This week Rob talks with Steli Efti about selling during a pandemic. They also talk about how to set yourself up for success as a founder during a possible recession and how to adjust your sales process. You don’t want to shy away from sales, but you also don’t want to be tone-deaf to the current state of the world. Steli is one of the world’s experts in startup sales and B2B sales. He runs a successful app called Clothes.com. He has written a number of ebooks on the topic of sales, and he has been a recognized expert for over a decade.
The finer points of the episode:
- 4:15 – Two big sales trends that Steli has noticed during the COVID-19 crisis
- 9:09 – The main thing you can do for your business right now
- 13:55 – How to approach a sales conversation while being sensitive to the current circumstances
- 16:33 – How Clothes.com managed to increase their revenue and grow through 2020
- 25:00 – How Steli sees his sales process looking after COVID-19
- 30:25 – Best practices for sending cold emails during the pandemic
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This week Rob answers listener questions with TinySeed co-founder Einar Vollset. Einar has been on the selling side of many SaaS acquisitions. He is also a developer with a Ph.D. in computer science, so he has a well-rounded experience, and it makes him the perfect person to answer these listener questions. There are some interesting questions from listeners who are growing SaaS apps.
The finer points of the episode:
- 2:38 – What metrics you should be documenting on your SaaS app
- 9:04 – The things buyers checked on when we were selling Drip
- 13:00 – How to navigate creating the terms for a business partnership
- 18:43 – Should you be sending unsolicited marketing emails?
- 24:18 – Best strategies to make sales
- 27:32 – Potential opportunities to make sales during the COVID-19 crisis
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This interview was recorded several months ago, but is still relevant despite the pandemic. Colin Nederkoorn, the co-founder of customer.io has taken a unique approach to building their company. Customer.io does marketing automation for the entire customer lifecycle. They have raised funding, but not traditional venture money, and they’ve run it more like a self-funded SaaS. Colin and his cofounder John left their jobs with no savings, and they set out to build an analytics tool. Their story is powerful because of their unconventional approach and ability to persevere through hard times.
The finer points of the episode:
- 4:05 – The customer.io founder journey
- 5:23 – Their approach to selecting investors
- 7:01 – Reflecting on how Colin and John bootstrapped a SaaS app after leaving their jobs with no savings
- 8:02 – Why they pivoted from an analytics company to selling marketing solutions
- 13:15 – Finding the balance between innovation vs following the best practices
- 18:37 – How customer.io became a remote company, and the advantages/disadvantages of building a remote team
- 22:05 – What customer.io is doing to support the bootstrapping startup community (and why they care about bootstrappers)
- 24:30 – Marketing approaches that customer.io used in the earlier days
- 31:55 – The highs and lows of building customer.io
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Today, Rob flies solo to talk about 7 different things that he has learned in his 20 years of entrepreneurship. He also offers some feedback about what he is seeing in the startup communities today, advice on how to deal with competition, marketing tips, and how to build a team of developers.
The finer points of the episode:
- 2:35 – Be careful about over-generalizing from one win
- 3:33 – The three things you need in order to succeed in building a startup
- 8:10 – How to handle feedback you get on your product
- 12:48 – Rob’s personal experience and opinion on dealing with competition in the startup space
- 15:35 – Why word-of-mouth is not the right answer for where your leads are coming from
- 18:40 – The real reason why some startups are “transparent”
- 21:05 – Advice on how to build a team of developers
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This week we catch up with Mike Taber, he comes on the show every once in a while to share his progress as he grows his SaaS App, Bluetick. We haven’t checked in with Mike since before the quarantine, and the last time we spoke to him, he had more than doubled his revenue in the past 4-5 months. We will talk about how the COVID-19 crisis has affected Bluetick and other SaaS apps, some new insights that Mike has been learning about his customer base, and decisions he has made about the positioning and marketing of Bluetick.
It is difficult to try and land new customers when we are facing a global pandemic and a possible recession. If you are working on a startup, you might find it helpful to know how someone else is handling this crisis in their business.
The finer points of the episode:
- 5:00 – How Bluetick and other SAS apps have been affected by the COVID-19 crisis
- 8:35 – Mike’s biggest success and biggest defeat in the past 7 weeks
- 11:32 – Where Mike’s customers are finding him?
- 12:53 – What makes Bluetick different from its competitors
- 15:27 – An update on Mike’s email campaign to canceled customers
- 19:08 – Mike’s plans to change the positioning and copy on his website now that he understands how people are using Bluetick
- 25:28 – An update on Mike’s podcast tour
- 29:36 – What Mike is looking forward to over the next month
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This is a round table discussion with Craig Hewitt (founder of Castos), Einar Vollset (cofounder of TinySeed), and myself. We are in three different cities on two different continents, so we have plenty of different perspectives on the COVID-19 crisis. We are talking about our own businesses and the advice we give to other founders. We also talk about the payroll program, and whether we think it’s going to be helpful to small businesses and startups. We share our tips and experiences working from home, for founders who may be just now transitioning to a remote team, and we discuss Stewart Butterfield’s Twitter feed, talking about the human side of experiencing this pandemic.
Listen to get some insight, hope, and fresh ideas on being a startup during COVID-19.
The finer points of the episode:
- 8:09 – Advice we all have for startups during the COVID-19 crisis
- 12:51 – Common mistakes we see businesses make working from home
- 14:42 – The main things that change when your team goes remote
- 17:37 – The payroll protection program in the USA and what this could mean for your business
- 28:04 – Stewart Butterfield’s real-time experience of COVID-19 and how it resonated with each of us as founders
- 36:46 – Some reasons to feel hopeful about business right now
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In this episode of Startups For The Rest Of Us, Rob interviews Danielle Simpson and Arvid Kahl, co-founders of FeedbackPanda, a SaaS business they bootstrapped to $55k MRR with no outside funding and no employees. They sold directly to teachers, a price-sensitive market, and they used referral programs and word of mouth to create rapid growth. You will hear about the struggles, victories, highs, and lows of their startup journey. Arvid and Danielle give honest, powerful insight into what it was really like to manage their company just the two of them, and what ultimately led to their decision to sell their company for a life-changing amount of money.
* We are in a slightly different headspace in this episode, because we recorded this before the COVID-19 crisis. But we still wanted to share this episode, because we want you to benefit from this powerful conversation.
The finer points of the episode:
- 2:12 – What it was like to sell FeedbackPanda for a lifechanging sum of money
- 6:40 – Why they ultimately made the decision to sell their business
- 12:40 – How the perfect combination of luck and skill led to their business’ huge success
- 14:38 – What it was like selling to teachers, a price-sensitive market
- 18:44 – Using referral programs and word-of-mouth to generate extremely rapid growth
- 24:20 – Can their approach to growth be replicated in other industries?
- 29:11 – More about their decision not to hire anyone
- 33:49 – The biggest low point of their startup journey and how they overcame them
- 38:25 – When did they start thinking about selling their company?
- 40:34 – What is next for Arvid and Danielle?
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In this episode of Startups For The Rest Of Us, Rob along with guest Matt Wensing, answer a number of listener questions on topics including reaching high-touch prospects, finding advisors and more.
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Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Today with Matt Wensing of Summit, we answer listener questions about Hard Lessons Learned as founders, questions about Reaching High-Touch Prospects, Finding advisors, and several others. I hope you enjoy the show. Matt Wensing, thank you so much for coming back on the show, man.
Matt: Hey, Rob. Thanks for having me.
Rob: Absolutely. For folks who listened to the episode, I guess it was 2 weeks ago now, you were on episode 489. It was titled 15 years to a SaaS exit, plus why forecasting is crucial. You and I talked through your prior startup Riskpulse that you had replaced yourself, you’d found a CEO to run it after growing it to a few million dollars in revenue, several million dollars somewhere in there, and then you actually exited earlier this year after 15 years running it.
Then, we dug into your current startup Summit, which is a tiny seed company. We talked about how it forecasts for SaaS. All that stuff, all your forecasting experience and what you’re up to, so super cool to have you back to take having an experienced founder, multi time founder now with an exit under your belt to weigh in on a few listener questions.
Matt: Yeah, I love it.
Rob: Stoked to have you here. Let’s just dive right in. Our first question came from Twitter and it was Matt de Cure and he said, “What are some of the hard things you’ve experienced as a founder that you were surprised by?”
Matt: I think most of us could go on this all day responding to this. Life as a founder is really about discovering these things. Slowly, but surely, but few things that came to mind, and these are all hard. I look at this bulleted list, it’s like it’s hard to articulate these because there’s so much context, everything that’s difficult, but to keep it short. One thing is I had a co-founder, and we were 50-50. I’ll just say that even though that’s the obvious thing that most people do, that has unique risks.
My co-founder and I are still friends and it’s all worked out, but it was surprising to me that going 50-50 didn’t just, oh, it’s fair, it’s down the middle, that solves everything and it’s like, no, there’s still surprising challenges to that. We could do a whole episode on that. I think another one for me was just how hard it is to let go of people, and that’s both terminating for, I’ll just say the right reasons, meaning reasons that you understand. I would say it was even harder, though, is layoffs, and I had to do that in that long period.
I would say layoffs are even harder. In some sense, you’d almost think it would be easier because you emotionally understand the decision. It’s unfortunate, but you have to do it. I would say it was even harder than letting someone go because of whatever, performance, et cetera. Actually, as I looked through this list, I realized one common theme is I think these all have to do with people.
The other one that was the really hard lesson was that your best people will sometimes leave your startup for the right reasons. That was one where you’re definitely not expecting it, like your best people are your best people for a reason, and you just expect that you’re going to have them for the entire journey. Sometimes, that’s not the way life goes. People have very good and valid reasons for moving, or for graduating. If you open your business, that’s how we chose to look at it, but that was also something hard.
Two more. One is that no deal is done until the ink is dry. Whether it’s a big contract you’re about to win, or it could even be for those that are fundraising and investment opportunities. It’s just not done until it’s dry, and like there’s that truism, the last little part of something is the greatest amount of effort. Man, I just found that to be true again and again, and that was always surprising because especially as an optimist, you’re like, yay, the hard part’s done, but it turns out the last yard is often the hardest, just again and again.
I think this goes for everything, but so much of people’s willingness to buy from you just has to do with your credibility as a founder and your experience in a way. I would say it’s really to the extent of being unfair, and I experienced this, starting out just thinking that the world is a more equitable place. I think without getting cynical, it’s like unfortunately the world has learned how to be efficient by just learning who to trust, and who they trust, and who they’re going to buy from, and this gets into the brand of everything else.
Basically, as a first time founder, I think a really hard lesson to learn was everything I was doing was secondary to who I was, and whether they knew me, and there are no shortcuts to building up that reputation. That was a hard thing to accept, especially early on just knowing that this is going to be a long haul, partly because people just don’t know who I am.
Rob: That holds both for big customers early on, and also investors if you’re raising funding.
Matt: Yeah, and especially there it can feel so unfair, and yet that’s the world we’re in, so there’s a few.
Rob: Those are good. I’m nodding along as you’re running through them. My perspective, I had to go through almost all the things you mentioned. As well as the first thing that came to mind when I read this was one of the hardest parts for me, especially when I was running a team was having to lead and motivate, and have the vision even on days or weeks when I didn’t feel like it.
There were entire, I wouldn’t say months because that would be very long. You just go through rough patches as a human being. Each of us has ups and downs. When you’re trying to lead a team and get everybody on the same page, people look to you for guidance. They look to you when the company is being flamed on Twitter, or when you get this super angry email, and some days you only slept five hours a night before because the kid was throwing up and you’re just for me super tired. When I’m tired, everything’s negative, and I would have these weeks where it was just really hard to be the backstop.
I think partially, that was a little bit of my inexperience as a leader, and thinking that I did need to have all the answers, and I think about things differently now. I also think there’s experience and I also think there’s, depending on how you build your team, and how you construct everything you can feel bad or not, but that was the most poignant. As you said, I bet you and I could literally brainstorm 20 of these right now off the top of my head.
It’s a broad question, but it’s such a good question because it’s like what weren’t hard things as a founder? It’s like, everything is new, everything that you’re doing for the first time and that’s almost always hard by definition.
Matt: When I read this question, I actually saved it for the end because I knew just coming up with this list was going to require a breather afterwards, because it’s a tough one.
Rob: It makes you relive trauma or at least for me, I’m like oh, boy. I remember the sequel in that way. Cash flow, my other one. I messed up cash flow back in 2014, and it was really stressful for about six months where I was like, am I going to cash out a 401(k) or take out money on a credit card, which are things I’m quite fiscally conservative in terms of my own personal finances, never done debt, never done loans, never had credit card debt. And yet, I was evaluating who I can borrow money from to keep things afloat. It’s very, very stressful.
That was a good question. Thank you so much for that, hope it was helpful. Our next question comes from Todd and his subject, his thoughts on reaching a target audience. He said, “I have been a longtime fan of yours. I really enjoy listening to the podcast. The podcast has been very motivating to me as I have a SaaS startup called nursereferralpro.com. NurseReferralPro is electronic case management software for public health agencies and nonprofits.
Our sales cycle is very long.” He has a lot of Es in vary, “it’s so long that we’re going after an additional market social worker and offering the ability to sign up for a service via credit card instead of a PO. Do you have any tips for the best ways to reach enterprise clients that are high-touch? We are so hyper niched that our web traffic is extremely low. Would Facebook ads be worthwhile? Have you come across any other people in a similar space that have had success in reaching these types of users? We’re in the process of rebranding, and once that’s done in March, I want to make a big marketing push to get the word out to social workers. Thanks for any insights you have.” What are your thoughts on this? Matt?
Matt: I took a look at the site by finding the link and it looks like the rebrand is done. It’s called Olive now, and it’s tasteful, it makes sense to me. I couldn’t quite tell if it was a pivot in the sense of saying we’re no longer… but it does say an additional market of social workers. I’m going to give an answer and I’m going to assume that they’re still pursuing the long cycles, while also spinning up this other ability. I actually wanted to key in on that, it says offering the ability to sign up for service via credit card, and instead of a PO. In my experience, you don’t do POs because you want to–and that’s a purchase order for those that don’t know.
A lot of times, companies will say I need an invoice or I need a quote, and then I’ll give you a purchase order number. Then, you can send me an invoice using that number. Make sure the number is written on there somewhere. It’s like the number that someone’s going to need to know they have permission to pay this invoice and what budget that comes out of, so it’s basically this enterprise handshake or API, if you will.
You don’t do that handshake if you don’t have to, nobody does that for fun. It’s great that you’re offering this by credit card instead, and if you’re responding to customer demand, I understand. But the point of all that is you need to support enterprise clients’ buying process, how they buy is how they buy. You’re not going to change that, especially as the independent bootstrap startup, unless you’re changing an industry. You’re probably not going to change how they buy software.
My tips are all generally understanding how they buy, and how they prefer to buy, and then not taking any unnecessarily long routes to get to what they need. If they need a PO make that faster, if they need to meet in person, be where they are. One other question was who’s the buyer? Social workers and nurses themselves, are they actually making purchases? I don’t know this space personally, but I asked because you actually need to go where the economic decision makers are, who may be managing these teams of social workers and nurses, and meet those people in person.
Those could be conferences. Those could be some just long cycles, and I don’t think you’d be able to change the industry. I think at best you can just be as efficient as others are, and so I think my last tip is who’s your competition and how do they sell. If there is an up and coming competitor that’s proving to the market there’s this new way to buy, it’s a lot faster, use your credit card. Skip this skip that, that’s great. Maybe you want to copy them.
If it turns out that everybody that’s selling to this market is sponsoring the lanyards at the annual convention center in St. Louis every year, that’s probably what you need to do as well. I think with the limited budget, the best thing you can do is go there, and you’re not going to able to buy the $15000 lanyard Platinum sponsorship package maybe, or $150,000 even have a booth, but you can be there 8 hours walking the floor and just meeting everybody that you can possibly meet. That’s just a lot of hustle, which is what I had to do in going enterprise with my business. I hope that’s helpful.
Rob: My interpretation of what they’re doing with, so they were called NurseReferralPro but they wanted to branch into social workers as well because I think Todd was implying that public health agencies and nonprofits are very long sales cycle and social workers will be a short sale cycle because they’re more individuals and they can use a credit card.
That’s where the rebrand comes in, which I actually think is pretty nice, the site looks pretty nice. It’s at oliveapp.co, and certainly more branded than NurseReferralPro. I definitely like this. I would throw something out, Todd, I went to the website, I clicked on pricing, and that link is broken. Your pricing link which is one of the most popular links on your site is broken as of today, when we’re recording. I’m guessing by the time this podcast goes live, that’ll likely be fixed, but it is interesting.
He’s basically asking if you have tips for the best ways to reach enterprise clients like public health agencies and nonprofits that are high-touch. The thing that I see working for companies that are trying to do that is related to what you talked about, like the lanyard thing is, trade shows are actually still working in these spaces. It’s something that is so far removed from a lot of bootstrappers who want to do that $20 a month app and build a time tracker and that.
That’s totally fine but this is such a different ballgame that yes, trade shows, although for the next three, four, five, six months, maybe that’s not a thing, but that will come back. The other thing is essentially cold or warm outreach. You have to figure out if that’s something that some people are totally against cold or warm outreach and other folks do it with much success.
That could be cold email, it could be cold calling, warm email, warm calling, never heard warm calling, but you get the idea. I wouldn’t expect your website to be getting a bunch of traffic because how many people are out there searching for this. Search volumes got to be low. I would guess Facebook ads would not be worthwhile but I bet you that there are Facebook groups, or forums, or something where these folks gather public health agencies and nonprofits, they hang out somewhere.
Can you hang out there, and be useful, and don’t sell? Hang out for three months, and listen, and offer insight and advice, and don’t even have your URL and your signature for the first month. Once people realize, oh, this Todd guy is pretty helpful. You can start easing a little bit of that in, but you truly are offering value. This is not something like, oh, sneak in and infiltrate. I’m not saying that, I’m saying like genuinely, go in and answer questions.
When we were first starting Drip 2012, 2013, I was in all these entrepreneur and creative forums, blogger forums. People were talking about open rates, average spam complaint rates, and what do you do, just basic ESP stuff that I knew because we were building one. I would just go in and answer all the questions. I did it on Quora as well. It’s not something that scales, but A, in his space, you don’t need that many people to trust you, to build that six or seven figure business because the price points are going to be so high. B, building a reputation like that, a brand is really more valuable than getting Facebook clicks.
Matt: That’s right. They’re going to ascribe his expertise to the products at that point and say I wonder what he’s made.
Rob: That’s why, Matt, you and I both have podcasts. I’m a listener and podcasts are part of our personal brands. Some people blog a lot, you’ve written a lot of essays on Medium. All of this is just content marketing, I mean, you wouldn’t think of it that way, I don’t think. I never call this podcast content marketing. It’s just stuff that I like talking about, that I’m interested in, and I like teaching and helping people. Hopefully, for Todd, he could do it the same way, and it’s whatever modality works for him. If answering a bunch of questions on stuff that is really obvious to him because he’s in it day to day, if that’s fun and exciting, and it drives business, that’s amazing, if it drives some leads.
Todd, I can see you have a nice blog as well as white papers. Someone on your team who is a good writer, content is always a decent avenue for it. I don’t think that a podcast in the space is necessarily going to work. Although I guess here’s the thing, it wouldn’t be for the referral part or the Case Management part, it would just be are there public health decision makers and nonprofit decision makers? What podcasts do they listen to? Are there any industry specific podcasts? It’s an interesting question.
If audio and talking on the mic is not your thing, don’t go down this road. But if that’s fun and interesting, then maybe something to consider.
Matt: Maybe sponsor one of those podcasts.
Rob: Yeah, as a start, just to see. There are a lot of avenues, and I think that’s a really good question, thanks so much for sending it over, Todd.
Our next question is about working in public, and it’s from Corrine Pope. She says, what are the best ways for founders to, “work in public.” “I know I should be doing it, but I’m a little overwhelmed at where to focus my efforts. Blog, Twitter, forums, YouTube,” what do you think?
Matt: I think the keyword there is overwhelmed, because you need to be consistent. I think people are getting to know you, and that needs to be a story, and all good stories need to have an arc; a beginning, a middle. A beginning, a middle, and maybe there’s no end. It’s just a continuing saga of Rob Walling, or Matt Wensing, or Corrine here. In order to generate consistent results, you need to do the medium, or like you said, modality that works for you that you can just consistently publish. It’s never effortless but it just needs to be the one that works for you.
I’ve seen founders that work in public just try different things out. I know that Derrick Rhymer at one point was doing some YouTube videos of him cranking on Elm because that’s unique, it’s different, and people want to maybe see that. But he’s got a very popular podcast, and it’s just easier for him to get on the mic, I suppose. For me, I love to write, therefore it’s really easy for me to send out a tweet, it’s easy for me to write an essay, and I also like podcasting, but the point is consistency.
I’ve got a co-host on our podcast, Peter Suhm. If I ever don’t feel like doing it, or if I ever say I’m really busy right now, he’s really good about saying no, we have to get an episode out because as soon as we don’t, I’m sure that the drop off is huge in terms of not to say listeners, but your consistency is lost.
This is a know thyself answer for what’s going to work for you, and hopefully there is a medium of expression that’s going to work. I think there’s so many of them right now. It’s not that you have to worry that there isn’t one, but I would just encourage experimentation with a bunch of different ones to start and see what sticks.
Rob: I think that’s good advice. I think it’s really knowing when I think of Steli Efti, sitting down to write a 5000 word blog post, I don’t think that is his zone of genius. But him getting in front of a camera for six minutes, I think he’s better than 99% of people I see doing it. There are certain folks who you’ll read their writing for years and the first time you hear him on a podcast, you’re like, wow, I prefer to read your writing.
It’s just different things, and that’s not to say you can’t get better at things. I will say, before this podcast, I was writing multiple essays per week for years. My writing started off okay, and it got pretty good in the end. I could crank stuff out quick, and I was really good at it, but I wanted to go to that next level. We started the podcast, and as folks may have heard a couple weeks ago, you can go back to episode one anytime, it’s on the website. I put in the first five minutes of the very first episode to celebrate our 10 year anniversary, and it’s awful. We’re really reading from a script, and we just don’t sound good, the sound quality is terrible.
It’s not to say that you have to be a great podcaster to start, because certainly we were not, you will get better over time. I feel like it’s the question of what are you good at and what perhaps do you want to be better at? Do you want to be better on the mic, or do you want to be better in front of a camera? When you look at the people who really do have success on Twitter, what are they doing differently, because they take a certain approach to it.
Whereas we can see people who are not on Twitter at all, Seth Godin, example. He is not on Twitter. He has this broadcast account that’s called The Success Blog, and his blog posts go out there, but he does not respond, does not interact. And yet, we read his books, and we read his blog, a lot of people do. Of course, he branched into podcasting a year or two ago.
I think it is starting there of like, do you want to do long form, opinionated content? Is that where your zone of genius is? Then think about Medium, or your own blog, depending on how you want to do it. To add the last piece, what is your end goal here? Is it to reach an end user who may be a customer of yours in the future? You can’t just say what is it I’m good at or want to be good at, but then it’s like where are they as well? Are they truly everywhere, or are more of them engaging daily on Twitter, or do a lot of them listen to podcasts?
Are they a lot in these founder Slack groups or on YouTube or whatever? I realized this is an it depends answer, but it kind of is. Really, me trying to do a Steli Efti video, or whoever else, we can just think of people who are probably going to be incompatible with certain formats and really accelerate others naturally. You got to find your wheelhouse a little bit, I think.
Matt: I’m laughing because the Steli Efti video, the six minutes of high energy, say it go, that’s my kryptonite. I try, and I’ve given pitches on stage in front of people. For me, it’s just a different context. There’s the energy of the live audience, there’s the sense of performance, like that’s okay, but if I’m just sitting down in front of a computer, or in front of a laptop camera, it just does not work for me. Don’t get discouraged in other words, you might just need to change one little variable, and there you go.
Rob: Thanks for the question, Corrine. I hope that was helpful and look forward to seeing you at the next MicroConf, she comes to a lot of MicroConfs.
Our next question is from Dylan Barry. He asks for advice about advisors. He says, “I’ve been a longtime listener, two time MicroConf attendee. I wanted to first of all thank you for the most recent episode with Andy Baldacci. This shows how far behind I am on questions because that was probably more than a month ago. He said this was one of the better interviews you’ve done, and I love how you were able to dive in more than usual into some tactics and thought processes that Andy has around growth. Bravo.
I’m a co-founder of an iPad based visitor management software company in Denver, Colorado. At the leadership level, we recently started talking about how we might need or could get a lot of value from having more advisors involved. I figured it might be worthwhile sending you a message to see if you had any suggestions for how we could best go about finding advisors. We aren’t really looking for formal business coaching engagements, we’re really just looking to find a few people who’ve been there and done that to occasionally look at what we’re doing. Ask thought provoking questions, provide feedback on how what we’re doing compares to situations they’ve seen in the past, and give us a heads up as to things we should be looking out for as we continue to grow our small software company. Thanks again for the wonderful episode, and for the time and energy you continue to put into helping the bootstrapping community, Dylan.” Thanks for the question, Dylan. Matt, what do you think about this?
Matt: Great question. Advisors can be super helpful, and it can be formal or informal. This is one where I would love to just ask a question right back so I’m gonna have to make some assumptions.
Being based in Denver, there’s obviously a decent startup scene there. I’m not sure if there’s anything preventing interactions there aside from the current social distancing efforts. I found most of my informal advisors through just people that I met at events and you’re giving them the elevator pitch of my business as far as, hey, what do you do? If it’s an event where there’s a lot of startups there, there’s also going to be startup experienced startup founders, some of them angel investors and some of them venture capitalists maybe.
If you can go to one of those mixer types of events and share your pitch, in some sense, a great pitch should draw advisors out of the woodwork. One out of how many of those you talk to will suddenly realize, hey, I think I could actually add some value to this guy and their business like, hey, what do you think about this? They’ll want to keep in touch with you. That’s just the on ramp that I end up having with a lot of folks that became interested in advice. Even if you’re not raising money so they don’t become an investor, you can thank them for their time. You could give them an advisory agreement that gives them either a little bit of ownership or some small customary percentage or payment for their time.
I will say, a lot of the best advice I got was not through those, like Dylan said, official management, consulting, or business arrangements where it’s like I’m going to be an advisor to you and here’s my $5,000 month charge or whatever. It was mostly through just friends of the company that I met through these kinds of events.
Again, I’m probably biased towards these in person types of meetings because I just went through a lot of them in my past, but Twitter might be a more virtual way to do that. I think it will probably take longer. I’m not sure if there’s something I don’t understand about why it’s difficult, but if I had to pinpoint something, it’s a little bit of a litmus test of you to go to one of those events, talk to 20 people, give the pitch, do that five or six times. I would expect that some people are going to lean forward and want to help you, but obviously, mileage is gonna vary.
Rob: I like that. I almost never heard this question from people who have raised funding because once you have investors, you tend to allow smart investors in. Angel investors tend to be former founders, not always, but a lot of them have been there and done that. That’s in an odd way, I never suggest people should or should not raise funding. It all depends on it, but that’s the easy way. That’s the shortcut. Someone has skin in the game really quickly because they own part of the company and you succeeding helps them in a roundabout way. That’s the shortcut way.
The other way that I really like I think the in person stuff is really what it is. We’ve had, through MicroConfs. We’ve had people connect and start mastermind groups, start co-founder relationships, and also start advising relationships. When I think of informal advising with no equity given, my biggest question is why? Why should they do that?
Advisors are probably busy people that have run companies or whatever they’re doing, they have families that every minute or every hour and a month they give you they’re taking away from something else in their lives. There has to be some motivation. For me, it’s either they want to do a pro bono because you’re a not for profit or a B Corp, and it’s truly donating time. That’s going to be a small subset I think.
Much more often, I do see advisor shares that wind up being between half a percent and 1% of the company depending on the stage it’s at. I don’t know if you’ve heard numbers that are different than that.
Matt: Yeah, same.
Rob: That’s what you do. If you find someone really good and knowledgeable, it really can be worth it. There’s a value out there where they can save you months of time. Some people completely bawk at not only owning 100% of their company, and that’s fine. In that case, maybe you should go to Clarity.fm or Clarity.com and you can get some advice. There are founders on there, they’re not just business coaches. In that case, I feel like you should pay them for their time or they should get paid in equity. I think those are the fair arrangements that you’re getting some value so they should also get some value.
Matt: Again, that goes back to do they believe that a half a percent or 1% stake in your business is worth something? That goes back to your pitch. Just to put in perspective too and a little advice, you never give that percentage upfront. They earn that over a two-year period. If you think about it, it’s like wow, they’re gonna get 1% for 24 months of giving me advice and help. You feel like you’re getting the good end of that deal if they’re good.
Rob: I like it. The in person stuff is exactly what I would be willing too as well. For the next three to four or five months or whatever, that might be tough, but that’s how you’re going to break through the noise because most of the advisors who are knowledgeable and experienced are really going to bring a lot of value, tend to be in demand, and they get a lot of emails in questions about can you be an advisor, so you do have to cut through the noise there.
Thanks so much for the question, Dylan. I hope our thoughts were helpful.
Our next question is from TJ Zastrow from crewbooks.app. He’s asking which niche to focus on. He says thank you for everything you do, Rob and crew. I need help narrowing down which niche I should focus on finding product market fit with. I have several niches which my product might serve but I’m a bit stuck in analysis paralysis deciding which of these, if any, could scale if I find traction. The product is crewbooks.app. The H1 tag on the homepage is generated by a book with friends just by sharing a link. How it works is each contributor fills in a form and gets a single page included in the resulting physical book or PDF.
TJ lists a bunch of different niches that you might focus on. First one is schools as a fundraising tool. I think poetry, anthology, and short stories. Second one is gyms or fitness studios as a skew that they can sell from their front desk. The third is craft breweries or other industries could benefit from a collaborative industry guide. The fourth is funeral homes as a package add-on that they could sell. I think friends and family are contributing. Five is SMBs looking to boost company culture where everybody collaborates on something. Six is churches or groups as a directory book. Seventh are conference organizers to have custom swag to give away. These are all interesting niches. What do you think about this, man?
Matt: I empathize with this completely because I had a weather data proposition for people back when StormPost was getting off the ground. It started out B to C but then we went B to B. When you go B to B, you’ve got to have messaging that isn’t just for every human on the planet. It needs to have some niche focus to it.
I went through this process for TJ. I would say start this way. You got all these niches and you could probably come up with 20 more if you just spent one more year looking for more. I don’t know how long he came up with these seven, but SMBs was one. If you double click on SMBs, there are probably 500 within that one. It’s an endless list.
My advice was just abstract away the niche for a second and just think about all of the assumptions that a successful implementation of this product requires since the product is generating books by sending a link to your friends. That was the H1 because that has to be totally generic. We’ll run with that for a second.
What I think has to be true for that to work as a business, and he said something that’s going to scale, is the readers of the book that gets created, they actually have to care what the contributors write. The contributor’s content has to be high quality or it has to be someone that’s special to me. If it’s my grandmother, quality doesn’t matter so much. She’s special to me. If she’s not my grandmother or I don’t have a personal connection, it needs to be really good. For example, there are a lot of conferences I go to where I necessarily think that every attendee has something valuable to contribute to a book. I’m not sure that the book is going to be super high quality necessarily. That’s one, the readers need to care what the contributors write.
Number two is your customer. Crewbooks customers, they have to have this need to create books on a monthly or better basis because you need to have this customer coming back to you again and again to create another book because if they have one conference or fundraiser per year, that’s just not enough average revenue for them for you. They’re gonna pay you that one time thing per year and that’s it. That’s not good enough.
The last one is that Crewbooks customers need to have an audience and that audience needs to be somebody where they have access to their pocketbooks. For example, social media influencers, they might have 59,000 followers. They have an audience but they’re just posting on Instagram and they don’t have access to the spending of their audience. They don’t have their credit card numbers. Your customer, whoever buys your software to create these books, I think it’s really important that their audience is already used to buying things from them and doesn’t just have an audience that listens and says, okay, now you’re going to buy something from me. It’s just not natural.
I don’t know if you agree with these or not TJ, but if you agree with those and maybe there’s more, you should be able to use that to filter out bad niches and not waste your time. I can’t tell you which one is the right one, but if you use that to filter that would be how I would approach it. Once you do pick that niche, man, you got to niche down the website significantly because once you pick, you need to go all in on that niche.
I looked at one example that came to mind, a cookbook for example that friends want to put together, you need to own them like cookbooks.app, myfriendscookbooks.app, or whatever it is. That’s where people land. It appears to people that all you do is that and all the language needs to be about that. Maybe at the bottom, it’s like powered by Crewbooks. I don’t know how much appetite you have for this, but if you find two or three niches, this might be a powered by situation where maybe you don’t find any one that scales.
This is really tough because I hate to split focus, but if you find two that are halfway there or three that are a third of the way there, and you combine all those, I don’t know how much bandwidth you have. Ideally, you find one but this could also be a powered by situation where you’ve got three or four landing pages or micro sites that in aggregate built a decent business for you. I would flip the script a little bit on this one.
Rob: I love it, sir. That was really good advice I think. I echo pretty much everything you’re saying. I feel like this is a solution in search of a problem, really what it is, and how do you find people that have this problem.
I see two avenues to go. If this is a stair step approach, I could see this as a step one business where it is just one time, maybe it’s B2C, and it’s all driven by Facebook ads, Instagram, or something. It really is going to grow to $2000, $3000, $4000 a month and that’s it. You use this to step to your next thing. That’s one avenue to go down. That can be fun and you can learn a lot but it’s not going to replace your income likely and it’s not going to grow into some seven figure business.
The other avenue is exactly what you were describing, where it’s like probably going to B2B because the consumer is not gonna be super price sensitive and need to do this on a recurring basis, so probably go B2B, go with people who are doing a recurring, make sure you charge enough. That’s a whole other avenue to go down. I don’t see a straight path on this one because until you find that group of businesses, whether it’s a vertical niche or whatever it is, who have this problem that you are the solution to, you don’t really have much. You have some software that does some stuff.
Matt: One last thought. The funeral homes for example resonated because it has this emotional appeal. They have to do this again and again, but how many funeral homes are going to go to where somebody says, oh, we’ve been so frustrated with the way we do this today, we’ve been looking for a better way to do it. They’re probably gonna say, oh, yeah, Nancy takes care of this. She has this thing, a catalog that she orders books from for people. It probably solves problems for a lot of these folks. There’s not enough pain in those niches to necessarily change how they do things.
Rob: Thanks again for the question, TJ. I hope that was helpful.
Our last question for today is from Tyler at createdwithlove.com. He says, “I’ve been listening to Startups for the Rest of Us for about three years. I currently own a physical subscription product.” Actually, Tyler has written into the show several times. He says, “I’m looking to launch a SaaS app this year. This podcast has been a huge inspiration for me. I have a lot of experience with the subscription model, as well as design, data analysis, and a little bit of sales. My co-founder for the app is very strong in digital advertising, SEO, and inbound and outbound email with basic knowledge of the code. However, together, we don’t have the technical skills required to build the app. We’re self-funding, we have an agency building a very low cost MVP so that we can start testing and gathering data, but we know this is not a feasible long term development solution.
What are a few tips or guidelines you’d give to non tech founders who are working on their first SaaS app, imagining the results of the MVP show the build is worth pursuing? Thanks again for all you do. I’m very excited for this idea because it means I can go back and re-listen to all the episodes.” I wouldn’t go do that but maybe go pick somewhere where we talked specifically about it.
This is a good question. I like it. For non-developer founders, I do think that there’s a tough process you can think about. What you got for us, Matt?
Matt: I look at this one saying what can you do before you code, because you basically said you have a lot of other skills. I think the answer is you can do everything that a great product person does before they code which should be a lot. Tyler is on the right track to be thinking MVP. They said they wanted to learn whether the app is worth pursuing. This is the right mindset. They’re doing the MVP to learn, but have you written down the things that you’re looking to learn?
Let’s say for example you’re hoping to learn that there’s going to be consistent engagement and willingness to pay because those are the things that are going to convince you that this is worth pursuing. I would list out explicitly users will use the MVP when they need to do blank. Users will use this MVP weekly. Customers will show interest in subscribing with the current feature set even if we don’t have a mobile app. You need to list out the assertions about the MVP. By having that, you can disprove those things.
I’m just talking about maximizing the value you get from this MVP because you said collect data. I just want to make sure that the data you’re collecting has been thought through enough to falsify or prove wrong the things that you need to be true to bother investing more. You’re like, hey, these things are true. We’re gonna invest more. Let’s find out if they’re not true.
If you disprove one, then you celebrate, you write it down, you put on your product management hat, and you keep collecting these items. What you have is a very specific and well-defined set of requirements to give back to that agency and say, this MVP isn’t good enough but we think a 1.5 or 1.1 iteration is going to get us to where we need to go, and it’s just these things.
Remember not to let the agency get between you and your end users. Work really closely with your first 10 to 20 users, finding fit with them through these small controlled iterations so you don’t waste money or time. This is obviously the lean approach. When you’re talking about not having a technical co-founder, what I’m actually implying is in this scenario, I wouldn’t advise going out and finding a CTO or technical co-founder. I don’t think Tyler is saying that’s what they want to do. What you’re doing instead is you’re going to learn the product management skill and these lean techniques to a level where the technical role that you need to fill is really small.
The agency might even want to do more for you than you actually need at this point because all you’re really asking for at this point is you want an individual contributing developer, maybe somebody that you could bring on a contract to hire in the future. You’re just bringing engineering skill in house to execute on your product direction, but you need to get really good at product management and not wasting your engineering time because that’s a direct cost to you and the clock is ticking sort of way. That would be my approach.
Rob: I like the way you’ve pointed out product management and product ownership is a skill that most people don’t know exists. They think that to build a software product, you hire a developer. Yes, the developer writes code, but who decides what gets built and how it gets built? How is it architected on the back end? What it looks like on the front end? These are really detailed, technical, and also some artistic and design. There’s just so much that goes into all the decision-making.
Even if you don’t write code, I’ve never seen anyone hiring out product direct and product vision. I’ve seen people hire out the code because they say I know what needs to be built. I generally know how it’s gonna work. I’ve educated myself on product best practices, whether that’s following Basecamp 37Signals guys or whether that’s reading.
I think it’s Steve Krug who’s written several books on usability and how to think about that or listen to a product, focus podcasts, or hear people deciding how do you ingest 100 feature requests and figure out which two features to build and how to build them. That’s where the knowledge has to be with you. I think that’s my first tip or guideline. Have a vision for your product. If you don’t, find one, make one up, figure it out through conversations with the users, as well as educating yourself on what it means to be a product owner.
These are roles at SaaS companies. They’ll have an entire engineering org, 10, 15 engineers building features, then they’ll have an entire product org. When I say org, I just mean a department or just a group of people who work together. The engineers are scaling and building features. The product people, maybe three, four, five of them, are typically UI designers or UX focused people. There’s typically a product manager which is the word you used.
A lot of people think is a product manager just someone who is in Gantt charts? No, product manager is different than project manager. Those are two very different things. Project managers tend to look at dates and critical paths and get resources to do this and that. They’re communicating and they’re trying to get everybody on the same page. Product managers are doing all that but they’re doing it for a product. They have to be opinionated about what gets built and they have to get people on board with what’s going to get built next.
When you’re at an org of 100, 200, 300 people, that role looks a certain way. When you’re at an org of two or three people, it looks different but someone still needs to take that reigh. Someone needs to have those conversations with customers, decide what to build, and communicate to the engineers what to build, how to build it. Oftentimes, that’s a collaboration. If you’re not writing the code yourself, you do need to find one.
Let’s say the MVP shows up, people love it, they want to pay money for it. What are your next steps? Personally, if you’re truly self-funding this, I would probably not go with an agency because they’re very expensive. I have in the past gone and hired freelancers. It depends on your situation. You can hire a freelancer on a contract to hire a type of thing which is probably what you want to do, to have someone in house who owns that code base. Owns meaning they care about downtime, they’re keeping unit tests being written, and they really are guarding that code base. That’s what I’ve tended to do. If you’re really low on budget, then yes, sometimes you have to hire an engineer that’s not as good as you want. I do think that there are really good engineers especially over the next six months that are going to be coming more available, unfortunately, given the impending economic stuff.
Matt: The agency they have and the relationship they have right now has already been set. This might not apply but you do want to effectively bring product management in the house. You and your co-founder own that, the cost is controlled. You’re outsourcing that project management and engineering execution by giving them a very clear spec. What engineers love is a very clear spec of what you expect and what you want.
The last technique I’ll mention is Patrick Campbell gave a talk at MicroConf a couple years ago now on these techniques. It was an hour long talk. Part of it was a quilting example like building an MVP for a quilting company through talking with his mom. He used these couple techniques in there which are surveys and very good at helping you develop a clear spec on what features to build and not to build just by surveying your intended target audience. You could do all of that yourselves and then say we’re confident that this is the feature set that we need to go live with. I hope they’ve already done this but if you haven’t, do all of that before you spend more money on engineering.
Rob: Thanks for the question, Tyler. It does sound like you have your wits about you in terms of you didn’t go spend $50,000 with an agency to build some full-fledged product. It sounds like, since you’re self-funding, you’re going with a nice low budget to try to prove it out. Hopefully, our discussion today was helpful.
Wensing, thanks so much again for coming on the show. Folks want to keep up with you. They can head to the Out of Beta Podcast. You and Peter Suhm ship that almost every week. With our crowd, I often say, you ship most weeks because it winds up being three weeks a month, but you guys have been strikingly consistent.
Matt: Thank you, Peter.
Rob: Awesome. You are Matt Wensing on Twitter as well.
Matt: That’s right. Thanks, Rob. My pleasure.
Rob: Absolutely. Thanks again to Matt for joining me today. If you have a question for a future show for myself or a guest, you can email us at firstname.lastname@example.org and send it as a text or send it as voicemail. If you send a voicemail, it goes to the top of the stack. Subscribe to us by searching for ‘startups’ in all the podcatchers. If you want a full transcript of these episodes or the links from the show notes, visit startupsfortherestofus.com. Thank you for listening. I’ll see you next time.
In this episode of Startups For The Rest Of Us, Rob along with guest Einar Vollset, talk about the current crisis and as a founder what your mindset should be and what to do to be prepared.
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on the show, we cover topics related to building and growing startups that are ambitious but use a sane approach. This week’s a little different. This is an episode I’ve been wanting to record for a few weeks, but I had recorded out several interviews that I wanted to get live. I wanted to talk about this current crisis that we’re facing. It’s multifaceted, there’s the COVID-19 health crisis. Essentially, we’re seeing a bear market in the stock market. We’re very likely, almost with certainty, are facing upcoming worldwide recession.
I wanted to record this episode, I was thinking about how to do it, and then I got an email from James Kennedy, who’s been a multi-time MicroConf speaker. You may know him from ProcurementExpress. He emailed and said, “My guess is that the community urgently needs a podcast on COVID-19. We haven’t seen much change yet, but I’m worried that this might be the calm before the storm.” I don’t care if you’re SaaS, marketplace, one-time sales, self-funded, indie-funded, bootstrap, or venture funded, as a founder, what should your mindset be? What should we all be doing to prepare?
I can tend to be a little optimistic, I will say. My wife doesn’t think so, but I can be a little optimistic. Today’s guest balances me out. I am not nearly as bearish as Einar Vollset, and I think that that’s a good thing. Einar, welcome back to the show. This is your third appearance on Startups for the Rest of Us.
Einar: Thanks for having me, Rob.
Rob: Absolutely. Honestly, Einar is up to speed on a lot of numbers. He has a PhD in Computer Science, does a ton of data crunching, and pays attention to all the news that’s coming through. I actually go to him when I’m trying to sanity check my assumptions about what’s going on today and where we’re headed. Weeks ago, he was saying, “Hey, this COVID thing is going to be a real thing.” A lot of people were saying that but there was a lot of chaos like, “Yeah, it’s going to be bad,” “It’s not going to be bad,” “It’s exponential,” and this and that. There was a lot of noise. There were a few folks that I felt like got this right, and Einar was on top of that stuff.
There’s a lot to cover today. It’s very likely going to be a longer than normal episode, but this is a case where I don’t feel like we should skip over things to try to make it a shorter episode, because it’s so important. I think everyone needs to be thinking about this in some form or fashion.
To start off, we’re going to talk a little bit about recessions, bear markets, where we’re at with that; and then I had six points that I wanted to walk through. Six things that I think will be helpful for thoughtful founders—both for themselves but also for their companies—to think about. Some actions that I think they need to be willing to take.
The good news is Einar and I may disagree on things because this is not clear cut. No one knows what next week, next month, and next year looks like, but we all have kind of our own reads on the situation. I think it’s going to be interesting, and hopefully, enlightening for all of us to wrap these things around.
To start, Einar, personally, I don’t see any reality where we don’t slip into a recession at least in the US and probably most of the developed world. Right now, the world economy is effectively contracting dramatically. Are you on the same boat with that?
Einar: Yeah, 100%. I think that’s pretty much the consensus view now, the question is just what kind of recession are we going to have? Is it going to be a long one or a short one? How bad is it going to be? We’re recording this on Wednesday or Thursday, the unemployment numbers are due to come out on Friday. For the US, they are usually around 200,000. I’ve seen estimates anywhere from 1.5 million to 6 million people unemployed. Almost, no matter what happens, it’s going to cause a recession. The question is just how long is it going to be and how bad is it going to be?
Genuinely, I think that has most to do with how bad the virus becomes. Are we able to respond to it properly? Are we able to get antivirals in place? Are we able to do surge capacity in hospitals? How soon can we get back to “normal”? I think that’s the determining factor. From where I’m sitting, it seems to me like, at least in the US, both the fiscal and the stimulus response… This would be both what the Fed has done in terms of unlimited quantitative easing, printing money, basically to keep the markets going, and these stimulus bills have been coming through Congress. I think the third one is about to be signed today. From my perspective, that’s it. They’re pretty much out of bullets at that point. And then, it just becomes a matter of can we get this Corona thing under control? Can we mitigate some of the worst outcomes? I think that’ll determine how bad it’ll be.
Rob: Yeah, and I think folks who remember the 2008-2009 Great Recession, that felt terrible at the time. It was different because it wasn’t directly threatening lives the way this is; but I, at one point, thought that the modern world was going to completely collapse. I think other folks did too. If you go back and watch The Big Short, which I watched two weeks ago with my 13-year-old son—him for the first time, me for like the 15th time, I love that movie—it does a decent job of portraying how panicked people were about it. This feels terrible now, but it felt really bad then too. I’m not even trying to compare the two of them, but it does bring me… I’ve lived personally through five recessions that I can remember since the ’80s.
Einar: It’s because you’re old, Rob.
Rob: It is because I’m old. These recessions are things that we’re going to get through. It feels terrible right now, but things will get better. We will make it through this even though this is terrible. That’s the thing, COVID is very serious and very tragic. It’s going to continue to be a tragic story, anytime people’s health and lives are on the line. At the same time, I feel like we have a responsibility as entrepreneurs, as founders, as human beings to think about how to keep our companies afloat, right? To think about how to take care of ourselves, our families, our employees, our communities, both health-wise and financially. That’s why we’re recording this today.
Let’s take this as a serious thing, but let’s not panic. Let’s think ahead. Let’s have some cash reserves, which we’ll talk about a little later. Frankly, start thinking about if you need to make cuts, make cuts early.
Just two things I wanted to say before getting into some nitty gritty is you hear a lot of talk about recessions and bear markets. Those two things are not necessarily the same, though they often correlate. Since the Great Depression in 1929, there have been a bunch of recessions, and almost all of them have been between 6 months and 18 months long. The Great Recession felt like an eternity because the recovery took long, but a recession is defined as GDP shrinking by certain… How is it defined?
Einar: Bear market and stock market going down 20% since peak. Recession is a contraction of the GDP for two quarters in a row.
Rob: Consecutive quarters, right? That’s what we’re going to see. That won’t officially be declared for five months or six months, but we already know that that’s coming. The recession is economic. A bear market is what you said, it’s a stock market, right? It’s when it drops 20% from a peak. There have been 16 bear markets since 1926. They lost on an average of 22 months, but that is 22 months total, it starts to recover somewhere in there. It’s like that 10- to 12-month timeframe, where it really does become a true bear market, and 22 months to make it back up and really start working.
The interesting thing is in the year after the trough of every bear market since 1929, the S&P has gained an average of 47%, according to Fidelity Investments. All that to say is don’t confuse these two things, recessions and bear markets. I do think that it’s important to know because you hear it in the news all day about “Oh my gosh, we’re entering this and that.” Having just a sane look at what this stuff is important. Given that the massive stimulus packages that are rolling out, like you’re talking about, this feels reminiscent of 2008-2009. Those packages while it still got bad, they did soften the blow quite a bit.
Einar: Probably, definite there. Whatever you think about crony capitalism, the fact of the matter is they had to do what they had to do. That’s pretty much what’s going to save the world economy. Just to give context for people here, as we’re talking today, I’m expecting the third Relief Bill to go through Congress today. It’s going to be $2 trillion, which is a fair amount of cash. It’s actually double the amount that they spent on the 2008 bailout package. That tells you how serious they’re taking it.
Rob: Yeah, I didn’t realize that. Again, James Kennedy was the original prompt for this. He and I went back and forth via email because I was saying, “Hey, what would you like to see? What are you hearing?” I’m going to quote him a few times during this episode because I had things in my head that I wanted to put in this episode, but I felt like it was helpful to hear from him. One thing he said is, “How did SaaS do in 2008 when the Great Recession hit?” I have a couple thoughts on this, and then I want to pass it over to you to see if you have any other thoughts.
First thing is SaaS was barely a thing in 2008. There were so few. MailChimp was just becoming a thing. 2007 to 2009 is when Basecamp was two, three years old. What I would say is SaaS did a lot better than one-time sale products. I had a one-time sale invoicing software and sales plummeted 80% one month to the next, because there was no recurring revenue. Your revenue craters when you have one-time sell products.
Now with SaaS, it’s much more likely that your growth is going to stall. Either your trajectory is going to flatten, or your revenue could completely flatten out, or even start declining; but it should be a more gradual decline, unless you’re in an industry that’s uniquely and deeply impacted by this. If you’re serving retail, if you’re serving in person events, software for schools, there’s a whole list of industries that are going to be pretty devastated by it. Other than that, you’re going to be impacted. It’s not going to be like a lot of the businesses in the world are going to be impacted.
Einar: I think that’s true. I saw that note come through, and I was like, “2008? I don’t really have any context for SaaS in 2008.” That was a year before I went to YC and we were building a mobile app for the consumer. I wasn’t that glued into the SaaS at the time, but it makes sense to me. I mean, that’s what we’re seeing in the people I’m talking to, is anything, which needs to go on a budget now is getting serious scrutiny versus something that’s already recurring. Yeah, you’re definitely going to see cuts. Well, there are some exceptions, but I don’t think there’s really any business that’s not going to see some sort of a damage in terms of revenue, top line, and profit, if we go through a recession that’s anywhere near as deep as what people are projecting.
To give you context, I think it was Goldman Sachs, who were saying that they think Q2 2020, the GDP is going to drop to a negative drop of 24%, which hasn’t ever happened before. I think it just makes sense that people are going to look very hard at pretty much their entire credit card bill, what are their accounts payable, and they’re going to be cutting across the board just as a defensive crouch. I think that’s inevitable.
Rob: Yeah. In the Great Recession, the GDP, at least in the US, fell 4.3% from its peak. What’s interesting is it’s not apples to apples because it’s just such a different thing. This COVID thing is an unnatural brake lever, I think of it like brakes on a car. It’s unlike anything we’ve ever seen. It truly is unprecedented. If it slows down super suddenly, what is the impact of that? There have been no experiments like this.
Einar: It’s clearly unprecedented. I’ve just looked at what the stock market’s doing. It’s never fallen this fast, this quickly. Even 1929 didn’t go down this quickly. Same thing with 2008, didn’t happen that quickly. Now, that could mean more than two things. We’re in for a much worse time, but it could equally mean it went down so quick, it’s going to bounce back up. Yesterday, the DOW was up 11% or something, completely bananas. It really is uncharted territory in terms of what we’re dealing with because it’s global. You can’t even say, “Oh, I’m going to focus on a different market.” There are hardly any markets left that aren’t going to be impacted by this.
Rob: Right. I think we don’t need to panic. We need to keep clear heads and we need to plan realizing things could get worse. We don’t know how worse but it’s keeping the level head. That’s my first point. I have six points that I want to cover today. Actually, it looks like I misnumbered them. I actually have seven points to cover today. The first is don’t panic, clear heads will prevail.
James Kennedy asked me, “How do you manage mental health at a time like this?” Frankly, I have been talking a lot and listening to my wife, Sherry Walling. She has more requests for webinars and podcast interviews in the last two weeks than in the past two months combined. She has been thinking and talking about how to keep people from being consumed by their anxiety and stress for decades. She was a trauma psychologist. She became in essence a founder and CEO—coach is not the right word—but advisor. Follow her for a couple months, I get nothing out of this. She is just an even keeled mind and a trained mind who…
Einar: She talks to you off the cliff a fair amount of time.
Rob: Exactly. She puts out a podcast every Friday. It’s called ZenFounder. She’s @zenfounder on Twitter. She and I just did some MicroConf on air last Thursday where we talked about this exact question for about 30 minutes. I just peppered her with questions, and we got a bunch of questions from Slack too. She was just giving strategies about what it’s like to be at home with the family or without the family; how things are different; why we’re stressed; how to give yourself some leeway; how to feel better about it. She will do a much better job than Einar and I will, to calm you down.
Rob: Point number two is no business is recession proof. It depends on the cause and the unique complexities of the recession. One piece of information I have, don’t ask me how I got it, but there’s a major podcast app that its usage is down 25%. I was thinking, “Well, isn’t all the remote stuff going to explode?” The person said, “I think it’s down 25% because people are not commuting to work. They’re just not opening the app because they’re not in their car.” It never occurred to me that that would be a thing.
Obviously, we keep hearing about how Zoom and their competitors are going to be doing well. Remote pair programming tools to pull in their competitors, people dealing with podcasting, recording podcasting, video live streaming, et cetera. If you’re in that boat, consider yourself lucky. You didn’t do it on purpose, COVID is not your thing. Don’t feel guilty. I think I talked to a founder who said, “I actually feel guilty that my business is growing during this time.” Don’t feel guilty, take it as a blessing. I would say use that to take care of your family and your team, and hopefully, help others during this time.
Do you have thoughts on this, about the recession proof and about certain things getting hit harder versus easier?
Einar: Just previously, I fundamentally think there are some things that will do well, but I think that’s in the minority. Pretty much everything is going to see a hit across the board. That’s sort of almost the definition of recession, people are spending less money. Whether it’s because directly related to the virus risk or just the sort of fear and uncertainty.
I think one of the main things that people are struggling with right now is there are credible people that say “Actually, this is completely overblown and it’s nowhere near as bad,” and there are also equally credible people who said that “This is just the start. It’s going to get much worse.” That sort of aperture of uncertainty is really damaging to businesses, and to people’s willingness to spend money and invest in new stuff. Even though most likely, it won’t be either of those extremes and hopefully, serving on the downside, I think just that uncertainty is likely to stop people reconsider, downgrading, spending less money overall. I think that’s going to impact very broadly.
Rob: We’ve been thinking a lot about this because we have companies that we funded, we have companies in our portfolio. Frankly, I’ve had tons of friends and all this stuff in the SaaS space. I’ve been having a lot of conversations, but you and I sent a letter to our portfolio companies. A lot of it was this kind of stuff, “Don’t panic, be prepared for a downturn.” This number three point, I think I took directly from there. Be cautious and be prepared to make some cuts earlier rather than later.
I’m curious to hear your thoughts on this because James Kennedy said he had heard some folks talking and people giving advice, I assume, in Slack channel and stuff. He heard someone say, “Cut 20% of your overhead now and plan for a further 20% if it gets to that point. Know where the savings are going to come from before you need to make them.” What are your thoughts on that?
Einar: I have two thoughts. First of all, I think particularly for a US company, it’s very important to understand what’s in this Relief Bill that’s going to get passed, because there’s some specific provisions there that relate to payroll. I haven’t read the text yet, but I think it’s likely to be something like, “If you have people on payroll before March 1st and you have the same amount of people on payroll after April 15th, then the government’s basically going to give you either a grant or a loan potentially with forgiveness options if you don’t fire those people.” That’s sort of an unprecedented situation, although that’s what’s been happening in some of the other countries, like France and the UK.
Frankly, the government has said “Don’t fire anybody, we’ll get through this. We’ll pay their salaries for 80% of their salaries for however long.” That’s effectively what this Relief Bill tries to do. That’s the one caveat I would come with up front. Even if you let people go right now, as long as you put them back on payroll by April 15, you might still get this benefit. That is probably something worth… Making sure you don’t screw yourself, cut in a way, and that essentially the government will pay to keep your payroll the same. That’s one thing.
My other point is putting that aside—that’s not going to fit every business and not everyone’s in the US—cutting 20% and then plan for a further 20%, my one objection there is particularly if we’re talking about cutting people, then I think it can be extremely demoralizing to a company and to a company culture. This is like death by a thousand cuts. I feel like certainly in prior recessions, 2008, 2000, 2001, I think the companies that did the best are the ones that did a deep cut early, but then didn’t have to do anymore; versus the cut a little bit here and a little bit there, and then essentially just quickly see that sort of morale erode. I think that’s my one concern with the cut a bit here; the 20% doesn’t sound like a bit but a deep cut.
I was just talking to someone the other day. They remember in 2008, they basically cut 70% of their staff, overnight in the first cut. Everyone was saying, “What are you doing? You’re crazy, you’re overreacting,” but that turned out to be the right approach, because they never had to cut again. They got profitable and they started growing again. Versus the people who cut 5%, then 10%, then 10%, and then 5%, it completely eroded morale in the company. You have to have cash and cash is king; but particularly if you have employees, it’s not great to come to work and just wondering like, “I wonder who’s going to get cut this month?” That’s my one thing. If we’re just talking overheads—software packages or whatever it is—sure, that’s easier, then I can understand.
Rob: Yeah, that’s where it gets tough. Can you get 20% out of non-employees? It depends. Do you have a lot of contractors that you could cut back on and bring stuff in house? There’s a million ways to do this. I struggle with the pre-emptive cuts. I would run my companies at the leading edge of the present often. I think I have a tough time making cuts before I start to see revenue or leads. You have leading indicators of trials per month. I knew exactly, almost to the trial, how many we should have each day. If it was down, I was already starting to project the next month’s MRR is going to be this and that.
If you’re in touch with that and you feel like things aren’t dramatically shifting for you yet, certainly, I think, crimping the belt is worth it. If you can cut 5%, 10%, 15% of overhead, I think that’s great. I think I’m on the same page with you as soon as you start cutting people… If it’s letting a contractor go, or if it’s “Hey, we’re going to turn off these ads because they’re not really working that well right now,” or “There’s an agency running our ads, and we’re just going to back off of all that,” that kind of stuff makes sense to me. If you have a pretty tight knit team, and you start letting people go, as you said the death by a thousand cuts becomes a problem. I think you just want to be aware that as you go forward with this.
Einar: Yeah, I think that’s true. I wouldn’t start cutting in panic. I’m not saying that, but I think most businesses will start to see and be like, “Oh, yeah. This is bad.” You’re having conversations with people like “Yeah, we haven’t cut you yet, but following all my employees.” So, chances are they’ll cut you as well. There are ways to get indicators that you’re about to have a pretty severe downturn. If you need to cut, once you feel pretty confident that this is going to happen, then I think cut big and cut early. Probably err on the side of cutting too much, so you don’t have to do it again.
Rob: My point number four is to really dig into what’s working in the business still, and to cut and trim marketing and sales efforts that aren’t working today. This is kind of spurred on James said, “Is trying to continue doing sales in this environment suicide? We were about to start a new outbound sales campaign but now that doesn’t necessarily feel like a great idea.” What are your thoughts on that?
Einar: Again, I think this is entirely up to what kind of buyer you’re selling to and what you’re doing. Again, depends on how to get it, right? In some cases, if you have a kind of software, you’re doing enterprise sales to big organizations, okay, fair enough, everyone’s working from home; but maybe now they sort of have time on their hand to evaluate new options. If you’re up competing against some entrenched, very expensive on-prem software, and you are sort of the lean, slightly cheaper or even much cheaper—although not too cheap obviously—cloud provider, that might be a great time to be doing sales.
If you come along and you’re selling something that’s $15,000 a month and you’re cloud accessible, and you’re competing against a company that’s $50,000 a month, and everyone has to be in the office; then it’s a great time, let’s do it. In part because they’re probably still getting paid. They’ll be doing things, like looking at reducing their AP. In some cases, I’m sure that people have been thinking like, “We really hate this software. It’s too expensive. It’s cumbersome, but we don’t have time to replace it,” versus “Now might be the time.”
I’m sort of reluctant to give across the board advice about whether now’s a good or bad time to be selling, at least as it relates to B2B stuff. I think if you’re B2C, oh, that’s going to be hard. I would find it very hard to sell to the consumer right now.
Rob: Very distracted, yup. That’s the thing, if I were still running Drip today, I would take a long, deep, hard look at any type of marketing or sales efforts we were doing. I would be cutting earlier, rather than later. Oftentimes when everything’s in expansion, and we’re going up into the right, you can take the long that, and you can say, “Well, I think over the next 60 days, this is going to turn out. This ad campaign will convert,” or “We’re still working on things.” This is the point where I would be really dialing those down and easing away, especially things that are just straight spending money to get new leads because it’s uncertain right now how this is going to pan out.
There’s a lot of distraction. As you said the consumer side is terrible because all of us are sitting here looking at Twitter and the news feed all day. Aside from consuming grocery stores… The toilet paper manufacturers are making a lot of bandits. I just think there’s a lot of distraction. I’m personally not looking to sign up for a bunch… The only new software that we’ve been looking at or the new purchases we’ve been buying… Producers, Andrew and I, are looking at actually upgrading the Zoom account, so we can do webinars out of it and play around with this thing that does a live stream. It’s all remote stuff.
As we said earlier, there’s those edge cases—the exceptions that are going to thrive in this—but a lot of other folks back to your point. If you can offer a substantially less expensive thing, people are going to be looking to cut costs today. Other than that, it’s definitely time to really be thinking this through.
Point number five is, this is going to sound obvious, but take care of yourself and the people around you. I think that it’s our responsibility if you’re in a good position to help other people. I think you start with yourself and that’s your mental health and your physical health. Try not to get sick and just try to not stress so much about this, 24 hours a day. And then it’s your family, and then it’s your neighborhood, and your community, and your employees, your team as well.
To give an example, I contacted all my family members who I think may have been out of work—the folks who are working hourly jobs—a couple friends as well, just to make sure that they’re going to make rent. That they’re not too stressed. There’s probably going to be a bailout and a relief for them as well. I feel like those of us in a position to be able to do that should be doing that. I’ve been taking one for the team. We don’t tend to get a lot of takeout, but we’ve been doing it two or three nights a week, specifically from our favorite local restaurants who we know are just getting decimated by this. I’ve been given big ass tips to the drivers.
I feel like if you’re in this position, it’s time for generosity. Even better if you’re in a position to help doctors, first responders, they’re going to pay a price just with the stress and the trauma that they see. To be honest, I’m heartened by the efforts of large companies, like Tesla, who are basically refactoring the factories to make masks and ventilators. Who is it in Europe that’s going to start making hand sanitizer? It’s like Louis Vuitton or something.
Einar: Oh, Louis Vuitton and I think Anheuser-Busch just came out with it. Anheuser-Busch labeled a sanitizer product, which I thought was pretty funny. We’re doing the same stuff. One of our friends just bought a cafe three months ago.
Rob: Oh man.
Einar: It’s brutal. We’ve been getting lunch from them pretty much every day and tipping pretty heavily. He jokes that we’re basically up, keeping it alive for now, which I think is probably true. We’ve been doing the same stuff, like just ordering from our favorite restaurants, tipping heavily. I think all the weight that I’m going to put on I’m just going to attribute to personal growth during the coronavirus. That’s sort of my approach with the whole thing.
Rob: Yeah, for sure. If you’re not in that position and your business is completely crashing around you, obviously, it’s not responsibility for everyone. It’s a responsibility for folks who I think have the means to do it and are in that position. Certainly, your team members are going to need it but like your customers, too, right? You may have customers who come and if you know your customers well, you’re going to know the ones who are maybe trying to pull a fast one on you. You’re going to know the customers who come and say, “Look, I can’t afford it right now. My business is cratering.” Can you work with them to keep their data around? Whether you comp them or you give them a big discount, or you give them a “Here’s $10 a month, just to keep your data.”
This is the time to kind of be understanding and to help one another out, because we’re going to need that coming together. On that note, I think a lot about team members, your employees. Some people I’ve talked to are really, really stressed about COVID. I’m not. I’m, normally, a very anxious and stressed person, but for some reason, I’m just in a good position. For whatever reasons, I’m not freaking out about it; but I talked to folks who I respect and like, they’re extremely, extremely stressed about it. It’s just that different people react differently. It’s the bottom line and so really be aware of that as you’re talking to your teammates, your team members.
Rob: Yeah. I think people handle this thing differently. I’m not super stressed either, despite what you might see me screaming on Twitter. Actually, it just occurred to me the other day, this would be a very different scenario, if the hazard curve was more similar to a typical virus. If children were equally at risk as seniors, then I think it’s a blessing that we’re not in that boat, because then I think you would see mass exodus out of the cities by now. People definitely handle it differently, for sure. I’ve noticed that both in my professional and my personal life.
Einar: Yeah. Some people are just straight stressed by COVID. Most of us have our kids at home all day right now while we’re trying to get some work done. Some people aren’t used to working from home at all. Frankly, everyone needs a break right now, including you as a founder. You don’t have to be 40 or 50 hours a week productive right now. Give yourself the leeway to be 10 hours a week productive.
Einar: If you can be 10 hours a week productive, you’re doing amazingly well. That’s my view.
Rob: Yes, not only the physical distraction, but it’s the mental distraction, the ongoing burden, the stress level. Sherry keeps talking about this. She has a lot of clients, and everyone she talks to is just at a level of 8 out of 10 constantly. I think a lot of us are. Give yourself… It’s not the luxury, but it’s like…
Rob: Yeah, the permission. That’s the word. Give yourself and your family permission to do it. This morning, I was down with the kids for an hour and a half. As they were on their laptops, I was doing some work in the background. They were interrupting me constantly, which I would hate because I’m a super focused person when I work; but I was just giving myself and the kids permission to not be stressed while we’re at home. It’s easier said than done, but I think it’s something that we need to realize. We can’t be as productive as we were, and we aren’t going to be under these circumstances.
Every night when I go to bed, I am seriously thankful that I don’t work in a restaurant, or a factory, or own a retail store, and that I can work from home. We are, a lot of us, in better situations than everyone else and I’m thankful for that. My brother owned a fish and chips restaurant until about a year ago. He and I were just talking about it. He sold it a year ago. Good Friday is one of the biggest days of the year for them. “It could be worse” is what I keep saying to all of us. I tell the kids that, and Sherry and I talked about that. It doesn’t necessarily make it easier, magically, make it go away; but it puts it into perspective, which I think is something we need right now. It’s just to keep things in perspective.
Point number six I wanted to make is at times like these, in terms of your business, cash is going to be king. Right now having some cash in the bank and having that cushion is going to be super important, both to make payroll to keep the business afloat for any emergencies. The more cash you have, honestly, the better off you’re going to be.
As I said, it feels terrible now, but we’ll get through it, things will get better. There will be opportunities as we exit the recession in the stock market. I think of all the companies that came out of the last couple recessions. MailChimp was like 2007 to 2009 when it really started taking off. Twitter came out of it. Blogger came out of the 2001. Google, I believe, was kind of 1999, 2000, 2001. They all went up and then kind of lived through it. I even think of our friend Ruben, with Bidsketch. He started that in 2008-2009, right in the midst of this, but recoveries bring opportunity.
While it’s hard to think about that right now, we will get there and there will be opportunities in the stock market. I think a lot of us are watching that. I certainly have, I have a little bit of dry powder on the side. There will be opportunities in SaaS, whether it’s acquiring a company or just markets that are going to reopen and go quickly. If you’re set up to take advantage of that, and in a decent position to do it and you’ve weathered the storm. That’s where the real growth happens, is on the recovery.
My dad worked in construction for 42 years and my brother is still. He’s a project manager. When recessions happen like this, a bunch of construction firms go out of business because they just don’t manage their finances very well in general. They go out of business. The ones who hang on and make it back always have amazing, amazing big years when things are growing.
Einar: Yeah, I think that’s true. A little bit of cash in the bank is super helpful. This is probably your point seven. We’re going to get through this. I think there’s a lot of doom and gloom right now, but realistically, it’s not like we’re going to be in lockdown for 18 months to 2 years. That just won’t happen. There are too many things that are likely to work out in one way, shape, or form. That means that it won’t be as bad as some of the worst do mongers out there are currently claiming.
Rob: One question James Kennedy had asked me when he emailed us. He said, “When should you sit on cash and when should you go hunting for opportunities?”
Einar: That’s a great question. It’s a similar question to “When do you think you can time the bottom of the market?” I was watching the stock market jump up 10% yesterday. I could feel the greed. I was like, “Oh, I want to be in this market right now,” but it comes back to like “Cash is king.” I was like okay, but if I lose out on a little bit of a gain on the stock market, how upset am I going to be by that? Versus if it continues down, and I lose a six month cash cushion for me and my family, that’s much worse.
I tend to be slightly conservative when it comes to deploying capital back into the markets, and I think you do, too. Certainly, I think a lot of businesses right now are just sort of like, “Yeah, we’re fine. We’ll wait and see how bad it goes.” Do I think that right now there are an awful lot of amazing opportunities to buy businesses? No, I don’t think so. I think typically they come later in the cycle, to be honest with you.
Rob: There’s a venture capitalist in the Midwest who I was talking with. He was saying that the conversations he’s having are the founders who started raising a few months ago who don’t have commits, they have a valuation in mind. That is no longer the fact. The valuations have already come down from the investor side, but the founders haven’t realized it yet. That’s what he said. That I think is what’s happening right there.
If you got to buy a business today, people will still hang on to the valuation they had mined for their business three weeks ago. If we get three to six months into this, depending on how everything shakes out, there will be more opportunities long term. This is all aside from COVID. This is purely the economic and the stock market aspects of it. How I think about it is when should you go and look for opportunities? Not yet, not anywhere close. I’m going to be sitting on cash for quite some time. I don’t tend to try to time the bottom of the stock market. I never make the bottom. I get it after it’s kind of bounced, and coming back up, and I see the economic signs change.
There’s a bunch of leading economic indicators. Much like in a SaaS app, when I look at unique visitors, I look at my trials, I look at trial conversion, there’s all these things that are ahead of MRR. There are leading indicators for all these things too. Before the recession is “over”—reports declared over—there will be some leading indicators. Those are the types of things I think you can look at. I don’t know if there’s an easy answer to go hunting, but I certainly think that there are always opportunities coming out of economic downturns like this. It’s unfortunate, but it is cyclical. That’s how economies work.
Last point, point seven is just reminding you that we are going to make it through this. It feels terrible right now and it is terrible. The health crisis is not something that any of us could even imagine, but things will get better. We will figure this out. While it’s serious and tragic, we need to keep a level head. We need to kind of keep pushing things forward to take care of ourselves, our families, our communities. Again, it comes back to staying mentally healthy and not stressing so much about it, not thinking about it all the time. With little new information or no real new information, it doesn’t help to just think about something all the time. Worrying doesn’t solve anything. That’s something that Sherry and other psychologists have kind of drilled into me over the years. Worry with no new information, there’s no value to it.
Anyways, I hope as a listener, you got some value out of this. Even just hearing a couple people think through how we’re thinking about it, and hopefully, you take away a piece of advice or two that helps you feel better as we look ahead.
Einar: Yeah, I agree. Like I said, I’ve been watching this probably for longer than most people in terms of the COVID thing themselves. I think in general things just will get better. It has a death rate of 5%. There’s just no way that 100% of people will get it, and there’s nothing we can do, and we just got to lock up in our houses for 18 months. That’s just not how these things work out. I’m not any virologist, we’re already seeing trends that suggest that this is bad certainly, but it’s not world civilization-ending. Spending all your time on Twitter is not necessarily all that helpful.
Rob: Yeah, so we hope you stay healthy. Thanks so much for joining us this week on the show. We will see you next week.
10 years to the day….Startups For The Rest Of Us was born. In this episode Rob reflects back on he and Mike Taber starting the podcast all those years ago and the journey its been. This episode includes a 5 minute play of the very first episode of the podcast.
Items mentioned in this episode: