In the fourth episode of TinySeed Tales Season 3, Rob Walling checks back in with Tony Chan of CloudForecast.
Tony shares that they’ve doubled their MRR in the last couple of months, and it feels like he has unlocked a cheat code.
Topics we cover:
- 2:02 – What’s changed since the last episode?
- 3:14 – Winning a huge enterprise deal that nearly doubled their MRR
- 5:21 – Deploying capital
- 12:31 – A key mindset shift that Tony had to make
- 13:33 – Tony’s experience at a recent TinySeed retreat
- 18:10 – Tony reflects on some low points
- 19:35 – What is he looking forward to?
Links from the Show:
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you
Welcome back to this week’s episode of TinySeed Tales, season three, episode four, in which CloudForecast doubles their MRR and Tony uses the phrase, “It feels like we cheated.” It’s a really good episode. You’re going to want to stick around for it. Quick reminder that applications for our next TinySeed batches are currently open until September 25th, just a few days after this podcast airs. Head to tinyseed.com/apply if you’re interested, and let’s dive into this episode of TinySeed Tales.
It felt like we cheated to be honest. I’m trying to change my thinking a bit that Hey, everything and all the effort that we put in has led up to this and it’s not cheating. We did get lucky, but the work that we’ve done the last three years has culminated to be able to close that deal.
Welcome back to TinySeed Tales, a series where I follow a founder through their struggles, victories, and failures as they build their startup. I’m your host, Rob Walling. I’m a serial entrepreneur and co-founder of TinySeed, the first startup accelerator designed for bootstrapers. We’re back with Tony Chan of CloudForecast, the cost management tool for Amazon Web Services. It’s been about a month since our last conversation, and there are big changes afoot.
So Tony, listeners may not realize the way we do these episodes. Sometimes it’s a month, sometimes it’s three months between them. And I record voiceovers, we send it off to a producer, and then we get it back a few weeks later. And usually, what’s happened with the past three seasons is, I listen to it, the founders listen to it, give me the thumbs up, because you have final cut. But what was interesting with the last episode, because I sent you episode three just a few days ago, five days ago, and you listened through it and you sent me an email and you say, “Wow, how much has changed since then. Great episode. I hope people can relate to the highs and lows, the struggles, and it feels like pushing a boulder up a hill sometimes. That was just a few weeks. LOL.” And then in all caps, “GET ME OFF THIS ROLLER COASTER.”
So what has changed that made you say that? Because the last one was you were down, things were not growing. They were just going along in a way that you were not super happy with. So what caused you to send that email to me?
Yeah, absolutely. Last time we chatted, I had mentioned things were a bit slow and felt like we were floundering a bit. We weren’t getting new opportunities. It seemed like it was just string of bad luck. But since the last time we chatted, we closed a really big enterprise opportunity that essentially doubled our MRR to 35K. So that represents 50% of revenue. It did take us a bit of effort to close that out, but that was a huge change, and it’s a huge inflection point in our growth and our company.
Absolutely. That almost never happens. It’s so rare.
It literally looks like a hockey stick when I map it out. I’ve never seen that before, but that is a huge change, and I think that was the reason why I wrote that email. Because it’s two months where personally I felt like crap. I was by myself a little bit. Things were not going away. And then all of a sudden, we had a string of good luck and be able to close this deal and have that conversation and just put all our efforts into that opportunity and closed it.
And in the last episode, we talked about celebrating how you had crossed 200K ARR back in August. And I was thinking to myself, yeah, so now you’re looking forward to 250, and then you have a little celebration at three, a little celebration at four, and you just blew by all those, because you guys are over 400.
It felt like we cheated to be honest. I’m trying to changed my thinking a bit that hey, everything and all the effort that we put in has led up to this and it’s not cheating. We did get lucky, but the work that we’ve done the last three years has culminated to be able to close that deal. So yeah, it’s definitely a huge inflection point for us and we’re just so happy to be able to see that growth, and the hard work that we put in has led to that.
There’s an old saying that luck is when preparation meets opportunity. The only reason this deal went through is that Tony and his team built a product that people actually want and developed the skills to market it. I love that Tony has the perspective to give himself a well deserved pat on the back. But I also understand his initial instinct to be humble and even cautious. When it comes to B2B sales, closing a deal can take three or four months or longer. This one came together at whirlwind speed and carries new implications for the business.
With more money comes more problems. How can we use that money wisely? How can we spend that and generate the most ROI? It’s just crazy to think that at 420K, we have really high gross margins at close to 90%. I’m almost making what I did working at my previous job if I decided not to reinvest back in company. So I think that is also a huge relief. Obviously, we’re not going to do that. We want to reinvest in the company. So it comes with whole set of problems that accelerates a lot of things, whereas I feel like a lot of companies can step growth into that. Whereas for us, it’s a one shot deal where it’s just a huge step versus where we’re at before.
And now your thinking has to shift to, okay, we have all this money, so now we have this big margin in essence, how do we spend this to grow the company? Is that something that’s on your mind right now?
So it’s funny that you ask that because there’s also a sense of fear that I have on that side. When you first start out building your company, you have a sense of fear of, okay, maybe this won’t work out. I think we’re past that, but it becomes a different sense of fear. It’s like, all right, we are planning and we’re trying to be very strategic about it and ask people questions, but there’s still that uncertainty. It’s kind of ironic, but we’re close to a half a million dollar business, but what happens if we spend a whole year investing that money and the ROI that we had hoped for doesn’t materialize?
So there is definitely that burden that I’m carrying and thinking through. But yeah, we are strategically trying to plan through 2022 and how to budget things, not something that we’ve been really good at and how to plan for things on the growth and marketing side, but also on the product side as well. So there’s definitely a lot of moving parts and literally any typical bootstrap company, they get maybe two or three years to plan all that because it’s a lot of incremental step growth. Whereas for us, we’re condensing that in 60 days. So it’s not a lot of time to think through this and just making sure we spend the money the right way.
Can you give us any insights into what you’re thinking in terms of hires or marketing or how you can invest it?
So on the product engineering side, it does make sense for us to maybe hire an engineer more on the senior side to help Francois a little bit, to help us move faster on product. That’s something that we’ve always been really good at. So that is a very easy input output type of scenario.
I think the tricky part at the moment is the growth and marketing side, and it feels very overwhelming. And there are just so many moving parts and just so many different ways we can execute and how we’ve always executed previously, it’s like, oh, we come up with a thought and idea and we just do it. But with this type of money that we’re getting, we need to be strategic about it and we need to plan for it. And I feel like that’s something not a lot of bootstrap founders are really good at sometimes. We just fly by the edge of our seat and just execute and do it.
But when talking to a bunch of advisors and mentors, a lot of them say, “It sounds like you need to plan. You need to be really strategic about it.” That’s the main thing that the advice converged on is, “Hey, you need to be strategic and plan out the year and be able to hire contractors, the agencies in this area as well.” It is a lot of money, but it’s not enough to say, “Hey, let’s hire a full marketing team and build out growth person, a head of marketing, a content strategist.” So that’s where we’re at at the moment is just figure out who to plug in and where to plug people in for next year and what our budget looks like.
I think a mistake that a lot of folks make is thinking that, okay, we have this money and we do need to invest in marketing, and so I’m going to try to find that unicorn marketer that can do everything, that can do strategy and then do several tactics and is an expert at all these. And there is Corey Haynes and there is Asia Aragio, and there’s a handful of other folks we know, but realistically, that’s just not likely to happen. And so I think that’s what you’re finding yourself with is in a perfect world, it’s like, cool, I’m going to hire a developer and then I’m going to hire a marketer. But it’s like, well, are you hiring a strategist who’s going to try new things and have high level knowledge of a bunch of stuff, and then they’re going to essentially delegate the tasks to freelancers or to someone else? Because finding someone to do all of that is obviously pretty hard.
Yeah. I think that was the main conclusion we came up with while chatting with people is that unicorn does not exist. So we are working with Asia at the Man Maven. She’ll be a really good resource for us to help us think through what this marketing is and helping us set up a foundational piece. Essentially, she’s coming in, doing customer interviews and helping us set a really good foundation for us for the year and how to plan out the year. She’s acting essentially like a CMO or a VP of marketing for us on the initial setup chat and a project that she’s working on. So we’re very excited for that, because in the past, it’s always been Francois and I just making things up as we go or just taking tidbits from what our customers tell us. Whereas it feels great to have someone who can help us plan for that and have probably seen millions of similar scenarios and be able to just set a really strong foundation for us.
The other area too that makes sense for us based on just our data point is just doubling down on content and SEO. I think you mentioned it’s easy to get overwhelmed by all the channels and where to focus on, but chatting with Ruben, Corey, you and the convergence of advice was it seems like content SEO is an area that should be the primary driver in the area that you should double down on. So helps us keeps our focus on what channels. We talked about outbound, but when we look back in 2021, we blew 25 grand and it didn’t materialize and doesn’t mean we are going to ignore that channel, but it seems like we just need to amp up where we a hundred percent know where things are working and figure out that process as well and where to hire contractors and agencies in that area.
The last time we spoke, Tony had already been thinking about hiring a couple extra people to deploy the extra capital they were sitting on. Now with all this additional MRR, they have even more dry powder to take some bigger risks.
I think there is a level of somewhat confidence. We plugged in our new growth numbers and we’re like, “Oh, we’re completely fine.”
Default to live plus plus, right?
Right. The previous mentality is we were counting everything that we were spending. We’re very mindful of where we’re spending our services and the apps we buy or doing business meals and so on. But now that’s almost a rounding error. We don’t have that burden or stress to think about that. Now we can set our focus on what really drives our expenses, which are who we hire. When we looking at the numbers and the balance sheet income statement, that is the primary driver of where our money’s coming in and out.
So I think there’s a weight that’s been lifted from us. We don’t have to worry about paying ourselves next month or we have the money. We were always relatively fine. I think as a bootstrap founder, you’re definitely more hyper aware of that. But with the newfound MRR, it’s definitely less about that, but more of okay, how can we execute? How can we plan? How can we amp this up a little bit more and just continue to grow and build upon the money that we’ve gotten as well?
So I think we’re trying to shift to that mentality a bit. It’s still a bit hard, but that’s something that I’m just trying to remind myself. It’s okay to spend 10 bucks to make your life easier with this one software. It’s more so who do we hire? And that’s the big driving point of growth for us.
I’m glad you called that out because it’s an adjustment a lot of founders have to make if they have gone from being really cash strapped, really bootstrapped and either raise funding or grow a business to the point where they’re in your position. Whether it’s 400K ARR, four million or 40 million, at a certain point you hit it and you realize, oh, okay, I have to change my thinking and I can’t be so frugal all the time. It will actually be detrimental to the business.
It comes back to what areas is the best spent for Francois and I? Time right now is the most important part. So that area might not be code up on, but my time is probably going to be spent on making sure the engine of what we do and produce with content and SEO and driving more opportunities there, that is where my time is best spent at the next six months. So that is probably the mindset shift that we have on our side.
So switching gears a bit, this conversation took place right after Tony and I got back from a TinySeed retreat in Scottsdale, Arizona. We have founders around the world so bringing them together physically is an opportunity to elevate the mentorship that makes this program special. Plus, our founders can actually get in some R and R between focused conversations on hiring, onboarding, marketing, churn, and everything else a SAS founder worries about. I wanted to ask Tony about his experience at the retreat.
I’m curious, my impression is that you are an extrovert and you get a lot out of being around other motivated, ambitious people, but I’m curious to hear in your words, what did you come away, whether it’s tactical things or whether it’s just a broader sense of inspiration or whatever, what did you come away with from that retreat?
Yeah, that retreat was great. So that retreat was with the spring and fall batch in Scottsdale, and I think just being around fellow ambitious bootstrap founders, a lot of them are going through the same struggles as you are, have dealt with the same problems, can understand the context and the issues that you’re going through and be able to have empathy and relate to that. And just be able to chat about work and life and just be able to connect with people that are similar to you, there’s just no better feeling than that.
And I, honestly, and Francois as well, we felt energized leaving that retreat, because not only we got to chat about our business, but we got to meet a lot of really cool people, and it really motivates you to just keep pressing forward. And there was a good amount of diverse activities where we chat about things on a tactical level, like where should we focus? That advice we also got was to focus on SEO content. But we also had a lot of time where we went go-karting, we did the hot tub thing and be able to talk about non-work items and talk about life things as well with other founders. And I thought that was really cool. And I really enjoyed that.
And I’m bummed that we only have one retreat left in Minneapolis, but that was a great retreat. And I really enjoyed it. And I’m glad Francois was able to go, because I haven’t seen him in a while actually. And he just came back from his wife having a baby. So it was good to connect with him, and he felt energized as well because he hasn’t been to one of these retreats. So that was his first one. So he had no idea what to expect.
It was one of the best retreats we’ve hosted, partly due to a lot of factors. It’s like the founders who showed up like yourself really came to focus and hang out. And yeah, I like that you called out being energized because that’s how I felt leaving it as well. I think the feeling of other founders understanding you and having a shorthand, I summarize that as belonging. You feel like people really understand… When I say MRL TV and ARPU and KAK in any other room, no one has any idea what I’m talking about. People don’t really understand what we do and that’s okay.
But when you get in a room, whether it’s 35 founders at a TinySeed retreat, whether it’s 275 founders at a Microcom Growth event, when you get in a room with that many people who you know you can just have an interesting conversation with about something that you really care about, it is inspiring. And it’s very rare that we’re able to do that.
I think what helped too, and it might have been just the luck of the draw is I felt like a lot of the founders were in relatively same growth stages. There might have been that have hit a million and plus, but I think the fact that all the batches were in 2021 and are relatively in the same growth stage, definitely helped facilitate a lot of the conversations, because the memory of whatever you’re going through or the advice where it’s fresh. We know the tactical things of how to approach whatever the problem you’re dealing with or have seen those items, because you are relatively in the same growth stage.
So I think that was very, very helpful and kudos to TinySeed, be able to pick founders, I wouldn’t say similar, but it was a good diverse group of people, and no one had egos. Everyone had a lot of humility. Everyone was willing to share. No one was like, “Hey, look at me. Look what I’m doing, blah, blah, blah.” Everyone was very, very helpful and willing to give back. I think that was the big thing, willing to share their experiences. So I think that was a very refreshing part of it.
So we’ve talked about good things, exciting wins and such. Do you have any low points since we last spoke? Any big losses you want to bring up?
Nothing in particular. It is a little slow. We’re a few days away from the holidays and the New Year’s. So we do have a lot of warm and code opportunities that we have in the pipeline, but they’re just on hold, and it just sucks not being able to do something about it because a lot of our customers are out of office. So yeah, I think that’s the biggest setback is not being able to make continual progression on just closing more of those opportunities that we’re getting. And honestly, we probably have to wait until mid-January and February.
So yeah, we grew and we doubled our MRR, but not being able to progress that further, that’s also a weakness that I have. Just wanted to keep pushing forward and such, but I can’t do much about it at the moment since a lot of people are out of the office.
I wouldn’t call that a weakness either. That’s just founder drive. That’s an adaptive quality that we all get as entrepreneurs.
Yeah. It sucks. Yeah, we should celebrate and all that stuff, but there’s that part where I just don’t want to settle. And it just sucks waiting two weeks till people come back. If I could, I’d knock on people’s doors, but they’ll probably freak out a bit. But things are just at a holding pattern at the moment and things will be slow the next two or three weeks.
So assuming we chat again in six or eight weeks, what are you most looking forward to?
I am looking forward to seeing everything that we’ve planned for 2022 at the moment, and starting putting those things in motion and spending money. In four to six weeks, we should have Asia up and running. We should be starting interviews and such. So I’m really looking forward to seeing how all that works out. And we should start the process of hiring another engineer. So that will bring us to four full-time hires and a bunch of contractors.
So I think just getting started and just being out of this holding pattern is something I’m really looking forward to because I’m already itching to get back to work and be able to do things and be able to connect with customers and trying to progress the business more.
I see why Tony is so eager to get back to work after the holidays. The team has new talent incoming and it feels like the only direction from here is up. Stick with us to find out how CloudForecast fares in the new year. We’ll also be formally introduced to Tony’s co-founder, Francois. That’s next time on TinySeed Tales.
In episode 624, join Rob Walling for a solo adventure as he answers some listener questions on topics ranging from customer interviews to transitioning from a free to a paid product and prioritizing marketing vs. development.
Topics we cover:
- 2:11 – What episodes should I start with to get up to speed?
- 3:27 – When to transition from a free to a paid product
- 11:37 – Customer interviews as a service
- 15:03 – Making the jump from software to manufacturing
- 19:32 – Prioritizing marketing vs. development
Links from the Show:
- Greatest Hits
- Spending Benchmarks for Private B2B SaaS Companies
- How Much Do SaaS Companies Spend on Marketing?
- MicroConf Locals
- MicroConf Youtube Channel
- MicroConf Connect
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
And so, the big question for me is, is this a vitamin or an aspirin? Is this something that people are willing to pay for, right? Product market fit, when I hear that phrase, it’s a text expander in my head that says, “I built something people want and are willing to pay for.” Paul Graham has famously said, “The hardest part of being in a startup is building something people want, and if you build something, people want.” Boom, that’s it, right? “Success follows.”
This is Startups For the Rest of Us. I’m your host Rob Walling. This is a show that you listen to if you’re a bootstrapped, or mostly bootstrapped, startup founder, you want to grow your business faster, you’re ambitious, but you don’t necessarily want to grow that business at the cost of the rest of your life. You don’t want to sacrifice your family, your relationships, your freedom in order to build an amazing and life-changing company.
Thanks for joining me again this week. Before we dive into listener questions. We have some really good listener questions and of course, the audio and video have gone to the top of the stack.
Before we dive into that, I want to mention that MicroConf is going on tour. We have MicroConf locals coming up in October. I’ll be in Atlanta, in November we’re in Austin, and then TBD. We’re looking at Amsterdam, Chicago, Denver, and New England in early 2023. If any of these cities are of interest to you, these are our MicroConf local events where it’s like three hours in an afternoon where I connect with a successful founder.
For example, I just spoke with Rand Fishkin last week in Seattle, and I’ll be talking with Ben Chestnut, founder of MailChimp, in Atlanta, and then Jason Cohen, founder of WP Engine, in Austin and other guests you have TBD for the future ones. But these are three-hour events where the focus is really getting a group of founders in a room and helping them connect with one another.
If you’re interested in any of those cities, some tickets are already on sale for the events that we have nailed down, for Atlanta and Austin, and then for future events, if you’re not already on the MicroConf mailing list, head to microconf.com and get on that so that we will be in touch when these events roll out.
Our first question of the day is a quick one from Dexter. He says, “I’m a new listener. What episodes should I start with to get up to speed?” It’s a good question, right? Because we’re 620ish episodes into this podcast plus I think there’s at least another 50 unnumbered episodes in there. So realistically approaching 700. Two places I would start.
Number one, go to startupsfortherestofus.com and look for the Greatest Hits link in the header. We’ve just updated that. We have, I think 20 or 30 shows in that Greatest Hits, and we redo that every six to 12 months and add new episodes, and remove old ones. So that’s a good place to start.
The other place is while you’re at startupsfortherestofus.com enter your email address and you’re going to get two never before released shows. One is called Eight Things You Must Know When Launching Your SaaS. The other is Ten Things You Should Know as You Scale Your SaaS. So one is for the early stages, one is you pick product market fit, you’re starting to scale.
Those come in audio as well as a written format that’s more of a guide and those are evergreen lessons that I think every founder should know as they’re building their SaaS company. So thanks for that question, Dexter, and if you are listening and looking to get up to speed, hopefully, that helped you as well.
Our next question is a video question from Adam on transitioning from free to fee.
Hey Rob. Adam Dusty here out of Madison, Wisconsin area about a year and a half ago. My dad was running a bike challenge at Kimberly Park, Fortune 500 company. So a lot of employees and he was doing it on a Google sheet and it ran through a Google form where you go for a bike ride. And then at the end of the week, you count all your miles and submit it. And what it is a competition between all the different KC locations. So like Brazil, different locations in the US, et cetera.
Anyways, to make a long story short, we made a website, a friend and I made a website to integrate this through Strava. So no more manual input. People just log their rides in Strava, and it gets published. The challenge challenges grown from 80 people that logged a ride. When we used the Excel sheets to our last challenge was 496 employees and friends of employees logged thrives during the May challenge.
And then eventually it ended up getting too much work. We had a lot of support to do. We enjoyed doing it, but we sent a proposal for them to pay for it with some additional features and prizes we can include. They didn’t take us on our offer. They said maybe for next year they could.
But I’m just curious how you would’ve approached this, providing a service for free and then attempting to transition it into a paid service would love to hear your thoughts, really enjoy the podcast, and appreciate all the value we’ve gotten from them. Thank you.
Hey Adam, thanks for the question. This is a fun and interesting case study, I think. So a couple of things. One, I want to go off topic real quick and say, “This is such a cool idea to build no code.” I instantly thought, “Oh, I’d build this in an air table or use bubble or something.” This is the perfect example of a tool that I don’t think needs full-blown software to code something this simple.
That’s not your question, but it is something for you or for other listeners to hear that when we talk about no code serving a purpose and being able to build an MVP or to run certain types of businesses off of this feels like one that could probably be done with little to no custom code.
Aside from that, though. Your question is how would I have gone about it? And frankly, probably the same way you did. I think it’s great that you asked for money and you’re not just providing the perpetual service for free, but it didn’t work so far, right? And so, the big question for me is this a vitamin or an aspirin? Is this something that people are willing to pay for, right?
Product market fit, when I hear that phrase. It’s a text expander in my head that says I built something people want and are willing to pay for. Paul Graham, as famously said, “The hardest part of being in a startup is building something people want, and if you build something, people want.” Boom, that’s it, right? “Success follows.” Which he’s right. That’s like the first step. And I’ve always… Ever since I read that essay and this is a probably 14, 15-year-old essay, I thought to myself, “It’s actually, you need to build something people want, which is really hard.”
Then you need them to be willing to pay for it. And you need to be able to find those people at a rate or at a cost. That means that you can grow because if there’s only 100 customers in the world, or you can only find one a month and they pay you $5 the economics don’t work out.
So there’s a lot of things that have to be in place. Even in this simple broken-down bulleted version of product market fit, build something people want willing to pay for it. And are you able to reach them and close them in an economically viable fashion? And at this point you haven’t proven any of those. Well, I guess you’ve built something people want, but we haven’t proven that they’re willing to pay for it. And so, without having some type of urgent need. If they just said, I will use it next year, that’s not a great sign.
I do see a lot of free tools built that then try to monetize and people don’t want to pay for them. I actually built feedshot.com years ago. I don’t even know if that homepage is still up, looks like it is. It’s a static webpage. It hasn’t submitted 132,000 submissions. And then it just went away. Look at that copyright 2015. This is amazing.
So I built this in, I got to be 2003 and this is almost 20 years ago. This is going to sound so ridiculously dated. I’m speaking in old English, not even in modern English, but a blog is a web blog. And when you launched one year and years and years ago, there weren’t crawlers. There were a bunch of directories that you could submit to. And there were at a certain point, there were 90 different directories. And so, you could submit them by hand, you could hire a VA.
I just wrote a bunch of code, right? It was easy enough to hit it wasn’t even rest APIs at the time. I’m pretty sure I was just scraping and actually looking at the forms and then posting to an endpoint too much technical info. TMI, I know but I had 90 of them in there and I built it and launched it for free, and people… It was getting tons of traffic people were loving it. And then I was like, “Well, cool. I want to make some money from this.”
And so, there wasn’t enough traffic to actually make money from advertising. So I was like, “Well, I’m going to start charging for it.” So I was like, “999 per submission.” And like, “No one did it.” So I just kept lowering the price 499, 399. And it was kind of cool. I could see the price elasticity I could see as I lowered it. I did get more submissions. And I think at the time, how did somewhere between 299 and 499 when there were still 50 of these directories?
So these directories just slowly started closing because there’s no reason for them all to be there. So over time they would just stop working. So I’d start peeling them out. And over time I did have to lower the price and the last price it looks like I was using was a dollar 99. And so, I would make fives of dollars on this website each month. And it’s because it was not an aspirin. It was a nice to have, it was a tool. I had built something people wanted, but really nobody was willing to pay for. And so, I don’t know if that’s the case with what you’ve built Adam, but I definitely see the B to C type stuff.
The fitness trackers allow people to decide on a particular schedule or manage a betting pool, just a casual office stuff. Let’s figure out where we’re going to lunch. These are cool, interesting, neat little viral tools. But I think of these things as almost like utilities that people consider are going to be free. And until you figure out a real… Almost has to be a business case for spending money on something like this from a business’s perspective. And so, why would they write? You didn’t mention your pricing, but $1,000, a $10,000, whatever that amount is. There’s a lot of other places they can spend that money.
And so, your question was, how would I have gone about it? Probably, the same way you did what I would do now though, is I’d be thinking my biggest concern is anyone willing to pay for this? Or should we release? If we’re going to build this thing and air table, whatever, release it free, put it on product hunt and just make it kind of a community service almost to where it’s a free tool. And we use it to kickstart the next thing. Or in the meantime, are we doing some cold email, maybe some type of light marketing. I don’t know if you’re doing pay-per-click ads or what it is.
If people are searching for something like this, obviously, you could do SEO or you could go to Capterra or look at Google terms. If they’re not searching for it, then what is it? I mean, it really does become more of a cold outreach thing, which is fine. But you have to ask yourself, is that what I want to be doing? And if it is then that’s what you should start doing is cold outreach, fortune 5,000, fortune 10,000, whatever companies you can get and say, we have this tool. Are you interested? Oh, and I think the other way is obviously, I bet there are sites that have listings of these… I don’t know that you didn’t call it a Bike-a-thon, but that’s what it reminds me of is the bike challenge.
Are there sites that list these kinds of things anywhere, and can you get in touch and be like, “Hey, do have a tool that manages it and figure out?” I think a lot of people they’re raising money for charity. I have my own presuppositions that I’m concerned that no one wants to pay for this, but that doesn’t matter because I’m not the end customer.
And in fact, when I get asked this question, a founder will email me and say, “I have this idea, or I built this thing. What do you think?” And I always think, “You should talk to your customers because I’m not your customer.” And if I’m, I am supposed to be your customer, I’ll tell you, “Hey, I would buy this or I would not.” But for me to weigh in on the viability of this idea, really not having much knowledge of the market is not super helpful.
And so, that’s where I’d be leaning is can you go talk to customers? And if you can’t find any customers now, how you going to find them once you have a full-blown product built. So I appreciate you writing in Adam. I hope that was helpful.
Our next question is an audio question from Taylor about customer interviews as a service for Indie Founders.
Hi Rob, my name’s Taylor. I recently was laid off from tech company here in Canada and unfortunately, it seems to be the ongoing trend. So I had a question for you related to marketing that I think might be potentially interesting to some of your audience members. Although it does skew a little bit further away from the Indie Founder type demographic and more to the marketing side.
But at my past role, I was doing a lot of interviews with SaaS founders and trying to understand their motivation for selling their business. And this got me thinking about doing my own freelance job but instead doing customer interviews as a service.
So I’m just curious if you think there’s demand for that from startup founders who are potentially too busy or just don’t want to actually directly talk to their customers or if there’s potential pivot that you could envision, that would also be good. So yeah. Let me know my name is Taylor Kartavicius and hoping to get some real good feedback from you. Thanks.
Hey Taylor, it’s a good question. So I like one part of this and I don’t like the other. The first is customer interviews as a service. I think it’s a fantastic idea. And in fact, I know some companies that do this as part of broader agency marketing packages. And I love the idea of it. I’ve seen pricing for of a few thousand dollars up into the mid to high four-figure range, right? 5,000, 6,000, 7,000, depending on the deliverables where there’s a lot that could be done here.
But I think that as a founder of myself. I would 100% hire this out. And I know that some tiny seed founders would want to know more about their customers, but you don’t want to learn the nuts and bolts of it. And so, if you can pay someone three, four, five grand to do this, I think it’s interesting. That’s the part I like what I don’t like is you say for indie founders. Indie founders, I think you mean like bootstrap founders, indie makers, indie hackers, a lot of especially early stage folks. They still think like the consumer mindset.
And so, they’re going to be very price sensitive. So I don’t like the niching as a service for indie founders. I think you could start it there. My guess is you’re going to have people wanting to pay you hundreds of dollars to do quite a bit of work. And so, maybe if you do that to get your first few contracts, to get the experience, not experience of doing the interviews, because it sounds like you already have that experience.
But just to get your name out there. It’s easy marketing, right? You post to indie hackers. You let people know and MicroConf connect. You have to be careful here because you don’t want to seem the soliciting stuff isn’t going to go over well. But if you do, you’re like, “I’m a software founder. I have good experience with this. If anyone’s interested, almost offering it as a low-cost service.” I think it’s interesting. I want to be really clear to please don’t come in general to MicroConf connect and pitch new services.
But I do think that this is an interesting idea. Reddit like the Reddit SaaS, Reddit startups, Reddit entrepreneurship, any of these could be interesting for trying to figure out what is that price point. If you do build a brand, then you have price flexibility, and you can expand the price as you go on. But do I think it’s an interesting service? Yes, I would not make it a subscription.
I mean, it really is a one-time thing every year or two we do this with MicroConf where we do a group of customer interviews jobs to be done interviews usually to learn more about the new people, the older folks, not old in age, but who have been involved in MicroConf for longer folks who only come to in-person events. Folks who only consume online just to get an idea of what people are looking for. So love the idea. Thanks for writing in Taylor.
My next voicemail is from Andre on making the jump from a software to manufacturing.
Hey Rob, this is Andre listener from Brazil. My question is coming from a softer background. I want to make the jump towards founding and manufacturing company. I really believe we can bring your knowledge to the industrial sector. I know this is off, but I’m really curious what you think. Cheers.
Andre, this is a tough one. I mean honestly, if someone were to come to me and say, “I’ve been doing software, I want to go into manufacturing.” I would probably say, “Don’t.” And I know that’s tough. That’s not a great answer, but I’m not going to be able to tell you how to make the jump because I’ve never done it. What I do know is I have friends, acquaintances, founders, who I’ve advised, who have been in software for years, and we forget that we have the best business model in the world.
And that’s subscription recurring revenue with very low cost to serve customers and no physical inventory to manage with huge upfront cost, with refunds and shipping and stuff getting lost in the mail and pallets of things, being on a ship. There’s the logistics and the warehousing and the employee count and the margins, it’s just a completely different world.
And so, we have this amazing luxury of being in software and having these incredible margins with accruing revenue. I could not imagine going into any other space like manufacturing or hardware, or look I ran an e-commerce company back from… I can’t remember the dates. I might’ve messed it up 2008 to 2010 or ’11 and it resold… It ranked really well in Google for beach-related stuff like beach towels.
And I did several thousand dollars a month. It was a nice portfolio piece that I had combined to make a full-time income with the other things I had. And oh my gosh, per dollar earned that site was by far the biggest headache. I wasn’t even doing fulfillment. It was drop shipped, but there was so much crap people wanted refunds and then they’d have to ship it back. So then I have these beach towels, they get ship back was like, “I don’t really want these.” I’d eat money on those stuff getting lost in the mail stuff not getting there fast enough.
And people complaining that we missed a birthday, the margins were incredibly low because I had this huge cost of good sold compared to what I was used to. And there were no subscription revenue. It was just one headache after another. And I’m not saying every e-commerce business is that, but it definitely gave me a taste of the other side of where I didn’t want to go anymore.
And at the time I had a productized service. I ran… I was still doing a little bit of consulting. I stopped in 2008. So it was right around that time. I had several eBooks and info products. I had a SaaS I had a job board for electricians. I had all kinds of things. Oh, I wrote a book as well.
I had all kinds of things that were making money and that e-commerce site. It just stuck out as such a sore thumb for me. And so, that was one of the first things that I sold as I started divesting myself and focusing before I made a big run-up that basically dove deep into SaaS. That was part of the reason was I realized info products are fine, but the one-time sales of pain. I didn’t feel it just wasn’t as interesting as building a software company. It wasn’t going to scale in the same way.
And similarly, e-commerce had at its own trouble. So that really is my advice. It’s that I can’t tell you how to make the jump because I haven’t done it. But personally, I think you’re going to… When you jump over. I think you might be taking for granted all the amazing things that we have with this business model.
And I would be wary of diving in, especially thinking I have this knowledge because you probably have maybe some marketing knowledge, online marketing knowledge, and of course technology very well. And so, we can think, “Well, I’m going to come into this space, and I can out-innovate them because their software is crap and they don’t know how to market.” You might be able to, my question is it worth doing? Is it worth getting in there based on the margins that you’re going to make from these products, would the time just be better spent in the software space, even though you’re not going to be able to innovate as much because there are other people doing it?
I just can’t let go of the fact that we have the best business model in the world, and I would have a hard time walking away from that. So I don’t know if that was helpful or not Andre, but I do appreciate the question.
Our next question is another voicemail, voicemails and video questions go to the top of the stack. If you go to startupsfortherestofus.com, click ask a question, you could submit either one of those or email them to questions at startupsfortherestofus.com. This question is from Yuri on priorities from marketing versus development.
Hello. This is Yuri. I’m building a platform for developers on the side and I’m lucky I don’t need to do any development on it already because I hired developer. The question I have is that how much percentage of monthly recurring revenue or some budget or time is reasonable to spend on marketing versus development? Because it’s a development tool. There is endless possibilities to do integrations so I can dedicate 100% of efforts there, but still, I understand that marketing is a very essential part of the business.
So it’s a dilemma, which priorities should I go after in terms of the numbers, we are around 7,000, 8,000 a mark. So we are still pretty early and that is two years in. Thank you very much for all you do. I really enjoy your podcast.
I like this question, and this is one that has… Unfortunately, a lot of answers. I’ve seen reports there in SaaS industry reports that ask this question, right? And what’s interesting to me is the range is really wide. And so, if I weren’t to Google any of those and just go off top of my head. I would say in the early days of building your company and I mean like sub 20 camera or sub 50 camera, well maybe like sub 20 camera. I think 50 plus percent should be towards marketing and sales as much as you can.
And I think as product people, we’re going to tend to want to minimize that. But putting that effort and 50%, I mean is time plus money investment, right? And then it has to go down over time. I think as you build the brand and as you maybe compete with bigger players in this space. Now, it depends a lot on the space you’re entering because if you’re building an email service provider, you have to put a ton of investment into the product just to get feature parody and to have the table stakes feature.
So in the early days, maybe it’s weighed more towards product than I was saying. In most spaces, if you get in market, you build a brand and you have enough to get a wedge in. I do think you should be spending a lot more marketing than you think. A couple of places that we can link to in the show notes.
One is SaaS capital did a blog post spending benchmarks for private B2B SaaS companies. And they say across these companies doing at least one million in ARR that the median percent of ARR spending on marketing is 9% or 10% and then spent on sales is 18%. And so, if we combine those, we say almost 30% an article from before.io called how much does SaaS companies spend on marketing? They say the average SaaS company spends between 15% and 25% of revenue on marketing. Now, this does not include sales.
And then there’s a quote from Tomasz Tunguz. He’s quoted in bigdropinc.com’s blog post. How much should your SaaS marketing budget be? Where he says during the first three years, SaaS companies often spend anywhere from 80% to 120% of their revenue on sales and marketing. So he’s combining it and they spend more than revenue because of course he only deals with funded companies because he’s a venture capitalist.
But then it plateaus around 50% from year five on. That’s really interesting. And that’s at scale. I mean these are venture scale companies where you’re a million and over. And so, the answer is it depends, and it depends on the space you’re in. It does depend… It’s like bootstrap versus funded and bootstrap versus venture funded. It depends on how beefy your product has to be. But I do think it is really easy.
If you’re an engineer, who’s building a product and your first hire is an engineer to help you move faster. Suddenly, you can have a team of five. We have three technical people and that’s just way overweight and that’s way overweight, technical talent. Unless you really need to be in a feature race. Basically, and to hit a point where you hit feature parody. I just think it can be a kind of fool’s errand and an easy trap to fall into overbuild.
So if a founder like a bootstrap founder came to me and said, “We’re at 10k MRR or 20k MRR. And we’re spending 10% to 15% or 20% of our top-line revenue on marketing and sales.” I would say, “You’re way too low.” There has to be such a push in the early days to get out there and get in front of people and close deals because not only are you keeping yourself alive with the revenue, but you are learning with every deal because you’re still so early.
And while I wouldn’t say 80% to 120%, it’s funny. I know I fund companies. I still don’t think in those terms of spending more than ARR just on marketing, but it’s a really interesting way to think about it of as a bootstrapper could you spend 75% of your error? What would that even look like? I thought experiments these actually where even if I never take action on it, asking yourself the question, take an hour or two and ask yourself the question. What would our business look like to 10 X in the next 12 months? What would have to happen?
And then just thought experiment from there like, “We may not. I’m not even interested this may be a bad idea.” But to go through those experiments, I think helps expand your thinking and can help you see things in a new way. Similarly, I think asking yourself, what would the company look like if we were to spend 70% or 80% of our ARR on marketing and sales? Does that mean we would have to raise funding, or does it mean we would just back off on feature development for now and product moves a little slower, but that’s okay because we’re closing a lot of deals?
A lot of us build really interesting products that people want. And then we keep building and keep building and keep building. That’s not always the right call. I think it’s a trap. I’ve fallen into. And I think it’s one that is easy as a developer or a product person.
So thanks for the question Yuri, that was a really, really interesting one. That was our final question for the day. If we’re not connected on Twitter, I’m @robwalling, and again going to be at several MicroConf locals here, and over the next six months, head to microconf.com/locals. If you want to buy a ticket for Austin or Atlanta and get on the mailing list, microconf.com.
If you want to hear about future locals, that could be coming to your area. We’re steadily making our way to 1000 ratings around the world in Apple podcast. It’d be amazing if you could sneak in there and click that five-star button.
Thank you as always for listening this and every week, whether you’ve been here for six or 600 episodes. This is Rob Walling signing off from episode 624. I’ll see you next time.
In the third episode of season 3 of TinySeed Tales, Rob Walling checks in with Tony Chan of CloudForecast to see how he is faring since his co-founder is now on paternity leave.
During this time, Tony shares a big win along with dealing with some hiring and growth setbacks.
Topics we cover:
- 1:24 – How the business is doing while Francois is on paternity leave
- 2:36 – Tony’s perspective on being a solo founder for the past 6 weeks
- 5:04 – Managing your own founder psychology
- 7:49 – How Tony is dealing with an unexpected sales slump
- 16:16 – Did Tony end up hiring a full-time SDR?
- 21:04 – Dealing with setbacks
- 22:41 – What Tony is looking forward to in the next couple of months
Links from the Show:
- Tony Chan (@toeknee123) I Twitter
- TinySeed Applications are now open
- Episode 613 | Hacking Your Founder Psychology
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
Welcome back to Startups For the Rest of Us, this is season 3, episode 3 of TinySeed Tales where Tony’s co-founder goes on paternity leave. It’s a really good episode. As a reminder, applications for our next batch of TinySeed founders both in Europe, Middle East and Africa, and the Americas, are now open. Head to TinySeed.com/apply if you’re interested. Applications are open for the next, almost two weeks until September 25th. And with that, let’s dive into this episode of TinySeed Tales.
I get to wake up and have the freedom to set my own day. I get to help people, I get to record this podcast, that is stuff that is really important and I just had to remind myself of that.
Welcome back to TinySeed Tales, a series where I follow a founder through their struggles, victories, and failures as they build their startup. I’m your host Rob Walling. I’m a serial entrepreneur and co-founder of TinySeed, the first startup accelerator designed for Bootstrapers. The last time I spoke to Tony, his co-founder Francois, was about to go on paternity leave and he had just started working with a new full-time engineer named Katia. Katia showed up with a more expansive skill set than Tony and Francois had realized and she started contributing to the team very quickly. That was about three months ago. Let’s catch up and see how things have gone in Francois’ absence.
With Katia has been going really well. I mean, even with Francois being gone, we had a good plan for her and what she needs to do and what she needs to execute on. We felt that we needed to give her something tangible and it gives her opportunity to learn about the app as well. So she’s actually working on a redesign of our full front end to just make everything look a little bit more polished and professional. And that’s something that we’ve been talking about doing, but we just haven’t had the time. So I think during our last episode, I mentioned Francois I was going to go on maternity leave and Elliot was finally born on September 25th, but it gave Katia an opportunity and a good project to work on. So she’s been working on just updating some dependencies, building tests in the app. So when we do kind of implement tailwind and implement design and implement things, there’s a lot of dependencies and updating to Ruby versions, it’ll be really good project for her, especially for her to kind of dive into each paged app and really learn the app. So it’s been really good. She’s been a big contributor to the team and she brings a lot of great ideas and brings a lot of good diversity in terms of her ideas that she have. So it’s been really great to have her on the team.
So how is it being a single founder for six weeks, five weeks?
I don’t know how other people do it. It was tough because we did have a relatively tough stretch in terms of MR growth. I mean we did finally break 200k ARR.
Thank you. And that was literally after we chatted in the month of August. So things were looking pretty up. And that was a combination of, we talked about expansion revenue, we have our largest customer, and I estimated 30 to 40% increase and I went, “Yolo, let’s just double their cost,” because they’re forecasted and they’re like, “Sure, whatever.” And we doubled their subscription, which was really great and they’re finding value out of it and they’ve enjoy working with us. And then we also closed the new enterprise customer. So August was looking up, and things were looking up for us August and September, October and so on. And we were getting opportunities, but some of those things just didn’t materialize while Francois was gone. And I shared with my mastermind group, I felt like it wasn’t more of the execution that was kind of bogging me down, but a lot of it was mental and just kind of fighting my own mental state in terms of, “Okay, things are not going well, don’t really have anyone talk to about it, kind of figure it out.” So it’s like it’s a battle with myself rather than what I’m actually executing on. And you alluded to it, you were kind of wondering how it was going to test my metal a bit, and it definitely did.
So that’s the piece of it that was the hardest was not having someone to talk about it with?
Yeah, I talked about it with my mastermind group here and there, but sometimes you just want someone who is there to just be like, “Everything will be okay.” And it’s not a personal, you’re not doing a bad job, and you just want someone to tell you that the circumstances that you’re dealing with or what you’re dealing with is flat, it’s not you, or it’s not how you’re doing things, but maybe it’s a string of bad luck or there’s a lot of factors. So I think having Francois back, and the first week back we talked a little bit more about that and he’s like, “It’s okay, we’ll figure it out and let’s plan how 2022 will look like.” So it was really refreshing to have him back this week for sure.
I always say that more than 50% of being an entrepreneur is managing your own psychology and the psychological side of it is such a huge barrier and it can weigh you down, as you said, whether there are wins or losses, if you keep yourself on point and you keep your head up and it doesn’t bog you down, you keep pushing forward. But whether with wins or losses, I’ve had amazing months of growth but mentally have been down and that tarnishes everything. It puts a taint on everything.
That rollercoaster was wild. August was massive for us with those two things and then we out of nowhere got tons of opportunities, but then for whatever reason, for different various reasons, a lot of that it materialized, which bled through September and October. But yeah, I think you’re right, managing that psychology. And there’s a few things that kind of got me through it. You actually had a podcast episode on Startup the Rest of Us and you talked about showing up, putting in effort and there was one quote that you said that I’ve been just trying to remind myself. It’s like, “Think about it not in weeks or months, but in years.” It’s really easy to just focus on your day to day and week to week and month to month and things you got to do. But the success comes in years and putting in the effort into work and controlling that psychology through the years and just kind of grinding it out and such.
And the other thing that I’ve been trying to be more mindful of is, why did I start doing this? Why did I start doing CloudForecast? And a lot of the freedom I get, and being to meet cool people and being able to help others. I think going back to that and just reminding myself of that was really helpful because we are helping people, and the medium just happens to be CloudForecast. So switching my mindset from, “I have to do this, this is such a bog,”, “But I get to do this,” So more of having gratitude. I get to wake up and have the freedom to set my own day. I get to help people, I get to record this podcast, that is stuff that is really important. And I just had to remind myself of that.
If I had told Tony five years ago that he was going to be running a company with a really good friend making north of $200,000 in annual revenue and growing, he would’ve pinched himself. But that’s the dream that a lot of startup founders find themselves living. And yet we too often lose sight of this gratitude Tony’s talking about. It’s easy to get bogged down worrying about the future, but it really does help to look back and recognize how far you’ve come.
It sounds like a couple of the wins that have been over the past couple months, you crossed 200,000 ARR back in August, Francois’ back, you survived, you made it through his five weeks off. You had expansion revenue that was driving growth during the summer. And you had said that new opportunities were slim during that time, but the expansion revenue was driving the growth. Has that continued? I guess you just mentioned that that one renewal was a big piece of it.
We had one renewal and then we had also one very big, I would say that would probably be one of our larger enterprise customers. So that was solid for us and kind of given us that. So in terms of net new, it’s been a lot of small things. We still are having opportunities come in the door, meaning enterprise opportunities and conversations and free trials, but we haven’t been able to close. And I think that’s something we have to review and think about. There’s three patterns I’m seeing, there’s been an increase in non-response after sign up. So after sign up we reach out and say, “Hey, what are some problems you’re looking solve?” And some of these opportunities look relatively big just based on an eye test and looking at their website and such. Some of them, they might have started a free trial, but they either like, “Hey, this is not a good timing, please reach back.” Or they just stopped responding to us after their free trial ended.
So there was that. And then we have also a bunch of warm opportunities, enterprise opportunities specifically, that are just not progressing as fast as we like. We typically like to see a 60 day close, meaning they start a free trial 30 days and then once it’s good to go, it’s 30 days worth of service agreement, discussions, negotiations and such. And some of them have been just dragging a little bit longer than we’d like or they’re like, “Hey, we’re not ready to start yet.” So those are the three things that we’re seeing with our net new opportunities and that’s kind of been bleeding into August, September at the moment.
And is there anything to be done about that? Is it just them dragging their feet on their side? Is it that the onboarding and setup is complicated and could be streamlined? What’s going on there?
Yeah, I think Francois and I, we started talking about this, and this is not a new problem. I think it has to do with the topic or what we’re solving, which is AWS cost. The few feedback that we got is like, AWS cost is not ever a day 0 priority. Meaning if something goes up really bad, or that’s not a technical responsibility where they’re like, “Okay, this is high high on a priority list.” Unless there’s a reason for it, then it becomes a priority. So sometimes people can drag their feet because it’s maybe fourth or fifth of their priority. And that’s like, I think you’ve talked about it, where it’s more of a vitamin product. Where it’s not something that people need right now or they have a huge dependency on it, we take their cost reporting and just summarize it in a better way so they can understand their bill a little better. So I think that’s where Francois and I want to discuss, how can we make it more of a sense of urgency with our product? Or they can see the magic moment a lot sooner or if there’s features we can implement to make it a day 0. I don’t know what the answers are, but I think part of it has to do with what we’re solving with our engineering customers that we work with.
Do you feel like, given that this has been happening since inception of you guys starting to sell this, if you look ahead two years, four years, whatever it is, do you think that will get better or do you think that this needs to just be solved by having so much in the pipeline that something is always closing or is it that the product can’t evolve or will evolve or you’ll eventually have the offerings to where people aren’t kind of pushing it off?
You just brought up a good point, was the product evolving into different areas. And we’ve alluded to this in past episodes where, what are some ways we can go beyond with this AWS cost monitoring and management because that’s our bread and butter and that’s what we work with, then it seems like… It kind of puts us in a corner. So I wonder, right now we’re working what we call Barometer, which is our Kubernetes cost management product and it’s in beta. So that kind of helps us diversify other features in terms of, maybe there are other areas where we can help our users that might cost a lot of money, help them manage their costs a little bit better there. And our customers saying, Datadog is another one, Snowflake, Databricks and so on. So I think having a more diverse tool will help us solve a lot of that problem because maybe AWS cost management’s not a priority for them, but there could be other areas that we can offer where it might be a priority. So I think there’s that, there’s the pipeline as well. So I think there’s a lot of angles that we can think about and attack that.
Yeah, I remember with the last startup I did before starting TinySeed and switching full-time focus to MicroConf and TinySeed, we were a good enough solution. We were slightly better than the competition for a while. It was like you could be on MailChimp and you got most of what you needed and then switching to Drip was better, but it wasn’t that much better. And so a lot of people put it off until we hit that magic combination. And this is always what developers and product people want, they want to build the feature that just causes it to up into the right and exponential growth and it saves everything. And usually that’s a pipe dream. It’s this never ending, “I need to ship the next feature in order to keep growing, which isn’t great because you can always be selling in marketing, but we eventually did, we launched automations and suddenly we were a lot better. And then when we launched the visual workflows where people kind of drag and drop stuff, that really doubled our growth again.
So weren’t a vitamin, our tool itself was an aspirin because people had a desperate need for it. But moving to us from their current tool was kind of a vitamin. They didn’t need to do it until they looked and saw it, “Oh my gosh, I want that.” And so I could see that happening, whether it’s a barometer, I think you called it, or some other combination of features. These are things that you land on over time. And this is why I think product market fit is a continuum. It’s not one or zero, it’s one to a hundred. And at this point you have a certain amount of product market fit. But as that ratchets up, people look at it and say, “I need that.” And when you get above whatever number, we can say 50 or 60 or 70, suddenly it’s like, people are just coming to you because it’s such a desperate need.
That’s very incremental. And it kind of goes back to your quote, “Don’t think about it weeks or months, but in years. I think one thing that we got going for us with Barometer is it’s been very strong feedback from our users. Even unsolicited feedback where they brought up this problem without us even talking to them about it. They brought it up and it was a pattern that we saw and we’re like, “We need to do it.” We’ve been working on this since probably March or April this year, and we got five beta customers using it right now. And hopefully by early Q1 next year we can start charging. So more expansion revenue and that would open and unlock more net new customers. Where instead of they’re like, “Hey, we have some questions about our Kubernetes clusters in terms of where cost is going there and how costs are allocated.” We have that now and instead of just doing AWS, we’ll have that and then we’ll think of other ideas as mentioned to kind of go beyond that. So yeah, it’s very incremental. That’s why thinking about it years is so important now that we’re talking through it.
With the Promise of Barometer and other new features in development at CloudForecast, I can imagine things going really well for Tony and Francois in a few months, but that won’t make their previous 60 days of disappointment any easier. Startup founders are always wrestling with both uncertainty about the future and impatience. Those emotions come with the territory.
So another topic that we discussed on our last episode, or last time we spoke, was that you had realized that your 10 hour a week SDR wasn’t enough, so you were going to go hire full time and you were interviewing folks at that point. And we had then talked about how funding, having the TinySeed money, had given you the option to hire a full-time SDR. Because if you didn’t have that, you couldn’t really afford to do it. So how did that turn out?
Yeah, I mean kind of related to the L’s that I’ve been taking since Francois has been a way, oh man, it’s not only the revenue part, but the part-time SDR did not work out for us. I mean in terms of money, it was not that significant, but there was a lot of time wasted to that. I think not only the 10 hour a week didn’t work out, meaning there was a lot of blockers because he was very limited time, still required investment on my time to make sure he set up and he can focus on the right things. But he ended up getting a really lucrative job with a tech startup and he’s like, “Hey, I’m going to focus on that.” And he actually ended the engagement pretty early. I think literally when I talked to you, he started, he did it about for a month and a half and then he’s like, “Hey, I’m going to be transparent with you. I need to focus on this.”
So that was time wasted, which kind of sucked, but I learned a lot too in terms of how SDRs and sale organization run but did not work out. And then we were also discussing, or in the middle of talking with a full-time SDR, that did not work out either. Once again, time wasted as well. And that was, I actually think that was a bullet dodged. So our interview process with that, it was pretty extensive, but I thought it was pretty reasonable. I had the person interview with a friend of mine who manages SDRs full-time at a different company. So he interviewed him, the person, and then as we got into more of the practical execution, how you do things and just trying to understand the nitty gritty, it seemed to me and with my friend that this person exaggerated their experience a little bit.
So it was a gut punch, but we dodged a bullet there because once we started digging into, “What can you actually execute on for us?” There was a lot of hand waving comments and statements that did not sit well with us. And there was a lot of pressure. I mean, the person’s a salesperson, so they were putting a lot of pressure on us trying to like, “Hey, if you don’t hire me by blah, blah, blah, I’m just going to move on.” And that did not sit well with us as well. So just a bunch of circumstances with that, that did not work out. So I think for Francois…
And then right after that, Francois went on paternity leave, so we couldn’t progress as fast as we like, or kind of move on, but it gave us time to kind of think about, “How should we actually think about this role? Is it a SDR? Because what we really need is someone to help us handle growth or marketing, or…” We’re trying to figure out what that means right now and take some of that off my plate, trying to list things of, “Okay, here are the things that I’m not really good at. Here are the things that we probably should hire for and have someone execute it better than what I can do.” So it’s going to be within the sales and marketing hire, but I think we’re trying to define what that is and what that actually means in the marketplace.
Yeah, outbound is amazing when it works and it’s, like any marketing approach, it’s an experiment and it’s hard to get it to work, just like SEO and pay per click and integrations. It’s a bunch of stuff that you have to try and obviously it’s a bummer to go in the loss column there, given that I know how much time and obviously money you just mentioned that you spent on it, so.
I think kind of flipping my mentality or trying to is like, okay, we actually learned a lot from it. And it’s not fun seeing that money go down to drain, but you don’t really know unless you try it. So that’s kind of my big takeaway.
In terms of losses from the past couple months, the pipeline didn’t materialize, so really haven’t been able to close many deals. You lost the SDR, didn’t find a new one, and you spent a bunch of time on it. Any other notable failures or setbacks?
Those would be the major ones, honestly. Usually it’s one or two things, but just felt like it really compiled during October and September and so on. So yeah, it took a lot of Ls since Francois’ been away.
And what, I mean at your low point while Francois was gone, what was that like? You can pick a moment or a day.
I started questioning, are we working on the right thing? Or are we solving the problem in the right way? And I think it goes back to what we were talking about is the psychology of it. This has only been maybe a month and a half, two months problem. And easily your mind can go in a really deep place where it’s like, “Things are not working out.” But really, we had a really big months in August, and maybe it was a string of bad luck, things did not work out the way we wanted and things that we can’t control.
Tony just voiced an important question that I think a lot of founders ask themselves, especially in the early stages. Are we solving this problem the right way? Back when we were first building Drip, there was a point where we realized we didn’t have product market fit. And I remember freaking out saying, “What are we doing? Should we even build an email service provider?” It’s these doubts that I feel are not talked about enough. They’re not on the front page of Tech Crunch because everyone’s crushing it and raising huge rounds of funding. But this is something that needs to be normalized because all of us feel it at one time or another, and some of us feel it for a really long time. Back to CloudForecast, let’s find out what Tony’s looking forward to in the near future.
What’s one or two things that you’re most looking forward to between now and the next time we talk?
Yeah, so I’ve actually been doing some initial planning for 2022 and just reviewing our 2021 financial numbers. And I think one thing that startup founders kind of have a propensity of doing is they think their business is going to go up in flames tomorrow, even though we have 200k ARR and we have customers and we’re profitable. That’s not coming from a logical point of view. So looking at our financial numbers and from a quick outlook, it looks like the money we made this year will cover majority or all of our expenses that we’ve accrued this year, which is a huge plus. So that means we actually didn’t touch any of our TinySeed money this year, which is a bit surprising because we’ve done a lot of tests, we burned some money here and there, and we’ve increased our costs in various areas, but the money we’ve made and the growth that we have with our expansion revenue and a few net new here and there has covered everything that we’ve done this year. Which means we probably should be a little bit more aggressive with spending the TinySeed money next year.
We felt that we were very aggressive this year, especially the last four or five months. But it sounds like there’s another part of aggressiveness that we need to unlock, and that’s where the hiring might come in, whether we hire one or two people. And I was using Matt Wensing’s product Summit to help us forecast, and that was a time saver. So I was able to plug in our expenses, plug in our revenue, and just, I’m like, “What is the worst case scenario? We don’t grow.” And our burn is actually not that bad. And I think that kind of gave me a positive outlook in terms of like, “Okay, we have some money. I thought we were aggressive, but we’re probably not aggressive enough. What can we do in 2022 that will really help us unlock things for us?” Whether it’s hiring someone that can execute on the marketing side way better than I can and can help alleviate some. How can I hire another Tony? Stuff like that.
So I’m really looking forward to sitting down with Francois the next month and a half, two months, and just have a good plan around product engineering. How can we give them more help? How can we give Katia more help? How can we get me more help? Because with our growth, it’s looking positive. There’s no reason why we shouldn’t be able to hire one or two more people, even at the worst case scenario where we just stay flat throughout next year.
That’s great. And it’s such an interesting realization as a, you bootstrap this company until you took TinySeed money. And as a bootstrapper you’re always thinking, I got to conservative cash, I got to be conservative with this. I need to grow the revenue before I can do it. And it’s weird to get $180,000 in the bank and then it’s like, “Oh, well, how fast should I spend this?” And if you don’t model it out, I think instinct is, even these days, running TinySeed, we’ve raised a gajillion dollars into funds, I’m still nitpicky about little expenses because that’s how I’ve run businesses for 20 years. And so I’m glad that you used Summit. I’m glad that you saw it visually.
You know what I mean? That’s what it takes. You either have to put in a spreadsheet, you have to sketch notes, or you have to put it in some tool that projects it out, and then you’re like, “Wait a minute, we’re actually not taking full advantage. Why do we take this money if we’re not going to at least spend some of it? It’s not like I need to blow through this in six months,” but being more aggressive gets you there faster, right?
Yeah. I think I modeled out, the worst case scenario was like 2% growth, and that seems very reasonable. That’s easy. And even then of increasing Francois and I’s salary and so on, we’re still going to make money. So yeah, I completely agree with that. You just need to sometimes see that, and I fully admit that’s not the strong part of me in terms of financial modeling and such. So I’m really thankful that this is a tool that just came in the right time and the right place where I can just play around with numbers with Francois, so I’m pretty excited about using this moving forward.
That was a completely unplanned and unsolicited plug for Summit, by the way. They’re TinySeed alumni though, and we love them. Anyway, as the CloudForecast team bounces back from some setbacks and celebrates some victories, we’re going to keep a close eye on how Tony and Francois end up spending the money we’ve given them. This is when things get really interesting, the risk, the reward, and the next stretch of the rollercoaster. That’s next time on TinySeed Tales.
In episode 622, join Rob Walling and fan favorite Derrick Reimer, the founder of SavvyCal, as they discuss topics like balancing profitability versus growth and deciding which features to build and not. They chat about some specific features that Derek has decided to build, those he has not decided to build, and the thought process behind them.
Topics we cover:
- 4:02 – Making product decisions
- 9:22 – Deciding on what features you are not going to build
- 19:12 – When to reply to debates on Twitter
- 27:42 – Twitter’s newsletter feature
- 31:40 – Derrick’s perspective on balancing profitability vs reinvesting in the business
- 43:10 – Is Rob scratching his maker itch by being an investor in companies through TinySeed, or is he missing building SaaS businesses?
- 46:29 – Should Rob join TikTok?
Links from the Show:
- Derrick Reimer @derrickreimer I Twitter
- Applications for TinySeed’s Fall 2022 SaaS Accelerators Are Now Open
- MicroConf Youtube Channel
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
Welcome back to another episode of Startups For the Rest of Us. I’m Rob Walling, and today I’m joined by fan favorite, Derrick Reimer, he’s the founder of SavvyCal, and he and I have known each other now for 12, 13 years, and this is a good episode of just discussing several topics related to building SaaS, balancing profitability versus growth, deciding which features to build and not.
We go into some very specific features recently, that Derrick has decided to build and those he has not decided to build, and then, the thought process behind them. And I really like doing case studies like this, because you’ll hear in the episode, you can just hear the thought process of an experienced and very gifted product thinker.
And I hope that that’s enlightening for you today, if you’re an early stage SaaS founder, or someone maybe who isn’t as far along in terms of making product decisions, deciding what do we build and not and how do we build it. Because learning from someone like Derrick about how to do those things is always a good idea.
Before we dive into that, I wanted to let you know that applications for TinySeed’s next batch are now open. They’re open for about the next two weeks.
If you’re the founder of a bootstrapped or mostly bootstrapped SaaS company, doing anywhere from $500 MRR and up, and you might be interested in a small amount of investment, and a large amount of mentorship and advice, head to tinyseed.com/apply for more information, and to apply for this batch. We are hosting batches in the Americas time zones, as well as the European time zones. Head to tinyseed.com to learn more and apply.
In addition to that, we are now up to 957 worldwide ratings in Apple Podcasts. It would be amazing, if you have never given us that five star rating. You don’t even have to write a review, you can just click five stars.
Some recent reviews included JR who says, “This is exactly what I was looking for.” Cycling Steve from the UK says, “Every episode is jampacked with actionable advice. Rob is very grounded, takes time to answer user questions the best way he can. He even went above and beyond to e-mail me directly back, regarding a question, because he knew it was urgent. Kudos.”
Mammatrolli from Denmark says, “Consistently delivering quality content. Can highly recommend if you are in to startups.” So thanks so much for those reviews, and I’m on my drive to get to 1,000 reviews. There are actually very few podcasts that have a thousand ratings in Apple Podcasts.
So, it would be amazing if you could help me out on that journey. With that, let’s dive into our conversation.
Derrick Reimer, welcome back to the show, sir.
Thanks for having me back.
Yeah. By popular demand, you’re a fan favorite guest. People, when I ask, I’ll see someone at a MicroCon, for an in-person event, and we start talking about startups for the rest of us, and that’s when I do customer development.
I’m like, “So what do you,” like, “Wow, what could I improve, and what are your favorite episodes?” What’s interesting is I’ll find, I’ll ask someone who’s like, “I’m a big fan to listening for years.”
It’s like, “Cool, what are your most recent favorite episodes?” And they’ll remember the things they really like, and they just forget the things they don’t, is what I’ve noticed.
I’ll be like, “Well, what about when I interviewed this one author, who had the Jobs to Be Done book?” “Totally don’t remember that.”
It’s like, “Well, obviously, either you skipped it, which is fine, or you just weren’t into it.” And I kind know that feeling too.
But yeah, your name comes up a lot, as well as Einar and Tracy, and I don’t know Jordan, and Craig Hewitt. There’s a lot of folks that people really like here, and hearing their opinions on things.
Oh, that’s awesome. Yeah, I mean, I imagine part of it too is just, you and I know each other so well, from having built a company together, that the rapport is there, which, I think, I mean, it always contributes to just, easier conversation, probably, hopefully easier listening.
It’s very natural and we kind of know where it’s going.
This is very similar to, I guess, when you and I hang out and have a beverage for happy hour, this is a similar train of conversation, although we may get into more, name more names at the happy hour. So I want to kick off, I have several topics we can run through today.
First thing I wanted to do was touch on a topic that we talked about last time you were on the show, where I had asked you, “You’re really good at product, you’re really good at development, too. But making product decisions is hard, and it’s hard to know what to build next. It’s hard to know what not to build. And then there’s a whole other thing of how to build it, how it should look.”
And I don’t think we’ll get in that today, but just that decision, that filtering process, if you’re getting all these customer requests, and deciding what to do, in what order, and all that stuff. Last time we talked about, generally, and I said, “How do you decide?” And you kind of said it, a high level thing.
And I listened back to that one, and I realized, “You know what? I think an example could be really helpful.” What I want to ask is, recent is whatever you want it to be, what recent feature did you ship, that you feel like was the right decision?
And what was the logic behind deciding to do that, whether it was tons of customer crest, or whether you just knew in your founder gut, or whether it was a competitive … There’s a bunch of reasons why you would do it. Then let’s touch on one feature or more, frankly, that you haven’t built, probably aren’t going to build, and why.
So let’s start with that first one. What have you launched that you think is a really, really good feature?
Yeah, so one of my favorite ones that we shipped this summer, I think, it was about a month ago, is this feature. It’s kind of a simple one, but it had been on my radar for a little while, and it’s sort of just, in reviewing my backlog, and I like to keep a backlog of things, just ideas. Any time someone requests something, I usually log it in there, and then sort of store up, any time someone mentions it, and it helps conversation, I drop a link to it just as kind of a knowledge repository.
This one had been floating around and resurfacing for a while. It’s basically a little feature that allows you to toggle on a setting to require approval for new bookings before they make it onto your calendar.
So think if you’re really busy, and say you’ve just a busy person in general, and you have one reusable link that is just out in the wild, people use it all the time. We often have our one multi-use link, that maybe we store in our text expander or whatever, and it’s just the one that gets shared around, usually like, slash chat after your name.
So a lot of times, people who are in really high demand will just see people using their link, and grabbing time on their calendar. And so there’s something very visceral with people who feel this pain. It’s like, “This is really a major problem,” so they either resort to not having a multi-use link, or using an unguessable URL, or just, other solutions that just don’t quite feel right, and feel like we could be doing something on the product side to alleviate this.
This also happened to be one of the favorite features from a scheduling tool called x.ai that was acquired, and then shut down last year. So I hear, anyone who comes over from x.ai, is likely to request this one.
So it’s been coming up over and over. But again, it’s one of those decisions, even though it’s just a toggle in the UI, and just this light modification to the booking flow, it’s still not a foregone conclusion that we’re going to build it.
But the things that really tipped me over the edge on it were one, just strong visceral demand from a group of people who are really passionate, and I would say, scheduling power users. And we have gradually become a tool, that I think a lot of people in their minds think of it as sort of a scheduling power tool.
Obviously, when you’re young, you’re behind the competition in a lot of different ways, so it’s hard to foster that perception early on. But we’ve been at it for a few years now, and have mostly caught up on feature parity, and now, people actually see us, once they get in the product, they realize that a lot of our UX is an improvement over the status quo, and they can do more things to guard their time.
They can use our ranked availability feature, and some of these things that we have that help people who care a lot about shielding their time, protect it, basically. So this one felt like it was philosophically aligned with where our product’s going.
It doesn’t overcomplicate the product in confusing ways. Most of the complexity actually lives under the surface, and for the user, it’s just, “Do you want to enable this or not?” So yeah, it was basically it was combination of strong demand, differentiation, alignment with the philosophy of what we want SavvyCal to be.
And I always think about, too, is this attracting the right kind of user, the kind of user that we feel like we’re able to serve well. And I think those who care about toggling this on is an ideal user of SavvyCal, because of the things we care about, yeah.
I really like that. I think that’s something that more founder, I don’t think that’s intuitive for a lot of people. And the fact that you’ve just called it out, I think, is a huge deal. It’s like, how many people we use it, and what kind of customer will use it?
That’s super cool.
Yeah, I think there’s a certain magnetism that features have, and they can draw in more of the people that you are really in the sweet spot for. We have built some things, I’m trying to think if I have a specific example, I might think of one in a minute, but I feel like there are some features that we build, that suddenly start attracting people who aren’t a super good fit.
That’s always, it can be a frustrating process, for the user because they’re all excited, and they think SavvyCal’s going to be the tool for them and then realize that we’re missing the mark on a number of things, but they were attracted by this one thing. So I just want to be mindful and careful about, just thinking about that, giving some thought to that, when marketing features and building them.
How about on the flip side, the feature or features that, for the foreseeable future, is not going to build? Or a recent thing you decided, “We’re not building it?” And what was the thought process there?
Yeah, so one of the big ones is SMS notifications. So this one does come up. It’s certainly requested from time to time, and it’s a feature that a lot of other scheduling tools have built into them.
Think of, classic examples in my mind are ones that are, “You’re going to get a haircut, or a dentist appointment,” or something. They’re often sending text messages to remind you.
This is one, where I’ve struggled a lot with it, trying to understand why people want it, because I personally never want to receive a text message from a scheduling tool.
I think I do have, even though I’m not a perfect representation of my customers, I think a lot of my customers are similar to me, in that we’re using this for kind of business to business meeting scheduling, and we’re near our calendars a lot and we probably have Google Calendar installed on our phone, and we’ll get a little notification through there. So I don’t know, just the need for it kind of eludes me a little bit.
I’ve spoken to a number of folks who have endeavored to do this. Actually, I was speaking to some former colleagues at Drip, and they added SMS support into the product. And I got to hear some war stories about just how much of a bear that is to maintain, and things like you think dealing with e-mail spam is bad, wait until you deal with all the regulations and constraints around sending text messages on behalf of people.
Even though there’s tools like Twilio, which are amazing, and give you a nice API on top of the lower level SMS stuff, it’s still, certainly doesn’t solve all of the complexity that you have to deal with, when doing this. So it’s just one of those giant iceberg features, certain percentage of people would just toggle it on, “Sure, send a text message. Yeah, why not?” And maybe not even give much thought to it.
But under the covers there’s so much complexity to maintain. And there are honestly other ways around it, too. People can accomplish this with Zapier. There’s different integrations that you can connect to your Zapier account.
So if you really need this, you can do it today. And I would much rather push that complexity off to Zapier for the foreseeable future.
And with an N of two, one being you and me being the second one, I would never use that feature. So I wonder, and we at TinySeed, MicroConfer, obviously a SavvyCal customer, would it attract to the right kind of customers, going back to the feature you said earlier? And obviously, if you listen to this podcast, it’s like, two people does not a focus group make.
I can imagine my uncle, who’s a realtor, wanting to turn that on, and it’s like, is that where SavvyCal wants to be right now? Because I think more perhaps sophisticated founders, entrepreneurs, executives, tech entrepreneur, tech senior leaders, whatever it is that you’re focused on at SavvyCal, those folks are probably more in our line, in our situation, where I’m also in front of my calendar all day. My phone buzzes with a little reminder, and that’s all I need. And it’s an interesting, interesting filter.
Yeah. Another one that comes to mind is, so some people use SavvyCal. A very small percentage of our customers use SavvyCal for a lot of internal scheduling, which theoretically is a pretty powerful way to use it.
You share a booking link to someone inside, internal to your company, and they can use that as of a curated window into your availability, even though most companies of a certain size these days are either using the built-in Google Calendar sharing technology, Microsoft Outlook has it also. So then there’s a lot of sophisticated tooling built up in those ecosystems, around sharing calendars with your colleagues, and adding colleagues, and finding times that work for everybody, and doing collective scheduling.
So a lot of these problems are already solved, which is why I’ve been hesitant to try to build SavvyCal as an ideal solution for doing internal scheduling. It’s like, you can use it for that, but it’s probably not going to be better than the built-in bundled solutions into the ecosystem.
I had some requests the other day from a customer, that he was asking for the ability for events created by SavvyCal to be editable by anybody added on the calendar invite, which struck me as curious. So I dug into it a little bit, and asked him some more questions, and discovered that he was basically using this as a way to use round robin, and put time on one of their internal team members’ calendars.
From that point, that person would take ownership of the calendar event, and literally take ownership of the event. It would get transferred, so that would sever our connection to the event, because it would get a new owner in the calendar system. And then they would add external people onto the calendar event, and reschedule it if needed. And this was just causing all kinds of problems with our ability to stay in sync with that calendar event.
I thought for a second, “We need to solve some of these problems, and maybe add a setting to allow it to be editable,” but then realized, for anyone who’s doing the traditional path of sending a link, scheduling, something with an external party, you would never want it to be fully editable by all parties. And a lot of these other problems just simply don’t surface for that happy path.
Right. And when that comes up, you have to say, “Oh, is this a new market that we should build for? Is this a use case that no one has been paying attention to, and this can open up a bunch of new customers, and are the customers we want to work with? Can this help alter my vision?”
You have a pretty strong vision for your product, I’m the same way. Sometimes, you get a feature question, and you’re like, “That’s not in my vision, but should it be? Is this such an opportunity? Building workflow is like building automations? It’s like, this changes the whole direction, but it could be amazing.”
Or, is this one of those things I’m going to add, that I’m going to regret? Because one person wanted it, or the people who do want it are just not good fits for us? Or they’re using it in a way that really, that’s not where we’re headed. We can grow faster, we can get more customers, through easier wins.
Yeah. It’s important not to get too myopic. Sometimes, you do want to keep an open mind, and especially, I think, as a pretty horizontally positioned product, there’s all the more, it’s more difficult to know whether you’re making the right decisions in general, because you have a lot of different, a variety of people using the product.
Most SavvyCal users care about creating an optimal booking experience, but they are horizontal across a lot of different industries and use cases. So making sure you’re staying in line with what your market needs is extra difficult when you’re positioned in this way, which is why I’m a big fan of logging most things. This runs counter to that traditional 37 signals wisdom, of never write down a feature request, and just expect it to resurface if it’s important.
I used to think that way, but more and more, I don’t trust my own brain to remember when certain trends start to emerge, because there’s so much noise all the time. So I like to log these in a place, I used our backlog for it.
Some people are viscerally opposed to that, but even just a spreadsheet could be a good place to just keep track, “How many times has this come up? Has this up more recently? Should I be thinking strategically about potentially building this thing?” And that’s just helpful, and I review it periodically, and just kind of keep it fresh in my mind.
Yeah, I can imagine, much like, I will take notes on anything. When I used to think of business ideas, or now I’ll think of, “Oh, this interesting marketing approach, or maybe I should write a book chapter about this, or record a podcast episode about this crazy topic.” And I just write all that stuff down in notebooks, and periodically, it’s a backlog. It’s a backlog of ideas.
Periodically, I’ll revisit them, and usually it’s like, “Hey, that’s not a good idea, and here’s why.” But in a year, it might be a good idea, because you might change direction. Strategy changes over time, and the direction of your product and your vision, it can change. So I can see that being valuable.
That was super helpful, man. I’m glad we did that.
It’s the specifics of those examples, and hearing that both the features you mentioned are completely reasonable. Yet you said no, and then you said why. I remember being a brand new baby founder, and just, feature question, it was like, “I’m going to just build everything people want.”
That’s where I struggle with the customer development, or leaning too much into, “Just build what your customers want, and then you’ll hit product market fit.” Because I don’t think that’s actually true. You have to have that filter, that founder filter, to keep that vision in line, and to keep the product going in a direction that doesn’t just duplicate all your competitors, which is often what less technical users want.
More technical users often want you to just build shit that’s just way too complicated. And your power users can push you in a direction, where it’s like, you build an unusable product, or a product that then no one else wants to use. There’s all these dangers with listening to every request a customer makes.
There’s a reason you are the founder, and your customers are not, of your particular company. You have to, much like guarding the quality of your code base, we have to guard the quality of our product, the UX and the clutter, and the overwhelm that can happen, by just putting a bunch of settings everywhere.
I mean, it’s a pretty common trope, but learning when to say no is just extremely valuable, because you can’t be everything for everyone. And it’s hard to resist that temptation, especially early on, when you’re just clamoring to get any customers to pay you, and try to get some kind of traction.
It’s very difficult to stick to your vision, and know when to say no to certain things. And I think that part, in one sense, gets a little easier as you go and you have more traction, you have a better sense of who your market is. So it’s not for the faint of heart in the early days to try to solve that equation. But yeah, that’s just an important skill to develop.
And as you said, it does get easier. It’s really hard in the early days. And then, you’re a year two, three, I think the filtering process is much easier.
Tim Cook, Apple, he says, “There will always be more great ideas than we can implement. We’re going to have to say no to some great ideas.” And I think that’s being an entrepreneur, as well.
So I want to switch up our topic, and get your opinion on something. It’s a Twitter-related thing, and so …
I know. Here we go. “Why did I even …” Because I don’t normally go to my home feed in Twitter. It’s not something that I particularly enjoy, even though I follow you. But Tweets get surfaced from you, and people that I want to hear from otherwise.
I was reading this e-mail newsletter, it’s for bootstrappers, indie hackers, it’s called High Signal. And in it, he linked to a Tweet where, a founder who I don’t know, but it’s a founder who I guess has bootstrapped to a million dollars in ARR.
He says, “I’m interested in investing in indie SaaS businesses.” And he has some criteria, and he’s looking to put in 10K or more per investment, and wants to buy at least 25% of the company. And those terms are, they’re bad. they’re like, they’re not in line with the market.
I read through it, and I was like, “Whoa, that is a …” Let’s say, 10K for 25%, or let’s say 50K for 25%, whatever the number is, compare that to TinySeeds’ valuations, or YC’s valuation, any accelerator. And frankly, accelerators are lower valuations, than if you were to go get angel money, because accelerators bring the community and all the mentorship and the advice and all that.
So TinySeed valuations say, 120 to 220 for 10 to 12%, whatever, those numbers are substantially higher than 10, 20, 30K for 25%. Not only that, but if a founder came to us, and we’re going to invest at the same, usually it’s the same phases. He was talking 1K to 10K MRR, and TinySeeds in that realm, plus higher, obviously.
But if a founder came to us, and applied to TinySeed, and we really liked them, and they were doing five or 10K, and they told us they sold 25% of their company to someone for a low five-figure amount, we would be pretty unlikely to fund them. It can ruin your cap table, it can remove optionality.
So when I read that, and here’s the thing, man, I’m into, especially online, I always try to give people the benefit of the doubt, and try to give what Patrick Campbell … Well, he’s now with ProfitWell. They have a value in their company called MCI. It’s the Most Charitable Interpretation.
Within the company, one of our values is, if someone writes something in Slack, if someone says something in a meeting, please give the most charitable interpreter. And that’s what I have tried to do for years online. It’s just kind of how I roll.
So when I read that, I’m like, “I don’t think this guy’s trying to screw people. I think he is interested in investing, and these are the numbers that make sense to him.” And in the thread that follows, it’s actually a good thread, Some people are like, “Your valuation’s too low,” and he said, “Well here’s how I got to that.”
He’s saying, “1K a month is 12K ARR, and then a 3X to 7X ARR multiple is 36 to whatever,” you can do the numbers, but it’s not typically how investment, especially in early stage SaaS, is valued. So I was like, “Well, I want to reply to this, but truthfully, should I? Am I doing a public service?”
Because here’s what annoys me is, when I’m having conversation with someone, or I’m on Twitter, or I used to get pulled into conversations that it’s like, “This is none of your fucking business. Why are you nosing in on my shit?”
It’s like, here we are talking about features on Drip, and someone comes in and it’s just, “Well, I have a support issue, blah, blah, blah,” and it’s just, “What are you doing, man? This is the worst of social media,” I think. It’s just, everyone just wants this, is mouthing off, and is like blah, blah blah.
So I don’t want to be this guy who comes in and is just, “You’re way out of whack, man, this isn’t good.” But also, I don’t want founders to screw their cap table. So it’s like, is it a public service announcement to chime in?
Of course, I would do it very thoughtfully and tactfully. I would try to do it, but who knows, they may not give me the charitable interpretation, and it may blow up into some stupid argument fest, which of course I would tap out of. I’m a one and done, remember my Twitter rule?
If someone picks a fight with me, I’m one and done. I post one response and it might be two Tweets or three Tweets in a chain, but, “Here is my stance.”
And then, when they come back with the, “Oh, but, and I’m picking,” and, “Oh, and that sentence is incorrect,” and they start quoting each individual word, and pointing out how you [inaudible]?
I’m like, “Yeah, I’m not going to, I’m done. I’m done. One and done.”
So all that said, I’m curious to hear your take?
Yeah, I mean, I think a big part of the answer comes down to whether you have the stomach for wading into the fray a little bit, because we know how these discussions can often go. And they turn into needing to die on some hill over something.
Or often, the case is with Twitter, it’s like, they’re short messages. So you have to be efficient in use of words, but also it’s impossible to capture all the nuance. So the medium is limiting in that way.
But all those caveats aside, I’ve known you to be a fairly disciplined one in sticking to your one and done, not taking the bait, and just speak what to be true. And I think you are kind of the right authority on this, to provide context to the conversation in a thoughtful manner.
So I would say, it seems very much in line with just where your career’s at, and what you’re an expert in, to provide a little bit of commentary into the public sphere on this, provided you have the stomach for what potentially could devolve into a classic Twitter debate.
Do you want to get in that fight, yeah?
Well, A, I appreciate that. B, you should tell that to my YouTube commenters on our Microsoft channel. Because dude, I did this whole video about growing HitTail to 30K a month, and talked about the process and this and that.
One person said, “I call BS on this, I went to hittail.com, and it doesn’t exist,” and in the video, I said, “I sold it, seven years …” It’s just, instant, like I’m not credible.
Oh, that’s hilarious.
But anyways, I appreciate that. And that is, honestly, that has gone through my head. I typed up a response, and I hadn’t sent it, when I had sent this Tweet to you, and said, “Let’s talk about this on the show today.”
Since then, I did reply, and I just felt eventually, “You know what? I’m going to try it. If it devolves into something, I do have the stomach, to just one and done it, to agree to disagree, basically,” which is fine.
So I responded, and I said, “Genuine comment, not being a hater, but these terms are far under market. SaaS at this phase can easily raise at low seven figure valuations from accelerators and angels, even those that don’t come with VC strings attached.” Because that was another thing.
Someone said, “Well, they can raise at high valuations.” And he said, “Yeah, but then you have venture strings attached.” And it’s like, “Well, that’s not true, actually, from TinySeed, or other angels.” Then I said, “Funding at these terms will damage your cap table, per what I just said.”
And the cool part of it, it doesn’t happen very often, but he responded, and he said, “That might be, I’ve had a few people say that in the comments already, which is fine. In the end, my goal is to invest in people in businesses in terms at affair for everyone. I’ll see what this gets me in opportunities, and will adjust if needed.”
Which is like a …
Perfectly reasonable, you know what I mean?
It wasn’t some big argument. He actually posted something later and said, just in general, he said, “I learned a lot from reactions to this Tweet. One, these are lower multiples in raising. Some people can raise that 30-plus multiples, that’s really awesome, but won’t be for me, and maybe I should just acquire 100% of the businesses instead.” Just interesting, so …
Yeah, I thought it was cool, it was a sensible … And we don’t know each other. Here’s the thing.
If we knew each other, if you and I are having this conversation, it’s going to be civil, on Twitter, or I’m doing it with Anar, or Reuben or anybody, it’s going to be civil. But it’s when people don’t know each other, this stuff goes sideways, usually.
And we don’t know each other. So I thought that was just a redemptive arc. I’m still not going to do Twitter, though. I’m still not going to do it. It’s just …
Probably a good call.
I don’t over generalize this one, but yeah, I’m glad this one worked out.
Yeah, honestly, I mean, it sounds like … Just speaking about the topic overall, there’s probably a lot of, still, misunderstanding about what’s possible in the funding realm.
That’s where a TinySeed can sort be an authority on talking about this kind of alternative funding strategy. People think in this binary, “It’s either venture capital, or this feels like Shark Tank valuations,” or something very, I don’t know, super high risk, but it’s not venture capital, so we’re going to take 30% of your company.
And he had more nuance around it. I’m not saying he’s trying to be a shark, but it just feels like a misconception about this middle ground type of funding, and how this space has evolved in the last few years, so …
And continues to do so.
So I have a question, then. Staying on the topic of Twitter, I’m on your Twitter profile, it’s twitter.com/derekreimer.
Folks want to subscribe and get you over that 9,000-follower mark. Look at you, you’re almost at 8,700. I know that’s a KPI you track. Yeah, I know you don’t.
But you have the newsletter feature at the top, where people can just one click. I’m going to click Subscribe, and it says … Yeah, yeah.
They already have my e-mail, so if I confirm it, they being Twitter, already has it. So cool, so now I’ll get an e-mail from Revue.
Twitter bought Revue a couple years ago now, or whatever, and they now have built it in. The only way you can subscribe is Revue.
We looked at it, we being MicroCon, TinySeed, Startups For the Rest of Us, robwalling.com, every Twitter account that we have. I was like, “I’d love to do this, because I like to build lists.” and when I want to do it, I can only use Revue.
The only way I can do is, I can use Drip or any other tool, is to pipe it in via Zapier. So then it’s a terrible user experience. Because you subscribe, you get an e-mail from Revue that confirms your subscription. Then suddenly, and it’s very upfront of, “You’re going to get the Revue newsletter.”
Revue is all over it. It’s not white labeled to be, “You’re going to get Rob Walling’s newsletter.” It’s like, “You’re going to get the Revue newsletter, and Rob Walling might be involved with it.”
It’s way down. To suddenly be, “Hey, I’m sending this from Drip,” it feels not very cool. So that’s why we didn’t do it.
But I’m curious. It says you have 2,300 people subscribe, so are you using Revue to send?
Sounds like you guys did actually a lot more diligence on the overall experience for this part of the motivation. So I did this a couple months ago, around the time that I stopped doing the podcast for the summer.
I had seen someone remark … Again, this is something I know to be true, you always want to own the platform as much as possible, own your list.
I’m like, “I participate in Twitter, and I get new followers all the time.” But like most of those people, if Twitter were to go away, or I decided I want to stop using it, all of that would be gone.
So I was like, “This is an interesting kind of way to put a subscribe button, right front and center.” And I have not been a good steward of my mailing list so far.
I haven’t e-mailed them in probably well over a year, at this point. It was like, one, I’m not super active on mailing my e-mail list, which means it is decaying over time, sadly.
This is a list you had before this, subscribe for …
Because the subscribe feature has only been for a few months, but you had built it up at derrickreimer.com, I believe, right, to a couple thousand? Okay.
Yup. And I had e-mailed, probably pretty actively during the Level season, when I was building Level, and sent the retrospective about that to that list.
At that point, it was still quite a warm list. So I’m still keeping it around, and would love to add more folks to it, and at some point, probably share more to that list.
I still don’t have a full strategy in mind about what that would look like, but I want to keep my optionality open. And I want to make sure that, even if I decide to drop Twitter, at some point, I will have these e-mail addresses of people who want to keep up with what I’m doing.
So I just more, did it for the placement, honestly, to put it right there on anyone who’s coming to my Twitter profile, can click Subscribe really easily. And yeah, if I did want to send an update out, I looked at Revue, and it just looks like a very simple tool for sending out basic small newsletters.
So I think, the plan right now is, if I do end up mailing the list, I probably will do it through Revue, at least for little one-off things. If I want to get more sophisticated with my newsletter at some point down the line, then I’ll have to cross that bridge, and figure out some kind of automation pipeline to pipe them over, and explain the confusing confirmation e-mail they got, and all that jazz.
Did you import your existing list into Revue?
I did, yeah.
Because, I was going to say, if you got 2,300 subscribers in the past few months, I’m going to add it to all …
I don’t care about this stuff.
Yeah. No, and that was partially so that the numbers would be representative of my current newsletter list size. And I just didn’t want it to start at zero on there. It’d look kind of sad.
Join 12 others, right? It’s such a …
Right, right. But then, also, I was like, “Yeah, I probably will use Revue. If I just want to send a little one-off note. Seems easy enough.”
Right. You’re not doing sophisticated automations, or anything. Cool. Well, let’s go to another topic.
I’m curious. You’ve raised funding from TinySeed, and then from, you did a subsequent small raise. You have money in the bank, presumably, and you’re growing quickly. I don’t know all your expenses.
I do know your top line revenue, because you’re a TinySeed company, and I think you’re profitable, and probably throwing off, putting more cash into the bank than you’re pulling out. So how do you think about that, as a mostly bootstrap company that could just become profitable, and just start pulling … You’ve raised your salary, you’ve pulled out dividends, you could do all that, right?
Versus reinvesting at, basically running at break even, maybe you could burn, because you have money in the bank, and going for growth, which is probably a longer … Or it is.
It’s a longer term thing of, well, the growth is what gets you, let’s say, high valuation, in essence. How are you thinking about that?
Yeah, it’s a big topic, and I feel like my thinking on it has … Well, it continues to evolve, to be honest, as the business goes through different phases. But I think where I’ve landed with this is that the key tension is that, I’m both ambitious, but also want to make sure I’m architecting a journey that I can enjoy, and that minimizes my stress as a founder.
I think what you see happening a lot with people who are ambitious, and optimize for growth is one, you see very, very low founder salaries happening. I’m always stunned when I hear these stories of, “Well, I only made 50K for the first six or seven years of my business, and we lived on Ramen.” I just can’t … At the stage I’m at in life, that would create a lot of personal stress, I think, in my life.
Then what you often hear is, folks in that kind of situation then really start to yearn for taking some money off the table and de-risking, maybe selling part of the company, and doing a secondary, or something like that, to reap some of the rewards of what they’ve been building. And I may yearn for that at some point in the future, for sure, if I’m building SavvyCal for a really long time.
But I think a lot of that, for me, can be mitigated by just making sure that one, I’m paying myself a healthy enough salary where I can live comfortably, I can live in the city, I can travel a bit, I’m not watching every single grocery bill, that kind of stuff. Basically, anything beyond that, I’m totally okay with treating as, “This money, this revenue is there, in service of optimizing this asset that I’m building,” and aggressively reinvesting it. So I think that’s, for me, is the balance that I’m seeking to strike.
I do always have the, I think it’s a Jason Fried quote running through my mind, “Calm is in the black.” I think for me, staying profitable, or at borderline profitable, is probably the goal.
I don’t really have an appetite for dipping too far, taking huge bets, where we’re burning a ton of the reserves for a long time. But I know that it’s often the case, that when you get that extra bump in revenue, you find another way to deploy that revenue. And you get back close to break even, or maybe slightly unprofitable, and to me, that’s totally, I think, within the realm of my risk profile.
So yeah, I think that’s kind of how I think of it is, make sure that I’m paying myself enough, where life is not super hard, and I’m not feeling a lot of personal stress, or I’m putting a lot of pressure on personal finances. I think that will give me the energy to go long on the rest of the profits, and make sure I’m reinvesting them.
Yeah, I think that’s a really healthy way to look at it. You often hear me talk about lifestyle bootstrappers, and then, growth bootstrappers, or ambitious, whatever the difference is.
And the lifestyle businesses are awesome. They’re built as cash flow machines, and they have these incredible 70, 80, 90% net margins, where you’re just kicking off cash. It’s a great subscription, it’s a great business model.
It’s the best business model in the world, in my opinion. And then, that growth or ambition of, “I want to build something bigger, but also, I want to build something really valuable, and I don’t ever want to have to sell. Yeah, I want to be ready and able to, if that time comes.”
Something that I tell bootstrappers, or really, just any SaaS founder, or any startup founder, is SaaS multiples, if you do decide to sell, at some point, are … They’re just crazy. They’re high.
It wouldn’t be the best time to sell, right at this instant, given the economy, and all that. But they’re high.
I always give this example of, once you have product market fit, adding 1K of MRR a month is not that hard. You need the leads. It’s just math, right? 1K, 2K.
For every thousand in MRR you add, you’re adding 12K of annual recurring revenue, $12,000. And if an exit multiple, the range is four to eight, four to 10, whatever the range is, but let’s just say five, selling it five times your ARR.
So every month, if you’re adding 1K of MRR, you’re adding $60,000 to your net worth, pretax, right? You have to pay tax on that. But just think about that. Where else can else can we do that in our lives?
If I were to buy a bunch of real estate, yeah, I know there’s tax advantages to this and that, buy stocks, if I buy collectibles, whatever it is, there’s just no other place that you can get that kind of leverage. And I’ll even go further, because the example becomes kind of crazy when, I mean, you remember when we hit the point where Drip was doing, we were adding 5K a month, every month.
As you scale up, you do, you add 5K a month, you have 10K a month, and that sounds crazy in the early days. But you just get the flywheels, you get the brand, whatever. 5K a month, 60K ARR, 5X multiple, every month, $300,000 to your network. Obviously, it’s hard work to get there. It’s hard to build a SaaS company, it’s hard to get the product market fit, it’s hard to do all these things.
But once you are there, every month that you wait is literally adding 300K to your net worth. Every six months, if you’re growing at this pace, almost $2 million, and that’s exit multiple. So it’s a little funny money, right?
Not everybody can sell, and I’m not saying that everyone should be, or that that’s the end goal. I do like that it has been, I think, destigmatized in our space.
I think 37signals did the bootstrapping space a little bit of a disservice, in how they used to talk about never selling, and also, about not marketing and not tracking. There’s a lot of things I think they didn’t need to do, that a lot of companies and founders should be doing.
But I do think it’s been destigmatized, because at this point, everybody sells. I didn’t think Adi Pionar, and Josh Pigford, and MailChimp, and who else has sold … We didn’t plan to sell Drip. I mean, it just happens at a certain point, right?
I won’t say it’s inevitable, but I jokingly say, “Everyone sells, eventually.” And I truly don’t truly mean everyone, so please don’t e-mail me.
But it’s interesting, when you think about it that way, in terms of, if I take, much like Warren Buffet would always agonize over spending a dollar today, because he knew what he could turn that dollar into, in five, 10, 30 years of compound interest. If you listen to his biography called Snowball, he talks about that. He’s super cheap, because he doesn’t think of money today. He thinks of money in 40 years.
That’s I think of SaaS revenue. Again, if it’s a lifestyle business, cool, take all the cash out. But if you are going for that more growth stuff, every $1,000 you take out is $1,000 you’re not using to grow that business. Again.
Well, every K is 60K of value. So yeah, I think that’s something folks should keep in mind, if they haven’t already heard me rant about it.
That’s a nice succinct way to just describe what it tangibly means to be reinvesting, and increasing the value of the asset. Because I’ve had conversations with founders before, who have really struggled with the notion of, “Do I want to reinvest this? Or should I just pull it out, just dividend it out every quarter, or whatever?”
And they’re looking at this pile of money sitting in the bank, and saying, “No, this is the spoils, I’ve earned this. I’m going to pull it out.”
I’ve tried to have this conversation before, and probably not gotten to the crux of it as well and as succinct as this, where it’s, “You can. You can pull that out now, but I’m basically putting my entire career energy right now into building this asset. That money, if it adds to this recurring revenue machine, will yield so much more in the future.”
I think the balance there is, it doesn’t have to be, you don’t be literally living a eating Ramen lifestyle while you’re building the asset. You kind of can have both, once you get to a certain stage of traction where … That’s where, I think, for me, I just determined early on, it’s important to not be super, super thin on my salary.
That’s the base that I want to get to. And then everything else? It can just be freely reinvested.
Glad you called that out, because I was going to say that, too. The flip side of what I said is, you can go too far, you can be a cheap bastard, you can take 1K out a month, live on Ramen, and then your life sucks. You shouldn’t do that either.
So it’s just finding that balance, and this also supposes that, like you, when you’re in this situation where having more money will help you grow faster, because you are deploying money intelligently in marketing experiments with Corey Haines, and other stuff you’re doing in product, you hire a developer. Each of these things is helping you grow faster.
If you can’t do that? I’ve had businesses where they just plateaued, and more money wouldn’t help them grow faster, because they were just in a small niche, they had high churn, whatever it was. And in those cases, then, maybe it doesn’t make sense to do it, but …
I’d say that’s probably one of my fears is, and I don’t foresee it happening, but it could happen, where you suddenly have more money than ideas coming into the business. I feel like, that’s a risky spot to be in, if you’re trying to really build something meaningful.
If the goal is to make this as meaningful as possible, then that’s a tricky spot, if you don’t know how to deploy the capital coming in the door every month.
That’s where having knowledgeable friends, mastermind partners, advisors, investors, or even third parties, marketing strategists like a Corey Haines, like an Asia Arangio, going to people. Look, most of the calls I do with TinySeed founders are around big strategic questions like this, like two in the past two weeks. “I have too much money in the bank. I have 24 months of burn or something, you know what I mean? It’s just, I’m too conservative, and I’m trying to figure out where I should spend this.”
Then it’s like, “Cool. Let’s walk through where you’re spending it now. How big is your team, where are your bottlenecks?” It’s a logic puzzle, and pattern matching for me, because I’m seeing where founders are succeeding.
It’s definitely something, I think, we all encounter. But if you get in that position, you would figure it out, right? Because you have knowledgeable people in your corner who would give you the advice to get past it.
Those have got to be fun conversations to have, huh?
Yeah, they are. I’m living my best life, man.
This is exactly what I want to be doing right now.
They’re a hard problem, man. I have office hours twice a week, and I’m exhausted at the end. It’s so taxing, because it’s all your glucose, and it’s like, “I really want to help you make the right decision here.”
We’re just diving in, and it’s like, “All right, tell me all this stuff.” So when I’m done, I’m tapped out, can’t record a podcast today, can’t do whatever. But they’re super meaningful. What’s cool is, it’s working with founders who are getting shit done.
Because the next time I talk to them, they’ve done what we talked about. Versus sometimes, whatever it is, on a podcast, or you meet someone an event, and you give them all this advice. And then they just don’t do anything.
It feels like, “Why did I waste all that good glucose on that? Why did I offer to help, if there’s just going to be excuses why you can’t do it?”
This is something about people, Anar and I talk about this a lot, what are some factors of successful founders? One of them is that they have bias for action.
They do stuff, and even if it’s going to fail, they try a lot of things. And it is fun. I definitely enjoy it.
I had a question jotted down in my notes, that actually, the last couple times we’ve recorded, it’s just been in my back pocket, I feel like you probably mostly addressed it is, the question was, “Are you scratching your maker itch by being an investor in companies through TinySeed? Or are you missing the SaaS game, being in the arena?”
That’s a really good question, man.
For the most part, I’m not missing the SaaS game. My maker itch now is scratched by recording podcasts. I don’t know if folks have noticed, but over the past year or two, the podcast used to be Mike and I chatting about things, and we would talk through an article, we’d do something.
Now I’m pouring myself into the podcast, like the solo episodes I do, or even conversations like this, where I’m really trying to bring it, the deep stuff, the philosophical and the tactical, and the strategy stuff. I’m trying to bring it more.
I’m also finishing up a book, so that’s very maker-y. It’s brutal and painful. I like having written books, I do not like writing them.
But that’s about all this stuff. So I’m trying to bring my ideas there, writing talks, I’m giving talks every couple months.
And then, the advising, the consulting, they’re still really hard problem. Not consulting, but advising and mentorship, right, of TinySeed companies.
There’s still so many hard problems, and I feel like every week, there’s something new that challenges me to think about it, this whole thing in a different way, of, “Oh, man, I don’t know. I haven’t heard that one before. Now how do we creatively get to a reasonable path forward for you?” So that’s nice.
It is fulfilling, because it’s not just, “Oh, I’m going to give you advice.” I then see the progress, and I see the results of it, even if I don’t do the work myself. But I am still vicariously maybe living a little through the founders.
Because I see the success they had, and I’m able to celebrate. “Man, I was a small part, I was able to play a small part in that.” And that feels good.
That’s awesome. Yeah, I think you’ve remarked to me before, probably on the podcast, too, that you’ve been able to hone in on what’s the most valuable use of your time? If you’re not behind a mic, or advising a founder, or whatever the short list is, then you’re probably doing the wrong thing.
I think that’s always food for thought for me. Am I using my time in the best way possible? Of course, as an action biased founder, I’m wearing many, many hats, and bouncing between a lot of things. But yeah, there’s a lot of fulfillment that comes from knowing that your time is being used optimally, and you’re obviously still taking on a lot of challenges like these.
Like you said, these are not easy conversations to strategize and problem solve. But getting to deploy everything you’ve learned from a career of building these things has got to be pretty fulfilling.
Yeah, it really is. It really is. And I’m less stressed day to day than I have been. Even though the stakes, I still see the stakes are high, the stakes for each of you as founders, the stakes we’re raising.
We’re raising venture funds, and we’re writing big checks, and there’s money moving around, and whatever. And there’s always operations and stuff to deal with. But I am less stressed than probably any company I’ve ever run. And I think it’s part of that.
There’s a maturity that I wished I’d found in my early thirties, but it took me a long time. But also I love the work, so it’s good. I’m happy.
I feel like I’m working my best job, living my best life. It feels good, till I go on Twitter… No.
Yeah, stay off of Twitter if you want to keep that.
No, it’s all good. As we wrap up here, people are saying I should be on TikTok, Derrick, and I don’t want to be on TikTok.
TikTok? Oh, man.
It’s like, “Oh, just be me. You can get a million views by just talking about SaaS, or something.”
It’s like, “Really? Can I? And are those views going to turn …” And I’m just so skeptical about it.
Probably because I really don’t want do it, so I’m coming up with skeptical excuses. What I should do is probably test it out.
But I downloaded the app, and I cannot bring myself to even create an account. Because I’m like, “Is this a good idea?”
Man. Yeah, and it seems like you would need to get the right advice on, what is the exact format of video? Is it supposed to be super attention grabbing? Or can it be a little more in-depth?
How do you set yourself up for success on a platform like TikTok? I wouldn’t even know the first …
I’d go hire a consultant, is what I would do.
Yeah, yeah, yeah.
Or hire someone, or at least talk to someone who has had success at it in the B2B space, which, as far as I can tell, is zero people.
Because everyone I talk to is always, “Well, but we’re kind of B2C,” or it’s, “We’re B to prosumer,” or whatever. It’s not like, “Oh, so it’s not going after hard …” Or it’s B to wannaepreneur, right?
It’s B to aspiring entrepreneur. Versus, I want to talk about how difficult it is to start a company rather than blow smoke up your ass, and tell you that it’s this easy thing, and you can make all this money online, so …
Yeah, it’s interesting. I mean, I’ve definitely feel the influences of TikTok. I don’t know if you’ve noticed, I mean, you’ve probably haven’t spent a ton of time on Twitter recently.
But the algorithm feels to me like it’s been shifting more towards trying to surface viral videos in general. There’s a lot more of that, kind of based on … I don’t even know what they’re basing it on.
They say, “based on your likes,” or whatever, but it’s the secret sauce. And they’re surfacing videos, that most of them are just comedic. And it’s like, “Okay, that’s funny,” whatever.
But also, it just feels slightly strange, because it is a noticeable shift in the type of content. But you can feel the effects of the TikTok format bleeding into other mediums, too, so …
Yeah, I think so, Instagram, as well. I’m not on there very much, but there’s a lot of TikToks that get re-posted to Instagram, I guess, and …
It is. It’s noticeable. Well, sir, thanks for hanging out with me and chatting.
Again, folks want to keep up with you, Derrick Reimer, on Twitter. Of course, you’re working on savvycal.com.
Yeah, thanks for having me.
Thanks for coming back every week, and listening to Startups for the Rest of us. Whether you have listened to six episodes or 600, I hope that you enjoy the time and the thought that I put into this show.
In case you missed it, I was able to wrestle with the RSS feed goblins, and able to get the last 300 episodes of this show now, in the RSS feed. That has always been a problem, because we have full transcripts in our posts, and I was able to, it doesn’t matter technically work around it.
So 300 episodes, which is the max that Apple Podcast allows are in the feed. So if you want to go back and reminisce down memory lane, that’s almost six years of shows, you can go back a lot further than you could prior.
As I said at the top of the show, if you haven’t left a rating or a review, it’d be amazing. Other than that, I’ll be back in your ears again next Tuesday. This is Rob signing off, from Episode 622.
In this episode of TinySeed Tales, Rob chats with Tony Chan from CloudForecast about the progress his rapidly growing team has made over the previous few weeks.
Tony is riding the roller coaster that is entrepreneurship and in this episode you get to follow along.
Topics we cover:
- 1:47 – New full time engineering hire onboarding results
- 4:50 – Part time SDR hire onboarding results
- 7:31 – How hiring affects company culture
- 10:19 – Tony’s biggest wins in the last few weeks
- 14:30 – Growing the product to grow Expansion Revenue
- 15:45 – CloudForecast’s summer sales lull
- 19:40 – Keeping sane as a founder
- 22:00 – What Tony is worried about coming out of summer
- 24:00 – The next MRR target
Links from the Show:
- Tony Chan (@toeknee123) I Twitter
- TinySeed Applications open September 12, 2022
- TinySeed Tales S2E1 I Introducing Gather
- TinySeed Tales 1 I A Non-Technical Saas Founder
Welcome back to episode two season three of TinySeed Tales, where we continue hearing Tony and CloudForecast’s story, as they try to grow their company. Quick reminder before we dive in, applications for our next TinySeed batch, both our Europe, Middle East, and Africa batch and our America’s batch, they open next week, September 12th. If you’re interested in applying, head to tinyseed.com/apply. And with that, let’s dive back into our story.
It literally went from not having a clear path and then a month later having a clear path, right? That’s the never-ending cycle of being a startup founder.
Welcome back to TinySeed Tales, a series where I follow a founder through their struggles, victories, and failures as they build their startup. I’m your host, Rob Walling. I’m a serial entrepreneur and co-founder of TinySeed, the first startup accelerator designed for bootstrappers. Last episode, we met Tony Chan, CEO and co-founder of CloudForecast. CloudForecast sends engineering teams a daily email report that summarizes their Amazon Web Service expenses. It’s been a few weeks since that conversation, so let’s check in with Tony.
Last episode, we talked about your biggest wins, you mentioned, were getting into TinySeed and finalizing your first full-time engineering hire. One of your biggest fears was onboarding that first engineering hire, plus there was another part-time hire and your fear was that they wouldn’t be successful in the role. You had mentioned you feel responsible for their success in the role. I’d love to hear how those two are doing in the new roles, how Matt’s panning out.
Yeah. Specifically for the engineering hire, things are going well. Francois did a really great job in creating a big Wiki on all things onboarding and just being thoughtful from the process and putting himself in her shoes of, if I were Katya, how would I like to be onboarded and all the information I need to be successful? We spent a good week, two weeks maybe even just getting her involved, onboarding, figuring out a project that she could employ into production for her first week and making sure that she feels successful and constantly checking in.
I think it was just so satisfying to hear her say that we’ve been so helpful and her mentioning that she feels heard as well was just so gratifying, because all that work upfront really paid off in trying to be thoughtful about it. I think a lot of startups don’t think through that process, right? They’re like, “Hey, we’ll onboard someone and figure it out.” But there is 50/50 in terms of meeting the person halfway and making sure that’s successful as possible and putting yourself in their shoes and having a little bit of empathy of what they’re going on. But she’s already deploying things to production today. I had a bug and she jumped on it, fixed it, pushed it. She’s doing a great job so far.
That’s what I was going to ask, because there’s success on two levels, right? One is you want her to feel successful, and it sounds like she’s expressed that to you verbally, but the flip side of that is, is she fulfilling the role that you need her to at this point? It sounds like the answer is yes.
Yeah. There are some hidden skills that she had that she did not tell us. I wouldn’t say she hid, but she didn’t really kind of tout it in terms of front end skills and being able to create mock ups. We’re moving things towards Tailwind and she’s using Figma to create mock ups on some of the features that we’ve been building. Francois and I take a look and we’re like, “Wow! That is better than Francois and I can do any day,” right? She’s been contributing, giving her ideas and just taking projects that we’ve been giving her and running with it.
There’s a sense of ownership that she’s already taking with the company, which has been really great to see. She’s only, at this point, officially about one month in into the role. She’s a rockstar hands down. This has been a great hire for us and we’ve been including her on customer calls and such. She’s been great in terms of the work that she was hired to do.
It was finding secret buried treasure when you hire an employee for a specific role and suddenly they’re like, “Oh, by the way, I’m also really good at design. I can do mock ups. You need help with sales and customer success, because I’m really good at those too.” That’s super cool.
It was so surprising. We’re working on some new features and we needed some UI components of a report builder, and she just sent a Figma mock up and was like, “Hey, this is what I’m thinking and how it looks.” We’re like, “Oh my gosh! This is way better than what we can do.” That was really cool to see.
How about the part-time hire? Was it an SDR, someone who’s going to do outbound outreach, is that right?
Correct. We hired a part-time SDR and he’s been ramping up over the past month. He works about 10 hours a week for us. We see this as a three month test. It kind of helps us bridge to actually our full-time hire of what we’re thinking of is hiring someone full-time for this role. I’m actually learning a lot through him in terms of setting up the processes to make sure he’s successful, what’s working and what’s not. He’s already doing some outbound sequencing, poked some holes in terms of our messaging, and creating messaging that has worked for him at his full-time job and leveraging those skills to his part-time job and role there. It’s going okay.
But I think at 10 hours a week, we realized that’s not enough. With our business expanding and with the TinySeed money, it made us realize that we need to take a bigger risk and hire someone full-time for this role. Because at 10 hours a week, it’s just a little bit too slow in terms of what we like. There’s some things that he can’t do in terms of the outbound sales process that we would like this person take more ownership of that probably requires a more full-time position to execute, right? With the SDR role, we need someone to just take it from hunting to organizing things in HubSpot, to figure out where they should focus on, to sequencing, to booking us meetings.
At a part-time role, you can only maybe do two or three of those things. I think it helped us realize that we do need someone full-time in this role to help continue book meetings for Francois and I.
That’s a super common occurrence actually and it’s something that I still make the mistake of doing is the whole, well, we’re only spending five hours a week on it now, so certainly we can’t hire a full-time person for it. And then either trying to hire a contractor, trying to hire someone part-time, or trying to cobble together three of those kind of part-time needs into one Frankenstein full-time role, which I am guilty of way more than I should be. I should know better by now is the bottom line and I still do it.
I think that when you are hiring for a role, if you hire a smart, motivated person in almost any role, they can find things to do that will move the business forward, whether it’s just doing more of what you want them to do, or whether it’s taking on new initiatives and proposing things and pushing the business forward. I’ll say I’m not surprised that hiring someone 10 hours a week wasn’t enough given I think the emphasis on outbound that your company will probably have.
I think it’s also what type of company we want to build as well. Francois and I actually had a pretty extensive conversation about this because the extreme side is we can hire a bunch of people that are in other countries and help us run the sales process. That will require a lot of effort on our side. But I think the type of company we want to build is hire someone who is extremely motivated to be able to build this out, have some ownership in the company, and to be able to figure it out and fight for the business. I think that is a lot better than hiring someone part-time who is kind of…
They’re contract basis, right? They’re almost like a Hitman for outbound sales. Whereas we want someone who can grow in the role, maybe even build a team up behind them. I think that is a lot more satisfying to us and type of company we want to build.
What’s the process from here? Have you written up a job description? Is any of that in the works, or is that future?
Yeah, so that is into works. We’re actually interviewing right now someone who we think is a potential hire. They are just going through the process with Francois and I. Same as the engineering role, we’re trying to be thoughtful as possible in making sure this person can do the job of an SDR, someone who’s hungry, someone who will fight for the role, and giving us an opportunity to see if this is a channel that can continue to work for us on a full-time basis.
You realize we’re on the second episode of this podcast and you are already doubling the size of your team from two to four.
Yeah, it is what it is it. We’ve learned from hiring people part-time, right? That didn’t work out, but we need to move fast. We have the money. Acceleration and growth is the most important thing we have right now and making sure we continue the trajectory that we’re in at the moment and just keep pushing and fighting for it.
In the last episode, I asked Tony about some of his fears and worries, and he told me he wondered whether they were being too conservative with their money. Based on the way his part-time hire is working out, it sounds like the answer might be yes. That said, Tony and Francois are still in a great cash position. They have enough money to make some hires, but not so much that they have to hire a lot of people quickly. Too much funding at the wrong time can be detrimental to a business.
I’ve seen first and secondhand companies hire 20 or more people over the course of a year followed by a big round of layoffs. But let’s stay positive for now. I asked Tony about his high point since our last conversation. Looking back since you and I last spoke, what would you say is your biggest win?
I would say the whole Katya situation, the engineer that we hired full-time, and her contributing pretty quickly and being part of the team, not only as an engineer, but also as a fellow teammate, has been pretty successful I would say. We have been pretty intentional about how we can have her feel included, right? Doing things like we’re already discussing how can we do an Airbnb experience with her and doing team-based things. I think that has been a big win. I would say another pretty great win is our expansion revenue over the last three months that has continued to drive growth for us. Summer months has been tough in terms of net new opportunities and closing deals.
That’s been hard. I think everyone’s been on vacation or out of office more than last year and years previous. It’s been hard to grab conversations with people and try to close those enterprise opportunities that we’re seeking after. But one thing that has been consistent is just our expansion revenue. We’ve been 100% on our first set of renewals this year, and we’ve been able to grow some businesses that we already have currently. They’re seeing value of the product, good ROI with the product. They love working with us.
Building on that and continue to push hard on that is a theme that we’re going to continue to do. That has been our best two wins at the moment, hiring Katya and also just retention of big customers and also being able to expand on their MRR as well.
Net negative churn is the holy grail of SaaS and expansion revenue is what causes that to happen. It’s the cause of the thing that so many of us should be seeking as SaaS founders. As an investor and advisor to you and CloudForecast, that just warms my heart. It makes me so happy to hear any business that has true expansion revenue that is driving growth. Because a lot of times you have theoretical expansion revenue of like, well, we do have these pricing tiers and theoretically people should move up, but it doesn’t happen in practice. The fact that it is happening in reality is a big deal.
I think it says a lot about the future prospects of your business, assuming you can get the other things, get the execution and get the incoming lead flow and close deals and all that. That is such a solid cornerstone to be able to build a business from.
We’re very fortunate. There is definitely more opportunities for expansion revenue as we think about other products and areas to help with management of costs. There are few areas that we’re looking to. Kubernetes is one, Datadog and also Snowflake. Those are areas that we’ve seen while talking with customers where the monthly subscription is very variable based on usage and can have unexpected cost creep up. A lot of our big users are users of those tools, which then as we’re building more features, I think there’s opportunity to expand revenue beyond that.
We’ve already built their trusts with them directly that first year on just AWS. They know that we’re listening to them, we’re getting good feedback, and we’re solving the right problems for them. It’s a matter of just building those relationships up front to continue to push on our product and build iteration on our features that we have.
I want to call out what you’re saying here is that you are in that phase of basically approaching escape velocity, where you really do find… Obviously you have product market fit. Your churn is we’ll say effectively zero or close to it as you can get, and you have expansion revenue. You are looking for the one or two channels that you can just feed in and get that process going. But the fact that you are already thinking of other product add-ons that could potentially expand revenue is something that I think a listener can take away from this.
Now, you can make mistakes and get shiny object syndrome and want to go build an entirely new product, or you can want to add a bunch of features when you don’t really have the core of your product working well or serving the customer needs. But that’s not what’s happening here. I mean, this is something that you see as a genuine add-on customers can use and that you could potentially get more revenue from.
Yeah, absolutely. I think one thing I do want to iterate that it’s still very hard. You hear escape velocity and product market fit. It’s still a lot of work. You mentioned it in your podcast. Product market fit is a journey that you continue to iterate on. It still very feels much like that. Even though we have expansion revenue, even though things are slow and we’re growing, it does feel like it’s a lot of work and there’s a lot of effort for us to continue to push in terms of where we want the company to be at. It’s still very difficult regardless.
I’m interested to hear more in the coming weeks about CloudForecast planned expansion beyond offering reports on AWS. So far, the road to 200,000 in annual recurring revenue has had its ups and downs.
Summer’s been slow. People are on vacation. The part-time SDR that started, things have been slow this past month because he’s getting a lot of out of office more than usual. That’s kind of hard to see and hard to accept and not use that as an excuse where we can just take a step back and wait. Our signups are half of what they used to be. We haven’t closed any net new deals over the summer. We’ve been able to expand revenue, but I think we maybe close one or two smaller customers-ish. I see that as a setback, even though I have no control over it or no way to fix it. I think we have the mentality of just like, is there a way to fix it? But we can’t control that.
We also lost a pretty big opportunity. We had a customer that’s been trialing us for… A potential customer trialing us for 30 to 45 days on a free trial. We were so sure that we weren’t able to close them. And then we jumped on a call with them and the call did not go the way we thought it would. It made sense in terms of why we weren’t able to close them, but that was a gut punch because that would’ve given us a clearer path to 200K ARR. Which Francois and and I have been really fighting for. But it’s a roller coaster because literally the day after Katya started, we just needed to take a bit to learn from it and move on and make progress.
Those were the two biggest setback is just seeing the slowest summer and losing that deal. But out of nowhere, we’ve been able to close a big net new customer on the enterprise side. And then our biggest customers, we’re talking about further expansion opportunities. We might be able to increase our MRR by 30 to 40% and lock them on a longer deal. As I mentioned before, it’s a rollercoaster. We went from having a slow summer and somehow we’re back to having a clear path of hitting 200K ARR.
When I asked about your setback, you give me both good and bad. Signups are down, but you’re on a clear path to hit it. I mean, that’s essentially the rollercoaster of running a startup is like, it’s not all good, it’s not all bad. It’s too much of both I’d say.
It literally went from not having clear path, and then a month later having a clear path, right? I wouldn’t say we needed this win this past week in terms of this big opportunity that we’re about to close where it’s in procurement process at the moment, but it helped with morale, especially with the summer being slow and just being able to have that tangible grasp of like, “Okay, we’re almost there.” As we discussed before, once we hit 200K ARR, it’s going to feel like, “Oh my gosh, it doesn’t feel like enough.” That’s the never ending cycle of being a startup founder.
Yeah, indeed. As you sit and watch your signups not moving, in essence, many new signups happening, out of office responders, just in general, the numbers kind of sitting there flat, I guess, that’s a tough place to be in as a founder because that’s your number one KPI is to grow revenue, which is driven by new signups. It has to take a toll on you emotionally. I know this firsthand, right? On the months that we were flat, I would have existential questions of like, why are we even doing this? Is this going to happen permanently? Is this the way? Am I an imposter? Do I even know what I’m doing? Just all the questions that came up in my mind. Has it been like that for you?
A little bit. There’s a lot of questioning, faking yourself out, but we had to also kind of pull back and look at the bigger picture of things. I think one thing that has been helpful is being able to count those smaller wins, like Katya being successful, right? Expansion revenue being there and being able to wake up and work on this. That is a win. Being able to be okay. The other thing that’s been helpful is having extracurricular things outside of work that keeps us grounded as well.
Francois and I have very supportive wives that we can always count on and talk to and through things and be able to express our frustrations and our fears and our doubts. We have you as well that we can express these things and have someone that have a sense of empathy towards what we’re going through. Francois has disc golf. I have volleyball. Those are things that are also very important in terms of our mental wellness of going through the rollercoaster ride.
So much of it comes back to having someone to talk to about it who can empathize with you. If the only person you have to do that with is your spouse or significant other, that will I believe cause problems over time. You can’t put that burden on them. I made the mistake of doing that in the early days. And then turned to mastermind groups, and then turned to even just having other founder friends. It sounds like you’ve built yourself up a pretty nice network of folks who can empathize and support you in a way that keeps you from having to rely on any one individual.
Yeah, I think that’s one thing that Francois and I have strengthened is we shamelessly ask people for advice and help, especially when we’re feeling helpless. More often now, people are very open to spending some time with us to help us challenge some of maybe the false assumptions that we have going through at the time. Because you can be your own worst enemy with the thoughts that you kind of battle through when things are not going well.
When you’re part of a TinySeed batch, mentorship and perspective from other founders become some of your greatest assets. It sounds like Tony and Francois are doing a good job taking a step back and recognizing that the ups and downs of bootstrapping often balance out. Here’s hoping the rollercoaster doesn’t get too steep. Looking Ahead between now and the next time we speak, what is your biggest fear?
I would say our biggest fear is… I mentioned the summer months have been slow, right? We’re starting to see a nice little uptick this month, which is great in August. But what happens if it continues in September or October or November? That’s scary to think about. Probably won’t happen based on the data that we’ve seen last year and what we’ve seen this month. That’s a bit scary. Another kind of more on a personal level scary thing is Francois is going on paternity leave and I would be relatively by myself the next six weeks. Francois and I and Katya as well, we’ve been talking about a plan and we have a notion doc where we set boundaries and parameters.
I think it’s important for Francois to spend the six to eight weeks on being a father and being the best father as possible to his new son come in. But it is scary to think that I’m responsible for the business. I mean, he’ll be around here and there on emergency basis, but I have to continue to make progress on the business. I have to continue to push hard. I don’t have someone that’s going to be around that I can just ping quickly on Slack. I mean, I can text message him, but I also want to be respectful of his time as well. That’s pretty scary, but hopefully we can prepare for those things. Set the boundaries needed.
Francois has been doing a great job in making sure that everyone is taken care of and being thoughtful about his paternity leave towards Katya, towards me and also the business as possible, making sure that we have projects that we can do without him and that I can take care of and handle. We’re making progress on the business one the feature side, but also on the growth side as well.
What are you most looking forward to between now and the next time we speak?
I’m looking forward to hopefully finally getting to that 200K ARR hump. It just felt so elusive. We made that the goal to try to hit that by July. I mean, it’s August now and it seemed like we might be able to hit that in August or September. I think it’ll be a huge relief because Francois and I have been just trying to figure out any way we can hit that. It just feels so close and so within our reach to be able to hit that with the opportunities that we have at the moment and our sales pipeline.
I admire Tony’s fighting spirit. And at the moment, CloudForecast is doing so many things right. But as Francois takes his paternity leave, the added responsibility is going to test Tony’s medal. Stay with us and we’ll keep an eye on that 200K ARR goal and see what happens with the outbound sales role. Plus, we’ll keep tabs on what’s next for the CloudForecast product. All that and more next time on TinySeed Tales.
In episode 620, join Rob Walling for a solo adventure as he answers some listener questions. These questions range from which SaaS business metrics to pay attention to and how to find good SaaS ideas to helping an employee transition from a task-level to a project-level thinker.
Topics we cover:
- 1:44- What SaaS business metrics matter the most?
- 11:21- Do you have any general observations about building a SaaS for non-technical customers?
- 16:00- How do you find a good SaaS idea?
- 24:41- How can I assist an employee in transitioning from a task-level to a project-level thinker?
Links from the Show:
- Episode 480 I Stairstepping Your Way To SaaS with Christopher Gimmer
- 2022 State of Independent SaaS Report
- The Stairstep Approach to Bootstrapping
- TMBA 100 – Rip, Pivot, and Jam
- MicroConf Connect
- MicroConf Europe
- Applications for TinySeed’s Fall 2022 SaaS Accelerators Will Open September 12th
- MicroConf Youtube Channel
Rob Walling: The third most important metric in SaaS is churn. Churn can be the death of SaaS. Net negative churn is also the cheat code of SaaS. It’s a power up. It’s a cheat code. However we want to classify it, having net negative churn is an incredible, incredible business hack when you have a subscription business.
Welcome back to another episode of Startups With the Rest of Us. I’m Rob Walling, and I’m going to dive into listener questions today. We’re going to cover SaaS business metrics. Talk about customer pain, choosing that and ways to handle it well. And talk about how to find a good SaaS idea. And then we might even get to the question about transitioning a task level thinker to a project level thinker. Before we dive into that, MicroConf Europe tickets are still on sale. We just have a few left. It looks like we are going to sell out. We have a limited capacity this year. It’s in Malta at the Intercontinental Malta, November 15th through the 17th. Head to microconf.com/europe if you want to join me and other bootstrap, then mostly bootstrap founders. The co-founder of Lemlist, who has bootstrapped his company to eight figures in ARR is one of our speakers, as well as myself and a few others. Head to microconf.com/europe for all the info and to pick up your ticket.
If you want to ask a question to have myself or a guest answer it on this podcast, head to startupsfortherestofus.com, click ask a question in the top nav, or just email it to firstname.lastname@example.org. I love audio questions and video questions, but we’ll answer text questions as well. So let’s dive into my first one. First one is what are the SaaS business metrics that matter the most and why? And so if you were to force me to pick, let’s say two or three metrics, the first one has to be MRR. MRR shows where you are. On the journey from here to there, 5K MRR, 50K MRR, 500K MRR, it shows where you are on your path to growing a company. Second one is month over month growth rate. And you can look at it as a percentage or as an absolute dollar amount.
I like to look at it both ways. I like to look at the absolute dollar amount, because that’s something that I can directly control. And it’s something that if you have a repeatable funnel with the same amount of traffic coming to your website and the same conversion rate, the same conversion to trial, to paid and churn, you can have a pretty predictable month over month growth rate of an absolute dollar amount of 1,000 MRR, 5,000 MRR. And frankly, if you look at the percentage of that as you grow, your percentage month over month growth rate will decrease over time. Because if you’re doing 5,000 a month, a $1,000 growth rate is 20% growth. But by the time you’ve grown to $20,000 a month in MRR, 1% growth rate is 5% growth. So your growth looks like it is declining, and on a percentage basis it is.
But to me, if I’m a mostly bootstrapped founder, growing at 1K or 5K every month predictably, repeatedly, say it’s 5K a month and I’m at 45, then I’m at 50, 55, 60, 65 70, all during that time, my percentage is going down, but that’s still an amazing business. It’s an incredible business. So I look to look at the absolute dollar growth rate because it’s a realistic picture. Dollars are what I can spend to hire. Dollars are what cause me to grow. The percentage is almost, it’s a second order thing. It’s then comparing it to where my monthly recurring revenue is. That’s really what it is. And it’s fine, you can look at that too. And do I want to keep a constant rate of growth or an accelerating percentage of growth? Of course. Of course you do. It’s very, very hard to do. And I think seeing both month over month dollar amount and percentage and looking at both of them, I think can be helpful.
So those two metrics for a SaaS company are what I would call North star metrics. Now I’m going to go through my three high, three low framework, which is where I have six metrics, and you want three of them to be high and three of them to be as low as possible in essence. And really the third most important metric in SaaS is churn. Churn can be the death of SaaS. Net negative churn is also the cheat code of SaaS. You’ve heard me talk about net negative churn here. It’s a power up. It’s a cheat code. However we want to classify it, having net negative churn is an incredible, incredible business hack when you have a subscription business. It just means that as your customers use your product and get value, they add more subscribers, they add more seats, because your pricing has been structured intelligently that as they get more value from the product, they pay you more. That negative turn.
That’s actually called expansion revenue, and we’ll look at that in a minute. But that’s net negative turn. So churn is both the death, but also an amazing cheat code for SaaS. And it’s the first of the three low. Churn, you want to keep as low as possible. If you have 2% churn for a bootstrap SaaS company that’s 2% per month, you’re doing amazing. That’s great churn. 3% is good, and 4% is fine and 5% is not great. It’s okay. But look, once you start looking at 5 or 6% churn, you’re churning half to three quarters of your entire customer base every year. That means you need to be replacing them just to keep your head above water. So 5% a month doesn’t sound that high, but it’s not great. It’s not great churn like 2% is. And then once you’re up at the, you get 7, 8 and above, it’s kind of business on fire. This is where in the span of six months, nine months, your entire business is turning over.
And unless you have a massive, wide funnel and just a huge number of incoming leads, you’re going to plateau pretty early. Usually high churn is due to low price point, customers being more consumerist, or VSMBs, very small businesses where they’re extremely price sensitive, and they cancel, or they go out of business, or they just decide they don’t need your software and they replace you with a Google sheet because it can save $20 a month or whatever. So churn, we could do entire podcast episodes. I have an entire section of my next book. My next book is a spiritual successor to Start Small, Stay Small, which is my first book. And it really is the path of once you have some type of product market fit, getting to seven figures in recurring revenue, building a seven figure, a million dollar, multimillion dollar SaaS company. And I have an entire section on churn and how to think about it. And it’s so important.
When I say it can be the death of SaaS companies, it is the death of many SaaS companies. It’s true. And churn is also an indication of how much product market fit, or it can be an indication of how much product market fit you have. So that was the first of the three low. Cost to acquire a customer, something you want keep low. But it’s a bit paradoxical. You don’t want high cost to acquire a customer it’s C-A-C, or CAC, as we’ll say. You don’t want a high CAC. But at the same time, if you can spend more to acquire, if you have the budget, if you have basically the annual contract value to support high CAX, then you probably should spend more if it can allow you to grow faster, if it can allow you to find better customers and it allows you to do more marketing approaches. I have looked at all the B2B SaaS marketing approaches that exist, and give or take there are about 20. There are not hundreds. There’s about 20.
Some of that is high level grouping, like SEO or organic search is one. And you could think of organic search in Google, in YouTube, WordPress plugin repository on Amazon. So there’s more approaches. But in terms of generalized B2B SaaS marketing approaches, almost exactly 20 in my experience that I have listed out and I talk about. And when you can only spend $100 to acquire a customer because your monthly fee or your annual contract value are so low that that’s all you can afford, then you can do two or three, maybe four marketing approaches, and the rest are too expensive for you. And then when you have kind of a mid-level annual contract value, let’s say you’re at 5,000 to 10,000, you can do about, I think it’s 9 or 10 depending. And then when you have a cost acquire of 20,000 or more, and maybe even 15 or whatever, you can do almost all of them. You can do in-person events. You can do cold outrage. These are things that are really time intensive and inexpensive.
And so your cost to acquire, while you want to drive it low, the higher you can push it, the faster you will grow. And realize that if you are in a position where you want to sell your company at some point, whether it’s this year, three years from now, any acquirer who’s going to buy a SaaS company is going to value, most likely value growth over profitability. This is if you’re in seven or eight figures. If you’re selling to a value buyer who pays based on your net profit or your seller discretionary earnings, then of course maximize profit, keep your CAA low, do all that. But if you are building the more the ambitious bootstrapper and you’re looking to get to 2, 3, 4 million, maybe 10 million ARR before you sell, the buyers at that level, they’re not buying it for financial in almost all cases.
If you’re growing fast, they know that they can figure out profitability. SaaS is incredibly profitable. It’s an amazing business model. But growth is hard to come by. Profit in SaaS can be engineered. So that was a cost to acquire. And sales effort, you might think of this as sales cost, cost per sale, you want this to be low. And this is the difference between a low touch, mostly zero touch software funnel, like snappa.com has Chris Gimmer was on the show a couple years back talking about how, yeah, it’s just self serve. And the price points, I forget what they are, it’s 20 bucks a month or 30 bucks a month, so that you’re not going to spend a bunch of time doing demos and doing a multi demo close, versus sometimes your sales effort is months long, and maybe it’s a six call close, where you’re convincing a number of people at a Fortune 500 company to buy.
If you’re doing that much sales effort, obviously your cost to acquire goes up, your timelines for closing sales go up, you have to have a price point that justifies that. You cannot be doing five call closes over the course of several months and charging $100 a month. It’s just the economics don’t work out. The two. Businesses are different. You have to raise that price to 500 a month, 1,000 a month, 5,000 a month in order to justify a lot of the sales effort. And then the three high in this framework, remember three high, three low, so the three high are annual contract value, I’ve already talked a little bit about this, but this is how much you charge. And this dictates a lot of things. Usually the higher your annual contract value, the lower your churn. The higher your annual contract value, the more you can spend to acquire customers, which then gives you not just the ability to have more money and hire more people, but you can try a lot more marketing approaches because you can afford to experiment with them.
The second of the high metrics is expansion revenue. Touched on this earlier with net negative churn. But expansion revenue is when people get more value out of your product and so they pay you more. It’s something I talk about a lot. But expansion revenue is amazing. If I were to ever start a SaaS again, I would want expansion revenue. That doesn’t mean every SaaS can or should have expansion revenue. And there are plenty of great SaaS businesses built with minimal expansion revenue, but it makes it just a little harder. And lastly, referrals. You might think of this as virality. If you can build it in, that’s perfect. That’s the ideal way to do it. Referrals is when people are word of mouth referring you, and you can ask for those referrals. This is a hard one to engineer. This is not something that you can go out, and like you do SEO, you do cold outreach and you can kind of build that up in scale.
Word of mouth and referrals doesn’t scale per se. It isn’t usually something you as a founder can control, but it’s certainly something you want to encourage and you want to ask for, because having a lot of referrals is an amazing way, very low cost to acquire on referrals. My next question is from Devon. This was in MicroConf Connect. If you haven’t checked out MicroConf Connect, we have more than 3000 bootstrapped and mostly bootstrapped SaaS founders in a Slack channel, in a Slack workspace, I guess is the technical term. And head to microconfconnect.com if you want to be part of that. It’s a free community that we heavily moderate, and it’s a great conversation happening in there. So Devon’s question was, “I’m actively picking customer pain for my company’s segment, as opposed to competitor pain. Do you have any general observations about SaaS for non-technical customers?”
You probably heard me talk about this before, customer pain is when you have customers that are going to be maybe more difficult to sell to, more difficult to support. Competitor pain is when you have a lot of competition, but usually the customers are going to be more tech savvy. The worst is when you have both competitor pain and customer pain. I would personally probably not enter a market like that. But some amazing businesses are built with customer pain. You think any business that serves, realtors, probably a lot of legal software, serving construction firms. And it’s not just about being less technical, but I think that is a big piece of it. When I watch my mom use a computer, she uses it in a very different way than you or I do. And it’s almost a tentativeness that she’s going to break something by clicking a link, or just very uncertain and really can’t figure out what you and I would consider obvious UX paradigms, obvious things that happen in software.
And so picking customer pain, realize that. One is your going, no matter how good your UX is, you’re always going to have folks who don’t understand it. And you just need to admit that there’s a problem is the first step, and realizing that I can’t imagine you’re ever going to conquer that. The second thing is you need to be priced accordingly. When I think through the companies in TinySeed or in MicroConf who have customer pain, they usually have a lowest price plan around 150 ish to $200 a month. And frankly, their average revenue per account of the ones that I’m invested in, I’m invested in over 100 SaaS companies, they’re higher than that. The average revenue per account is 3, 4 or 500, because you need to justify all the time that you are going to spend to close a deal, that you’re going to spend to onboard and that you’re going to spend to support. Customer pain folks often want to be able to talk to you on the phone, and that’s something you’re going to have to figure out if that’s something you’re willing to do.
Not saying you have to, but I’m saying you’re going to get more requests for it than you will than if you were serving developers, for example. Live chat may work, but even again, if you were supporting my mom or my dad, they don’t type very well, for example, and so being on the phone is an easier thing. So consider that. Price point, as I’ve already said to support. I think you should have some type of concierge onboarding essentially that people can pay for, because if let’s say a realtor has a bunch of contacts in MailChimp or in some old system, they don’t know what a CSV is. They don’t know how to export that and then import it. And if there’s any problems with the import. You’re going to build an amazing import tool for CSVs, and someone’s going to figure out how to screw it up because it’s just what happens. When you don’t understand a paradigm, it feels overwhelming and complicated.
And so that’s the type of thing where if you build an internal tool, where even if the tool’s available in their account and it takes you 10 minutes to export, reorder some columns, upload, that can save them an hour of frustration. And so charging for onboarding, I almost think of it like almost product walkthroughs. Live documentation, I guess I would say of, hey, your setup and this is how you’re going to use this, I think is probably going to be worth your while. One more thing I would say, if you’re going to tackle customer pain, realize that a lot of these folks are not going to want to dig through a knowledge base. They’re not going to search and try to find a solution to the problem. They’re going to want one-on-one proactive help. And so I would consider having a weekly office hour, and whether that office hour, maybe that starts with a 10 minute demo, one feature in the app or one section just to get everyone on the same page, hey, this is how you send an email. This is how you prune your list, whatever.
And then it’s open Q&A and you do it as a group. There’s no one-on-one, unless you want to maybe you charge extra for a one-on-one support package where people can reach out to you, but you are then able to scale that in a way that can be difficult. It can be challenging if you have 10 people all wanting to do one-on-one calls with you. It’s possible. If you want to have a dedicated account manager, either that’s an add-on or you’re just expensive enough, you build that into your pricing. But I think thinking about doing group office hours or doing office hours in some way that allows you to help people in a scalable fashion is something that I would be thinking about. So it’s a great question, Devon. Thanks for asking and I hope that was helpful. My next question is from Paseedu on YouTube, and it’s how to find a good SaaS idea. This is a big question and it’s one that a lot of people ask.
I think the answer is there isn’t one way. There’s no blueprint to doing this. Everybody comes about ideas in different ways. What I would say is don’t think that this brilliant idea is going to jump out at you if you think about it long enough. I do have an idea notebook where I’m constantly writing things down that I’m thinking about, and sometimes I’ll go back through and be like, that was a genius idea. When I wrote, why C for bootstraps back in 2011, 2012, that’s what TinySeed became 7, 6, 7 years later. So that was definitely a winner for me, but a lot of ideas you’re going to have just aren’t going to be that good. So I think having a lot of ideas is one way to think about it. So many people get stuck at this phase, and I think analysis paralysis is just, it ties in, and I think you should probably move towards validating rather than getting stuck on this stuff.
One expression people throw around is scratching your own itch. And that just means solving your own problem or solving a problem you have. I don’t think that’s a bad way to go, but it’s not the only way to go. And in fact, I’m going to take a little tangent here, scratching your own itch is not guarantee for success. And in fact, people, I think ascribe a little too much importance to that, because I see just as many companies failing with a developer is scratching their own itch, founders scratching their own itch as when they’re not. I see no difference. And when I hear someone say that their success was because they scratched their own itch, but when you look at the company, it’s like, no, the success happened because you had an amazing network in this space and an audience, and you had $100,000 of your own money, and you hit a market that was expanding in just the right way with hated competitors, and you were able to piggyback on the success of another bootstrapper.
There was all these reasons. And you executed well, and you built a great product, and you marketed it, and you used your network and et cetera, et cetera. Those are the reasons why you were successful. Scratching your own itch was one decision that you made five years ago, and if you hadn’t done that, I still think you would’ve been successful if you had picked an idea that didn’t scratch your own itch, but that still had all those attributes. It had your unfair advantages that you could take advantage of, in essence. So I’m not saying don’t scratch your own itch. I’m saying don’t think that’s the only way to do it, and don’t think that is somehow some key to success, because the world is littered with indie hacker projects from people who scratched their own itch. And they were the one of one, they were the one customer that needed that. Did no validation.
And even if other people need it, are they willing to pay for it? Can you reach them at scale? There’s so many questions that you needing a product doesn’t prove, it doesn’t answer. The world only needs so many project management, bug tracking and to-do list applications. And so just before you scratch your own itch, I would consider really validating the idea. Drip was actually scratching my own itch, but I went out and validated it and figured out other people would pay for the initial version before we went and built it. So beyond that, one thing that I start with is what are my unfair advantages? Do I have an amazing network in a space? Do I have an audience in a space? Am I early to a space that I believe is growing? Then I would take advantage of those and I would limit the idea to take advantage of that.
And in fact, I didn’t do that for many, many years. Drip was the first one that took any type of advantage of my audience or my network. And it was the fastest growing and most successful software company I ever launched. And I think that was part of it. I also think that it was because I entered a fast growing space with hated competitors. I executed well. I had a couple hundred thousand dollars from HitTail being thrown off. And there’s a bunch of reasons why that was successful. So with MicroConf, we have the State of Independent SaaS Report where we survey between 500 and 1500 bootstrapped and mostly bootstrapped SaaS founders each year, and we ask them how they came up with their ideas. And we start with the assumption that you’re selling B2B SaaS, and so you’re solving a problem. Start with a problem.
And scratching your own itch is a problem that you had. But you can also find problems at your day job. Maybe it’s not a problem that you have, maybe it’s a problem the company has. You have to be careful with intellectual property here, but let’s put that aside for now. Problem at your day job. Problem of a spouse, a relative or a colleague. Poor customer experience that you yourself had. And this is how CodeSubmit was founded. You heard the founders here maybe six months ago, but they launched CodeSubmit out of the founder’s desire to never solve a contrived programming exercise during a job interview again. They didn’t want contrived, so they built these real coding challenges. It’s codesubmit.io. It was a poor customer experience, poor candidate experience. And those four things that I just listed, scratch your own edge, day job, spouse, relative, or colleague or customer experience make up, it’s like 85%, 90% of the respondents of how they came up with their idea.
So those are the ones that I’d be looking at. There are a few, one is I acquired the product, which is 2 or 3% of respondents. Then there was one, I copied a competitor, which I thought that was kind of interesting. And then there’s another one that’s very low single digits, 3%, 4% is finding a problem online. So it’s like Facebook groups, Cora threads, private Slack groups. It’s an approach you can take, it’s just not one that a lot of the indie SaaS founders take or have had success with, at least according to the data we have in the State of Independent SaaS Report. So those are some ways I’d be thinking about it, Paseedu, in terms of finding SaaS ideas. Last thing I’ll say is I talk about the stair step approach. If you haven’t Googled this, go to Stair Step Approach to Bootstrapping and read the article.
In it, I link to an article on rocket gems, where there are 60 plus SaaS app stores or marketplaces. So these are the Shopify app store, the WordPress plugin repository, the Chrome app store, Heroku, Salesforce. I’m sure Oracle has one. There’s this big list of app stores. And these are things that if you’re in a step one or step two and you probably shouldn’t build a full-blown SaaS, I would be looking at ways that I could take apps in one app store that didn’t exist in another and figure out ways to adapt them. This is Rip, Pivot and Jam from Dan and Ian on Tropical MBA. It’s not trying to be too clever, because I think people get really clever with their ideas and they want to build something just incredibly novel and solve just a problem that no one has a solution in search of a problem is the term for this.
And it’s the worst when you’re a developer. I did this 15, 20 years ago where a new technology would come out, and suddenly in the browser you could drag things in a web browser. Can you imagine? Oh my gosh. Ajax, Dynamic and DHTML, that’s a solution, so I’m going to go find a problem to try to solve with this. That’s not a terrible way to go, but I never found any problems with it because it was the wrong way to go about it. It didn’t start with a problem and then say, what’s the best tool to solve this? And coming back to this sentiment of being a little too clever, I think product people, and makers and engineers often do want to build something a little too novel. If you look at some of the incredible successful, whether they’re bootstrapped or not, SaaS products, a lot of them, what was Drip? Drip was an ESP that added automation.
There were already email service providers out there. They added automation a year after, two years after Drip did. There were already marketing automation providers. All the automations that Drip did, not all of them, but like 80% of them were accomplished by these larger enterprise tools. We were not being this massively innovative, I’m going to build something brand, brand new. But we did it in a way that was easy to use, we made it super approachable and we made it cheaper. So when everyone else was charging 300 to $3,000 a month, our lowest price was $50. So the entry level to get into email automation is what made Drip incredibly successful, is it just lowered that bar to entry. You didn’t need a $2,000 custom onboarding like a lot of our competitors did. You did not need a consultant to run it, which a lot of our customers did. You could use it yourself and you could pay that 50, or 100, or $200 and get a tremendous amount of value.
So the innovation was perhaps in the business model or in just bringing it to a new space and making it more approachable. There are tons of apps like that. Even the idea of taking a piece of software that’s generalized and making it more specific to a niche, like CRM software exists, where I’m kind of managing my list of customers and I’m doing sales. What about what the founder of Builder Prime did, where he said, “I’m going to make CRM software for home improvement contractors?” And that’s what he did. Builderprime.com. It’s a TinySeed company. It’s not some incredible innovation. I would call Drip a relatively boring business. I would call Builder Prime a boring business. And I don’t mean that as an insult. I actually mean it as a compliment when I say it. Boring businesses are great.
It’s not this constant sprint to stay ahead of the bleeding edge. You’re building a software that solves a desperate pain point for customers who pay you real money on a recurring basis. It doesn’t have to be any more complicated than that. So thanks for the question, Paseedu. I hope that was helpful. Last question of the day. I really liked this one, actually. It’s from Twitter. It’s from Noah Tucker. And they ask, “how can I assist an employee in transitioning from a task level to a project level thinker? I’d be super interested in any insights you have.” I had not thought of this question, but it’s an obvious and a really good one, actually. If you’ve heard me talk about task level, project level and owner level thinkers, it’s just a progression you’ll probably make during your career.
When I was young, I was a task level thinker. You could give me a task, I would do it really well. But I didn’t think at that next higher level where I could actually run projects, manage freelancers, get things done by a deadline, do a lot of complicated things. And then eventually you might transition, everyone doesn’t, you might transition up to become an owner level thinker, where you’re not just thinking about projects, but you’re actually thinking 6 months, 12 months out. You have vision and you’re executing at maybe an even higher level. So transitioning someone from a task level to a project level thinker, I think it’s something that in your career, if you’re a good boss, if you’re a good mentor, good manager, good leader, think you’re going to have to do this. And the way I would do it is I would look at my process for managing projects.
So if I do it in Google Sheets, or I do it in Notion, or Trello, I would then take my task level thinker and I would say, you’re going to manage your first project. And it’s going to be a super simple project. I’m managing projects with 50 or 100 steps. You’re going to have five. Here’s my Notion template. Here’s my Google Sheet. Here’s whatever tool I’m using to manage it and the thought process that I put behind it, so that I know who’s doing what, what the status is of everyone. Here’s how I get updates. Here’s how I track deadlines and report back. Here’s the system that I have so that I can function as a project level thinker. Because I’m going to be honest, most people, including myself, we don’t have it innately in us to do these things well, and so we need systems to help us do these things well.
And so I would show a task level thinker, here’s how I manage projects. Here’s the tool. Here’s the thought process. And now we are going to touch base together two times a week, five times a week, maybe it’s a daily standup where you report on the status. And we look at your task board, your Notion board, Trello board, and you show me where things are and who’s doing what. And that is to teach that person the discipline of they have to revisit and come back to these tasks over and over and over. Because if you’re managing freelancers on a project, oftentimes you’ll ask them to do something and then they just never report back. And so you need some way to close that loop and to get back to them two days, three days later, hey, pinging you again. Haven’t heard back. You’re trying to teach the good habits that you’ve learned as a project level thinker to this task level thinker.
And I would simply do it as almost an apprenticeship. Let me shadow you while you manage this relatively simple project. And something with five tasks or five steps is a great size. If you don’t have any small projects, I might look at grabbing a lower priority project, not making a project up, because that feels contrived, but looking at some lower priority ones that are just simpler and they can get on board. And then the next one has 10. The next one has 20. The next one has 50. And you’re mentoring them and teaching them along the way. And what you might find is some people, funny, I’ve talked about my mom twice on this podcast, but she used to say, “I’m great at doing tasks, but I just, anything complicated, and big processes and projects, that’s just not my thing.” And you may find that some people either don’t want to or just aren’t naturally good at it. Can’t follow the systems, whether you call it, they aren’t type A enough, whatever, whatever the term is, some people, that’s going to happen.
And you’re going to find that maybe they are amazing individual contributor, but they shouldn’t be a task level contributor. And that’s okay, as long as you have that role for them and as long as you know that and they understand it. But I think a lot of people that you hire will probably have a lot of not only aspiration, but talent if you’re hiring well. And you’ll see that you can, in fact, with a growth mindset in mind, teach someone to go from a task level to project level thinker. So that’s all we have time for today. Thanks so much for joining me. I’m at Rob Walling on Twitter. If we are not linked up, let’s do it. And this is at Startups Pod as well, if you want to see the weekly video that we tweet, which is usually a 90 second snippet from every episode. And a reminder, there still are a few MicroConf Europe tickets available. It’s in Malta, November 15th through 17th. And it’s microconf.com/europe. This is Rob Walling signing off from episode 619. I’ll be back in your ears again next Tuesday morning.
Welcome to Season 3 of TinySeed Tales, where we follow the founders of one SaaS startup throughout a year as they share their struggles, victories, and failures.
On the first episode of Season 3, Rob introduces us to Tony Chan, the cofounder of CloudForecast. CloudForecast is a daily AWS cost monitoring service for busy engineering teams. Tony is one of 33 startup founders from TinySeed’s Spring 2021 accelerator batch.
Topics we cover:
- 2:41- What’s CloudForecast?
- 4:09- How large is the CloudForecast team?
- 6:54- Why did Tony apply to TinySeed?
- 8:30- Why Tony turned down venture capital offers?
- 13:48- Tony reflects on the added complexity of taking funding
- 19:47- Tony’s biggest fear
- 22:34- What is Tony looking forward to?
Links from the Show:
- Tony Chan (@toeknee123) I Twitter
- TinySeed Tales S2E1 I Introducing Gather
- TinySeed Tales S1E1 I A Non-Technical Saas Founder
This week, and for the next six weeks, we’re going to have episodes of TinySeed Tales season three in your feed on Thursday mornings. So you get a special bonus episode for this next six weeks. If you’re not familiar with TinySeed Tales, it’s a seasonal show where I interview a founder across about years time. I believe these six episodes were recorded over somewhere between 10 and 14 months. The idea is to give you some insight into the ups and the downs, the struggles, the victories, and the failures of a real startup founder growing a real SaaS company that was bootstrapped until they took money from TinySeed.
So in season one, I interviewed Craig Hewitt, founder of Castos, who many of you are familiar with. In season two, it was Brian and Scottie, the husband and wife pair, founders of Gather. And in this season, it is Tony Chan from CloudForecast.
I never know what to expect when we start one of these seasons, because it is just a conversation framing their business and finding out where are we headed with this? Some of these episodes are massive wins and some are crushing defeats. A lot are in between. If you’re not familiar with TinySeed, it’s the startup accelerator that I run for bootstrapped SaaS companies. We run applications twice a year and in fact, our next application period opens on September 12th, just a couple weeks from now. That will run for two weeks. So with that, let’s dive in to season three, episode one of TinySeed Tales.
From the very beginning, we were very focused on building a bootstrap business, cash positive, profitable to a point where we’ve turned down offers to raise money or to be part of accelerators because it just did not fit our convictions. And what we felt was best for the company.
Welcome to TinySeed Tales, a series where I follow a founder through their struggles, victories and failures, as they build their startup. I’m your host, Rob Walling. I’m a serial entrepreneur and co-founder of TinySeed, the first startup accelerator designed for bootstrappers.
We’re back with a third season of TinySeed Tales. In season one, we followed the founder of podcast hosting platform Castos. In season two, we followed the co-founders of Gatherer, the interior design project management software. Both companies have more than doubled their revenue since their seasons aired. Castos closed a $756,000 funding round. This season, we’re following Tony Chan, one of 33 startup founders in TinySeed’s, Spring 2021 accelerator batch.
I’m Tony and I’m the CEO and co-founder of CloudForecast. CloudForecast helps engineering teams manage and get better visibility on their Amazon web services cost through easy to understand report. So our main product is a simple daily email that summarizes everything they need about their AWS costs and our goals for them to understand what’s going on with their bill in less than 30 seconds. So they can focus on technical items that help grow the business and not financial reporting, and that’s where we come in.
Tony and his co-founder applied for TinySeed not once, not twice, but three times. As they say, the third time was a charm. He and his co-founder were convinced that our accelerator was a perfect match for them. We were impressed with their continued progress and tenacity. Before starting CloudForecast, Tony was employee number two at a company called Perfect Audience. His role there was something of a business Jack of all trades, handling customer success, support and sales.
Now he’s leveraged that experience to run sales and operations at CloudForecast. His co-founder, Francois, handles the technical side of the company. Together, they’ve been working on CloudForecast full-time for two and a half years as of this recording. We’ve recorded this episode in July of 2021.
How large is your team?
So it’s just Francois and I. A lot of companies are pleasantly surprised when we are on a sales call and we say, “You’re looking at the company.” Even our current customers as well, they think that we have a big team. But we are about to onboard. We just put a tentative offer to a full-time engineer. So we’re very excited about that. We do have a bunch of contractors, as well, that helps us with different parts of our business. So, that’s how big our team is at the moment.
Congratulations on making that offer. Is it scary to you? Or is it pure upside?
It is both. Because we’re moving from us doing the work and having everything we know in our heads, to putting all that information on paper or in an operation process and trusting someone to do the same thing, or have a similar output as us. I think that’s scary. We’re moving from just strategically how do Francois and I activate and do the work, to scaling and pushing other people to do the work.
It’s also scary on a personal level that we have someone on our payroll that relies on us for the food and the shelter and the monetary part. So this is definitely a very new experience for us because the money we make filters back to the employees we hire. So it is both, it is huge upside and we’re very excited. But also there’s the strategic and big picture thinking of how do we make sure that the person we’re hiring is very successful in what they do and setting them up for success. And being very thoughtful about the whole process.
That concept of letting go of a little bit of control, that is a very common refrain and a common feeling I think every founder faces in with their first or second or third hire. I think a big mistake that a lot of founders or even CEOs, or just early entrepreneurs make is you have these things and you want to hand them off. Instead of delegating them, you abdicate. Which is you just dump it on someone and don’t check back in. You don’t give them the guidance, you don’t answer the questions, you don’t provide the proper, as you said, procedure, or whether it’s just proper instructions or the tools they need to succeed. That’s why I’m glad to hear you say it’s exciting, but it sounds like you feel there’s pressure on you to make sure that this new hire is successful in the role. Not just that they show up and take a bunch of stuff off your plate. Why did you and Francois decide to apply for TinySeed?
I think there were a few reasons. The money is nice, helps us take bigger risk. We would not have even thought of hiring people or putting money into people without the 180k that we got from TinySeed. So, that’s one very small factor on our side. I think the vision of what TinySeed is, the mentorship, the community aligns perfectly with what we’ve been very convicted about on how we should build CloudForecast.
From the very beginning, we were very focused on building a bootstrap business, cash positive, profitable, to a point where we’ve turned down offers to raise money or to be part of accelerators because it just did not fit our convictions and what we felt was best for the company. We recognize what we do won’t be a unicorn. We operate a very niche market with Amazon Web Services. It could be a nice $15-20 million a year business. I think for us to get there, we need people behind us that understands that, that also have that same conviction, as well. So it was a very natural fit for us to apply one, two or three times. We would’ve applied a fourth time, as well, if needed and as many times as possible because we felt that it was just a perfect fit.
At the moment, CloudForecast annual recurring revenue is about $180,000. But I want to challenge Tony’s assumption that this company can only be a $15 million or $20 million business, he might be thinking too small. As Tony and Francois get further into this journey, new avenues will open up that weren’t obvious at this early stage. Maybe they sell at 15 to 20 million, or maybe they operated as a profitable company, or maybe it continues to grow. Any one of these options is life changing.
I’m not saying they need to think bigger, it’s really up to them. But to think that CloudForecast can’t get bigger or that it’s not in the right space to do so, feels like a limiting belief. TinySeed is all about guiding companies on the path that best fits them. I asked Tony why he and Francois didn’t opt to raise venture capital.
You could have kept bootstrapping and not taken any funding. Obviously you already described why you took money from TinySeed and the community and the mentorship and the guidance and all that. But I think, especially given that you and Francois had lived in The Bay Area, you have connections there, you had worked at a YC venture back startup in the past. You could also have said, “We’re not going to do something like TinySeed. We want raise venture funding. With CloudForecast, we want to go big, we do want it to be a unicorn. And we want to go out and try to raise that pre-seed or that seed round, series A, whatever, that puts us on the track to get really, really big.” Why not do that?
Yeah, I think it’s a life stage lifestyle question that every founder has to personally ask themselves. As I alluded to, we did turn down possible venture funding that would bring us to a different trajectory at Perfect Audience that was an angel round. So it was on a VC track. We grew from zero to eight figures in ARR in about 18 months. That was a whirlwind. We were in our early twenties, we had the energy to do it. Francois and I worked long hours. It was fun, it was satisfying and it was great. And we had a blast doing it.
However, just looking back and pulling back, I don’t think I can do that at my mid thirties at the moment and have that same energy. Priorities have changed, Francois and I are married, Francois is about to have a kid. I think as you grow older, your priorities and what’s important to you, changes. Like at the time we were single, not married. So life was work all the time. Whereas now, life becomes our wife and spending time with them and going on vacation and having a good work life balance. And Francois having a kid, that is a milestone in life that changes as you grow older, that is quite different from your early twenties to us being in our mid thirties at the moment.
So I think that’s a personal decision that we made. We’ve done it before, we experienced it, that was great. We don’t want to do it again. It’s also a business decision too, and how we want to frame our business model. So if you look at CloudForecast compared to all the other players in the space, they’ve all raised venture capital, they all have raised ton of money. But by doing that, they’ve all increased their prices a hundred folds and building a business model where it’s a percentage of their AWS costs. That’s because they’re beholden to their investors, they need to be unicorn and they need to do that.
However, charging a percentage of your AWS bill, 4 to 8%, is that really in the best interest of those companies? I believe the only reason why they need to do that is because of the money they’ve raised and there’s a level of expectation of growth that they have. Whereas for us as a mostly bootstrap founder, our business model flips. Like we are beholden to the user, we charge a flat fee and we feel that’s the best way to take care of our customers and not have ulterior motives and be able to have that transparency as well that we have in terms of our business model. So it’s a business model thing, as well, on our side.
In essence, you’re able to use your competitors, perhaps their biggest strength, which is all this investment money. You’ll be able to use that against them as a competitive advantage.
If we raised VC, they’re all going to tell us the same thing. You need to 100X your price, and you need to go after enterprise deals that are 2, 3, 4 years that are huge, huge, and percentage of spend. We feel like flat is the most transparent way we can price our users and have them feel that we don’t have ulterior motives on that side and our customers love that.
The ability to keep their price low is a competitive advantage for Tony and Francois. Not only that, but when you’re beholden to venture investors, there can be an additional mental burden. Founders taking part in TinySeed won’t have that experience. But the cash we’ve given CloudForecast has required its own mental adjustment.
I think our focus at the moment has been in a lot of different places. We’re thinking about hiring, we’re thinking about strategically, how do we leverage the investment that we got from TinySeed? It just feels like we’re being pulled in different areas and direction. For instance, I spent some time yesterday just figuring out what contractor docs to use and figuring out the onboarding process. It’s tiring to shift from doing those small tasks, to doing big picture tasks, to focusing growth, focus on marketing, making sure that our payrolls set, making sure our books are set and so on.
So it just feels like we’re being pulled … or me personally, being pulled in so many different directions as CEO. So I think we’re trying to figure out, or I’m personally trying to figure out what’s the best way to mitigate some of those things? Being more disciplined, maybe set up different days for different focuses. But these last two weeks in terms of just hiring and being part of TinySeed has shifted our focus in so many different directions that the money has created more problems, good problems. But we have to think about our business in a lot different ways than we’ve never had to in the past.
Yeah. It’s interesting you say that. I can imagine someone who is listening to this who does not plan to raise money. That might be a reason that they wouldn’t is that they feel like it could complicate things. I think investors taking over your business has always been the … I don’t know, the big fear. Because we see the news stories of founder CEO fired because investors, venture capitalists took over the company. That’s obviously not something that’s going to happen with our money because you guys are in control of your company.
I think some folks don’t want investor because they don’t want the pressure. They don’t want to feel like they’re being pressured to do something that they don’t want to do. Or they have a boss. I didn’t start a company to have a boss. But I think there’s another element to it. You’re bringing up perhaps the complexity that it creates. I’m curious, A, did you expect it to add more to your plate? And B, does it make you regret it? Does it make you think, “I wish we could just go back to the easy days of not having all this cash in our bank account to spend, to grow our startup.”
I don’t think we regret it at all. We have to pull back and look at the bigger picture of things. Like Francois and I can’t be doing what we’re doing as a business and as a growing business. It can’t be just two of us for the rest of our lives. We recognize that on our side. We fully have come to terms that if we want to scale the business beyond what we’re doing right now, we need to add more human capital, especially expertise in different areas to do what we’ve done, but do it a lot better.
I’m not a salesperson. I’m not a really strong SDR person who can hunt leads all day and every day. However, there might be people that have solved that problem before and have done a really, really good job. On the technical side, Francois always talks about not being really good on the front end side and he’s not happy when he has to work on the front end. So finding someone to be able to bring that level of expertise in and being able to shore things up on that side, where we might have a lot of technical debt in, that is the key and importance of growing the business. You’re taking your own expertise in what you’ve learned over the last two and a half, three years, and hoping to find someone who can really take it beyond what you do.
For example, for sales, I might be spending only 15% or 20% of my week on that. Just imagine being able to get someone that can spend 100% of their mental capacity on that. I think there is a bigger upside to get more people involved in the business than just Francois and I dilly dallying around with the same thing we went over. I think also by doing that, I think it will lessen the opportunity for burnout. There’s a lot of tasks that we do that are very mind numbing and just very tedious. I’m happy to do that at this stage of my career for 4, 5, 6, 7 months. But I’ve joked with Francois that I think if I keep doing this for a full year, I might just lose it. I think there’s some tasks on Francois’ side, it’s the same thing.
So it’s just kind of lessening the load that we’ve burdened ourselves with and put ourselves on and put on our shoulders for the last two and a half years. And be able to push that to other people that are expertise in. So I don’t think we regret it. Yeah, there’s a level of complexity, but I mean, that’s the part of doing business and that’s the part of growing. It’s growing pains, but we’ll figure it out. The best part is being part of the TinySeed community and just being able to ping the channel and be like, “Hey, I’m dealing with this. I just asked about healthcare and how does that look?” We had a huge thread of more than a hundred messages coming in and people chiming in. So there’s a level of comfort that we have that we have a community backing us, as well, and a family backing us, as well, that we can just ask questions and someone has dealt with that problem before.
There’s a phrase I’ve been saying for years, venture backed companies fail when they run out of money and bootstrapped companies fail when they run out of motivation. I’ve spoken about this before. It’s hard to feel satisfied as a founder when you’re always looking to the next milestone. Money probably won’t be the issue for Tony and Francois, but we will be keeping an eye out for signs of burnout. As we wrap up our conversation, I asked Tony about his expectations from now until the next time we talk.
Between now and the next time we chat, I’m curious, what’s on your mind as maybe the biggest fear? The thing that you think is going to keep you up at night. Not literally, hopefully it doesn’t keep you up at nigh., but what are you concerned about? What are you scared of?
Yeah, I think the biggest fear, there’s a few. As mentioned, we are onboarding our first full time hire outside of Francois and I, a part-time hire on the growth side. I think the biggest thing that we’re thinking of and the next time we chat, I believe that will be their first week of working. So Francois and I have pretty much a week and a half to think about, “How can we onboard them so they can be successful and do their roles and do their jobs really well?” Not only on a business level, but also how can we help them personally grow?
Them taking this job, it’s not only for them to help us grow the company, but they’re looking for external motivation, whether it’s personal growth in certain areas, wanting to work at a startup so they can learn. But how can we be thoughtful and provide that opportunity so they can feel that they’re contributing, but also growing personally as well? And that’s scary to be responsible for a person’s onboarding and not only on the business side, but on a personal level, as well.
So that’s something that Francois and I are going to start thinking about next week in a half, in two weeks. The other thing too is like, are we making the right decisions? Are we spending the money the best way possible? We’ve been very conservative with how we spend the money and are we moving too fast? Are we moving too slow? Are we doing it the right way? Those are the decisions that we keep up at night because we care very deeply about how we run our business. We care very deeply about the employees we are about to onboard. We care very deeply about investors that are specifically TinySeed that have given us the money to be able to grow.
I think it’s our biggest strength that we care a lot and is our biggest strength that it goes to a point where we want to be very thoughtful about it, but also it’s scary. That can be a weakness as well because sometimes we can be too conservative and not be able to pull the trigger right away or make decisions fast enough. So I think it’s a flip side. So in my mind, that’s my biggest fear. Hiring and onboarding properly and big pictures, are we doing the right thing? That’s something that we always constantly asking ourselves, are we doing the right thing?
And the flip side of that coin is, what are you most excited about? Most looking forward to between now and the next time we chat?
Yeah, it’s related to that because at the same time, we’re scared out of our minds and there’s just so much thought process to onboarding and that is fear, but we’re also trying to remember and think about the bigger picture is like, we just hired our first full-time hire. She will be ramped up in two weeks and the SDR should be ramped up in about a month. And if done properly, thoughtfully, and just being able to let them run with their jobs, this should help us scale our revenue and scale our company further.
So instead of Francois and I thinking about just everyday thing that we need to do to grow our business. We have other people that can help us now. It’s kind of like Lord of the Rings, we’re getting more people as we go on this journey to help us get the ultimate prize or achieve the ultimate prize. But it comes with a whole set of problems as we’ve been talking about. But I also have to have a big picture mindset that these are good problems to have on our side.
It sounds like Tony has a perspective to see how exciting the future looks and to give himself a well earned pat on the back for all the progress CloudForecast has made. Check in next time to see how Tony’s new hires onboard and adapt in terms of both business success and personal growth. Plus, we’ll see how the team at CloudForecast handles the new spending power that’s burning a hole in the proverbial pockets. That’s next week on TinySeed Tales.
In episode 618, join Rob Walling as he chats with Sam Dogen, the founder of Financial Samurai, which is one of the longest-running and most popular personal finance blogs. Over the last 13 years, Sam has personally written over 2,500 essays along with a Wall Street Journal Bestselling book. We talk about achieving financial freedom, money mindsets, and relentless execution.
Topics we cover:
- 3:12- The 4% Rule
- 4:40- Sam’s alternative approach to the 4% Rule
- 7:25- The FIRE Movement
- 10:16- How to navigate the US health insurance system as an early retiree
- 12:10- Sam’s relentless execution when it comes to running Financial Samurai
- 17:40- How Sam learned about personal finance
- 18:47- How Sam negotiated a severance package despite quitting his investment banking job
- 22:47- Why he runs Financial Samurai as a true lifestyle business
- 26:07- Would Sam sell Financial Samurai for $20 million?
- 27:35- The premise of Sam’s new book
- 28:46- Sam’s mental model for allocating financial assets to generate passive income
Links from the Show:
- Sam Dogen (@financialsamura) I Twitter
- Financial Samurai
- Buy This, Not That
- MicroConf Europe
- Applications for TinySeed’s Fall 2022 SaaS Accelerators Will Open September 12th
- MicroConf Youtube Channel
Rob: We have a time and a place for MicroConf Europe 2022. It’s going to be from November 15th through the 17th at the Intercontinental in Malta. This will be a limited capacity event. It’s going to be smaller than previous MicroConf Europes due to a number of factors. It’s definitely something that if you want to go to Malta, to MicroConf Europe in November, you’re going to want to head to microconf.com/europe for more details and to buy your ticket.
In terms of speakers. I, of course, will be speaking per usual and we have Guillaume Moubeche, he’s the founder and CEO of Lemlist, which is a company that has bootstrapped to eight figures in ARR. Hope to see you in Malta from November 15 through the 17th, that’s micrococonf.com/europe.
Welcome back once again to Startups for the Rest of Us. I’m Rob Walling. This week, I speak with Sam Dogen. He’s the founder of the Financial Samurai, which is one of the longest-running and most popular personal finance blogs or news websites. He writes all the content himself. You’ll actually hear about that in the interview.
He’s written, I believe, 2500 essays/blog posts in the past 13 years. Just an incredible example of relentless execution. He’s also written a book called Buy This, Not That that we dig into. We talked quite a bit about achieving financial freedom personally, about how to think about money, and a lot of really great mindset stuff in this episode from Sam.
Before we dive into that, we get a new review in the Apple podcast from Adarcus. Five stars and they say, “Practical and relatable advice for all entrepreneurs. Startups for the Rest of Us truly educates and inspires with each topic and guest. The show is a must listen for anyone considering stepping into the entrepreneurial space. Please keep up the incredible work.” Thank you so much, Adarcus for that review.
If you haven’t left us a rating, you don’t even need to leave a review. You can go click the five stars and wherever you consume this podcast, we’d really appreciate it, or log in to the Apple podcast. I believe we’re at about 940-something worldwide ratings. You don’t even have to write anything. You can just click the five stars and I would love to get to that 1000-rating mark. With that, let’s dive into my conversation with Sam Dogen.
Sam Dogen, thanks for joining me on the show.
Sam: Hey, Rob, thanks for having me.
Rob: I was mentioned to you offline. I came about your book because of the Tropical NBA podcast. A long-time fan of Dan and Ian. I heard Dan interview you and I was intrigued, so I went and bought the audiobook, as I’m apt to do. People know I’m an audiobook addict. I have almost 900 audiobooks, I think it is in my Audible account.
Buy This, Not That is not one of them. If folks want to jump to the end. Your book is called Buy This, Not That. You’re the Financial Samurai. What I like about your book is that it isn’t a lot of typical advice. I’ve read all the personal finance books, both from the old guard from the 1990s and early 2000s, and then there’s this new wave of bloggers and podcasters talking about it. And you start to hear the same advice over and over, which I think is good, but you have a lot of stuff in your book that I hadn’t heard elsewhere.
I want to kick us off by looking a little bit at the 4% rule. The 4% rule for folks who don’t know, do you want to define it really quickly, like where it came about and what it means? Then I want to talk about your sentiments and mine around it.
Sam: The 4% rule was devised in the 1990s by Bill Bengen, a retirement researcher, who said that if you withdraw at a 4% rate, you will unlikely run out of money for the next 30 years in retirement and that has been a great rule.
The inverse of 4% is 25X. If you can accumulate a net worth equal to 25 times your expenses, you’re financially independent. I don’t agree with the 4% rule at all, not at all, but it’s because I left in 2012 from my day job, so I’m a practicing retiree. I’m not a researcher retiree who has a nice paycheck and a pension. I’m actually living through this.
Then two, since the 1990s, the risk-free rate of return, which is the ten-year bond yield, has come down from 5% to 6% to now 2.8%. Back in the 1990s, when he came up with a 4% rule, of course you wouldn’t run out of money if you could invest your money at a risk-free rate of return of 5%–6%. Over the past 30 years, many things have changed, including the Internet or more globalization, and the rates have come down. I disagree with the rule and I can tell you what a better rule is.
Rob: Let’s stick into that.
Sam: If you want to achieve financial independence, you need to have, I believe, enough investment income to cover your basic living expenses. You don’t have to work if you don’t want to, you can do whatever you want. Instead of using the 4% rule or the inverse 25X expenses, use a multiple off of your income. If you use a multiple off of your income, you cannot cheat your way to financial independence, which is what I see a lot of people do.
It’s up to everyone to decide what it is they want to do, but you can’t suddenly say, I’m going to slash all expenses down to $20,000 a year, eat ramen noodles, and just drink water, that’s it. Boom, I’m financially independent. If you use a multiple based on income, it always forces you to continuously save and invest as your income grows, which is hopefully for most of us.
Rob: I have similar sentiments around the 4% rule, but I think for different reasons. It’s based on the Trinity study. What they did is they looked back at returns, I think from the 1920s to the 1930s until essentially present day. It was like 80–90 years of returns. They did a Monte Carlo simulation and they said—we’re getting deep in the weeds here. I like this, though—it was like 80% or 90% of the years between those two if you retired that year, then you would last 30 years.
There was a good chunk of years where the sequence of returns would have screwed you. Meaning, if you retired right before 2008–2009, your investments get cut in half or more, you don’t have enough for 30 years. Even then, the percentage they were using was pretty high. It was like 8% or 9%. That’s the average over that long term which sounds great until you look at what expected returns were like.
In 2016, I sold a company. I had a ton of cash come into my personal bank account. Expected returns for stock at that point, the expected ten year returns were 4% because valuations were higher. When I looked at 4% returns of equities, that’s not risk-free, that’s equities. That’s if I was 100% of equities. I was like, there’s no chance the 4% rule makes sense I would say in this day and age, but in this economic climate, that was 2016 or that was 15 or 20 years ago.
When I started looking at what it would take for me to have enough money in the bank to never have to work again? I was like what about the 2.5% rule or the 3% rule? I just started jacking that number down, meaning I needed more cash in the bank. It’s just a mental cushion that I had.
Sam: Instead of 25X expenses, my recommended target is 20 times your average annual gross income. So $100,000 gross income, $2 million and so forth.
Rob: You touched on this earlier, but you said, that way you can’t cheat your way to it. Let’s talk about FIRE real quick and define it. Financial independence, retire early. What is the FIRE movement?
Sam: It’s a movement that I think I helped Kickstart in 2009 during the bottom of the financial crisis. I literally started financialsamurai.com in July 2009 because I thought I was going to get blown out. I lost 35% of my net worth in 6 months that took 10 years to build.
FIRE is basically an idea where you save and invest aggressively so you have enough passive income to cover your basic living expenses. The more your living expenses can be covered, in other words, the better your lifestyle that it can provide. Then there’s just different degrees of FIRE when you go up to a fat FIRE.
I’ve noticed that since 2009, the definition has changed a lot, where there are all these different types of subfires because everybody’s on a different path to financial independence and it’s actually really hard and takes a long time to save and invest your way to generate enough passive income.
You have these new terms that come up to fit someone’s stage which is totally fine because you need the motivation. At the end of the day, you can’t lie to yourself about your own financial situation. I hope people just focus on the basics of enough passive investment income to cover your living expenses.
Rob: That’s an issue I’ve had with FIRE. I don’t know if listeners of the show know this, but if I was not like a startup bootstrapper blogger type podcaster, I would be personal finance. That is my second love—personal finance or investing. I sneak a personal finance or investing episode under the show about every six months. That’s about what the audience will allow.
I’ve struggled with FIRE and you know what? To each their own. If it works for people, that’s great. I struggled with it a lot because when I started hearing about it, I was 35. I had two kids, a mortgage, and frankly, the people who I heard talking about FIRE are like a 24-year-old with really low expenses. This comes back to cheating. It’s like I can live on $15,000 a year because I have two roommates and I don’t run my air conditioner and I only eat Top Ramen.
I’m always like, yeah, I guess that’s not a life I want to live. I’d rather work at that point and not live like that. I kept hearing those stories and I was like this isn’t appealing at all. The idea of retiring early was appealing, but the idea of doing it almost like I’m in prison, I’m living on bread and water. This is dumb. That was always my issue with it.
Now I’m hearing, like you said, there’s regular FIRE which is where people “cheat” their expenses down to $20,000 a year or $30,000 a year, which, look, of course that’s possible, but it’s not a life I think a lot of us want to live. Then there’s fat FIRE, which is where it’s like $100,000 or $150,000 a year. Whatever I need to live. I just need a lot more money saved. Then Barista FIRE, I saw in your book, I’d never heard that term, but it’s basically where you keep some type of side hustle. Is that the idea? Or do you still have income coming in from a day job type thing?
Sam: Well, the idea is that you work, let’s say at Starbucks, you’ll get healthcare insurance. Right now, my family pays $2200 a month in unsubsidized health care insurance because we don’t have a job. That’s the idea, to get some income going, and to have that healthcare benefit.
Rob: That is a crying shame and it’s something that, if you’re not in the US, you don’t realize how catastrophic our health insurance system is for entrepreneurs. I run TinySeed. We funded 80 entrepreneurs, 80 companies, I’ve invested in 20 others. I’ve over 100 companies invested and one of the biggest issues with these early stage bootstrap founders is I don’t want to lose my health insurance because it’s $2000 a month to get it. How are we going to fix that? That’s not the topic for today, but do you have any thoughts on that? You’ve obviously been impacted by our health system.
Sam: Strategically, understand that if you have an income that is 400% or less of the federal poverty level limit, you can get subsidized healthcare insurance. What actually happens is a lot of the FIRE folks will actually not have a lot of income. That’s only four times at most from the federal poverty limit. The federal poverty limit per person is something like $13,000–$14,000 per person. Again, that’s the lean lifestyle you would be living if you wanted subsidized health care.
The other solution is, as an entrepreneur, you start your business, you get a group health care plan, and then you deduct that as an expense. If your effective tax rate is 25%, then it’s 25% off let’s say $2000 a month for a family. That’s the way you can use it. It’s an expense, but it’s still a lot of money.
Rob: That’s interesting. I didn’t know any of that. You’re bringing that in. You are obviously someone who’s been doing it. With Financial Samurai, because it started as a blog, are you still actively blogging or do you now have staff that blog on the site?
Sam: No, starting 2009, I’ve written 99% of the content, published three times a week, every single week, without fail, since July 2009. My wife edits my content as well as my father, and she does the backend, the taxes and all that. We try to keep as lean as possible, which is just my wife and me. In that way we don’t have staff, we don’t have to manage anybody. There’s no turnover.
We decided a long time ago to go the lifestyle route versus the big payout route because at the end of the day, why are we doing a business? I wanted to do a business because I wanted the freedom to do what I wanted. I didn’t want to have schedules. I didn’t want to manage people, or get told what to do at all, or count out any shareholders who wanted a meeting or an update. That was our plan.
Rob: That makes sense. Folks who listen to this podcast know that my definition of success or my definition of personal happiness, is having freedom, purpose, and relationships. At any given time in my career, there was a time when I had freedom and I had sold a company and I was working on an autopilot cash flow business, bringing in $30,000 a month. I was totally free to do whatever I wanted and I was incredibly bored.
I didn’t have a purpose. I lost my professional purpose, which is something that I need. I need to be learning. It’s a personality thing. Then relationships, I think, are self explanatory of healthy friends and family relationships.
It sounds like you have had freedom for quite some time. Has it ever gotten boring for you? The reason I ask this is because this podcast has run for 615 episodes over 12 years. I started a blog in 2005 that I did for about six years and I stopped because I got tired of it. There are certain things over the years, like I get tired of businesses and I sell them and move on, but that’s a personality thing that’s not everyone.
I’m curious if you’ve had moments where you’ve thought, I’d love to work on something new or I want to do something else. Or is it like three posts a week not a grind, and it’s just something you love doing.
Sam: First, I made a promise to publish three times a week for 10 years to see how things would turn out because I generally feel that if you can stick with things long enough, good things will happen. After the 10th year of doing it, I said oh, I can sell the site or just chill out now. And I developed a muscle, just like breathing, where if I can breathe forever, I can write forever.
Three times a week is perfect cadence because it’s about 15 hours a week of writing, so that gives me 2 hours a day of writing purpose. I believe the ultimate amount of time to work a week is about 20 hours.
Once I had my son in 2017, I got more motivated again. I don’t know if it’s like DNA evolution where once you have children, you just get pumped up to want to grind harder and provide more. I decided, you know what? Maybe I’ll make another 15 year commitment to publishing three times a week, because I think that the world is a really competitive and really brutal and beautiful place and I worry about my children.
What if they can’t get into a good school? What if they can’t get a good job? I always thought, well, let me run Financial Samurai until they’re in their teens, teach them everything I know about communication skills—written and oral—marketing, finance, investing, real estate, and give them those tools.
If they are spit out by society, they’re rejected from everywhere, they can’t get a job, at the very least, they can come back to work for dad and maybe take over the business one day. I’m starting to think about the future.
Rob: You don’t just think about the future. You planned a decade ahead and now you’re looking 15 years out. Man, hats off to you because when I plan for the future, I look at next year, maybe two years, definitely, but you committed to three posts a week so let’s just say 150 posts a year for 10 years.
Right from the start, you’re like I’m calling a shot. I’m going to write 1500 posts. I’m committed. That’s crazy. Is that a personality thing? Is that just how you think?
Sam: It’s just commitment. I feel like I’ve seen everybody who has actually succeeded at anything, they just stick with it. I’m not very smart. I didn’t get great SAT scores, they were quite mediocre. I didn’t go to elite private school, but I saw the people who succeeded. I was like wow, you just have to stick with it. You can’t forecast what’s going to happen, but sooner or later, something good will happen if you stick with things.
I plan to live for another 15–20 years. I just want to live until my kids find someone that loves them as much as I love them and then maybe I can die and then be peaceful. During that time, I might as well work on Financial Samurai and teach them what I know because I think that’s our duty as parents.
Robb: That’s crazy. How old are your kids? You have a five year old and a?
Sam: Five-and-a-half and two-and-a-half. That’s why I think 15 or 20 years, hopefully they’ll understand the waste of life by then.
Rob: That’s cool. I have two kids as well, 16 and 12. When they were 5–7, I started showing them—I don’t know if you’ve heard of them—these videos on YouTube are called Cha-Ching. There are a whole series of cartoon videos that animated to music. Check it out.
It’s great. They’re 2–3 minute videos and there are 10 or 15 of them. Each one covers entrepreneurship and one covers just money, earn, save, spend, and donate. There are just all these fun things.
Anyway, I’m saying it for you, but you already know all this stuff. For folks who are listening who have kids, it was a fun thing at once or twice a day, and I love the idea. I didn’t have money education as a kid. Certainly, they didn’t teach anything in school, and my parents were busy working and just trying to pay the bills. All the money education I got was on my own. I sought out some magazines. This is before the Internet existed, but realistically, it was like Money Magazine and whatever personal finance books I could scrape from the library.
What was your path? Did you have a mentor, someone like a parent who taught you or did you go out and just self educate?
Sam: My father was my mentor. I remember I think it was my sophomore year in high school, he sat me down at the breakfast table, showed me the back of a newspaper, and educated me on what these tickers were and what the movements were. That was really the start of it.
I always wanted to be wealthy because I had friends—poor friends and rich friends—but the rich friends always were the entrepreneurs with the mansion in the hills, with the nice cars, and the chauffeur. I was like, wow. Then my poor friends were just minimum wage laborers, so the dichotomy was really eye-opening when I was growing up in Malaysia as a middle school student.
I always wanted to be an entrepreneur, but I didn’t have the courage, I guess, and then the lack of options because once I graduated from college, I was able to get the job at Goldman Sachs in New York City, which was a top investment bank at the time, and it still is. It was too risky for me to say no, especially after 55 interviews.
I was like, okay, I’m going to go the tried and true route. Try to go for it for 10, or 15, or maybe 18 years. My original plan was to grind it out until age 40 and then have enough capital and have enough courage to try to be an entrepreneur and do something on my own.
In the end, I ended up leaving several months before my 35th birthday because I was able to negotiate a severance that paid for 5–6 years of living expenses, which was something like in other words, being able to work until age 40.
Rob: Tell me more about that because you mentioned that a few times, I think, in the interview and maybe in your book. When you quit, you don’t get a severance. How did this happen? What was the story?
Sam: Fundamentally, please understand that if you quit, yeah, you don’t get a severance and you’re probably not eligible for unemployment benefits for 26 weeks. What I saw during the global financial crisis was rounds after rounds of layoffs and then some of my friends were laid off and I said, how are you? Is everything okay? Can I try to get you a job where I work? They said, I’m okay and they talked to me about their severances.
I was like, oh, you got two to three weeks a year in severance. Two to three weeks per year you worked as severance. I was like oh, that’s pretty good, that’s not bad. You can actually take it easy for six months or eight months, you’re good.
I finally developed an idea in my head in October 2011 because I was sick of work by that time. I said, if I could negotiate a severance, in other words, just get laid off and get that severance check and all my deferred compensation of stock and cash and this private investment we were forced to make at the bottom of the market, I’m out of here.
That severance was a lot of money and it could pay for at least five years of normal living expenses, so I negotiated with my manager. I said look, I’ve been here for eleven years. I found my replacement. I’m going to provide a seamless transition for me to leave and to train my employee over the next three months so the clients are good, you won’t see a drop off in revenue. I was selling myself on the way out.
Most people sell themselves to try to get the job. I was trying to sell myself on the way out and I said, look, you can save on my base salary, compensation, and my bonus because you’re going to pay the junior guy and the business will rebound and do well.
At the end of the day, they said, okay, let’s do it. If you don’t want to be here, we understand, thank you for your service. Let’s do it.
Rob: Wow, that’s crazy. I’ve never heard of anyone doing that.
Sam: Here’s the thing. If you plan to quit your job or retire early or start a business, there’s no downside in trying to negotiate a severance and try to raise your hand for the next layoff. I think most people don’t do that because most people don’t actually think about the company. If you leave your company with a two weeks notice, you’re leaving your colleagues and your boss in a lurch. It takes a while to find someone, to train someone. It’s actually not being thoughtful by just quitting.
Then two, I think people are afraid of confrontation and maybe it’s why people break up over text messages or they ghost people. They ignore it because they feel bad trying to come up with a win-win scenario. Please always think there’s a better solution to any problem that you have.
Rob: On the entrepreneur side, because obviously you run Financial Samurai, you’re a solopreneur, it sounds like with your wife and she’s helping out and you don’t have employees, you said that you made the choice deliberately to be a lifestyle entrepreneur versus on this show, I often talk about ambitious bootstrappers and lifestyle bootstrappers. Both are great paths depending on what you want to do.
In fact, I was a lifestyle entrepreneur for several years and then I got a little bored and I decided to get ambitious and then that was really stressful, actually. I’ll tell you, a lot of people who I see make the lifestyle choice, they get bored with it and they switch later after three, four or five years, but you haven’t done that.
I’m curious what made you decide to go this route? I think you touched on some of it earlier, but why do you think that you’ve been able to stick with it all these years and been happy with that path?
Sam: Well, I think the first reason was when I joined Goldman Sachs in 1999 at the age of 22, Goldman went public that year, so the partners ended up making tens of millions of dollars and the VPs were making maybe $5 million or $10 million of windfall, and they didn’t seem happier to me.
I knew that if I worked for 10, 15, or 20 years, I might have a chance to get to that level of wealth one day. I saw right away that, okay, maybe a lot of money doesn’t buy a lot more happiness. I saw divorces, I saw stress, I saw people working until 8:00 AM to 9:00 PM and I was getting in at 5:30 AM and leaving after 7:00 PM already, and I was feeling crushed. It gave me that perspective right after college that okay, maybe money, greater money doesn’t buy me more happiness.
When I left in 2012 at age 34½ I achieved my enough number, which was $3 million and I was able to generate about $80,000 a year in passive income, which provides for a normal lifestyle for one person, maybe two people in San Francisco, which is a very expensive city. The drop in active income by about 80% was tough for the first couple of months, but the freedom that I was able to achieve afterwards, to be able to go for a walk in the park, no more stress, no more commuting.
I started getting gray hairs at 33 and all those gray hairs went away by age 35 because my stress went away and my chronic pain went away, my lower back pain, my sciatica, all this stuff. I was like, wow, the health benefits alone of living a more peaceful and less stressful life was worth it.
I really enjoy writing and connecting with people. If you think about it, Financial Samurai since it’s been around since 2009. A lot of people have grown up with Financial Samurai now. The readers that started in 2009 or 2010 have told me about the families they started, the wealth they have built, and the things they’ve been able to do. It’s been such a great and rewarding journey that I just don’t want to quit.
Rob: It’s really impressive. The term that I use on this podcast is relentless execution. It’s someone who shows up and ships every day, every week, for years and years, and you have obviously done that. The fact that you are still coming up with topics, you literally must have written thousands of blog posts.
Sam: Yeah, 2500, probably over.
Rob: Yeah, it’s really impressive.
Sam: Life is life every day, if you think about it. If you just look at your, let’s say, Twitter feed or your newsfeed, there’s something crazy going on every single day. I don’t know. I think there’s always something interesting to write about and to analyze and it’s just a fun journey.
I have friends who are worth a lot, hundreds of millions of dollars. I know a couple of billionaires and I don’t see their lifestyle being that much better, except for private jets and mansions. If you’re friends with them, you just say, okay invite me on the jet next time you go to Hawaii. Why not? I’ll mansion sit for you.
Rob: Realistically, then someone comes to you and says, I want to give you $20 million or $30 million for Financial Samurai. Would you do it?
Sam: I wouldn’t do it because let’s say it’s 20 million so after taxes, that’s like $12 million, maybe it’s $10 million. That sucks. I mean, having to sell something you love and then create economic waste through taxes is the worst. I studied economics and taxes are the worst. It’s such a drag.
I’ve done it for so long that I just feel like, man, I sold it just for money? It’s part of who I am. If you love your baby, you never sell your baby. If you do sell your baby, maybe it’s because you really didn’t love your baby or you stopped loving it.
Let’s be brutally honest. I’ve had many people in the personal finance space sell their sites and why did they do that? Because they wanted the money more than they wanted to do what they wanted to do. That’s just the way it is. That’s capitalism.
I feel like Financial Samurai is like my second or third child. My first child, actually. I just want to see it grow up. If it can help people. I’m not writing stuff to SEO optimized to make affiliate rep, that is soul sucking to me which is why you don’t see that.
What you see on Financial Samurai are real stories that pertain to real people in every aspect of their life over the course of their lives. That’s a key point of Buy This, Not That as well, is to tackle some of life’s biggest dilemmas so you can move forward with confidence and less regret.
Rob: Yeah, the book title, Buy This, Not That, what is that referencing?
Sam: It’s referencing that we can’t make every single choice possible. Every choice we make is an opportunity cost of not making the other choice. The longer you live, the more joy you will have, but the more regret you will have for making suboptimal decisions.
As I’ve grown older—I’m 45 now—I’ve seen a lot of these things where, man, I wish someone could have told me why you should make this decision over that. I provide a lot of examples, such as whether you should join a startup or an established firm in your 20s or 30s, whether you should live in an expensive city or a lower cost city to save money, or whether you should marry for love or marry for money, or have children sooner rather than later. These are big life events that I wanted to address because money is just a means to an end.
Once you have enough money to cover your basics, life is about living those decisions. I want to help people stop saying, if I knew then what I know now, my life would be better. The simple solution to do that is to read and learn and listen from someone who’s been there before.
Rob: I want to circle back to something you said earlier. You said you had assets of I think it was $3.5 million, and you were making $80,000 a year in passive income off those. Do you want to walk us briefly through? If there’s a listener out there who has a few million saved, like your mental model of how you allocated assets and how you were able to pull passive income to that extent?
Sam: It was $3 million and about $80,000. I worked in equities and investment banking. What I did was I tried to save 50% of my after tax income every single year and diversify into real estate because I was already tied to the equities market with my stock and career.
I try to invest as much as possible into real estate, because real estate is a real asset that just doesn’t go poof in valuation overnight, loses 30% of its value because it missed some earnings estimate by 5%, whatever. I wanted a real asset that generated a higher yield, that was less volatile.
About 50% of my current passive income, which is greater than $80,000 now, comes from physical real estate, over four rental properties, and online real estate in terms of real estate crowdfunding private real estate deals. About 25% comes from dividend stocks, and then about 7% comes from bonds like tax-free municipal bonds. The rest comes from savings, CDs, and private equity distributions.
You’ve got to understand where you are in your business and how you want to diversify. The key is, once you achieve a wealth that you’re comfortable with, that you’re happy with, where you can just kick back or leave completely, you don’t want to lose it. You want to invest in a risk-adjusted manner and a risk-appropriate manner based on your goals and your lifestyle.
I’m relatively risk-averse because I have two kids. My wife doesn’t work, I don’t have a job, but of course, I have Financial Samurai and my investments. Unlike perhaps most entrepreneurs who plow back their retained earnings into their company, I plowed back my retained earnings into investments so I can have more money soldiers, so that one day, if Google says Financial Samurai, you stink. I’m okay. I’ll be okay.
Rob: Very cool. Sir, congrats on the Wall Street Journal Bestseller. I know that this happened. That’s awesome.
Sam: Thank you so much.
Rob: Again for folks listening, the book is Buy This, Not That. It’s available in Amazon, Barnes & Noble’s, all the bookstores you would go to. Obviously it’s financialsamurai.com and then on Twitter, a lot of our folks are there, it’s @financialsamura.
Sam: You can go to financialsamurai.com and then if you want to get the book, it’s financialsamurai/btnt and you can get all the details. On Twitter, it’s @financialsamura without the I, because I started it in 2009 and it didn’t have enough space for the I, so I just was like, all right, whatever. I just stuck with it. I guess I could change it, but whatever.
Rob: That’s so funny. I’ve had a few friends who changed their Twitter handles over the years. Well, sir, thanks so much for joining me on the show.
Sam: Thanks for having me. It’s been fun.
Rob: Thanks again to Sam and for you for coming back every week for another dose of tasty goodness from Startup for the Rest of Us. If you have not checked out our YouTube channel, I’m releasing a weekly video at this point, it’s microconf.com/youtube.
In the past few weeks, I’ve covered topics like SaaS sales funnels, micro-SaaS products, are they actually profitable? Winning go-to market strategy, two things investors look for in a SaaS business, and many other topics that are related to building, launching, and growing SaaS companies. Check it out, microconf/youtube if you haven’t already. This is Rob Walling signing off from episode 618. See you next week.
In episode 617, Einar Vollset and Tracy Osborn join Rob Walling for a bootstrapper news roundup episode. They cover a wide range of topics from ProfitWell’s big 200 million exit, spreadsheet mentality, watching an acquirer ruin your company, and much more.
Topics we cover:
[3:06] What’s your take on ProfitWell’s acquisition?
[5:52] Watching an acquirer ruin your company
[14:03] The spreadsheet mentality
[23:09] If you can’t buy it twice, don’t buy it
[36:00] Balancing realism with optimism as a founder
Links from the Show:
- Tracy Osborn @tracymakes I Twitter
- Einar Vollset @einarvollset I Twitter
- Episode 611 | Bootstrapping ProfitWell to a $200M Exit (with Patrick Campbell)
- Watching an acquirer ruin your company
- Episode 605 | Building a SaaS with Little Dev Experience, Using No Code for Your MVP, Bootstrapping a Two-Sided Marketplace, and More Listener Questions
- The “Spreadsheet Mentality” sucks, and kills the efficacy of jobs
- If You Can’t Buy It Twice, Don’t Buy It
- 14 Critical Things Investors Look for In A SaaS Startup
- Applications for TinySeed’s Fall 2022 SaaS Accelerators Will Open September 12th
- MicroConf Youtube Channel
- MicroConf Europe
Rob: Welcome to another exciting episode of Startups for the Rest of Us. This is a news roundup episode where I pull Tracy Osborn and Einar Vollset on the show. We talk about ProfitWell’s $200 million exit. We talk about spreadsheet mentality, watching an acquirer ruin your company, and cover other news stories related to bootstrap, and mostly bootstrap founders.
If you are into this show and haven’t checked out our YouTube channel—you really should—I am releasing what essentially are Rob solo adventures but are videos and pretty tightly edited. They’re about 7–15 minutes covering topics ranging from the top 10 avoidable mistakes SaaS startups make, SaaS pricing models explained in five minutes, whether micro SaaS products are profitable, ideal customer acquisition funnels, how to come up with a go-to market strategy for SaaS, and on and on. It’s just free educational content. It’s microconf.com/youtube. I hope you check it out. With that, let’s dive into today’s news round-up.
First up, we have Tracy Osborn. She is @tracymakes at Twitter, the program director for TinySeed. Welcome back to the show.
Tracy: Happy to be here.
Rob: Excited to dive into some fun bootstrapper news here today. And Einar Vollset, you’re joining us again as well.
Einar: Thanks for having me.
Rob: Absolutely. To kick us off, I have two fun questions that I’m going to dive into, but before I do that, do you know how I send an outline in advance so that you can prepare? These questions are not in the outline. Do you know the outline I slacked you this morning?
Tracy: I was waiting for him to say that.
Rob: This is going to be a wild ride, people, so buckle up. Tracy Osborne, we at TinySeed, are opening applications for the next couple of batches. When is that happening?
Tracy: That’s going to happen on September 12th. We’re opening applications for both of our accelerator programs, that is TinySeed America serving everything on this side of the timezone, Canada, the US, and all the way down to South America. Then we have TinySeed Europe which serves Europe, the Middle East, and then Africa.
Applications will be opening for two weeks on September 12th for both accelerators. It’s one application. You can choose which to apply for or if you’re not sure if you are in a different location, say Australia, and you’re not sure which is the right one for you, you can also choose that option as well. We’re very excited to get this rolling. This is going to be for our Fall 2022 batch that is starting in November.
Rob: Excellent. With that, I need to find out, Einar Vollset, is it GIF or GIF?
Einar: It’s a GIF, of course, it is.
Rob: Ah, hard G.
Tracy: We’re not talking peanut butter here.
Rob: We all agree. This is not good radio. One of us has to hold on to the GIF.
Tracy: Everyone has to agree because that’s the way it goes.
Rob: Send your hate mail to questions@startupsfortherestofus. ProfitWell sold for north of $200 million actually. We remember the number as $200 million, but if you look at all the articles, it says more than $200 million and some more than that. A bootstrap company, some services, a lot of SaaS, $200 million exit/merger. I know when I interviewed Patrick on the show a few weeks ago, he interchanged it because they got quite a bit of stock and everything. Einar, what’s your read on this acquisition?
Einar: I’m stoked, not just stocked for Patrick. Patrick is a good dude. I’m super happy for him. Whether a merger or acquisition or however you want to call it. It just once again puts down this notion that somehow bootstrap businesses or mostly bootstrap businesses can only be small, tiny inconsequential things. If you look at income, I still don’t know how much cash he got versus how much stock is in the joint entity, which is probably where the merger/acquisition bifurcation comes from.
Rob: Approximately 50-50. I asked him on the show.
Einar: Okay, he’ll probably get a great outcome if they do an IPO on top of that, but if it was all cash, if it had been, it wouldn’t surprise me if that outcome for someone like Patrick would have been better than your standard VC success IPO billion dollar exit because there’s just no dilution.
As an early-stage investor like we are, you know that if people start raising a lot of money and going that path, as you keep pilling money in, you’re going to get diluted, and obviously that’s what happens to the founders themselves because they don’t have a way to put more money in. They’re just getting diluted for every round.
I’m super stoked. It’s so nice to see more of these types of successes because every time I talk about this, I talk about MailChimp, and sometimes that’s almost such an outlier outcome that people think it’s just a once-in-a-lifetime you can’t draw any inferences from it. The fact that you’re seeing outcomes like Patrick had just opens people’s eyes to it and it’s a great thing all around.
I actually think it happens much more than people know. We did the article on the depth of the software iceberg a year or two ago, and again, that speaks to I guess someone with less social media reach than Patrick, this thing could happen without anyone noticing. He wouldn’t have made any news, he wouldn’t have done anything. It’s just a great outcome for Patrick and the team, so I’m stoked for him.
Rob: Me as well because it’s a big piece of the TinySeed thesis. The thesis of TinySeed doesn’t work unless some bootstrappers can grow their companies and be ambitious with it. Awesome.
Let’s dig into our next story, which is watching an acquirer ruin your company. We will link all these up in the show notes. This is on the Kelsus blog. Yes, it’s an interesting story because it’s essentially an acquisition. It’s a development firm that helped out with software piece and then they did a hardware component that they essentially kick-started. Then someone acquired it and ran into the ground, basically.
You can read the whole piece if you’re interested. There’s a section called the rug pull at the end where they talk about the new acquirer basically shutting it down. With that, Tracy, I’m curious to hear your thoughts.
Tracy: I want to be sympathetic to the founder because this is a common story, something I’ve heard from a lot of folks who’ve been acquired, who then watch their baby that they grew from infancy to a place where it can be acquired. Going off to a new parent. The new parent making decisions that they didn’t plan, didn’t expect, or don’t think are the right decisions. The product suffers and then the parent company shuts it down.
I feel like that’s a very common story that I’ve heard in a lot of places. I have empathy for the founders going through that situation, but when you make the choice to be acquired as a founder, you are giving away the ability to make decisions afterward.
Again, empathy. It sucks to watch people make decisions that you don’t think are the right decisions, but you made that choice in exchange for either some acquisition money or maybe just to have that little check mark on your resume saying that you have taken a company to acquire, you sold it, and then you can have (theoretically) an easier time doing your next startup or at least having that win on your resume.
You do that in exchange for not being able to make the decisions anymore and therefore what happens afterward, you want to see things succeed as a parent company, but it’s up to the parent company, the acquirer, to do with what they bought, and it sucks to see that.
Rob: How about you, Einar?
Einar: I wanted to be sympathetic to this and I’ve seen both sides of the coin here in terms of post-acquisition things going really well and post-acquisition things going terribly badly. It’s actually not uncommon in acquisitions that people assume that a lot of the time you do an acquisition, you get a bunch of cash, you walk away and bada-boom. But a lot of the time, you end up with some equity in the acquiring company, or the new entity, or whatever, and your success from there is dependent upon how that goes.
I’ve seen people have an exit and then three or five years later have another exit that’s five times larger. It can definitely go both ways.
I actually think with this thing, I’m a little bit more sympathetic to the acquirer than perhaps the writer of this piece just because it’s one of those things, like the parable with the elephant where it’s like five blind dudes touch an elephant, trying to describe what it is.
In this particular case, they raised a reasonable size kickstarter, but not like tens and tens of millions. It was like $188,000, which for an advanced native iOS and Android app, almost isn’t enough money just to build the apps out, let alone do the hardware production. There is still a fair amount of risk for the acquiring company.
A lot of the time there’s this notion with founders at least—and I know this wasn’t the founder writing the piece—that if they get to the level of success where they can get acquired, then it’s really just an operational thing after that. It’s just priorities and they […] it up somehow because of some internal malign big company issues. It definitely would have succeeded if it just kept going. I’m so sad I sold it.
A lot of the time there’s a fair amount of risk that the acquirer is taking that the founders of the sellers just don’t see. In this case, after the acquisition, they end up getting a distribution deal through Apple, which is a huge thing. Do I think that this company could have done that by themselves? Probably not.
The alternate universe is one where this company just fizzled out six months later, and that was the end of it. It’s often portrayed like it was guaranteed success. They just had to do the right thing and because of incompetence or because they’re a big company, they screwed it up. I just don’t buy that a lot of the time. It just doesn’t make any sense.
Even if they did, in some cases, there’s an allusion to another acquisition that became a higher priority. Well, that’s the nature of business. In some cases, you have to make hard calls. It’s like, okay, if this one acquisition turned out to be something that they didn’t quite go as quickly as they hoped or they found another thing that was a much higher leverage thing, it was the right thing to shut down the smaller thing and focus on the bigger opportunity. That’s the difficult decision you do need to make in business. I guess I’m not particularly sympathetic to this story, although I know it’s frustrating to see it for sure.
Tracy: You can have your cake and eat it too.
Rob: Sell it and then keep control. There’s a good quote from Tim Cook, paraphrasing, but he says, there will always be more really good ideas than we can ever pursue and that’s piggyback on what you said, Einar.
I used to love to use that at Drip, both before acquisition and after the acquisition, because people would suggest feature requests. Especially after the acquisition. We’re a 125-person team. Salespeople would come, marketing, like hey, you should build this, you should build that. I’m like we’re not going to build that. People would almost be insulted, like what? But it’s a great idea. There will always be more great ideas than we can possibly implement. That’s what you’re saying. It’s prioritization.
As someone who has sold several companies and had most of them, frankly, shut down or run into the ground afterward. Drip is the exception, but HitTail doesn’t exist anymore. There were three or four smaller deals that I sold, and those are floundering around. There are certain ones that people tried to autopilot and got nuked, but then having sold Drip and seeing things like, hey, the whole color palette is redesigned, the entire UI is now different and has a side nav, and I don’t like that at all, and there was the pricing changed three years ago.
There’s just all this stuff they’ve done that I would not have done or would have done very differently. You know what? I still use Drip. I still like the tool. I let it go the day that I sold it. I still worked on it for a while after that, but I was under no delusion that somehow I still had control of it after I let it go.
You signed the docs. The money needs to be worth it, is what I’ll say. The money needs to be worth it such that you walk away. Or if you don’t walk away, that it’s worth just writing it off mentally.
Einar: I think the money is going to be worth it. A lot of the time also, what else are you going to be working on if not this? Is the money good enough? In some cases, people sell too early because they’re like oh, I’m just so bored of this successful thing and I can just easily start another successful thing.
I see a lot of the time people selling, particularly if they sell pretty early so they can’t retire on the money really, end up thinking oh, I was successful. I’ll just be successful again. Then they try again and luck does play in and things that are outside of your control. I do think that happens a fair amount of time.
Rob: On a recent episode, I was talking with Ruben Gamez and talking about how the second time, third time, fourth time, it’s a little easier, but it’s not as easy as it should be, as you think it’s going to be. There’s still that massive uphill getting to the MVP, spending 6 to 12 to 18 months finding product/market fit where it’s like, wait a minute, I should know how to do this. Shouldn’t I be able to just have product/market fit right from day one? And you won’t.
We watched David Cancel. We watched Heathen Shaw. We watched all the founders who are four-, five-, and six-time founders still take years, pivot, and grind it in order to get to a place where they have another successful business. I definitely think you have a leg up, but it’s not nearly as much as one would think.
Einar: It happens even on pretty high profile folks with lots, almost what I would call unlimited resources. Just thinking about the Twitter co-founders. Several of them have tried things that just should work, but it just doesn’t. They shut it down. It was just like this is not going to work.
Rob: Our next story is called the spreadsheet mentality sucks and kills the efficacy of jobs. This is posted on Medium and the hypothesis is.
Rob: Hold your comments.
Einar: Okay, good. Is it Google? Is it Google Spreadsheet?
Rob: That’s true. It’s only the Google Sheets mentality. He basically defines spreadsheet mentality, which is just an interesting term. I’m not quite sure why that term is used, but whatever, it’s that what gets measured, gets managed.
Tracy: Qualified stuff versus quantified.
Rob: Yes, Quantity versus quality.
Tracy: It’s the stuff that you’re going to measure versus stuff you can’t measure.
Rob: Basically saying that if you lean too far into that, that there are these soft skills and soft interactions and all types of stuff that you can’t measure in a spreadsheet that is important, which, I agree with. In software development, you can’t rank developers. If I had ten developers working on a project, I’m not going to say, oh, this one fixed more bugs. This person wrote more lines of code today. It’s not quantifiable.
It’s only quantifiable in a softer way of, I know who’s shipping a lot of stuff and I know who doesn’t have very many bugs. There are many roles where this applies. I guess I haven’t worked at a company that went so far overboard in this direction that I feel like this article is necessary. Is it a straw man? Is this a straw man argument where it’s just, hey, look, there are MBAs doing things. I’ll throw it to you first, Tracy, what’s your take on this piece?
Tracy: I’ll have to admit that I’ve never worked at a company larger than, I guess technically larger than TinySeed for about three months, that one does not count. I’ve always been a small company person, but I can see this mentality where people at small companies look at people at large companies and are like, oh man, look at all those middle managers that are just trying to be like, was it OKRs? Just trying to create something they can track from quarter to quarter so that they have hard data on whether things are working or not and then it doesn’t work because you’re talking about people processes and hiring and “soft skills” and whatnot.
I can see where the struggle is because I know as a manager, I think about this at TinySeed where I’m working with Alex and there’s a part of me that’s like wow, I really wish there was a way that I can know definitively every quarter if I’m doing a good job. I can see the temptation to be like, all right, I’m going to figure out something I can track, and I can take that thing that I track and I’m going to track it over time, and then I will definitely know.
That’s the thing, this spreadsheet mentality is that there are a lot of parts that come into that process. I guess they’re warning against that, but I also think that’s logical that you know that’s not the way to go, I guess.
What I’m trying to say is I can see the larger picture of what this person is talking about, but I agree with you that at larger companies. I don’t think it’s like everyone is working off the spreadsheets. Like your Facebook, you’re not going to have a certain manager just working off spreadsheets, and that’s the only way to manage the entire company. There are going to be a lot of inefficiencies and a lot of people process, but it makes for a good article. It makes for a very strong argument, makes for something that’s clickable, so could be a straw man.
Rob: The title is clickable. Yes. I do like that there’s one bullet towards the end of the article as he’s concluding and he says, whenever we encounter something we can’t track immediately within Excel, we need to think to ourselves, could this still be important? I like that sentiment, but I guess intuitively, that’s just how I run businesses, anyway.
I use Excel for budgeting and I use Excel for tracking our subscriber list growth and our YouTube follower growth. There are a bunch of other crap that’s not in that Excel spreadsheet. I guess since I maybe do the opposite of this, naturally, I’m having trouble understanding the point of it. What do you think, Einar?
Einar: I agreed, despite being a big fan of Excel.
Tracy: Big fan of spreadsheets over here.
Einar: Except Google Sheets. Yeah, Excel specifically. Again, it’s one of those things where it’s similar to the other story. It’s easy to criticize when you haven’t been on the inside. It’s easy to say oh, these big companies are doing it wrong.
My one objection to the whole article was it’s not really what is the alternative here. Just pay attention to the things that aren’t trackable? Sure, but a lot of people do that or at least try to do it. It would have been a stronger story if it was with something novel or something structured or something that allowed you to actually track the things that he’s claiming aren’t being tracked or at least put it to the forefront.
Rob: It is interesting the way you say that because these types of articles is actually well-written and well-reasoned. We’re critiquing it, but it’s a good piece, and people should read it. But this type of stuff has been coming out for what, 15-plus years, since Dig, Hacker News, Reddit and all these things started back in the day. I do find that the more of these pieces I read about anything that’s critiquing something, is I’m always like, okay, so what’s your solution then?
You can critique all you want but, (a) have you been in their shoes or are you just criticizing from the stands? Are you back seat driving? And (b) so what’s the solution? He does offer some stuff at the end that’s a little vague, but it’s not like a whole new idea and thought process.
Tracy: There are things that are coming out or things that have been around for a while that help quantify qualitative processes. For employee engagement, there are quite a few tools out there that paying your employees, asking them how things are going, allows you to track moods over time or how folks are doing in general. You can have a way of tracking how happy your employees are.
For the hiring process, surely there are ways that you can quantify that by spreadsheet it. Quantify the hiring process in terms of how we’re coming through the door and then how fast things are being moved from stage to stage and the success rate of employees that are hired.
All these things are qualitative processes, but they can have a quantitative element to them. There are tools out there that do those things. Maybe it’s not just assigning a number on a spreadsheet and forgetting about it, but there are ways to make sure you have something to track the success of these processes.
Einar: And there’s even a TinySeed portfolio company, Suggestion Ox, that allows you to do anonymous feedback.
Tracy: I know, I was leaning towards that. Anonymous feedback from, is it just employees, or is it everyone? I can’t remember.
Einar: It could be anyone, but it’s mostly set up for employees.
Tracy: That’s what I thought.
Rob: Yeah, and as I’m thinking about it, I guess I did work for one manager who was definitely way further in the track everything KPI, OKR camp. Very MBA. I was just like, woof. But he also cared about people. Maybe a fun 50-50 on those, he’s like 80-20 where he wanted more metrics.
Tracy: Does it show a lack of confidence? I wonder if they can’t effectively promote what they’re doing so it’s easier to go to their own managers by having definitive numbers. It’s easier to tell a story of numbers than just being like, yeah, everything I’m doing is great.
Rob: I could see that. That an inexperienced manager or someone who maybe doesn’t fully understand their role. If I come in as a general manager, let’s say I’m a GM, which is someone who doesn’t understand the details of something. I could get hired to be a GM of a tabletop gaming company without ever having played a tabletop game or written one. I could become a GM of a SaaS company without really knowing SAAS metrics. That happens.
In that case, what else do you have to manage? It’s numbers. That’s probably where it’s either lack of experience or just a lack of intimate knowledge of the business, the business type, how it works, and how it should work that could lead you to rely too much on numbers and wanting to quantify everything. Spreadsheet mentality, people. It’s out there. Beware. Don’t fall into that trap.
Tracy: I like this article. I talk about design a lot and a lot of people struggle with design because it’s so qualitative. I actually do recommend folks to find something quantitative to track when they’re making design changes. Rather than just changing in color and thinking, oh, that looks better, to tie it to something like click-through rates on a certain button and whether there’s a benefit. I guess I’m like a pro-spreadsheet.
Rob: You are part of the problem. Yeah, it’s interesting. I don’t want to keep going on this for too long, but I do think that you can also go in the other direction where you do everything by gut.
There have been times in my life, especially early on, where I was trying to issue all of that because I was a developer at a credit card company, and, yes, there were too many numbers around, so when I went solo, I was like, I’m not doing any of that stuff. You can make the mistake in the other direction, too.
Tracy: Oh, my God. You just gave me a flashback from my previous startup, in which I didn’t track anything, and that’s one of the biggest mistakes I had because I just went off the gut feeling that everything was going okay and that the conference talks about how everything was doing okay, like at MicroConf.
Rob: Until Google decided it wasn’t.
Einar: That’s the nice thing about if you’re starting a bootstrapped startup. There is a number every month that tells you roughly how you’re doing, and it’s MRR. We did a lot of investor updates and in some cases, I keep reading this is the most amazing thing ever. That’s great and it’s great, but you didn’t add any MRR. Why not? You clearly need to focus a little bit on that because otherwise you’re screwed.
Rob: Yes, that’s the North Star metric. All right, the next piece is from entrepreneurshandbook.co, and the title is If You Can’t Buy It Twice, Don’t Buy It, And other practical money business advice. Basically, he talks about a $4000 TV. If you’ve saved up $4000, don’t buy the TV. If you can’t buy the TV twice, you probably can’t afford it in the first place, and he sucks.
Einar: First of all, where are you getting $4000 TVs from? Is this 1995? $4000 for a TV? They’re like $200 at Costco. Come on. At $4000, you can get 50 of them.
Rob: Yeah, you can get a 60-something inch TV for $1000.
Tracy: Isn’t that the point of the article? If there’s a $4000 TV that’s out there and if you can’t buy two of them, you might as well go to Costco and get the $1000 TV.
Rob: Today’s role of Hacker News commenter is played by Einar Vollset because he’s picking apart something completely irrelevant to the point. Every time one of these makes it to the front, there’s always someone quoting a sentence that’s so not relevant to anything. What are you doing?
Anyway, yeah, he says can’t buy it twice. Treat yourself, don’t trick yourself. Do you actually need top-of-the-line? Which, yes, of course, I do. Tracy, what’s your take on this whole piece? I thought it was neat food for thought, just a different mental model. What do you think?
Tracy: You’re laughing because I was nodding vigorously. Of course, I need top-of-the-line. That is absolutely the trap I fall into all the time. Why can’t I get the best thing ever for this new hobby? I’m just going to get all the top things for my hobby.
Rob: The $2000 espresso machine rather than the $200 one.
Tracy: Oh, talk to me about my copper jamming pot. I’m trying to jump into jamming and I bought a fancy pot from France, so I can do jamming. I could just use my own pots.
Tracy: Jamming, yes.
Einar: Oh, you make jam?
Einar: I see. Okay.
Tracy: She’s going to become a fish cover band.
Einar: I was like, jamming like this? I was like why do you need a pot from France? It doesn’t make any sense.
Tracy: On top of things. When it comes to things that are money matters, I guess rules of thumb are really easy. Rules of thumb are a good way to keep people on a budget if you don’t have other ways of tracking how your budget is going per month.
It’s a nice easy to remember thing where you can look at your bank account and you can look at what you want to buy and you can just think to yourself, can I buy two of these? Then if it’s a yes or no, you can go forward with it. It’s definitely a good rule of thumb.
It’s one of those things, like in every article, where it’s like it’s going very strongly in one direction. Then, of course, we can think of a thousand exceptions to the rule that things that do make sense to pay a high budget for something you might not necessarily buy twice, but maybe it lasts longer than the other thing. Therefore, it makes more sense.
There are a lot of exceptions to that rule. It’s something you can keep in mind without holding strongly to it, which does make it a good piece of advice for budgeting.
Rob: Einar, you strike me as someone who has a very tight budget and counts every penny each month as you send it. Tell us what you think about a rule of thumb for this stuff.
Einar: A rule of thumb is fine. I’d actually rather make more of a point. Tracey is right. You can make a point either way here. Is it worth spending more money on a higher-quality item if it’s something that you’re going to do?
I particularly like this notion of, is it an asset or is it a liability. Somebody early in my life, I forgot exactly who it was, told me basically don’t borrow money for something that depreciates, a liability, like a car versus it’s fine to borrow money for something that appreciates, like a house. all these are fine and if you need this advice, you need this advice.
I’m more interested in the meta-commentary around this like it’s such of its time. Everyone is convinced there’s a recession coming. Almost as a society, we’re talking ourselves into a recession because everyone is reading articles like this and thinking, how do I cut spending? Fire early? All that stuff.
That’s the more interesting point. I don’t think we would have seen an article like this time last year or at least it wouldn’t have surfaced or been something that resonated enough to be discussed.
That’s the most interesting thing actually around. I see a lot more of these now like how do you cut spending on this? Maybe do that, do the cheaper thing, don’t spend, extend your runway. I give that advice to a lot of our founders. I think it’s right. I do think it’s easy for us to talk ourselves into a recession that way because it becomes a self-fulfilling prophecy.
Tracy: The article would have been out beforehand because I also feel there’s an element of being judgmental because folks looking at people buying a $4000 TV, and they’re like why would you do that? Just buy the $1000 one from Costco.
Putting out these rules of thumb, I feel like it works for business, too, where you can see a business spending a lot of money on certain so and so and it’s easy to be like, man, there’s this rule of thumb why don’t you follow this? But you don’t actually see what’s going into that thought process. What is the decision-making behind it? Maybe there’s a larger decision-making process behind the purchase. It could be popular right now because of the recession but I feel like this mentality has been around for a long time.
Rob: I like the way he breaks it down, too, is it thinking about each of these as an individual and as a business? That’s kind of cool. I don’t see a lot of articles doing that. Normally it’s either personal finance.
Tracy: I did like the business side of things because it’s easy when maybe you got a chunk of money, maybe you did raise some VC. All of a sudden you have some money burning your pocket and you want to spend it on a bunch of things. I guess, in that case, you can buy a bunch of things because you have that ability to pay for something twice. Maybe that’s a good point.
Rob: That’s the thing. There has to be an additional rule because let’s say you have $100,000 in your personal bank account. You can buy a lot of things twice. Should you? Probably not. There has to be more. He gets into it a little bit, and I don’t expect that’s a personal finance book at that point. It’s like decision-making of what you should and shouldn’t buy.
What I find that’s interesting is I grew up with not a lot of money, so I have always been super penny-pinching. I had to undo that, especially after selling Drip. Sherry kept saying you may need to fly something more than a coach at some point and you may need to just not sit and debate whether you should get the guacamole on your burrito at Chipotle. It’s $2. You need to just get this. So I do, I get the guacamole every time now.
Then there was this point where if something is under $50 or $100 on Amazon and I’m like,oh, I might need this XYZ adapter, I might need this thing. I just bought it now because sitting there for ten minutes and thinking about it is not worth the time.
The problem that I found is I now have a bunch of crap sitting around. When you’re buying physical things, about every 6–12 months I have to give away, or sell, or donate stuff that I bought impulsively that monetarily doesn’t make a difference in our lives.
Tracy: Can we talk about my jamming pot again? I am starting a new hobby.
Einar: How much was this jamming pot exactly?
Tracy: It was like $150 from France that was shipped to Canada. That’s exactly what you just said. I start a new hobby and then I look at what I can do to support this hobby. I also have a ukulele I’ve played about ten times. I liked the nice ukulele instead of the not-so-nice ukulele.
This is funny. Rob, you mentioned that you grew up poor because I also grew up poor, but I had a different reaction than you, which is fine. Everyone’s different. For me, there’s this habit where I want to go for the more expensive things. I remember not having those expensive things.
I remember not being able to afford occasionally treating myself to premium economy or business class, so I crave it. I lean towards it, even though I’m not as high income to support that all the time, but I’m just constantly clawing towards it because I feel like I never want to go back to where I was before.
That’s an interesting point and that shows up when hobbies happen, where I’m just like I’m just going to buy all the really good things, and then I have to get rid of the good things when it turns out the hobby didn’t stick.
Rob: That comes into personality. It’s like the nature and nurture. There’s a money mindset quiz or this test. I don’t remember if that’s exactly what it’s called, but I remember my kids and I read a book because I’ve been teaching them since they were little about money, how it works, and how to basically be mature with it and we all took this test.
Sherry and I took it as well. It was interesting to see across the kids that some of them are flippant with their money. They get an allowance and they spend it. That totally showed up in this quiz. It was based on a book. I’m going to have to look it up and see if I can link it up because I have no memory of what it was called. It was like a kid’s guide to money and finance or personal finance, and then there was a quiz attached to it.
Sure enough, Sherry and I both were savers. I was entrepreneurial and a saver, which totally makes sense. Cheap, but I want to start my own company. It’s like, hey, that describes me to the T. She was like a saver plus conservative almost. There was some additional thing because she grew up also without a lot of money, even more so than me. It really did translate well.
Tracy: it’s interesting to know those things about yourself just to introspect a little bit in terms of how you’re spending habits can compare to someone else’s spending habits, and then you can use that awareness in both your personal life and in your business life because that’s also something that probably bled through into my previous startup the the way that I don’t want to be cheap. I probably had more of a tendency to pay for things that I shouldn’t have paid for because of that mentality and just having awareness is like the first step to combating it.
Rob: I agree. There’s the Kolbe A, there’s the Enneagram, there is StrengthFinder, there is Myers-Briggs, and some true research psychologists thumb their nose at some of these because they’re pop. But I like them. I read them and sometimes I’m like, that really is exactly who I am. You’ve done a great job of describing me and then it’ll be like here’s your blind spots and here’s what you should do.
A lot of being a successful founder is knowing yourself, knowing your tendencies, and then fighting against them. Some people want to launch a product and they just want it to work and they’re never actually going to push forward, pivot, and make the hard decisions to get there.
Einar: Maybe we should have this Enneagram or one of these tests that you’ve been taking as the TinySeed filter.
Tracy: For a part of the application process?
Einar: Yeah, please do a personality test here.
Tracy: I feel like there will be maybe a difference between the folks that are accepted versus the ones that are, or maybe the folks who are good fits versus people who are not good fits. It’d be funny to see if there was a distinct line between the enneagram or something like that.
Rob: Personality? I think it depends. That’s the thing. I was recording a YouTube video for the MicroConf channel the other day, and it was like things investors look for in founders and companies. Part of it is, of course, the founders. There’s something about the personality, but I’ve invested in successful founders who are totally driven, like a Jordan Gal who’s just hungry and will succeed at all costs. Not at all costs, but he’s just very driven to do it.
Then there are folks who are super pretty chill, but they still get it done and they’re not in a big hurry and are more patient, but they do. The commonality are things that we’ve talked about before, which is like, but are they shipping things relatively quickly? Are they working on generally the right things? Are they making some mistakes?
Most of what they do works, 60%–70% of what they try works versus the opposite where it’s like there could be like the victim mentality of like, oh, all these outside things are making it so I can’t succeed.
Tracy: It was interesting because I’m reading a survival book. It’s for wilderness survival so people are on shipwrecks and on top of mountains.
Einar: How bad are things getting in Toronto?
Tracy: You know me, I do backpacking. This stuff is right up my interest. One of the things it talked about for survival in these situations is to, one of the most important things, somehow have a good attitude. It’s impossible because there’s a case of people on a boat that are shipwrecked and slowly people are dying on this boat. There are two people left and they have to deal with this trauma going on. That’s the only way to keep your brain healthy in those kinds of super traumatic is to try to take joy in little things. That’s the only way you can protect your brain from just giving up.
It applies for business as well. You’re going to go through some really tough points in business and to have that survival mentality of rolling at the punches, noticing the good things, and celebrating the little wins, can lead to at least better mental health as the company is growing. That better mental health also is going to hopefully lead to a stronger company.
Rob: It’s the idea of having a grip on reality, or not even a grip, but it’s having a realistic view of what’s happening. Have you heard of the Stockdale paradox? it was mentioned in Good to Gray. James Stockdale was a former vice presidential candidate, but he was a prisoner of war in Vietnam.
He said, essentially, you need to balance realism with optimism, which is exactly what you said, Tracy. He said we were POWs and people who are like, we’re going to be out by Christmas, we’re going to be out by Christmas, we’re going to be out by Christmas have not enough realism, too much optimism, and they would inevitably die.
He said he lost a bunch of people who thought they were going to be out in three months. And then the people who said, we’re never going to get out, they didn’t have enough optimism, a little too much realism. He said you had to balance this thing about. This is our present situation, but let’s figure out how to make it better, and let’s figure out how to live with this long term until essentially we get rescued or whatever. We can break out of here.
Tracy: Or at least be able to look at your current situation and still have the mental fortitude to find something amusing or find some piece of joy. Maybe you tripped on a red rock and you find that funny, and you start laughing a little bit. That help protects your brain if you can try to find those little moments in the hard parts rather than going straight into despair.
Rob: Yes, and as a founder, what is it? Some realism and some optimism. We’re not just talking about TinySeed founders here, founders in MicroConf, founders wherever that we met. The ones that are just a lot too optimistic and don’t have that reality check are usually the ones that are working on the wrong things. Someone who is a little too realistic and is pessimistic about it, although some of those succeed, sure don’t enjoy it along the way. That’s the difference, too.
Einar: I think people who are too optimistic are more likely to succeed than people who are too pessimistic. I feel like some founders, and I don’t think this applies to any TinySeed founders that come to mind, they would starve to death on the beach around the bend from a world-class resort because it’s too risky to walk around. That’s probably the case.
Rob: And on that cheery note…
Tracy: It’s a good final conclusion.
Rob: Beach resort is a picture in my head, not the person starving to death around the corner. With that amazing picture in mind, Tracy Osborn, you are @tracymakes on Twitter, and you will be going through applications for TinySeed batches and the next batches.
Tracy: My DMs are open. DMs on the TinySeed funds, Twitter account, as well as my personal account are open. If you have any questions, call or email us at email@example.com. We love any and all questions whether you think you’re a good fit or have a question about the application process, feel free to reach out. We’ll get back to you.
Rob: And Einar, you are @einarvollset on Twitter.
Einar: Indeed I am, and most of the time it’s me complaining about how bad the Giants are this year.
Tracy: Following in Einar is a fun process.
Rob: It’s an experience. If you’re listening and we’re not connected on Twitter, I’m at @robwalling. Thanks to you two for joining me this week.
Einar: Thank you.
Tracy: Happy to be here. It was fun.
Rob: Thanks again so much for joining me this week. I hope you enjoyed that episode. We’ll have another news roundup coming at you here in the next couple of months. It’s Rob Walling signing off from episode 617.
In episode 616, Rob Walling chats with Liam Martin, the co-founder of Time Doctor and author of the new book, “Running Remote: Master the Lessons from the World’s Most Successful Remote Work Pioneers.” We dig into the fundamentals of asynchronous communication, how to do remote work better, and some surprises they saw during the pandemic.
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Topics we cover:
[2:46] What Liam has learned running Time Doctor for the past 12 years
[6:23] Can extroverts thrive long-term in a remote work environment?
[11:14] Liam’s approach to metrics and KPIs for engineering teams
[18:23] Why remote companies that move faster collaborate less
[21:31] How far can you take async communication in a remote team
[24:29] Combating isolation on remote teams
Links from the Show:
- Liam Martin (@LiamRemote) I Twitter
- Running Remote Book
- Time Doctor
- Deep Work: Rules for Focused Success in a Distracted World
- MicroConf Youtube Channel
Rob: Welcome back to Startups For the Rest of Us. I’m your host, Rob Walling. Today, I talk with Liam Martin, the author of Running Remote: Master the Lessons from the World’s Most Successful Remote Work Pioneers.
In this episode, we don’t dig into the basics of remote work or try to convince you about the benefits of it. This is not a podcast for Fortune 500 managers. It’s a podcast for bootstrapped and mostly bootstrapped SaaS founders who want to build amazing companies.
If you’re listening to this, you probably already know the value of remote work. You’ve likely been doing it yourself for years, or at least, if you have a company that has set it up that way because as bootstrapped and mostly bootstrapped founders, that’s just something we have to do.
Oftentimes, we can’t afford an office or we can’t afford to hire in our local cities, because we don’t have the money to do it. Liam and I really dig in to not the fundamentals of remote work, we talk about asynchronous communication, we talked about how to do remote work better, some surprises that we saw during Covid. It’s a good conversation.
Before we dive in, I want to let you know, we have 930 worldwide ratings, and I want to get to 1000. This is in Apple Podcasts, specifically. Most recently, dwill3x left a review that says, “Wish I had found this podcast earlier. It’s so practical and relatable as a bootstrapped entrepreneur. I find it not only helpful tactically, but it’s also great to feel part of a community of people going through the same things that you are.”
Join dwill3x and leave a review. In fact, you don’t even have to type all that. You can just go in, hit the five-star rating. I would love to put 70 more on the docket in Apple Podcasts for Startups For the Rest of Us and hit 1000 ratings. There are so few shows with the reach that we have that are at 1000 ratings, and I would love to get there.
What else is incredible is these ratings are across 50 countries, I was surprised when I saw that. Thank you so much if you can deal with a crappy Apple interface and hit five stars. With that, let’s dive into my conversation with Liam Martin.
Liam Martin, thanks so much for joining me on the show.
Liam: Thanks for having me. I am so excited to be able to actually go deep on async for once, because I’ve done about 450 of these things as I think I’ve seen based off of my assistant telling me. You’re one of the first people that in those pre-questions that you had for me, they’re exciting questions. I’m ready to get into it.
Rob: We don’t need to convince our audience that remote work is a thing. We don’t need to convince them that it can be done, that it can be done successfully, because frankly, most of the audience are either already doing it or they want to be doing it. That’s why I wanted to dive into your book. It’s called Running Remote. It came out today and it’s available on Amazon, Audible, and runningremotebook.com if folks want to check it out.
Before we dive into that, you have a ton of experience running your own remote company. You’ve been running Time Doctor (timedoctor.com) for 12 years with a co-founder. It’s a SaaS app, time tracking. Do you want to give folks an idea of where that business is at in terms of whatever metrics you’re willing to share?
Liam: We have team members in about 43 different countries. We’re at a nice, reliable, eight-figure run rate, growing pretty reliably. I think we should be floating around 25% growth this year, which is not bad for an eight-figure run rate. Covid-accelerated time-tracking industry in general, so that was also a really nice push back in 2020.
I think we did 195% growth and/or change, which was crazy. It was literally like those big tubes, where they put $20 bills, and it’s like a hurricane that floats around, and you just grab those $20 bills and try to stuff it down your bra. That was the first couple of months of Covid for us, because we just saw such a huge increase of people that were saying, hey, we want to be able to apply to the remote technology stack.
Looking back on that decision, actually, I made a lot of wrong moves at that moment. One of the companies that I respect so much that has absolutely crushed it is Loom, because they very quickly went freemium and they did have a paid product. They recognized the opportunity. They said, we’re going to do something completely free, just use the app as much as you want. Really, the goal at that point was attention for the remote technology stack, not necessarily monetization. Now they’re doing very, very well as a company.
Rob: I didn’t know they didn’t have a free plan before Covid.
Liam: They made a very, very quick pivot. There’s a bunch of other companies that have done a really good job. MURAL is another one that did very well. They implemented a freemium plan very quickly because they realized they needed to be able to communicate that value as quickly as humanly possible to the companies that had no clue how to actually go remote. I call it emergency remote work, and it really was. I was getting phone calls.
I got a phone call from a G20 country that said, hey, we have 540,000 employees, we took them remote yesterday. What should we do next? What’s the plan? And I said, I have no idea. We have like 200 people in our organization. Why don’t you talk to somebody else? And they said, you’re the first guy that picked up the phone. These companies just had no understanding of what to do and I think they still don’t, unfortunately.
Rob: That’s the thing with big orgs. I don’t know that we’ll get into it today because it’s just not super relevant to the audience. Definitely, I have seen remote companies. I personally managed my own companies into the low 10–12 employees. We were mostly remote and that worked fine.
I got acquired and the acquirer was 170. They had an office, but they were remote part of the time. I remember seeing things start to break down at the edges at that size. I was trying to imagine what it’d be like to be Apple or some company with 10,000–20,000 people and trying to still run remotely and have things work.
I think that kicks off my first question. Basecamp is often used… they were early proponents of being remote, but they’re often an exception to a lot of the rules just because they are, because they’ve been around for 18 years. They were early, they grew very slowly and organically.
Frankly, I’ve heard that the employees are a bunch of introverts. The argument against that is that you can’t build a 10,000-, 20,000-, 30,000-person remote company, because can you find that many introverts? What is your take on that? Do you think that extroverts can thrive long-term, even in a 10-person or a 20-person company? Extroverted people who need that face-to-face social interaction, do you think that they can thrive long-term in a remote company?
Liam: It’s a bit of a complicated answer that I want to give you, unfortunately. I’m an ambivert myself. When we look at the psychometric testing as it applies to remote work, introversion is one of the best success factors that leads to longer retention rates through an organization.
Our VP of product lives four blocks away from me. I meet him in person twice a year. He doesn’t want to actually interact with me, and that’s totally fine. He would just happen to be the right person for the job, and he just happened to live four blocks away from me completely as a fluke. But when you look at the way that these organizations are set up, there’s a really interesting moment. You talked about 170 people, that’s past the Dunbar number, which is about the maximum of that is about 150 people.
The Dunbar number is basically just a sociological concept that you can only have 150 people that you know in a deep way. The test is, if you saw them at a restaurant, would you actually go down and sit down with them, or would you just kind of like shyishly wave at them?
Once you get past that number, the metrics really change where unfortunately, regardless of how much you want to have those intimate relationships with your team members, they effectively become numbers. It really boils down to quantitative data as opposed to more qualitative data, which is good or bad.
To me, when you look at these extroverts that are having varying levels of difficulty as it applies to remote work, the answer that I have for them is work from home is not remote work. Work from home is, I’m stuck in my office, there’s a virus outside that may or may not kill me. I’m stuck here with my wife, my husband, my dog, my cat, my kids, and I can’t get out of here.
Remote work means I can be at my home office, I can be in a coworking space, I can even be in a corporate office one or two days a week if I really want to, I can be at a coffee shop, I can work on the beach. I highly suggest you work on the beach. However, I did it once just to say that I can do it, and it cost me $500 to get my keyboard fixed. I got some sand in there.
Outside of that, it’s really allowing these extroverts to be able to get that energy out. I think the biggest misunderstanding of that is that people that work in these organizations that are extroverts have to necessarily interact with co-workers to actually get that energy out. The vast majority of the time, I go to a co-working space because I need to get that energy out, but I actually just interact with people that don’t necessarily connect to my job or don’t work in my organization.
That’s how I get that energy out of me, so I can continue to be productive instead of the organization. It’s just this miscorrelation. I think there’s just all of these assumptions that have been built up in the 20th century on-premise model of work that we need to unfortunately undo for the future of remote work.
Rob: As an introvert myself, I always struggled with working in an office. Of course, that was the standard. I started working as an electrician for a few years, so I was in an office. Then 22 years ago, I guess I started my career as a developer. Man, that makes me feel old. But the office was super distracting, and I started working from home within a year or two after that because there was a dot-com crash, and suddenly, nobody wanted to pay for an office.
That was my dream, it was to work remotely, and it totally made me personally way more productive. I didn’t need to collaborate that much with people because I was often solo running a project. I had a little bit of collaboration, but for the most part, I was writing a lot of code and then once every week or two, I would do an architecture session with somebody. We would just meet up. It’s pre-Zoom and all that, so it wasn’t easy to do.
Something that you talked about in terms of companies being able to track—you said quantitative versus qualitative—you talked about detailed metrics and crystal clear KPIs, which people listening to this know what KPIs are and know what metrics and all that stuff is. If you’re managing a customer support person, email response, so it’s time per response and satisfaction are usually the two metrics you would look at. Usually, it’s not always.
If you’re looking at a customer success person, you’d look at retention rates and churn. If you’re looking at a salesperson, it’s really easy to measure, close rates, retention rates. I’m a developer, so I always found it easy and natural to manage developers and figure out who’s good and who’s not.
Whenever I’ve had more of an integrator or an MBA type ask me about each of these roles, I say, numbers, numbers, numbers, and then we get to developers. They say, how do you measure developers? And I will say, there’s no numbers. You don’t track who fixes the most bugs. You don’t track who committed the most lines of code. These are bull[…] metrics, right?
Liam: In some ways, that’s actually counterintuitive to productivity.
Rob: Yes. I’m curious because you run a software company yourself and you’re remote. How do you guys think about crystal clear metrics and KPIs with the dev teams in particular?
Liam: This is going to be an unfortunate answer. The best indicator that we’ve seen for success as an engineer is flow state focus or what my friend Cal Newport called deep work. Really, Running Remote, the book, is an infusion of deep work at an organizational scale.
Deep work, basically, is having everything at your disposal to be able to solve a very difficult, hard problem, which is essentially what engineers are doing 24/7. The more that you can keep them in that state of deep work, the more they will be able to solve those difficult problems.
The worst thing you can do as an engineer is say, okay, I have everything in front of me, I’m going to get all the information that I need, and I’m going to read through the last four or five pages of code, I know what I’m doing, I’m going to start to write, and then all of a sudden, boom, it’s meeting time. We’ve all got to go into a meeting with 12 other people that don’t want to be there, you’ve got the one MBI guy at the front. I secretly call him Captain America, like the six foot five white guy that looks like Captain America, and he tells you what you’re supposed to do next.
That, generally, is the worst thing that you could possibly do to an engineer. They actually work much more like creative writers. I’ve seen a lot of inspiration, at least, personally for us instead of our organization, looking towards how creative writers write. The first thing that they do is they find themselves a writing nook, a writing nest or a hole that they just kind of go into. They might disappear for 3–4 days and then emerge later.
This concept of a nine to five for an engineer doesn’t really work. What you need to do is say, okay, you’re really excited about solving this particular problem, you have everything at your disposal to be able to do it. Go ahead, let us know when it’s done, and then we can talk about it. That’s how we handle it.
Again, it’s not a perfect science. I think that this is an experiment for us. We’ve been doing it for about a year-and-a-half, but there are a lot of other ways. There are a lot of other organizations that will give you much more quantitative metrics. Up until this point, I haven’t necessarily found one that works. And it sounds like you haven’t either.
Rob: No. I ran my companies very similar to what you’re saying, where I viewed it like a deep work craft where you have to get in the mindset. Frankly, for developers, it was like one recurring meeting a week. That was when we were 20 engineers. When we’re less than eight, we had zero standing meetings, except for one lunch once a week that everybody looks forward to anyway because we got to hang out.
I ran it the same way, where I was a developer and I remember interruptions. I would start work at 9:00 and I have a meeting at 10:00. It meant that in the next hour, I got very little actual coding done because…
Liam: You’re not even psychologically ready to get in, because you’re thinking to yourself, oh, why should I spend the hour preparing to actually think, because you need all of that prep time before you can start to really think and execute on something.
We have something in the company called silent meetings, which is basically we use Asana. You can use any other type of project management system you want, but we write down the issues for our meeting, and then we will respond to those issues in the comments.
If we’ve come to a conclusion, we take the conclusion, we put it at the top of the ticket, and we clear the ticket. If we have less than three tickets before the meeting starts within 24 hours, we automatically cancel the meeting on all our Google Calendars.
Sometimes, people aren’t, honestly. You can see the day before, they’re trying to clear as many tickets as humanly possible to not get the meeting happen, to not have it happen. That’s even a reason right there. They don’t want to sit in the meeting because they want to actually get more work done.
One of the most interesting factors that I found in my research for this book on asynchronous organizations is that the managerial level inside of asynchronous organizations is 50% thinner than their on-premise counterparts. There are more people doing work in async orgs than there are people managing people solving problems inside of asynchronous orgs. That is a massive strategic advantage when you’re thinking about growing your company.
Rob: It’s counterintuitive, because you would imagine, well, if we’re all sitting here in this office, don’t we need less supervision? That’s what the kind of pro being in the office person would say, but you’re saying it’s the opposite than when you’re remote.
Liam: You’re also assuming that work is something that you don’t want to do. If an engineer’s happy place is solving these difficult problems because they truly believe in the company and they’re aligned towards the vision of the organization, our mission statement is we’re trying to empower the world’s transition towards remote work. That’s what heeds into everything that we do as an organization.We try to really reinforce that with every single team member inside of the company. If they’re not interested in doing that, then don’t work here, go work somewhere else.
If you’re not super excited about solving this problem, you’re not aligned towards it, then, yeah, it’s definitely one of those things that I’ve got to have you in the office or I’ve got to make sure that you do your work, but people want to do the work. It kind of just happens on its own.
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In your book, Running Remote, I was reading it yesterday and today. The first section of it, first maybe 25%, is stating the case for remote work. That for me, I kind of skimmed that, because frankly, I already know the case for remote work.
But there were a few interesting things that you did include. One thing was about introverts and then you have counterintuitive async bombs. For folks who haven’t read the book yet—obviously it just came out today so probably most people—you talk a lot about remote work as async. It’s a whole different mindset than being in an office. You can’t just move being in an office work to remote and expect it to work.
One of the counterintuitive async bombs that you mentioned is companies move faster when they collaborate less. I’m sure there are some folks hearing that statement who will bristle at the idea of it. Do you want to flesh that out?
Liam: We specifically wrote that line that way to make people react to that type of statement. It’s not that we don’t collaborate, but we’d collaborate differently. We collaborate asynchronously. Everyone kind of knows what async versus sync is, but the ability to be able to consume information when it is most advantageous to you.
Let’s go back to the engineering example. I really want to sit down and figure out a hard engineering problem. Maybe I’m working on it for six or seven hours. Now I’m exhausted and now I can take that extra surplus time that I have, jump on to Asana, Trello, or JIRA, and start to look at some of these other issues.
Maybe we’re thinking about coming up with a new feature as an example, which we actually use in Basecamp. It’s still the most efficient way to be able to discuss deep product issues over the long-term, because then we can document that process, go back three years and say, why did we choose that feature? Oh, well, it was because of this. It was because Justin was the VP of product. Oh, well, he’s an idiot. We let him go, why are we still doing that?
The reality is that getting into the ability to consume that information when you choose to an on-premise org that wouldn’t necessarily seem like collaboration, but that is collaboration to asynchronous organizations, that’s the real magic power, because I don’t have to necessarily be in a physical meeting room or on a Zoom call in order to be an active participant inside of that conversation.
That’s really the key piece there. There’s an assumption that if you’re not physically there, if you’re not physically synchronous at the time, then you’re not participating. I’m trying to break those down to be able to say, you can participate, you can just participate asynchronously.
Rob: Where does that end? I’m going to ask a question and then I’m going to talk about some of my experiences. You can’t just have zero collaboration. There has to be some. The example I bring up is, with my last SaaS app, Drip, we would do a lot of stuff async.
We had a couple days a week in an office, and that was great. We’d hang out, and water cooler, and go to lunch and everything. Then a ton of remote, async, everybody’s at home just cranking away. But there were times, where we’d have a new feature that was kind of big, kind of hefty, kind of complex.
This is maybe, I would say, once every other week is about when it would come up, where it would be so helpful if the two or three of us could sit in front of a whiteboard, and just hash this out, and draw the diagram. What do you guys think about this? And we would sit there for like an hour. It wasn’t even meetings. It was like, hey, everybody, you guys ready to do this? Yeah, let’s jump in.
We would just sit there, we’re a very engineering-driven org. We’d hash it out, and we would get so much done in such a small amount of time, and architect what would be a pretty complex feature. I believe we’re trying to do that async and others wouldn’t have been as good or would have taken a lot longer.
That, in my experience, is something where collaboration, I think, and real time synchronous collaboration is helpful. Now, in your experience or in your examples that you’ve seen, how far can you take async? Where does collaboration sometimes need to be synchronous?
Liam: It’s interesting because the companies that I interviewed, some of them are fundamentalist, asynchronous organizations. Thou shalt not interact synchronously under any circumstances, whatsoever. I don’t take that stance. I am more on your side of the spectrum. You are much more async than the vast, vast majority of companies that operate today.
A lot of companies that sit down and look at your workflow would think that you’re from Mars. This is one of the other things that I discovered during the book, which was, this is the first time that I ever really interacted with corporate America, because I’ve always been in the tech startup world, and it just blew me away, like, okay, we were sitting here for three hours to talk about whether or not we’re going to get sued by this other person. I’m not a lawyer, why should I be in this call? That type of a thing, which was so confusing to me.
What I would suggest that people do is, effectively just what you did, do as much preparation as humanly possible asynchronously. Can you actually discuss things and get to a point in which asynchronous communication breaks down? Generally, this floats around disagreements. More importantly, this actually breaks down around the more emotional side of disagreements.
Going back to the silent meetings example, the only tickets that stick up in our issues list, unfortunately, week after week, is Rob has got a problem with Liam, because Rob thinks that Liam is encroaching on his authority for this particular department, and we need to be able to hash it out.
I talk a lot about how managers should really be reserving all of their energy, not for just communicating metrics from one person to the next, which asynchronous organizations do automatically, because the platform is really the manager. Instead, focus on the EQ issues. Okay, well, why do you have a problem with Liam, Rob? How can we break that down? How can we discuss it? By the way, that sounded super weird, because my business partner is named Rob.
Rob: That’s what I was going to point out to people. Not me, Rob, yeah.
Liam: Yeah, you get what I mean. The concept is to make sure that you’re using your synchronous energy as efficiently as possible. Because asynchronous organizations, they have a sunk cost inside asynchronous work. Everyone takes 90 minutes, they drive into one particular place, and then it’s a synchronous collaboration buffet. They can collaborate as much as they want because they’ve already paid that cost.
Asynchronous organizations or people that work remotely, pay that cost every single time that they meet, because it doesn’t cost you that much time to be able to flip on your Zoom call and do a collaboration on MURAL or something like that. We recognize that we can keep those times as short as humanly possible to really figure out what’s the minimum effective dose that we need to be able to move forward and build that feature.
Rob: Switching it up briefly, I guess I touched on this a little earlier talking about extraversion, but even introverts can feel isolated. I’ve worked from home for 20 years, give or take, or a couple years in an office, blah, blah, blah. There have been times where I felt isolated, not many, I’m going to be honest. I’m a strong eye on this and you get used to it over time.
I’m not talking about work from home, but talking about remote work where people can go to a coffee shop and they can sometimes meet up with coworkers every six months or every quarter at a retreat or something. Is isolation still a big deal in the conversations you have and in your experience? If it is, as a manager or as a founder, how can you combat this in your own team?
Liam: It is a big deal still, but I think that this was accelerated by the pandemic. I love that the media is using the word work from home, because they can very clearly divide that from remote work. Before the pandemic was remote work, what we had in March of 2020 was work from home, which is, I must stay at home, I cannot interact with anyone else.
I don’t know your experience, Rob. But for me, we stayed in complete lockdown for eight months before we’re able to be led out by our government. That’s psychologically scarring for any individual. I actually think that we’re going to see a massive amount of damage, psychological or otherwise, that’s going to present itself over the next 5 to 10 years from this experience.
You have to kind of divide that from just remote work in itself. But when you’re talking about just trying to be able to get out and interact with people, you brought up some great points. Do a company retreat every year. I would do one major company retreat, and then I would do one departmental retreat per year.
It’s going to not necessarily cost you that much. It’s definitely going to cost you less than an office and people love these. In our organization, we boil it down to three separate cities. We usually try to choose a city that’s a little bit more difficult to be able to get into.
Before the pandemic, we were going to do Bangkok, I believe, which is a very, very difficult place to be able to get into. But people love it, we are all aligned towards it, and more importantly, it’s kind of our end of year, so that we collect everything that we need to be able to finish off that one year and then look towards the future. That’s where a lot of people can get that extroverted energy out of their systems.
Departmental meetings, exactly the same thing. I would parse them out about six months in between each other. Interacting with co-working spaces, really important process for everybody. They’re not that expensive. People can use them now relatively easily. There are coffee shops/coworking spaces that I’ve used recently, where actually, it costs a lot less. They charge you a little bit more for a coffee, but you get to sit in a nicer room, that type of a thing.
There are also just community groups that you can interact with. Find your tribe outside of the office environment. I think this, again, 20th century on premise mindset, which is in North America, arranged marriages are taboo, but we have arranged friendships, which is the people that work inside of these offices were just automatically supposed to be their friends.
I think what we need to be able to look at is social networks dropped off precipitously after university, and they only bounced back up into your 60s. Why? Because that’s when you retire and you’re forced to be able to get out into the social circle again and interact with people. I think a lot of people have honestly just been lazy on their social game. Get out there, talk to your neighbors, talk to your friends, and build that network that’s not necessarily work-focused and you’re going to be much happier.
Rob: You know the interesting thing, I run a startup accelerator for bootstrap SaaS. It’s fully remote. We were the folks. We looked like geniuses when Covid happened, because we were the first ever remote accelerator that we knew existed. I guess we launched in 2018, we raised a fund in 2019, so it’s all pre-Covid.
I would say it’s a little bit of luck, but it’s a little bit of that’s just the way I’ve always run things. There are no cities in the world that have so many bootstrapped SaaS companies that it makes sense to put an accelerator somewhere. I actually said, we’re going to do it in Minnesota, Minneapolis, because I live here. There’s no reason to do that. We said, we’re worldwide anyways.
When we do our MicroConf State of Independent SaaS survey, it’s like 50, 60, 70 different cities are mentioned, versus when you go VC, in the US, there are four cities with 80% or 90% of the venture race. That’s dissipating now. It used to be two cities.
Anyway, when we started this remote accelerator, a big thing we talked about is we need to get these folks together, the companies, the founders. I was like, well, let’s do a quarterly retreat every three months. What we found with our first batch is we got to the third one, people were like, this is too often. It was actually it was literally too often, and I had no idea that that would be the case.
It is about this cadence of about every six months seems to feel right, at least, to our founders. We survey them every time. That has, to date, been kind of the sentiment. Even though, intuitively, I’m an introvert and so I was maybe over indexing and being like, well, people are going to want to get together a lot.
Really, it should be every few months. But people were like, nah, I actually want to be heads down working on my company as much as I liked my fellow batchmates. There’s a very strong community, there are mastermind groups, and there’s all this stuff. It was too frequent, which I found pretty fascinating. That does line up with what you said, like, once or twice a year is not not too bad.
Liam: It’s also cost effective too. I think you have to look at the dollars and cents. One of the things that I haven’t analyzed yet, and I really do think about these things from a quantitative perspective, is team retreats and research for the book, again, I sit down and do these types of nerdy things, looking towards where team retreats really started, it started with Joel Gascoigne with Buffer. That’s really the core of where this trend started.
His blog was an incredibly popular, very popular, remote first organization. That was the concept, which was, we all need to do company retreats every single year. There’s yet to be a good data set that comes out of that saying, here are the quantitative outputs from that investment of half a million dollars, a million dollars as an example, which is what it costs us to be able to run one of these events. We still do it, because we actually see a little bit of a boost in ENPS. That is one of the quantitative data points that we do pull out of it.
Rob: What’s ENPS for folks who don’t know?
Liam: That’s Employee Net Promoter Score, which effectively just measures engagement inside of how much you would refer your company to one of your friends, as an example. That’s really effective because there are so many other data points just like ENPS, so you can compare and contrast yourself.
The other interesting statistic when I ask these companies, what’s your ENPS, the average was 72 and the industry average is 36. They’re almost double what the average ENPS is. The two major reasons why they gave for having such a high ENPS score was autonomy and then also radical transparency inside of the organization.
A lot of asynchronous organizations give everyone as much information internally as they possibly can. There was one company that stated we want to give everyone as much informational advantage as the CEO, so that everyone in the organization has the same information. When difficult decisions need to be made, the vast majority of the company actually agrees with that difficult situation, saying, hey, if we’re not cutting debt back our sales team by 25%, we know that they’re not ROI positive. If we don’t do this now, we could be in real serious trouble in six months, as an example.
These are difficult things to adjust to if you live inside of a synchronous kind of mindset with regards to work. But I’m not suggesting that everyone go completely asynchronous tomorrow. I think if people can just go a little bit more asynchronous next month, next quarter, next year, you’re going to see massive dividends inside of your organization.
Rob: You are @liamremote on Twitter. Your book is runningremotebook.com if folks want to check it out, and of course, available on Amazon, Audible and all the places that they would be looking out for it. Thank you so much for joining me today.
Liam: Thanks for having me.
Rob: Thanks again to Liam for coming on the show. If you haven’t checked out the MicroConf YouTube channel, I’m putting out a new video every week that is brand new content. It’s like Rob solo adventure every week, where I’m digging into topics like 16 lessons I learned building a million dollar startup, seed funding for startups, top ten mistakes I see startup founders making.
Fun stuff to record and it’s getting incredible reception. Head to microconf.com/youtube if you want to check out the channel and subscribe. Again, we have one to two videos coming out every week. I think you’re really going to enjoy them if you like this podcast. I’m Rob Walling, signing off from episode 616.