll dig into more of that because you have a whole approach outlined here like a six-step process that I think is pretty worthwhile.
Mike: Let’s start going through these six steps. I think the first thing to do here is to mentally prioritize their suggestion and feedback. Categorize it and say, does it sound like (a) a problem they need a solution to, (b) an additional nice to have but not critical, or (c) this is a better way to do it. Essentially, an optimization of some kind. Really what you’re looking for is trying to figure out, is this something that is part of the experience or is it a new feature that they’re asking for? Are they trying to improve something that already exists or could exist in a different way or a better way, versus are they asking for something that’s fundamentally new. You have to drill into that and figure that out.
Rob: I agree. I think at a certain point, it can become kind of a gut feel. If you’ve talked to 50 customers, 100 customers, you do start to see repeating questions, repeating suggestions, repeating information. There’s a way to bucket them in your head of like, “Yeah, we know that. We’ll prioritize it,” or “Yeah, we thought of that,” and I would often say, “Here’s why we’re not going to do that,” but I guess that comes back to Ken’s point of, is that the wrong thing to do?
I think in my head it’s like, if you’re always trying to talk suggestions a customer that have suggestions, that’s a problem. I do think that there are going to be quite a few suggestions that come up that you’re not going to build and are not a good idea to build. Those are the ones where it’s not as much a debate but it’s a, “This is my vision for the product,” or “I’m not going to copy competitor features that doesn’t make sense,” or you’re going to have some good reasons that people who are not working day-to-day in your app or in your business, they’re not going to have because they’re not thinking about it all the time.
Anyways, I’ve skipped ahead in the thing. I think that for this first step, taking in the suggestion and trying to mentally bucket it early on can be helpful. Especially if you’re doing 5-10 calls a week, you’re having a lot of these conversations. It does help you to get some clarity as to how you talk about these things.
Mike: Right. I said that you should mentally prioritize, but I really meant categorize, or bucket like you had said, so just to clarify that particular piece of it.
The second piece of this is to start asking them questions and make sure that you understand their context and their point of view. They’re going to have different experiences based on their own life and their own business, versus the things that you do and see, because you have a viewpoint from inside the business whereas theirs comes from outside of it.
You also have to differentiate between the type of person they are where they are in your sales funnel. If they’re a prospect, is it a feature request? If it sounds something along those lines, you can ask them, “Is that something you need?” When you’re very early on in your business, what you’ll find is people will ask questions and they don’t necessarily care about whether or not you have a particular feature or not, but they just want to know. They’re curious as to whether or not that functionality or that piece of it exists.
A lot of times, what you’ll find is by asking that question, “Is that something you need?” they’ll just say, “No, I was just curious.” I found in cases where I’ve asked that question, it was for something that I knew was probably going to take 3-6 months to put together and they’re like, “No, I was just curious.” But had I gone down the rabbit hole and said, “Yes, we can do that,” and started trying to implement it, I suddenly pushed everything back by 3-6 months. You have to be very, very careful about whether or not it’s something that they absolutely need, versus is it nice to have?
One of the ways that I like to phrase this is to say something along the lines of, “Tell me more about that,” and as a follow up to that you can say, “What makes you say that?” When they give you a suggestion or they say, “You should do it in this particular way.” “Really? What is it that makes you say that?” It allows you to take that conversation and make it much more interactive.
Rob: Yeah. I love this idea of asking questions to dig in further to make sure you understand their context and their point of view. As you’ve said, digging into their context can show you that they were just curious. Digging into their context might show you that they are not a fit for you, that they should not, to our point earlier, they are not a good fit for your company, your conference, your SaaS app, your service, whatever.
I think having disqualifying questions that you could even come before this is a huge win in determining if someone is alternately a fit, as well as determining if someone is the perfect fit and that they might be suggesting something that you’ve never thought of before. That’s always a cool realization when you know that someone should get a ton of value out of what you’re offering and it’s almost like an epiphany. That’s why I said five whys when I responded to the tweet because to me, it’s not technically asking why, why, why, why, but it is asking a bunch of questions to be like, “What are you trying to accomplish with that? What does that mean? Where are you coming from with this? Blah-blah-blah,” just to try to dig in to really understand their true needs.
Sometimes you’ll find out it’s like, “Well, I know that my current tool, MailChimp, does that. I was just thinking if I ever wanted to use it, do you have it as well?” We got stuff like that back in the day with Drip and it’s like, “Cool. You have context of a competitor, you don’t use the feature today, is it a deal breaker?” “Well no, it’s not.” “Okay, but you would like it in the future?” “Yes, it’s on a roadmap.” It’s just digging into these things and not taking the face value is pretty important.
Mike: And a lot of that just gives you context for the feature data points that you can say, “I heard this from one customer. I heard this from 5, or 10, or 50,” and once you start hearing things over and over, it goes back to if you ask the question to begin with. If you didn’t ask, then it’s very easy to not get that information. You have to start drilling in as part of the second step to ask questions and make sure you understand where they’re coming from, why they’re asking those questions, and how they feel about it. How would they prioritize their particular suggestion.
If it’s critical to them, then you have to take it more seriously and give it a little bit more thought, versus something where they’re just like, “You should have this phrasing instead of that phrasing,” or “I don’t understand why this is on this particular menu in your app versus this other menu.” Those are the types of things which a lot of times they can go either way, but then there are certain things where they really have to be done in a particular way and you know the best way to do it because you had that context and thought about it, and it really happened.
Rob: Yeah. I think the third step for this approach is to compare their context to yours. Coming back to what I said earlier, is this something that they saw a competitor doing and is that a road you want to go down with this particular competitor or this particular feature? Do they have personal experience with that competitor or with this feature? What’s the frustration level with the fact that this doesn’t exist? Low, medium, high, or are they angry and belligerent? Have they considered the implications of what they’re asking? Do they have any idea about the amount of work involved? Do they know it’s going to take 3-6 months versus 1-2 weeks? They probably don’t. Any idea about the timeframe? Is this something only they would use? They’re probably not going to know that, but you should have a gut feel. This was always something that when we would get a feature request with Drip, I would try to get in the mental mindset of all our customers. It’s hard to do. You can’t do it 100%, but I would frequently say things like, “I think if we build this about 10% of our users will use it. They’re going to get a ton of value out of it and they’ll stick around forever,” or “I think about half our users will use this,” or “I think 2% will use it, but it’s the power users,” or whatever.
Again, those are guesses but that’s part of being an entrepreneur is making decisions with limited information. You don’t have all the information in a roadmap sense that you can just walk from here to X-marks-the-spot of victory and profit. Making decisions with incomplete information is a huge part of it and developing that, I’ll call it “gut feel,” but really what it is, is it’s years of experience working with your customer base, on your product, and in your space, that can help give you that context for it. I think the last thing to think about when you’re comparing contexts is, have you previously considered the suggestion or is it on your roadmap already?
Mike: Yeah. I think that last piece makes a big difference. If your response is off-the-cuff and just say, “Oh, we have thought about this before and this is how we’re going to do it,” versus something that you’ve put it on your roadmap already because you’ve heard it a lot, or you put it into a document based on things you’ve heard from people who’ve asked about that particular thing enough that it warranted having a, I don’t want to call it a stock response, but an answer that you can share with your team as to ‘this is why we are or are not going to be going in this particular direction.’
That lends itself to you have considered the implications of that. A lot of times what you’ll find is that the customers don’t necessarily consider all the implications. Part of that is just because they don’t see all the same things that you do. You’ve got all these priorities that you’re working on, maybe things at your bug tracker, or features, or particular customers that are high value that you want to be able to serve better, or a particular direction you want to take the product in. You have visibility to those and the customers or your prospects do not.
Rob: Yeah. As you go on, if you’re two, three, four years into it and you have 1000, 2000, 3000 customers, a steady influx of prospects, you’re going to get to the point where you’ve heard 90%+ of all the request that come in. You’ve heard them before. Maybe 95%. It’s crazy how much these things are just clustered. You can put them into these buckets of absolutely not going to build that because we’ve evaluated it and you can come up with 10 different reasons of why you wouldn’t build, but you just know that right now, you’re not going to build that, absolutely are going to build it, and it’s “on your roadmap.”
Now, in the early days we were super agile with Drip. Our roadmap was literally 2-3 weeks out, but we had a mental roadmap of where we’re going to go beyond that, but it was certainly in flux. A third bucket is, you don’t know yet, it depends on how stuff unfolds with what you’re currently building. Then there’s this fourth bucket that was the pleasant surprise of, “Wow, no one has ever suggested that and that’s a really good idea.” The issue is that is so rare. I mean it’s probably 1 in a 100, 1 in 200 feature requests if that as you get to scale. At least from my experience with the apps that I’ve built.
It becomes less and less frequent as it goes on. If I got one of those and I was on a call, I don’t know, that would blow me away and it would be a fun thing to dig into with that customer because if you haven’t heard it, you haven’t thought through the context of how it would be used and where they got the idea. I mean, I would really dig into that. Again, I do think that’s an edge case and not something that you’re going to have to deal with everyday.
Mike: I don’t think we specifically mentioned it, but part of comparing their context to yours is where they are in the sales funnel. Are they already a customer? Had they been a customer for a long time? Did they just sign up? Are they just evaluating your products to see if it’s a good fit? All of those things are going to make a difference when you start evaluating what your response is going to be.
Now, when it gets to response, this is step four in the approaches, you’re essentially inserting a massive if statement and a matrix here that indicates how you’re going to respond, because it’s going to depend on a comparison of how critical it is to them, how quickly it can be done, whether it aligns with what you want your product or service to do in the short term versus the long term, what the current state of your business is.
If you are very early on and either you’re pre-revenue or you just started selling it, you have a little bit but you’re not full time on it, all of those things are going to make an impact on whether or not you’re going to decide to move forward with that and implement it, versus you’re going to push off of it. One of the biggest pieces of this is whether or not you believe that you have a better solution to this suggestion or feature request than they have offered.
Sometimes, you just have a workaround. Sometimes you know that you can do it, but it’s not going to be a timeframe that they need. You can say, “Well, here’s a workaround, we can do this for now, and we’ll implement this in a month, or three months, or six months, just because it’s so much work in order to do that.”
That leads directly into step five which is to make sure that your response establishes a common context for the two of you. You want to make sure that you’re on the same page. You don’t want them to walk away from the conversation thinking, “Oh, he didn’t listen to me,” or “She didn’t take my suggestion seriously.” You have to make sure that they understand what it is that you are doing and why. You can go into the, “This is what we’ve tried to do in the past. This is what we’re doing now. This is what we’re going to do in the future,” but it’s extremely important that you make sure that they understand what you’re going to be doing in the future and why you have come to that decision.
They may not agree with you but ultimately, it’s your business. You’re the one who has to make that call. You can’t let the customers decide every single thing that’s going to happen inside of your business. Quite frankly, if you just sat there, respond to customer requests all day, and try to implement everything that they wanted you to do, you would never have time to do anything else. There’s lots of stuff in my business that I would love to do and I just don’t have the time to get to them.
You’re never going to have a to-do list that gets shorter and shorter over time. It will always get longer and you have to pick and choose which things you do and don’t implement. Sometimes you’re going to have to tell a customer, “No,” or “We can’t do that and here’s why,” or “This doesn’t align with our vision and here’s why.”
Rob: Yeah. I actually think that’s where the concept of customer development and listening to your customers does. Especially early product people, it doesn’t mean disservice. I haven’t read every book on the in-depth machinations of customer development, but I know the concept, how it’s used, the definitions and all that. It feels to me like people, whether it’s used correctly or they misuse it, they think that you ask your customers what they want and then you build those. That’s not going to work.
There’s such an issue when your customers are using some type of competitor. This is the major issue, if they’re using a competitor, they’re pretty much just going to ask you to duplicate all of that competitor’s features that they use. That is the non-product person’s initial reaction to everything. That tends to be a pretty bad choice and it’s going to come back to bite you later on.
I think the idea that it’s ultimately your business, points to having a vision for your product that you hold on to but are also willing to adapt. You know when to change it. In the early days of Drip it’s like, “Alright, we’re going to build this little add-on. Okay, now we’re going to change the vision to build an ESP. Okay, now we’re going to change it to add automation.” This division had a through line to it. We never veered off and built shopping carts software which was requested all the time. We didn’t build affiliate management which was requested all the time. There were other things that were just off. It was just like, “No. We’re going to integrate out for those,” but this through line of ESP add-on to marketing automation, we allowed the vision to adapt and adjust. We didn’t hold onto it so tightly that it was like, “No, we’re only going to be an add-on for an ESP.”
We would have still had some success, but we would never have had the success that Drip had. We also didn’t just go around building everything everyone asks. I think that’s a real problem. When you get into an app or someone has done that, you can tell. There’s settings everywhere. I unfortunately see this in a lot of older open source projects. Where people just come in and just bolted on this checkbox, that checkbox, this switch here and there, because they had some unique use case.
Frankly, if you’re building a SaaS app for the long term, thinking about how not to clutter your UX, clutter your app with these features that just make everything more complicated but almost no one uses or these edge cases, is something you really need to think about, because you can make a choice today that will just come back to bite you for years to come.
Mike: And running at the end of this approach is that you should always thank them for looking out for you. Find out if they have any more questions. Make sure that they understand what the responses that you’ve given them and why you have come to the conclusion that you have. Again, it’s not saying that they’re going to agree with you. You just want to make sure that they understand why it is that you made that decision. Part of this is just about making sure that they walk away having a good feeling as if you listened to them, and you truly understood what it is that they were asking for and made the decision, “Hey, that’s not right for this business and it’s not going to be right for you.”
I’ve heard from people who I’ve said, “Hey, this is not going to happen at any time frame that is close to what you’re looking for, you should probably find something else,” and then 6-9 months later, I’ve had them come back and say, “Okay, we tried a bunch of other things and those things didn’t work. We would like to come back and revisit this with you.” People appreciate you being candid with them and giving it to them straight. They don’t want to be jerked around. They don’t want to be told lies. They hate it when a sales rep will make promises, then suddenly they get in, they’ve spent all this time and effort trying to integrate their systems in with yours, only to find out you can’t deliver, or you haven’t delivered on exactly what it was that they wanted because you didn’t understand and you guys weren’t on the same page. Make sure that they know what they’re walking away from and make sure they understood what you’ve told them.
Rob: I think some additional thoughts we can run through is, sometimes taking a request that’s fast and simple, and something you can build in an hour or two, buys a lot of goodwill, even if it’s not a current priority for you but it’s something that you know you want to build long term, or if it’s a good suggestion. I loved doing this in the early days of both Drip, HitTail. There were other, Wedding Toolbox. There were other apps that it was the best.
I get this email and say, “Hey, how come I can’t blah, blah, blah, or can I?” and you would literally go write the code, ship the code, and then respond back within an hour and be like, “Hey yeah, that’s available now. We just implemented it for you.” It is the best feeling to be able to do that. It’s something you can do less and less as you scale, but I just love that idea. Again, only if it’s something you’re going to build. You don’t just want to add cruft because it’s quick. That’s also a mistake early product people make.
Mike: Another huge thing is that the communication medium that you’re using is extremely important because what you say and how you say it is going to be a lot different based on whether it’s a chat message, or an email, or Skype, or Zoom Call, or video call, or something along those lines. It’s a lot easier to determine if they really agree with you on a voice call than any other medium.
If you are having conversations in that particular communication medium, it’s so much easier, and so much more effective. The downside is that you don’t necessarily have as much time to think, so you have to make sure that if it is not something that you have thought of in the past, that you write it down and take notes, and give yourself an opportunity to say, “Look, I haven’t really thought about this. Let me think about it some more and I will get back to you.”
There’s a lot of times where just having time to think about it more is going to give you a lot more clarity on whether or not that suggestion is a good fit. You can always just say, “Hey, I really appreciate you looking out for us and I have written down a bunch of notes. I’m going to think about it and I’ll get back to you in three days, or five days, or what have you, with an answer about what it is that we’re going to do about this.” That way, you can take it offline into an email instead. Make sure that you follow through on those commitments because if you don’t, that’s going to reflect poorly on your business overall.
Rob: To come back to an earlier thought, you can’t possibly do everything that people request. You can’t possibly do everything you want to build. You have to pick and choose. You have to prioritize. You have to say no to a lot of good ideas. What separates a decent product person from a great product person is their ability to choose the right things to build because no way you can build all the good ideas that everyone has. A lot of things sound like good ideas and they might ultimately be, but it’s part of being a founder, or being a product person and deciding, “What is my vision for this? Which gets the most bang for the buck? Which will delight the most customers in the deepest way?” and that’s where you have to take a look in the mirror and just say, “We’re going in on this.”
I hope that was a helpful discussion and that wraps us up for today. If you have a question for us, call our voice mail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 435 | The Value of Startup Accelerators, Better Onboarding, Liability Insurance, 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 the value of startup accelerators, onboarding, liability insurance and more.
Items mentioned in this episode:
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week sir?
Mike: Well, I wanted to give a congratulations to Ty Wood. He was the winner of the AppSumo contest last month and he won a all expense paid trip to both MicroConfs.
Rob: Nice.
Mike: That was courtesy of AppSumo. I just wanted to say a big shout out to those guys and say thank you to them for sponsoring that. We’ll see Ty Wood at MicroConf.
Rob: Yeah, Ty, please come up, introduce yourself. It would be good to meet you. Thanks to AppSumo for that. Speaking of MicroConf, I believe this episode goes live just a couple of weeks before MicroConf. I’m guessing we might have a few tickets left either for Starter or Growth. If you’re interested with hanging around with a couple of hundred other serious SaaS software startup founders, you should head over to microconf.com, take a peek at it and hopefully, we’ll see you in Vegas.
Today, we’re going to dig into some listener questions after we’re down to absolute zero a couple of episodes ago. We got a nice little influx, we got a few voicemails, but I wanted to kick us off with first a thank you from James.
He says, “Hi, Mike and Rob. I’ve been listening since 2014. I’m a solo entrepreneur living in Central Africa, in Burundi, Rwanda. Here, we don’t have angel investors. Instead there are people with cash but most of the time, they aren’t people who share my same values. There’s a lot of financial corruption here. I decided to go solo, train another developer. Now we have two main products that can serve two different niches locally. The wisdom on your podcast has helped me so much during my journey. We have different realities, but I regularly find motivation to continue on and a clear understanding during the journey, so thank you so much.”
Thanks so much for that, James. I really appreciate it. We started the podcast, both to find other people like us because it was like, “Hey, you and me, are the only people doing this,” and then to find a handful of others that were doing it? Along the way, I’ve really seen it as an amazing by product that we’re able to help people whether it’s directly or indirectly, whether it’s us just talking and giving motivation or tactics or through the conference that we started and the community we’ve built. I love getting emails like this. these kinds of things make my week.
Mike: Yeah, congratulations, James. It’s hard enough to put one product together but you’ve got two that are serving two different niches and both helping out underground where you’re living. It’s fantastic to be able to help out the local community and be able to make a living from it as well. Really appreciate hearing from you and best of luck with that.
Rob: Our first question of the day is a voicemail on the value of joining an accelerator if you ultimately want to raise institutional funding.
“Hey, Rob and Mike. This is Sree, cofounder of clocr.com, it’s short for cloud locker. We are an early stage startup company based out of Austin, Texas. CLOCR empowers you to manage and protect your family’s most important documents and enables you or your loved ones to have instant access in case of financial, personal, or medical emergencies. We are currently in a pre-launch stage and we’re giving away about 1000 lifetime subscriptions for early adopters. I found you guys about four months ago on the podcast and it changed my life forever. Seriously. The amount of guidance you both provide is invaluable. I wish I had found this podcast about a year ago. Please do keep up the good work. I can’t wait to meet both of you at the Micro Conference.
I found several co-founders for CLOCR and that is [inaudible 00:04:20] our LinkedIn and angellist. I’ve been self-funding CLOCR for about a year or so—less lower than a year. I’m getting ready for the launch in the next four weeks. My strategy is to seek a small amount of funding, $200k-$300k for the next 18 months or so to a kind of a workable debt. Our plan is to aggressively bring in users before going in for institutional funding. I denied a few requests for funding. Here are the questions: Now that I have a few advisers joining CLOCR and I continue to add advisors as we go, is there a value in going down the accelerator path? Will that add any value in terms of the buzz and visibility or will it be a distraction? Will these accelerator programs help set-up for funding, or will they help me grow the user base? My main goal is to increase the user base and set-up the [00:05:17] vision thing and folks to build the company. Second question, I do like the participate in a startup innovation competition, do you have a short list of companies that we can participate on? Thank you.”
I kind of took three questions away from that. He said, “Is there value in joining an accelerator? Will it provide buzz or visibility?” Second question is, “Do accelerators help grow the user base?” and will it help him get set-up for funding or will it be counter to that, will it be a distraction. The third one is about innovation competition.
I think I’ll start with the innovation competition and say, I don’t know, I would probably just Google it. There’s one called 59 Days of Coding in Fresno. That’s really the only one I’ve been involved in that and that’s the only one I know off the top of my head.
Mike: Going back to Sree’s first couple of questions, is there value in going through an accelerator in terms of buzz and visibility. I would think that for some accelerators you would get some buzz from it but for something like CLOCR that is more B2C oriented, I suspect that the buzz you get from it is probably not going be to nearly as helpful. They may have PR outlets that could help you generate more publicity and get in front of more consumer type of users. But I think the main value in joining an accelerator—I guess there’s a couple of different things you can get out of it—but the first one would be the mentorship.
It’s not necessarily about growing your user base directly by virtue of joining an accelerator but rather you get mentorship to point you in the right direction and helps guide you in terms of what other people have done before you, what mistakes they’ve made, what things they’ve done that’s gone really well, people they can introduce you to, the network. Those are the types of things that are going to grow your user base. It’s not like you just join and you suddenly get a magic ticket that pumps 5000 new users into your app. It’s not how it works. You have to basically go through the program and talk to people and figure out what it is that you’re supposed to do that’s going to have the most impact and then go do it. That is going to grow your user base.
The other thing that the accelerator’s going to do for you is if it’s coupled with funding of any kind, it’s going to help give you runway and allow you to focus on working on the business as opposed to working on it as a side venture. Because if you’re trying to do something nights and weekends, that’s great and all, but you only have so much time to do that, and a lot of your time is probably going to be spent on your main job trying to make ends meet for you and your family. Getting rid of that as a distraction is going to be one of those main benefits of that accelerator.
The other one is if you’re looking to raise money down the road, an accelerator, going through a program like essentially gives you validation, and to some extent, trust from other investors that, “Oh, this accelerator invested in me and the business because they believe what we’re doing.” By virtue of that, that’s transferred to other investors. There’s a lot of credibility that you can gain in your business just by virtue of being attached to them. But because they have presumably vetted you in some way, shape, or form in order to accept you into the accelerator program.
Rob: I would agree with that. I imagine someone gets 900 applicants and they pick 10 and you’re one of the 10. There’s some signaling there. There’s some halo effect—I don’t know what you want to call it—but you were chosen. It’s different but it’s like getting into Harvard or getting into Yale; you make it through a selection process and that does lend some type of credibility.
I think like you said, it’s going to depend on the accelerator. I mean, there’s hundreds of accelerators and some of them are going to be really good, like helping you grow your user base. But you can either contact prior companies who have gone through it or you can look at the people who are running it and who the mentors are and think to yourself, “Do those people know how to grow a user base? Do I think that their advice or their network, whatever it is that they have can help translate into that?”
I have seen accelerators where I’ve looked at the list of mentors and I don’t know who any of them are or a lot of them are business coaches or college professors or people who maybe have not run a business directly. That’s always a question in my mind of like, “Are they going to give me MBA advise or are they going to be boots on the ground and really dig in to what’s going?” That’s one question I would ask about how to do that.
Certainly, a top name accelerator like YCombinator or TechStars, I think that gives you buzz and visibility. Obviously, the elephant in the room is I run TinySeed which is a startup accelerator designed for all community. I think that there will be a certain amount of buzz and visibility given within our sphere when we announce. I think that as time goes on that buzz and visibility will get bigger and bigger as we become more successful, and as our alumni, do more interesting things.
Our answer is probably the same, yours and mine. It’s like, yeah there is value, but I also—you’ve probably heard this advise of like, “If you’re going to get an MBA, you do it for the network and you do it for certain things.” There’s advises I don’t bother getting it from bottom tier school because it’s not the information, it’s more about the prestige of having Harvard on your diploma or whatever. I would think similarly of there are going to be accelerators that I’ve heard that don’t bring a ton of value. This is not a blanket answer for all accelerators. There really is a vetting process that you’re going to have to go through.
I think his second question was kind of like, “Do accelerators help set you up to raise subsequent funding?” My understanding is pretty much unequivocally, yes. That’s actually the goal of most accelerators, to provide you enough money to get to that demo day to have a product to raise funding. TinySeed in particular, that’s not our end goal, but there’s nothing in our terms or even in our goals for our companies that say you should or should not raise subsequent rounds.
One example is some of the angel investments that I’ve made in the “bootstrap space” most of them have not gone on to raise subsequent rounds but one or two have. I’ve been super encouraging about that because the founder saw the opportunity, wanted to level up, the money was there, and the choice is something you evaluate when you get there. I guess the answer to, do startup accelerators help set-up for funding, I think across the board, yes. I don’t know of an accelerator that won’t help you do that, that won’t connect you to angel investors or VCs down the line should you want to raise that money.
Now, one thing I would say is that there are some funds that are offering money to the bootstrapper space that do have clauses in them that will make it hard to raise funding later on. Just be sure you have a good lawyer, or you really look at the terms, or read. There are comparisons of these alternative funding approaches, the non-traditional VC stuff. Do your research and figure out, “If I did want to raise the $2 million later on, is this basically a poison pill?” Poison pill clause doesn’t allow me to do that. As I’ve said, we do not have that in Tiny Seed. We’re going to make it very easy to have [inaudible 00:12:37] investments. I’m thinking most will but there are some that whether intentionally or accidentally do have some clauses but those are not, as I said, they’re not accelerators.
The last thing I realized, innovation competitions. Since he’s a B2C, you should try to go on Shark Tank. It’s not a competition per se. I don’t think Shark Tank is the [00:12:58] all of anything but I do enjoy it for the entertainment value and that’s why B2C companies go on there, is to get that exposure. In addition to potentially getting a high-profile investor, but just going on there is going to drive some interest.
Mike: I’ve seen stories of people who’ve gone on to Shark Tank and whether they got a deal or not, sometimes there’s stories that circle back on those companies afterwards. There is that exposure piece of being on there whether that investor helps you or not doesn’t matter because people will see you. They see your business, they see your company, and you’re getting exposure that you probably would not have gotten otherwise.
Rob: Thanks for the question. Super interesting one. It’s good for this community to be thinking about it and talking about this. our next question is super interesting. It’s about how to better communicate to users who should be connecting to an existing SaaS account. Basically, they’ve been invited as sub-users but instead, they’re signing up for new trials over and over and over. Let’s listen to this one.
“Hi guys. It’s Jarrod from sportstrackerapp.com here. We run a website that helps teachers and students organize their track and field and swimming needs. We’ve been really successful watching it grow. At certain stage, we introduced the feature that will allow admin staff to welcome sub-account access to their students so that they can login and register themselves into different events.
It’s dramatically cut down the workload of the admin staff. However, we’ve noticed that since opening up this feature, some students—regardless of the communication that we make available to the admin staff—students are coming through and signing-up to the website as an admin user and starting trial accounts and obviously, that’s not something that’s even remotely close to what they need to do.
What actually happens is the admin staff are given a piece of print out paper or an email that they pass onto the students and it sends them to a different URL [inaudible 00:15:13]. However, regardless of that communication, we still can’t get past the few students signing up on a daily basis. What thoughts do you have around making this as clear as possible without making a trial require a credit card, because obviously that would stop students. I look forward to hearing what you think about it. Thanks!”
Should we start by saying how we would design the ideal flow just to make sure, because I know he said no matter what the communication is, the students still come in sign-up for the trial. But could we walk down the steps of how we would do it. What would the ideal flow to at least communicate to them so that maybe there’s one or two things that he’s not doing that they could try then actually get to his question.
Mike: I think that there’s a couple of assumptions that you need to make or at least clarify as part of this while we’re going through this mental exercise. Are we assuming that this app is design explicitly for colleges, universities, schools, etc., and then the students that are part of it? Or is it like a general-purpose app that can be used outside of that system because it seems that this is a very specific situation. I’m not clear on whether or not the app is geared that way.
Rob: I think it’s focused on the niche of sports, managing sports teams. I’m guessing it’s more like junior high high school.
Mike: Okay.
Rob: Let’s make that assumption.
Mike: I guess based on that, it sounds like that the fundamental problem is that there’s confusion passing the information onto the teachers as to how to invite those students. If they’re getting forwarded to a particular URL, that’s fine, but if they’re printing something out and handing it to them and then the student comes to the website because they see that on it, that poses something of a problem.
I think that one thing that does come to mind though is if this is such a serious problem and it comes up constantly then I would take a look at the sign-up process itself and ask people when they go to register, are they a student or are they a teacher/coach or whatever. By that, you could basically interject yourself into that sign-up process and say, “Well, if you are a student coming in here, chances are you’re not going to be signing up for an actual trial of the product, you actually want to be attached with a sub-account.” How do you direct them to that?
Obviously, that’s going to depend on whether or not they’re signing in with an email address that is part of the school system for example. Because with this, you can match them up and let them select stuff, but I don’t know how much privacy controls or concerns are around that either. I think that the very first thing that I would look at doing is seeing whether or not you can differentiate between a student signing up and a teacher/coach because that right there should tell you whether or not they should be actually creating a trial or not.
Rob: I would agree with that. I think that what you could do is sign-up for trial and it’s like, “Are you a student? Are you a coach or administrator?” If they say student, then you default to saying, “You should’ve received an invite from your whatever. Check that email or check the flyer. But if you really are trying to sign up for a brand-new account for your school, then click here.” Make it like really have to opt in. you have to double opt in if you’re a student where you have to click that and then click another thing whereas if you’re a coach or administrator or whatever, then make that the default.
The other thing I was thinking about—I’m trying to think how to make this work. What I’m imagining is that I’m a coach, I have my account, I log in, and it says, “Invite Users.” I can enter some email addresses of students. Then it either gives me a PDF to print out and physically hand to them, he said, the physical paper, or it sends them an email. What if on that PDF and the email that goes to the student there is no mention of the name of the URL? It does not say Sports Tracker. All it says is, “Your coach so and so is inviting you as an administrator on the thing that organizes your sports team. Go here to sign-up or to accept this invitation.”
That URL could feasibly be just a totally different URL. Just pick whatever, a random one, thesportstrackersignup.com or even just signupfortheapp.com—just pick something. If they go to the homepage or if they go to the full URL, because my guess is it says like right now, it’s sportstracker.com or .com—I don’t even know what their URL is—but let’s say sportstracker.co/ a bunch of stuff to accept the invite, and people are just typing in sporttracker.co and then hitting trial. Don’t even allow them to do that. Just give them a completely different URL and the homepage is something that says, “You need a special code. Enter the code in the URL,” or whatever. You can figure out a way how to do this intelligently but not let them get back to your main URL in anyway because you can control the message. You have this PDF and this email that go directly to them. What do you think about that?
Mike: I think that’s fine. Unless you have a situation where the professor or the coach or whoever is telling them, “Hey, I use this app. Here’s the name of it.” Because if they search for it and I think that that’s the problem he’s alluding to is that if they go online, presumably they’re web savvy enough to go online and search and then they come to the website. The one thing I would think about is giving somebody a sign up that is literally just a single field that says, “Accept Invitation,” or something along those lines or as you said, give them a PDF that they can print out.
I don’t know the mechanics of how it’s currently being done because do you want to just print something out that’s exactly the same for all 30 people on the team or do you have individual ones for all 30 of them? I would imagine you would want the former rather than the latter so that you don’t have to plug in 30 different email addresses. You print the exact same thing, hand it out to everybody in the team and say, “Go here and do this.” And then they basically join. Maybe it’s like a 6-digit code or a 10-digit code or something like that. They just go to, as you said, the URL, plug it in, and that’s the end of it. I think hiding the name of the product is probably the best bet because that way, the kids won’t search for it.
Rob: To be honest, Sports Tracker, when I go to just search for that phrase in Google, there’s a bunch of iOS apps that come up. I can’t find the app that he’s talking about in Google right now. There’s sports-tracker.com, there’s SportsTrackr with no E, there’s all these things and I don’t think any of them are his app. I actually don’t know that even hiding the name, I really think it’s just the URL. You know what people could do is if it says Sports Tracker on the PDF and they go to Google and type it in then sign-up for the first one, it’s going to be the wrong app. Maybe they should just hide the name and the URL and try to get them there.
Like I said, it’s an interesting problem—user behavior thing—to have but I think there are probably some ways that we’ve thrown out. Hopefully, those are helpful to him. Thanks for the question.
Our next question is about liability insurance. It’s from Z and he says, “Hey guys. Could you talk about what types of liability insurance SaaS companies should get? It’s very confusing, there’s not much information out there. What type of insurance should founders get for their companies depending on the stage they’re in and to protect themselves and the company?”
We have talked about this in the past, right, Mike? We’ve talked about getting an LLC and maybe worrying less about the insurance aspect of it because you have the liability protection there in the early stages. Obviously, we’re not attorneys, we can’t give legal advice and really, you should not take advice from two chuckle heads like us. But in the early days of a product, I would tend to have any type of E&O insurance. When you have 10 customers or something unless you’re in a particularly litigious niche.
Mike: I think the question here is different though. He’s talking specifically about liability insurance versus the liability of having things under a company. To his point, this is very confusing and there’s not much information out there. The reason it’s confusing is because insurance is one of those old industries where they profit based on your lack of knowledge and them being able to be kind of opaque about stuff.
If you go to, let’s say, two or three or five different insurance companies and ask them for a quote for liability insurance for your company, they’re going to say, “Okay. Fill out this form and give us a bunch of information.” Every single one of those forms is going to be different. It’s not like going to a sandwich shop and ordering a ham sandwich. That’s going to be basically the same between 30 different ham sandwich shops.
But with insurance, even liability insurance, it’s different for every single one of them. They’re going to have different questions, they’re going to want to know different things, and each of those forms is going to be different. Then they’re going to plug it in their back end of the engine and they’re going to say, “Okay. Here’s the risk profile, etc., and these are the things that we cover.” If you compare the output of each of those plans, there are going to be differences between them. It’s not like there’s a standardized liability insurance. There’s going to be some like Plan 1 from Company 1 might include XY and Z and then the same exact information that you gave to Company 2, they’re going to say, “We cover X and Y,” but they’re not even going to mention Z because it’s not covered but they cover QR and L.
It’s complicated and the reason you’re finding it that it’s confusing is because it is confusing. It sucks. It’s weird when you have to go through those things but really, there’s the umbrella policies. You have to be careful about what you’re doing in terms of what access to customer information you have, what your access level is to your on-site software or databases, or level of access that you need in their environment. All those things are going to be questions, are beyond those forms. Every company is going to quote you differently.
Rob: Yep. Insurance—not fun. I think that to protect yourself from personal liability, you can of course get an LLC or an S-Corp or whatever is the equivalent in whatever country you live in. I tend to say, when you’re young and you don’t have a lot of money or what’s called judgement proof, no one’s going to sue you because you don’t have any money. When you get to the point where you have some assets, I recommend getting a personal liability plan. I shouldn’t say recommend, this is what I have done. [inaudible 00:25:43] recommended to me and this is what I did, and it’s to get a personal liability coverage.
You can get $1 million or even a $2 million coverage for literally a few hundred dollars a year protects you from personal liability if you get in a car accident and someone sues you because their neck hurts or whatever. I think it protects your personal wealth and I don’t know all the details. It’s going to depend on your circumstance in the policy you get as to whether or not someone piercing a corporate veil. You don’t come in through an LLC after your personal asset. It’s going to protect that or not.
And then if you really want insurance for your company, personally, I would go to foundershiled.com, that’s who I use. I’m trying to think of some type of E&O or some insurance when we had to deal with a big Fortune 500 company and they required us to have, of course, crazy stuff that no one else requires you to have. I went to foundershiled.com, had a great experience with them when they were first starting out. They’re much further along now and really can’t recommend them highly enough for folks like us who really don’t want to deal with all the nuts and bolts of it but kind of need to get some [inaudible 00:26:49].
It depends on your risk tolerance how soon you want to do this but those are our general thoughts. Thanks for the question, Z. I hope that was helpful. Our next question is from Hamish and it’s about outsourcing development and NDAs.
He says, “I’m a new listener. I’m catching up with previous episodes. I’ve a question. I have a website which at the moment is no more than a hobby. I want to outsource some development to see if I can take it to the next level. I’m presuming NDA is not worth much for a small website. Should I be at all bothered about giving access to the code to a third-party developer? Are there any basic steps I can take to protect the copyright and the ideas?”
What do you think, Mike?
Mike: It goes back to the standard disclaimer: We’re not lawyers or insurance agents. An NDA is probably not going to be worth the time. The one thing I would be aware of or at least pay attention to is it when you are having somebody else build the code for you or write anything for you that you want to have a contract of some kind in place. If you’re hiring them through something like Upwork, that is generally taking care of it for you, but otherwise, you’re going to want to have something that says that it’s essentially a work for hire and that you own the output of that. That is probably the most basic thing that I would do. That ensures that you own whatever it is that they write for you. Beyond that, I don’t know. I wouldn’t worry too much about it because at this stage, it’s just an idea and it may or may not go anywhere.
Let’s say that they build it and you start making a couple of thousand dollars a month from it. The chances of them stealing it and trying to do the same thing, I would say are probably small. But even if they did try to do it, it’s not the app itself; it’s all the marketing and the sales engine and the sales funnel and emails—all the stuff that you do alongside of it—that is going to make that much money, it’s not the code itself and the app.
Rob: Yeah. I’m not sure how much I have to add there. There’s always risk with this kind of stuff. I would say that I’ve had dozens and dozens of developers that I’ve hired, some for really small projects, some for really big ones. As far as I know, none of them have ever stolen my code and gone off and tried to compete with it. I mean, maybe here’s a chance that I had a class in something that interacted with Stripe or with Twilio and they took it and used it in another project. How would I possibly know? But I have not had that experience.
I think that it’s easy to be bothered by this stuff. I think it’s easy to be overly concerned with it. It does depend on risk tolerance, but I would really air on the side of just hiring someone good and interviewing them to the point where you trust them and letting them do it and trust that they’re not going to steal your code because most people frankly, want the paycheck. It’s just so much effort to steal your code and try to do something with it. The odds of it happening I think are pretty slim.
Our next question, Mike, I pulled off of Quora. It was in the startup section and it said, “How much should an MVP cost?” What do you think about that? I love the premise of the question. It’s just like, “Oh boy!”
Mike: How much should an MVP cost? This seem like a trick question.
Rob: I would say that an MVP should cost zero.
Mike: Zero, yes.
Rob: I mean, not in all cases but remember, an MVP really shouldn’t be a software product, if at all possible. It should be me strapping a Google spreadsheet to Zapier, to a VA, to me peddling a hamster wheel that makes the thing go on, and to make give the appearance that I have a product but in fact it’s just all human-powered. I mean, that’s just one example. But I think an MVP should as little as possible. Take the number in your head and remove a zero or two.
Mike: I think the interesting thing about this question and maybe is because it comes from Quora, there’s people who are not necessarily as experienced in understanding exactly what a minimum viable product would actually be. But really what you’re looking for there is, “What is the least amount of work you can do to answer a particular question?” And you have to start with the question. If you don’t start with the question, you’re really not doing the whole MVP process correctly.
That’s kind of the core of the issue here I think is if you don’t understand what an MVP actually means, then asking how much it should cost is almost irrelevant because it really depends on what the question you’re trying to answer is. Like, “Will people pay for this?” “Well, just go online and do a Google search and see if there are other products out there that exist that solve that problem. If so, then yes.” That’s a very simple thing to do and it costs you absolutely nothing more than a few keystrokes. But if it’s a lot more complicated like, “Can you get $1000 or $10,000 people to your website in order to validate that you can acquire that traffic in order to potentially sell them something?” Well, that’s a very different question that you’re trying to answer. The amount that it’s going to cost is going to be different.
I would actually differentiate between how much time it’s going to cost you versus how much money and over what time period because all three of those things are very different. You might be able to find out a piece of information, but it could take three months. It might only take an hour or a week for the three months but the total time span that it takes is going to make a difference. If you’re trying to validate a couple of different ideas against one another or answer several different questions, it can become difficult to answer all of them in a time frame that is appropriate to whatever your current life situation is.
Rob: Yup. I think those are good points. Like I said, I think it should cost, frankly, as little as possible. You should be able to strap together a lot of tools and not have to actually build software if you’ve validated to that point or you get your 10 or 20 buy-ins, your purchases, pre-purchases, commitments, or whatever you’re going to do. I agree with you. I think I like the different dimensions you put on that words like there’s price, there’s hours of your time, and then there’s duration–is it 6 months or 12 months or 2 months or whatever.
I would love to get an MVP done in less than two months for, I don’t know, less than $5000, less than $10,000. It depends on who you hire. If you hire in the States, it’s going to be more expensive. It’s kind of hard to say, I think but I do think it’s an interesting thought experiment. It’s like, “Are you building an MVP of an email service provider or are you building an MVP of a little form app, like something that compete with Typeform or Google Forms or something.” That’s a totally different use case.
Again, if you’re going to give people Type Form, you just build the form UI, have it go straight into a Google spreadsheet so you don’t [inaudible 00:33:48] have a database and then to actually build the UI to build the form, you manually build that directly with your customers, you don’t build any type of form builder. You know what I mean? That could literally be like a weekend project of just displaying a landing page with the forms that you plug into some XML file or some database or JSON thing. That’s pretty minimally viable but it would be a product if you’re trying to test something out.
Anyways, I think that probably wraps us up for the day except for our final question of the day, Mike. The Star Wars Holiday Special marked the first appearance of which Star Wars character? There are four choices: Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian. Do you know the Star Wars holiday special? Have you heard of it?
Mike: I’ve heard of it.
Rob: It’s from the ‘70s. It’s awful. Go to YouTube and look it up. It is really not good. There’s this thing called life day and there’s wookiees and it’s really not canon.
Mike: I sort of vaguely remember hearing about it or seeing it. The question is which of these four characters shows up for the first time in that?
Rob: For the first time in the Star Wars Holiday Special that came out in ’78. It’s Jabba the Hutt, Boba Fett, Jar Jar Binks, Lando Calrissian.
Mike: I’m thinking Boba Fett.
Rob: You are correct.
Mike: Yes.
Rob: It’s in an animated segment of the show.
Mike: Oh!
Rob: Yup. This has never been released on video but as I said, you can hit YouTube or other places to find recordings of it.
Mike: Oh, that is shockingly nerdy.
Rob: It is. It is nerdy. I couldn’t get through it. I watched five minutes of it, and I had to scrap it.
Mike: Is it that painful?
Rob: It’s awful.
Mike: It’s painful as a podcast and our jokes.
Rob: Yes, it is indeed.
Mike: Oh, that’s terrible. Well, on that note, if you have a question for us, you can call it into our voicemail number 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 434 | SaaS KPIs You Should Focus on From Day 1
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about what KPI’s to look at when launching, key metrics you should track, and what they should be.
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 Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Rob?
Rob: Well, I got my tan on in Mexico. I mentioned that last episode. We got out of Minneapolis for about eight days and it was good. It was interesting that that my two boys got so much sun the first day. They got a little sunburn, but it wasn’t bad. They then the next two days had fevers and it was almost like they had sunstroke, because we have been out in the sun so little since whatever, October.
It was a trip. I was like, did they get vitamin D overload? What was the deal? But they both got sick. It was Mexico. Several of us had stomach issues, but the boys didn’t and they had this different reaction to things. They were all hot and they were tired with headaches. It was definitely like sunstroke attributes.
Mike: Interesting. I wonder if it’s just a byproduct of living in California first of all.
Rob: What do you mean living in California?
Mike: Well, because you live in California and then you moved to Minneapolis. Suddenly you’re not getting any sun and then you go back. It’s almost like dying of starvation or thirst, you suddenly get it, and then you get sick because of it.
Rob: Totally. The thing was, my boys tan really well. Before we went to Mexico, they looked grey. They looked like this really odd grey color, because again no sun exposure because it’s so cold. It’s super sunny here in Minneapolis, but it’s just so cold. You don’t go out without coverage. Your face is typically the only thing showing. If you’re going to be out for an extended time, you have gloves on, you have stuff over your arm. It was a fun trip overall and I’d recommend it.
We actually went to this smaller town called Sayulita. It’s about 45 minutes north of Port of Aorta. I know you mentioned you’ve never been to Mexico. For your first trip, maybe do go to Cancun or Port of Aorta. Those places are fine, we’ve gone there. Once you go there once, it’s super touristy, it’s packed with people and you’re not among the locals. You’re just a bunch of other vacationers. You’re hanging out with other tourists.
Whereas Sayulita is small and it’s 45 minutes north. It was a much better experience. It felt slightly more authentic and we still had access to what we needed in terms of food and such, but it did feel just like a better experience. Folks listening, if you haven’t checked it out, I recommend it. How about you, what’s going on?
Mike: I’m in the process of going through the scholarship applications that came in.
Rob: For MicroConf, right?
Mike: Yes, for MicroConf. I really think that if I were going to make any predictions right now, that this would probably be the single biggest mistake that I will make for the entire year. I forgot to include the email address field until basically like 2/3 or 3/4 of the way through it and I didn’t notice it until then.
Rob: You have a scholarship application like a Google form or Typekit, you send an email to the MicroConf list, you send people to come apply for scholarships, they give all this information, and you have no email address form?
Mike: Exactly.
Rob: That’s nuts. There’s no way to map since it’s third party. I was trying to get you the link back because when they click through the Drip email, there’s going to be their subscriber ID and the URL, but there’s no way to go back and try to get that matched up or anything.
Mike: No, not from a Google Form. The thing is, it’s not even that I actually forgot it, it’s that it disappeared because I copied the application form from last year. I don’t know what happened. I must’ve clicked something and accidentally deleted it or something, I don’t know. I didn’t notice until well into it and I was just like, “Oh my God.” I’m in the process right now of going through and trying to figure out how to reach each of these people. The nice thing is, because it’s an application, it asks for a lot of information.
Most of the ones that are missing, I have at least Twitter account information for it. I can send them a message and try and get in touch with them through that. Then other ones I’ve been able to map back to some of the different email lists that we have. The one really helpful piece of information is that I ask where they heard about it from and if they say email list, then I can go look at the email at list.
If they say that they heard from a certain person, I think there was only one, possibly two that I’m not sure how I’m going to be able to get that information. But I think for the most part, I’m going to be able to clear it out. It’s just going to take time and effort though. That’s the part that sucks.
Rob: That’s the thing. These are those fixable problems that are a ton of ground work to get done. It’s like, “I could have saved myself hours taking through this thing if I’d remembered to put the email address.” I have done this plus way worse. These are things that happen as you’re moving fast and doing a bunch of stuff. That’s brutal.
Mike: Oh well, I got to do what I got to do, though.
Rob: Yeah. My guess is you will never ever again forget to put an email address on a form like this.
Mike: Like I said, I don’t think I forgot. I think it’s accidentally deleted.
Rob: It deleted itself, yeah. From my end speaking of applications, the TinySeed application process ran for a month from mid-January to mid-February. I guess around four weeks. We got just under 900 applicants. It was a lot more than I thought. I was ambitious in hoping we’d get 400. I had heard through the GreatFind that a lot of more well-known accelerators get 500 to 700 depending on location. I’m sure Y Combinator gets more than that I’d imagine. It’s a big number and it’s what I’m very happy with.
It also creates what we call a good problem to have. The good problem is we have a lot of applicants. The bad problem is, I’ve been sifting through almost 900 applicants for the past two weeks. It’s just a lot of work. I’m not complaining obviously because this is what I would want to be doing, but it’s definitely going to be a process to get through all these. I already started having conversations with founders as I mentioned a few weeks ago. It’s going well.
Mike: Awesome. The only other thing on my side is that I’ve got an upcoming webinar that I’m going to be doing for hr.com which is kind of, I don’t know, you look at those 2-letter domain names and you’re like, “Wow,” it’s nice that I was able to finagle that. I’ll be doing a webinar for them on personalized email strategies to drive traffic, engage leads, close deals, and more. That will be on April 29th and I’ll link it up in the show notes in case anybody’s interested.
Obviously because it’s for them, their audience tends to be people who are reaching out to HR professionals in that particular space. They have a couple of different audiences, but one of them is the HR reps themselves, and then the other one is people and vendors who are trying to get in touch with HR people. This is basically aimed at those people who are trying to get in touch with the HR reps. It’s more of a general presentation that I’m putting together for them. It could very well be applicable to people who are listening.
Rob: We will link that up in the show notes.
Mike: I know I did the intro today, but what are we talking about?
Rob: Actually, we designed the entire outline around a listener question. I’ll play the voicemail in a second, but it’s about what are the key performance indicators or KPIs. By the way, I hate that term. I feel like it’s such an MBI, I hate it. It’s a shorthand that everyone understands. What are the numbers, the metrics that you should be tracking when launching and growing a SaaS app. Let’s dive into the voicemail here.
Adam: Hey Rob and Mike, I’m Adam Hawkins. Thanks for running the show, it’s been awesome. I’ve learned a lot from you over the past few episodes and I appreciate that both of you mention metrics and discuss these app businesses. One of you mentioned that you needed to have X thousand visitors on your landing page to pull your funnel in a previous episode. That really got me thinking of a fellow bootstrapper. Here’s my question, what are the KPIs and target values in launching in SaaS? I’m kind of thinking something along the lines of numbers that will keep me on track in launching my own SaaS. That’s all for me. Thanks guys and keep up the good work.
Rob: The first thing I want to say about this is, when we make statements like you need X thousand people to hit your landing page to validate or whatever. Often that’s a rule of thumb and it’s something to start from, but please don’t take that as gospel. I think in the past we’ve said you need 30 people, or you should talk to 30 people and have them say yes to your product, and consider that validated.
With Drip, I only did 10. It just depends. It’s all a spectrum. It’s like a risk tolerance. These numbers are not set in stone. None of this stuff is set in stone. With that said, there are rules of thumb. From doing this for 15 years, you start to see patterns and you know that a metric is out of whack if, let’s say I have a SaaS app that’s $50 Bucks a month, I ask for a credit card upfront, and my trial to pay is 10%. I know that is way too low and we have a major problem in our funnel.
That’s what we’re going to talk through today. These loose ranges when I see an app performing at 40% versus 60%, how we think about that, and how it indicates where you might have an issue in your funnel. It really helps you figure out what to focus on, because at any given time, you’re going to have one or more things that are just going sideways with your business. It’s just the nature of doing startups. You’re always that duck on the pond where above the water, you look like you’re just gracefully moving along, and under the water you’re just paddling like crazy to stay afloat. Your numbers are sideways and you got to figure out what do you focus on.
That’s really the point of this episode. It’s to try to give you some guidance so that you’re thinking about it as someone with a background. Even if this is your first time that you’re kind of taking the wisdom and the rules of thumb from us. Basically, folks who have seen these SaaS apps, seen a lot of numbers, know what a healthy SaaS business looks like, and know where to focus on to help improve them.
Mike: Yeah. As you said, these are guidelines and general patterns. It doesn’t necessarily mean that if you are in this range, then things are going great. I think one of the big drawbacks of using this information as gospel is the fact that you never really know whether or not you have room for improvement or how much will you have room for improvement. If you have this general range, let’s say it’s between 2% and 4% for any given number, and let’s say you’re smack in the middle at 3%, that seems reasonable.
There’s probably other areas in your business that you should be focusing on, but is it possible that that number could be 6% or 8% depending on your type of business or the vertical that you are in. The answer is absolutely yes, it could be that high, but you don’t really know unless you are directly comparing yourself against other businesses that are similar to yours.
Again, these are general guidelines. They are helpful in terms of determining whether or not you should continue to focus on that area. Maybe you should, but chances are good that if you’re in the general ballpark, I’ll say that there’s other things you should be going to look at before you come back and try to optimize and double down on whatever that particular thing is to improve it.
Rob: That’s the thing, if you’ve ever gotten a piece of mail from your city water quality control board, they’ll show you all the lead and this and that, and then they’ll show you the acceptable ranges, because without the acceptable ranges, you have no idea what the numbers mean. It’s like one part per million of lead. Does that mean anything to you? It doesn’t to me, so then you want to see the acceptable range, or if you get a blood test, Mike. I know you’ve never had any test on you.
Mike: Of course not.
Rob: I’m curious. You’ve talked about it on the show, that’s why I’m bringing it up. I get a blood test every few years or whatever. There’s all these numbers that mean nothing without that guideline on the right that this is the normal range. That’s really what this is trying to do. I don’t want to over couch this and say, “These numbers? We’re just going to ballpark them and it don’t really mean anything.” They do mean things, but there’s always the caveats of, if you’re selling a $19 a month SaaS—I will try to call those out as we go through because I’ve sold $19 a month SaaSes—and then if you have one that’s $500 a month, the numbers are going to be different. We’ll try to talk through those differences as we go.
Mike: We’ve talked about KPIs and various metrics in a few other episodes. The first one was episode 112 where we talked about the startup metrics for Pirates and that’s based on AAARR. Is that what it is? I forgot.
Rob: Yes, something like that. It’s either AARRR or AAARR, I forget which it is.
Mike: I think it’s AARRR. There’s another one, Episode 187 where there is a whole slide deck that we went through from Andrea’s Cleaner. That slide deck is around 150 pages or so. It’s really in-depth. There’s a lot of good information in there. It specifically talks about the fact that your KPIs are going to change over time and very early on, there are going to be data points that you’re looking at. You have to be really careful about how you interpret them because the numbers are probably going to be much smaller, and your product market fit isn’t quite right yet.
There’s a lot of caveats to those very early numbers. We will call them out as well, but that’s something really important to keep in mind when you’re trying to figure out whether or not you should optimize something more or move on to something else. The third episode is Episode 231 with Ruben Gamez where you and him at the very end of the episode started talking about some of these general ranges that we’ll rehash in this episode.
Rob: I’ll be interested to see how close the ranges are. We literally did it off the cuff in that episode, and I’m kind of getting into it off the cuff again today. I’m hoping that the ranges are pretty close. What I’d like to do is start at the top of the funnel. Going from unique visits to your site and just go all the way down the funnel. Visits-to-trial, trial-to-paid, turn, blah-blah-blah, and go down the line.
So, starting at the top of the funnel with unique visitors. This is an interesting one because I don’t think there is a KPI for this. You want the most unique visitors you can get that are targeted at your website in any given month. I have had software products that get literally 1500 unique visitors a month that sold upwards of $4000 or $5000 a month in software. Now, it was not SaaS, it was a $300 one time purchase. The traffic was targeted, it was in a pretty tight niche, and it obviously converted quite well.
Whereas most SaaS apps I know, you’re going to be priced between let’s say $20 and $100 a month for your starting tier if you’re doing self-service. You really want to start getting into that 5000-10,000 uniques a month to try to start scaling it up. The challenge here is, if we’re talking about day one and you’ve just launched, unique visitors doesn’t have much meaning yet. What you really want to do is you’re still trying to validate your product, you’re trying to find product market fit, driving more traffic, trying to split test, and look at these aggregate numbers isn’t helpful yet.
In the early days, you should probably couch all of these metrics with that. In the early days, your numbers are going to be so small. When you have 10-20 customers and one of them turns, that doesn’t really mean you have 5% or 10% churn rate. It does technically, but it’s meaningless because you don’t have enough numbers to accurately measure things. I think that is another thing. Early day KPIs are different than later day KPIs. Early day KPIs are really how many people am I talking to? Do I think we have product market fit? Is churn going down? These are marketing resonating.
There’s a lot more qualitative questions that I ask in the early days than in the later days. You’re looking at more quantitative, because you’re just past that point. It’s hard to say for everyone, but I feel like when you hit about somewhere between 5000-15,000 MRR, that’s where I start to shift into that. You probably have 100-200 customers. That’s where you can start having numbers that are more easily measurable and you can start seeing trends instead of seeing these very spiky results because the numbers are small.
Mike: I think one of the interesting things about the number of unique visitors is that, as you said, all those not edge cases but those different factors that play into it like price point, how long it’s been around, do you have product market fit, all that kind of stuff. One of the really challenging things when you’re that early on is that a link on Hacker News, for example, can drive traffic through the roof and it is untargeted traffic. It’s good to get it and it’s nice to see that there are more eyeballs coming to your site, but what it does is it really heavily skews your metrics, because those people aren’t necessarily there as interested people, they’re there because you got a PR bump and that really seriously starts skewing your metrics.
You really have to be careful when you’re looking at everything else just because if you’re only averaging let’s say 3000 views a month, and then suddenly you get an incoming link and you end up getting 5000 over the course of a couple days, that 5000 is going to overshadow your typical 3000. And because it’s untargeted, your visitors trial and your trial-to-paid, all those numbers completely gets out of whack because of that. It skews them. It makes it a little bit more challenging to figure out what is my actual visitor-to-trial rate. You have to look at that and say, “Well, how well targeted was that traffic? Do I apply a percentage to that?” Well yes, 5000 people, but maybe only 0.5% or 1% of them were actually targeted then you multiply out from there and figure out what your actual visitor trial rate would be.
Rob: Yeah. The nice part about all these metrics but specifically visitor trial is, the more visits you get and the more trials you get, just that the further along you get, it does standardize. I used to be able to look in Google analytics or whatever dashboard I was running and just instantly know if it was a good number. My range for this is for SaaS, I want to specifically say that. For info products or for onetime purchases, you can get dramatically higher numbers, but people signing up for SaaS apps with a credit card upfront, I want to be between 0.5% and 2%.
The difference there could be a lot of things. It can definitely be your messaging and your marketing. It can be the quality of your traffic. It can also be your price point and that’s a big one. If I had an app that was $10-$20 a month for the lowest pricing tier, I would want to be closer to that 1.5% and 2% number of unique visitors translating into trials with a credit card on file. If I’m selling something that’s $50-$100 a month as the lowest tier, I’m going to be looking between 0.5% and 1%, 1% would be a pretty nice number to get on that.
Something else to think about is this is for one funnel. That’s like the visitors and turning into trial. You can also have a longer funnel that visitors turning into email subscribers and then you know how many email subscribers, over time, turn into trials. You can look at that number. If you have a good converting landing page, let’s say you’re sending either ad traffic or SEO traffic, and you’re trying to squeeze for an email address, and your offering something of value to folks with download in exchange for that email, I want the range to be between about 15% and 25% of people entering their email address on the landing page. I’ve had upwards of between 40% and 50% for certain calls-to-action with the really targeted traffic, but that’s pretty exceptional. If I’m below 15% I’m a little concerned and if I’m below 10% then I’m doing something wrong. The traffics mismatch or the call-to-action isn’t very good. If you’re going to do that, it’s a longer funnel, it’s a longer journey, but you need to then look at your email numbers in aggregate and see how many of these are turning into trials over time.
That’s where you need a good system with good tracking like Drip or I believe ActiveCampaign could do this. I’m not sure that Mailchimp, I haven’t used it in so long, I’m not sure that it’s easy to do that with Mailchimp. If you are going to go that route, you’re going to want to dial in the analytics at least to the point where you can have a relatively good insight into how many new subscribers are converting into trials. One other thing, if you’re not asking for credit card upfront and your unique visitor-to-trial rate is 5%, I’d say 5%-15%, but 5% is actually too low. I think I’d want to be more in probably 10%-20% range is where I feel comfortable. This one I have done very little because I tend to ask for credit card upfront. I have done tests with it and such, but I’ve talked to a bunch founders who run credit card free trials and that does tend to be the range.
Number three, the next KPI is of course trial-to-paid conversion. If I’m asking for a credit card upfront, I want between 40% and 60%. If I’m at 39%, I know that I have a problem. If I’m at 58%, I know that I’m doing quite well. I mean that’s really towards the top range. There was a time when Drip bumped above 60% at different times, then you know you’re kind of killing it and your onboarding is doing really well. When I took over HitTail, I acquired that in 2011, it was credit card upfront and the trial-to-paid was 15%, and so you know that there’s a major problem in onboarding. That was one of the first things that I cleaned up.
That’s why these ranges are fairly important is that you know you’re so out of whack there that if you fix that, you’re going to be going to be in a better position. If you’re not asking for credit card upfront, trial-to-paid, I would want to that one between let’s say 5% and 15% is probably a relatively decent mark. I mean I would want to be between 8% and 15% myself, but you’re just kind of a lot lower when you’re not asking for credit card, that’s kind of the nature of the beast.
Mike: One of the things that I think is probably the most challenging with trying to find out or to track some of this information is that when you’re very early on, these numbers are very misleading when one person cancels. If you’ve got 10 customers or 20 customers, having one or two customers cancel is a huge deal. One or two people who come through the funnel that don’t convert, let’s say you’ve got four of them through and not one of them converts, that’s 0%. Even having a couple after that, it doesn’t really put the number back to really where it should.
You have to eyeball those things and try to capture as much information from people who are leaving or not following through with the trial to figure out what it is that drove them away. Why did they not actually decide to follow through and sign-up for the service or continue using it. Use that information to try and figure out what it is that you’re supposed to do because the numbers are not going to be enough, especially early on.
Now, that’s not to say you shouldn’t track those numbers, just that they’re going to be misleading early on. Over time, it will get better, but those first few that come through, first 100-200 that come through, is going to be hard. You have to talk to people to figure out what the reasons are for them to move in one direction or the other.
Rob: Exactly. The numbers aren’t going to tell you the whole story. Especially in the early days. That’s something you got to dig into. The fourth KPI we’re going to talk about is churn. I’ve seen people look at churn as a blanket number. It really obfuscates what’s going on underneath. If you go to Amazon and you see that the average rating for something is 2.5 stars, but there’s actually 101 stars and 105 stars, I guess that would actually average to 3%, but you get the idea. 100 0 stars and a and 100 5 stars in average is 2.5%.
If you just have the 2.5%, it looks like a crappy product, but as it turns out with five and zero, the zeros are probably either misunderstanding, or there’s something wrong, there’s more information under that data. Churn I feel is the same way. If you look at your churn across your entire customer base, you’re missing some information. What I’ve typically seen the most success with is to look at your first 60-day of churn, and then your post 60-day churn, and separate those numbers out.
Sometime it’s up to 90 days, but really, a lot of people do an extended trial where they might enter their credit card. When the trial expires, they pay one month. They never get set up. They never get onboard and then they churn, but really what they did is they were kind of like a trial that didn’t convert to paid. I started seeing these patterns, it was before HitTail, but when I got into HitTail and really dig into the numbers, it was a huge difference. Literally in the first 60 days, especially if you’re asking for credit card upfront, but it can happen both ways, you might see churn upwards and a per cohort of between 20% and 40%.
It can be a huge number of people that are canceling there and 40% I start to feel uncomfortable, 20% I actually don’t feel terrible about that for 60 days. Then post 60 days, you want to get your churn obviously as low as possible, but I feel most comfortable in let’s say for lower priced products that are not enterprise, not annual contracts, I think between 5% and 8%. If you’re at 9% or 10%, it’s pretty brutal, 8% is about the top in where I feel comfortable. Realistically, if you’re a big SaaS app, I think WP engine probably has negative churn at this point.
I remember Jason saying in the early days, they had 2% churn. I’ve had apps that have 2% to 3% churn in that post 60-day, post 90-day mark. That’s where you want to get to. The problem is, the lower your price point, the higher your churn tends to be. That’s why a lot of folks go up market, a lot of SaaS apps do. If you can, you want to get to net negative churn where you do churn out 2%, 3%, 4% but just the growth in your existing customer base of people upgrading actually wipes out the churn. It’s a crazy thing. I’ve seen it firsthand. It just catapults your growth. Those are my loose numbers that I keep in mind when I’m looking at churn rates.
When I see someone come through with a 12% monthly churn rate, I think that’s the first thing I would attack. If I see someone come through with a 3% churn rate, I think that’s amazing. I believe you have a product market fit depending on how many people you’re putting through your funnel. Let’s look at your other metrics to figure out where we should focus position not be on churn, if your number is that low.
Mike: One thing that we should probably drill into a little bit is the idea of that negative churn, because I think that some people might get confused about that. It’s not that you’re gaining more users than you have actually signed up. Although in some cases that may actually be true, because if somebody comes in and then they invite somebody else on their team, initially they sign up with one account and then they may fall into a different tier. That’s part of where that negative churn comes from because people are essentially upgrading to a higher tier paid accounts.
Whether they’re adding users, or going to a new pricing tier, each of those things can qualify. A question for you Rob, because I’m actually not sure about this, does it qualify if they upgrade from a monthly plan to an annual plan? I don’t think that it does.
Rob: No, it doesn’t. The annual plan should be divided by 12 and added to your MRR anyways. It’s not net revenue. It really is actual MRR that I’m looking at. I’m glad you brought this up because I should have couched this when I was talking about churn and the churn you should focus on is revenue churn, not user churn or customer churn. Revenue churn is when you look at, we started the month with $100,000 in MRR and we lost $10,000 in MRR, so that’s a 10% revenue churn.
First is we started the month with 1000 customers who are paying, 1000 credit cards on file, no matter how many users are within each account. We started with 1000 customers paying us and we ended the month with 900. That’s 10% user churn or customer churn. I’ve always looked at both. By far, the most important is revenue churn. I don’t think you could have negative customer churn, because you can’t add more customers than you signed up, but you can have a net negative revenue churn. That’s where you only lose a small amount of revenue from people canceling, but the rest of your customer base is either so large or they naturally move up tiers and pay you more for stuff.
Drip is a great example of this. As people’s lists grew, they naturally moved up in tiers automatically. There was just a natural movement towards paying more to your ESP. Those are the kinds of businesses that can have negative churn. Slack probably has a negative churn rate, because teams do tend to grow. Yeah, companies go out of business, there are layoffs now, but there are layoffs from time to time in your customer base.
In general, teams that sign up Slack and start paying, I’m guessing these are startups that are adding more and more people and Slack charges $6 or $8 a month per person. I would guess with the stickiness of Slack, they’re kind of gross churn is very low. I bet their net churn including expansion revenue is what it’s called, as people expand and hire tiers is quite substantial. That’s the holy grail of SaaS.
I know people say, recurring revenue is the holy grail of software, and that’s why SaaS is such a big thing. Net negative churn is the holy grail of SaaS if you want to get into it, because that just snowballs and it means that if you do nothing, your company grows. It’s crazy to even think about it when you actually look at charts, and you look at how the numbers work out, you look at graphs of it, once you hit net negative churn, you don’t need to do much. I shouldn’t say you don’t need to do much, but you need to do a lot less to grow a lot faster is what happens.
Mike: Is that where the passive income comes in?
Rob: Passive income, money wisely. Let’s run through the last few pretty quickly. The fifth thing is MRR and that’s just your monthly recurring revenue. As we said earlier, it can get tricky if you have annual plans, you’re supposed to technically divide by 12 that annual plan and then add it onto your MRR. Hopefully you have a software that can do that like Baremetrics or ProfitWell. MRR was the number that I tracked religiously. Every night I would get an email after billing ran and it would tell me what MRR was, what the daily billing was, and all that stuff.
It’s kind of a no brainer when you think all of us track it and it’s something that talks about the health of your business. The other one is MRR growth. I always looked at this as dollar rather than percentage. A lot of people talk percentages, but it’s like when you’re at $1000 MRR, or you’re at $100,000 MRR, the percentages obfuscate so much stuff. Truly, how many dollars did you add and you want to look at not just net add, but you want to look at how many did you lose to churn, how many did you add from new customers, and how much did you add from expansion revenue. Seeing those three different numbers and then the net. There’s four different numbers that you can get into and a lot of people who are really into their SaaS numbers know these numbers cold and know where they want to be with them.
The last one is ARPU, average revenue per user. I like to call this ARPC, which is average revenue per customer, because frankly when I’m charging people money, I think of them as customers, not users. Like Drip, one account might have 20 users in it, but to me that’s a single customer. It’s apples to apples, but it’s just a terminology thing. Average revenue per user, average revenue per customer.
Frankly, if your average revenue per user is $10 or $20 a month, you have a nice little business. You can grow that to something, but the odds of you growing that to a multimillion dollar business are very low. I’ve seen businesses with very low churn, good trial-to-paid, and average revenue per customer of $10 or $15 a month. I think that’s going to be a great 30K MRR business. That’s not a bad business to have, but you’re going to struggle to get past that 30K or 50K mark. If you want to build something into a 7-figure business, not across the board, not unequivocally but in general, you need that average revenue per customer to be upwards of that $40, $50, $60 and up price point.
You want to be in triple digits. You want to get there eventually. You don’t have to be there on day one, but aspiring to get into that $100 to $500 per month, per customer. That’s where you can scale, it’s so much easier to scale a business into that seven- and eight-figure range. Because you have the money to acquire customers, the payback is fairly quick. If most people are paying you $200 a month, you can spend quite a bit on ads and salespeople. Frankly, churn will be lower. It’s always counter intuitive to say this, but lower priced products, lower ARPCs tend to lead to higher churn.
Mike: Something we didn’t talk about when we were talking about the revenue churn between the first 60 days and then post 60 days was that, if you do any sort of a pricing change that can have a massive impact on what your revenue churn looks like. If you raise prices, let’s say by 50%, make things simple. If you raise prices by 100%, you double your prices. If you lose less than half your customers, then technically you’re coming out ahead because you’re making more money. In theory, your infrastructure costs have probably gone down. The obvious downside of that is, potentially losing customers after that first month or after you initially make that change, assuming you didn’t grandfather them. At least be a little cautious of or cognizant of, because that that can seriously change some of those numbers.
It’s not something you have to worry about, as you’re launching, but down the road when you are calculating these numbers and try to figure out how to grow the company, those are things that you should at least bear in mind when you’re trying to figure out if you’re running into financial issues and you need to be able to make more money. You can just do some calculations and say, “Well, if I raised by 10%, this is how much we could get, and how many of those customers are we going to lose the because of us raising those prices.”
The other thing that I was thinking about was that, all of this information sounds great to be looking at, but how do you actually go about tracking it? There’s a lot of different tools out there that you can use. Sunrise KPI for example is one. We can look this up in the show notes. CYFE is another one. Honestly, the simplest thing to do, instead of going in and trying to figure out a bunch of different tools and things to integrate, you can just use a spreadsheet. Whether it’s a Google doc or Excel spreadsheet, it doesn’t really matter. Throw your information in there, maybe update it. You can do it as much as once a day, but you could also do it once a week or once a month, and it really gives you a sense of where things are at and what you should be focusing on. If you’re not plugging this information in and at least looking at it, then you’re never going to do anything about it. That’s the big problem that most people run into is they just don’t even look at these things or they don’t update them and keep track of them.
Rob: Yeah, that makes sense. I mean, I’ll admit with pretty much all, I think without exception, all the SaaS apps I’ve ever run, I’ve built a little scrappy page and these are just simple queries. You should have all the stuff in your own database, I’m imagining. I always did and it’s a little bit of a pain. Churn can be a pain to calculate that can take some time, but I remember hacking together a dashboard with most of these numbers in a few hours, one evening.
I was listening to music and have the lava lamp on sipping Bourbon and I just hammered through these one at a time. I really don’t have a very impressive life, do I, Mike? It’s kind of sad that that would, but it was a fun night, I’ll admit. Because once I had that, I was looking at that thing every day. It was super cool. Then by the time we were launching Drip, I remember telling Derrick, “These are the numbers I know I need. Let’s figure them out,” and it did take him probably a day to get the initial version done.
We had to kill a day of developer productivity to do it, but it was really nice to (a) be in control of those, to (b) have a all in one place, and to have them displayed in exactly like the order that I wanted. I mean, we even have trailing 7-day trials, how much each day it had, have it trailing 30-day. Then we modified it and adjusted it over time. The other cool thing is that whole dashboard and admin area became a nice training ground for new developers. We’d bring in like a junior dev or whatever. You may not want them to push production code into your app right away, because it could break something for customer, but that becomes a nice playground to be like, “Hey, let’s add this number or let’s tweak this,” and it becomes this code base that can get screwed up. If the admin console crashes or has some weird thing that happens in it, it’s not the end of the world, because it’s just us using it. That was kind of also a bonus to having that all built out.
Mike: I’ve daily email sent to me from Bluetick just to see a lot of those different pieces of data.
Rob: It’s a good way to do it. I always had it as a shortcut on my browser but it’s same thing, and that’s your pulse. We actually called it, the page that displayed all this, we called it Pulse in Drip. I always thought that was a pretty fitting name, because it’s the pulse of the business.
Mike: Got it, cool.
Rob: Forty minutes on SaaS Metrics, KPIs. I think the next episode needs to just be all jokes. You and I need to just talk about movies and jokes.
Mike: I don’t know if that’s going to be a very compelling episode.
Rob: That would be even worse than this one. All right. Let’s call it a wrap. I guess I’m the wrap guy today.
Mike: Yes, you are.
Rob: This whole episode was outlined based on a single listener question. If you have a question for us, you can voice mail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.