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This week Rob answers some great listener questions. We discuss the best way to validate a product idea, how to expand a product with traction internationally, advice on launching a restaurant product during COVID-19, and whether to start an affiliate program.
If you have questions about starting or scaling a software business that you’d like us to cover, please submit your question for the next episode. We’d love to hear from you!
The listener questions we cover
- 1:39 [Arturo Ceballos] What’s the best way to validate an idea and pre-launch without an audience?
- 13:33 [Ger Apeldoorn] When a product has product-market fit and existing customers, how would you grow internationally?
- 20:31 [Davis] Do you have any experience running an affiliate program. I’m worried about people that sign up for affiliate would be people that would signup anyways?
- 26:40 [Jacob Warren] Should I launch a startup in the service/hospitality industry during COVID-19?
- 28:21 [Casey Collins] Following the Stairstep approach, what’s the best marketplace to use?
Links from the show
- Vetting a startup (or two): The systematic birth of @WPEngine | Jason Cohen
- Idea Validation & Risk Avoidance | Episode 324
- The Stairstep Approach to Bootstrapping | Rob Walling
- Clay Collins on Leadpages and how they used affiliate marketing | Podcast
How can I support the podcast?
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for the next episode. We’d love to hear from you!
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Welcome to this all listener question episode of Startups for the Rest of Us. I’m your host, Rob Walling. On this show, each week we cover topics relating to building and growing ambitious startups using a sustainable approach. I’m excited to hear from each one of you out there. We have a couple of voice mails to kick this off and we’ll dig into some text questions.
I’m going to be flying solo today. I’ve been doing several Q&A episodes over the last few months with guests, but I wanted to spend some time today and really dig into a few questions I’ve received. Also, I want to let you know that I’ve recorded two exclusive episodes of Startups for the Rest of Us that are available to subscribers of the email list.
The first episode is called Eight Things You Must Know When Launching Your SaaS and the other one is Ten Things You Should Know as You Scale Your SaaS. I cover both the launching and the scaling phase. If you go to startupsfortherestofus.com anywhere on that site you can subscribe to the email list on the homepage or the widget in the lower right. You will get both of those episodes, of those solo episodes of just me going through bullet points and thinking through the lessons I’ve learned in 20 years of entrepreneurship.
They also come with these really nice PDF guides that are well-designed and summarize each of the points. If you listen to the episode and you take something away from it that you want to refer back to, you have something in writing to jog the memory.
I think both of these episodes and the guides turned out really well and I think if you’re a fan of this show, you’ll enjoy them too. Just head to startupsfortherestofus.com, sign up to be on the mail list, and you’ll get those episodes in your inbox.
Let’s kick off with our first question from Arturo Ceballos.
Arturo: Hey, Rob. This is Arturo Ceballos out of Fresno, California and I actually know you from the Geekwise days when I was first learning how to code. Since then I’ve learned how to develop apps and I’ve tried to build by launching a handful of these now. It wasn’t until I started listening to your podcast that I realized that I was probably going about things the wrong way. Your podcast has been instrumental in changing the way that I think about starting a business and this time around, instead of starting by writing code, I like to do things your way.
I’m now an online marketing manager and I have an idea around helping other online marketers make better decisions with their ads by giving them context around what is and isn’t working for them. There are a couple of people in the market that do this, but not in the way that I’m imagining.
I think there are a lot of ways that we can innovate in the space and I want to see if my idea would actually help others. To get to my question, I listened to your podcast, the episode that came out last week around the first six stages of SaaS growth, and in there you mentioned that you’re running Facebook ads during your Drip pre-launch to different landing pages in order to test that different value propositions.
This is the stage that I find myself in right now. I’m assuming at that time your goal was to build out an email list. If so, what is it that you’re offering people in exchange for their email address? Were you just telling them that you notify them when Drip is ready? Or how did you know that people will pay for Drip? Or that the idea was even worth working on before writing any code?
You’ve probably answered this question a million times in the past. I’m sorry if I’m bringing it up again, but any advice or resources would be super helpful. I really thank you for your time and I appreciate everything that you do with the podcast. Keep up the great work. I know it’s helping a ton of other people. It definitely helped me. Thanks.
Rob: It’s a good question, Arturo, and thanks for sending it in. Congrats on your progress. I do remember you from Fresno. I remember you going through the coding school at Geekwise. That’s cool that you’re getting into marketing because I’ll tell you what. There are few things more powerful in the startup space than a developer who knows how to market. Those are two skills that most people pick one or the other and learning both (at least in that space) is pretty incredible.
There are two answers to this. One is what I did and the second is what I would do in your shoes. I think they are related, but they are not identical if that makes sense. What I did with Drip was I went out and pre-validated that at least a few people would be willing to pay, at that time I said $100 a month. It actually ended up being $50 a month for what I had in mind to build at Drip, for the vision I had for the product.
I did that by getting into email conversations with 17 founders and other people I knew through MicroConf. This is really the first time that I used my network and my audience to grow my software companies. I have, of course, used the audience I had built over (by then it was) 7–8 years of blogging and podcasting. I used that to offer my book, to sell tickets to MicroConf, to create a couple of courses about some different things.
I had used that personal brand site for that kind of stuff, but really all the software, almost without exception that I have built before then. I hadn’t sold much to my audience and hadn’t really used my network to expand that because it was in these bizarre little tiny niches for a lot of the stuff. There was a job board for electricians, there was a wedding website builder. The stuff where me talking to other founders at MicroConf really wasn’t going to help or me talking to the audience of Startups for the Rest of Us wasn’t going to generate any kind of customer base. I did a little bit with HitTail, but it really didn’t. It was tens of customers from my warm audience and the rest of it was just hustle, marketing, writing copy, support, and all of that stuff.
All that to say, with Drip I did lose my network for the first time, but if you don’t have that, then you just have to go back and do what I did before. I had no audience which was to hustle, put in the leg work, and have conversations. I had 17 conversations. I had 11 people say we’re willing to try it out and if it works, we’re willing to pay that price point that you mentioned. That was the validation for me. I heard Jason Cohen did this with WP Engine and he wanted 40 people to give him the thumbs up.
He said 40 people at $99 a month, that was his number. I said 10 and I just picked it randomly. I don’t think 10 is right or wrong. I don’t think 40 and more is better, but it’s just how much time do you want to spend before writing code. Once the 10 had said yes, that’s when I approached Derrick Reimer who’s contracting for me on HitTail and I said do you want to build this other app? You’re not doing full-time work on HitTail, and he said yeah, let’s do it. We met at the Iron Bird Cafe there in Fresno. I talked to him through. I said here’s what I think you should do. I have some validation. Let’s just talk to some screens and just go off and build it.
In retrospect, was that enough validation? Probably not. I think I was a little overconfident in my own ability to market it and I was probably overconfident in my network and my audience that I would be able to sell it to them.
There’s this thing, the curse of the audience is how I refer to it where if you have an audience and you’ve been selling them books, courses, and stuff and you think that you can sell them software in the same way almost without exception, it doesn’t work that way. It is much, much, much harder to sell a SaaS or any software of any kind, but especially a recurring subscription because it’s just not an impulse purchase, people have to have it in their workflow. A lot of these courses, people buy and they never read. It’s aspirational. Whereas, if you’re not paying for SaaS every month, it’s if it’s aspirational, you can’t sell it. It’s a whole different ball game.
I’ve seen literally a few dozen info-marketers who have projections or think of that because they have been marketing courses, coaching, and all that stuff, that they can do the same with SaaS. Eventually, you do figure it out, but it’s different. I would say it’s a lot harder to get people to try it than to get people to stick around.
To circle back on your comment about Facebook ads, in my mind I have already validated it right or wrong and probably more on the wrong side. Once we launched, I think some of those people did wind up using it and other people started using it and said this really doesn’t do much for me. Of the 11 who said yes, I think 4 or 5 probably wound up being paying customers. I do kind of […] my shoulders.
I don’t know, was that validated or not and I think that you can never get to 100%. Right now, you’re at zero percent or you’re maybe at 20% because it’s an idea in your head and how you get to 30%, 40%, 50%, 60%, even 70% is probably pretty high; 70% certainty. I was probably 70% certain but in reality, shouldn’t have been.
I was then trying to build the email list. That’s what the Facebook ads are for. I was trying to do that. I call it concentric circle marketing where on the circle, on the inside is your audience. It’s people you can reach directly on Twitter, via email, or even if they’re on your email list you can reach out directly to them.
Then, the next circle out is your network. It’s people that you may not be listening to but you do know and that you can reach out directly and say would you be willing to try this?
Then, that third layer is your network’s audience. Network’s audiences, which again, if you know people who host podcasts or if you know people who have any type of audience, then you can go to their podcast and get some distribution.
The fourth circle out is cold and that’s what I was doing with Facebook just to see if people cared enough about the value that we’re trying to provide an email address. I was promising nothing except for some value. I was basically saying improve conversion rates on your website or capture emails better than any other tool. It was that type of stuff because Drip originally was really just the little Drip widget. It was the email capture widget before it was Sumo, OptinMonster, and […]. It was before all of those. There was really no off-the-shelf javascript email capture widget.
I was testing things around that and did get ideas that converted most. I tried a bunch of different copies. It was a fun experiment, but I didn’t assume that was validation because that was just someone being intrigued enough to enter an email which isn’t a big commitment. If I had not already validated it, I would have either gone straight to my network or my audience and if I didn’t have one of those, I would have probably have done cold outreach.
This is where I’m getting it to being in your shoes. Today, I would probably try to find other marketing managers who you think are in your same role. You can find them on LinkedIn. You could cold outreach and say I’m a bootstrap founder. I’m starting a new software idea that helps you get more insight into your ads. I’m wondering if I can chat with you for 15 minutes or I can even ask you questions via email if that works even better for you.
I think that cold outbound outreach, of course, you have to send a lot of emails in order to make that work. That’s one way to do it. Or if you have a little bit of budget, obviously running Facebook ads on your landing page, but I would be personal about that one as well, being like, hey, I’m Arturo. I’m a bootstrap founder and I’m thinking about launching a tool that does this. Are you interested in this? Just send your email and let’s find time to chat. Or you can put a calend.ly link right there and just embed it and be like, book 20 minutes with me.
In addition, if there are already other tools that are doing this, that’s good. I would lean into that and not try to call your tools something else. I would put it in that category of whatever tool it is, the advertising insight tool, or whatever. I would go to their forums and I would go to the Facebook groups that talk about those tools, whether it’s the marketing manager Facebook groups, the forums, get into the Slack channels, whatever.
There are two things. One, you want to observe and you want to see what people are complaining about these tools. Is anyone saying I really need these XYZ insights, and that’s the tool that you’re thinking about building. If they’re not, if you participate for a bit, then you just ask some questions like, I’m having trouble as a marketer. I can’t get this XYZ insight into my ads and I would like more context around it. Does anyone else have that problem?
You can just couch it like that just to see if everyone weighs in because if you say you’re selling something or you say you’re building a product, people are either going to be put off by it or they’re going to be like that’s a great idea. Do it. You should do it. They want to be encouraging. But if you say I have a problem. Do you have it, yes or no, then you can get thoughts, feelings, and I’ll say it’s more unbiased. It’s less biased information and thoughts because you don’t really have skin in the game. They’re not going to offend you by saying they don’t. They’re just not going to chime in.
At that point, if a few people respond, you’ll have some names, you can DM them and say I have this problem. I’m actually thinking of solving it for myself. Would you be interested and talk about it? Those are all the ways.
Again, should you get 10 people willing to pay you $50 a month, or $100 a month, or should it be $40, or should it be $5? It’s just a made-up number. To me, five just doesn’t sound enough. I don’t think you’ve proven a market with five people telling you they’ll pay. I think 10 is reasonable and 20 is better. When I had 10 people saying yes, I had an email list of who knows 10 or 12,000 people at that point. I knew that if enough people validated, I could reach a lot more fairly quickly who I thought would-be customers.
If you don’t have that luxury, then maybe that’s something that you think about that you want to validate it more or by the time you launch, if you have 20 people willing to pay you $100, that’s $2000 in MRR. It all won’t come through, but if half of it does, that’s still $1000 in MRR throughout the gate. That may be worth the time upfront to land more sales in advance so to speak. Then, there’s a whole nother conversation here about should they write you a cheque that you don’t cash? Should you take payment and use it to pay for the app? Should you take payment as a commitment to this and that?
We’ve actually covered that topic. You can Google that it’s in the transcripts. I don’t think I want to rehash that here. It’s already taken a bit of time answering this, but thanks for the question, Arturo. I hope you keep me updated on your progress and I definitely wish you the best of luck getting this going.
My next question is from Ger and I apologize for mispronouncing his name, but you’ll hear him pronouncing it in the voicemail.
Ger: Hi Rob and guest. My name is Ger Apeldoorn and I’m one of the cofounders of RoutineFactory. RoutineFactory is a set of tools that helps people with a learning disability and autism spectrum disorder to be more self-reliant. Our main customers assisted living facilities and workplaces.
We are growing rapidly in our home country, the Netherlands, and our info board has less than 1% churn per year so I would say that we have a good amount of product/market fit. The thing that bugs me is that there’s so much of the market that we’re not serving right now. Not only because we’re leaving a lot on the table but also because we hear a lot of stories via our customers that RoutineFactory is making a big difference for the client’s self-reliance and confidence.
Care professionals are very hard to reach over the internet. Word of mouth is extremely important but that is very hard to get started. With a few customers that we have, I do try to motivate and to write about their experiences on social media, et cetera, to get the ball rolling.
As for my question, what would you do to grow internationally if you were standing in my shoes? Anyway, thank you very much and I hope to see you again in Dubrovnik later this year. By the way, if the answer is find partners, I would like to follow-up with a shoutout for people that want to get started with an already proven product. Just write me a line at info@routinefactory.com. Thanks.
Rob: Thanks for that question. A couple of things and note on Dubrovnik, which is MicroConf Europe. That was planned for October of this year 2020. We have had to postpone it due to COVID. It’s now scheduled for October of 2021. We hope to still have an event in Europe. It would most likely be in London in September and we’re obviously playing that by ear like everyone else is.
It’s interesting. I was not thinking about proposing that he find a partner in a different locale, but I think that’s an interesting enough idea that I left that part of the voicemail in. Obviously, if you’re interested in reaching out to him, he left his info in there. I think it’s info@routinefactory.com.
Of course, partnerships would be one thing I would entertain. I think the other idea, I was thinking of two different approaches. One would be to pick a country that is close to you, that’s culturally similar, that you feel like you have insight, and it’s easy pickings. It’s going to be probably another small market.
I’m imagining I’m comparing the Netherlands in my head to the United States as an example. Those are going to be culturally quite different but the size of the market is going to be substantially different. It’s going to be much much larger with care facilities.
When I think about you going to a bordering country that maybe you feel like you have more insight into, that’s going to be, I’m guessing an easier transition especially it’s in the EU. There’s just a bunch of stuff that makes it easier, but it’s not going to be nearly as big of a market. That’s the first thing I would think about.
The second one, of course, is to say what’s perhaps the biggest western market for this? I’m guessing the United States. I don’t have any knowledge on this, but it’s just purely based on population. Looking at English-speaking markets, I think that that would be a good assumption and then figure out how essentially to target building word of mouth in the United States.
I don’t know all the trade-offs there. My gut would be to go after the larger market. Might think there are some drawbacks there. Obviously, it’s going to be perhaps more competitive. It’s also going to mean that the support, the hours, you’re going to have to hire someone further west in order to have hours during US work hours and perhaps you’re not going to be able to charge in Euros.
I shouldn’t say I’m not going to be able to. It’s not going to be ideal for you to charge in Euros. That’s going to be a yellow flag for folks. There’s just going to be a lot of adjustments, I think, that you’ll have to make versus going after a much smaller market near you where it’s in the EU and you can still charge in Euros. Probably don’t need to change much about what you’re doing today and there may be care providers that reach across the boundaries. If they have five facilities, maybe there’s some of them in the Netherlands and some next door in a neighboring country. Those are some pros and cons that I think about.
Whatever you do, whichever approach you take, the way I think about getting into a new market like this is are there influencers? Are there? And there might not be, but that’s what I would just look at. Are there any podcasts, or blogs, or publications where getting a mention would make a difference and then strategize?
It’s not a cold email of hey, mention me, but strategizing how do we start that piece of it. You said they are hard to reach online and that’s fair, but are there anywhere online? Are they in these private Facebook groups, private Slack groups, forums? It’s places like that where you can hang around and be part of the community much like what I was talking about with Arturo.
You can participate and kind of not be overt that you have a product, but just learn the market, learn the space, and get a little bit of a reputation. Again, that may not be possible, either. There may literally be no forums for this, so in that case, then I would seriously consider doing cold outreach.
This is what really cold outreach is made for. It’s for folks who are not online often. I say not online, of course, they have email or phone numbers, but they are not spending all day on Quora and Twitter, like some of our audiences are.
That’s where getting good at cold outreach and the thing, the advantage you have is it sounds like you have something pretty unique that’s working and you have a reputation in a geographic space. I know you can get testimonials and it sounds like a product is pretty mature. It’s also a pain point and it helps people. I think that’s a big deal.
This is probably the same strategy for whether you would come to the United States or just go to a country right around you. It’s like when people aren’t online that much, how do you find them? You can email them. You can call them. You can go to local events like trade shows. Obviously, right at this moment, that’s not happening, but in six months, in nine months, that’s a way to reach them as well.
I hear some people scoff at the idea of going to in-person events, but I’m personally involved with a couple of companies who before COVID were just killing it at these offline events because their audience really doesn’t gather online, but they gather offline once or twice a year at a couple of industry events. You pay $10,000, you get a booth, and it feels terrible when you do it, but then you get 10,20,30 leads that you close.
You have the pricing to make this work. You can’t be charging $10 a month to make an app like this work with this type of sales process, but assuming you have that enterprise price point, I think that you have a lot of options in terms of expanding. Hopefully, those thoughts were helpful. Thanks again for the question Ger.
My next question is from Davis and it came in through Twitter back in January. Man, it seems like a lifetime ago. Pre-COVID times. Davis, it took me so long to answer this.
Davis says, “Hey, Rob. I sent a voicemail a few months back but I don’t think it ever aired.” Actually there was a voicemail that came through that’s all static, maybe that’s what happened. He says, “My question was about referrals/affiliate programs. We have many customers asking if we have one and we do not currently. Do you have any experience running a successful affiliate program?”
The answer is yes I do, but I have seen people do it more successfully than I have. I’m going to talk about what they’ve done. But then he follows up and he says, “My concern is that the people who would sign up and share their affiliate link are mostly the same people who would share our site anyway, so we might end up paying for the organic word of growth we would have gotten anyway sans affiliate programs, but on the flip side, one affiliate sending anything to their massive mailing list could be a huge source of traffic and customers.”
Here are my thoughts. I think that some people will share it organically and others will essentially want an affiliate program and they won’t share it unless you have one. I think that if you have people asking and they are willing to share it, then yes, I would set one up.
Now, there are some folks like running an affiliate program and just starting it, and having a link available almost no one is going to come in who has an audience and promotes your stuff. This is more like business development. At this point, it becomes enterprise sales, or at least having a big network, or at least having customers with audiences.
There’s a certain level of luxury to marketing to other net marketers as we saw with Leadpages, for example, in the early days where Clay Collins built Leadpages and a bunch of the customers were internet marketers with audiences. Boom, it was just like one, two, three. Set up that affiliate program, line up the webinar for next week, and that was the playbook.
That is a very unique conflux of things because if you (say) build software for construction firms, then whether you have an affiliate program or not, your customer’s probably aren’t going to be sharing with their massive audiences their construction firm. At that point, you have to do probably more of a reseller or an agency model if you need implementation.
Back to the original question. There are some dangers with affiliate programs that I think it’s not most people think. Number one, one danger is you spend a bunch of time implementing it and barely anybody uses it. The other is that I’ve heard this phrase used by someone who has seen the books of a popular SaaS app that is used by a lot of affiliates and a lot of webinars.
It’s not Leadpages. It’s a different one and the person told me they built a large business in terms of ARR, but it’s one of the least profitable SaaS companies I’ve ever seen. The reason was that they have this enormous affiliate commission. In internet marketing circles, giving away 30%, 40%, 50% commissions on an ebook or a course that really has no or very little marginal cost can be standard.
Back in the day, there were these trashy affiliate marketplaces. They would have commissions of 70%. It’s like you take 70% when you make the sale and I only get 30%. That doesn’t work with SaaS and if you’re solo and you build some $10,000, $20,000, $30,000 a month, okay. Yes, you can give away as much as you want. But SaaS net margins are kind of at the scale of let’s say 20%–50%, 30%–50%. If you build a SaaS company that is doing $10 million a year and it has 50% net margin, you are doing very, very well in terms of profitability.
If you’re giving away 30% of that or 30+ percent of your MRR to your affiliates forever if it goes past the first year. Some of these folks are limited at a year and then that shuts us down, but if you literally say perpetual commissions on anyone you bring and it’s 20%, or 30%, or 40% you can build a SaaS business that is barely break even or that really doesn’t just have the profit that most SaaS companies do.
That would be something that I would think about and I’ve actually talked to some founders who are doing affiliate stuff but they’re being careful not to have all their eggs in the affiliate basket because they don’t want 80%–90% of their customers to essentially have this massive lack of profitability or being barely profitable. That’s something that I think you need to certainly think about.
In addition, I guess circling back, if you have customers who do want the affiliate program personally, I would set it up and figure it out. Is it 15% or 20% affiliate commission? Is that viable? Is that respectable? Is that enough in your space? Are competitors doing it whether they’re affiliate commissions?
See what you’re comfortable with and if it has to be 30%, I would say 30% for the first year or for the first 18 months or something. Some time limit on it so you’re not giving away effectively the vast majority of your potential profit on every customer.
Then once you do set it up, that’s where the business development piece comes into play. You figure out your network. You figure out if anyone in your network has an audience that would potentially make a good customer, good prospects for your app and you can also do some cold emailing.
I remember doing this with HitTail which was an SEO keyword tool, I reached out to several ranked trackers which are in essence complementary apps, and I sent six or seven emails figuring I’d get zero or one response and I got six or seven affirmative responses immediately. It was literally a joint venture.
I just said we’re not going to build anything. We’re not going to integrate, but let’s just email our respective customer basis. Here’s how many customers plus the marketing list we have. Here’s how many you have. We did a mutual one and I said no affiliate links and let’s just recommend. I went in and used the tool of course and made sure I should become a customer for quite some time.
I only did it with one of them. I didn’t do it with a bunch, but it was a pretty nice way to go. In this case, you could do it where you don’t even need that list and do the reciprocal mailing. You can say would you be willing to promote? Here’s what you get out of it. I think there’s a way to be creative with this and I do think that affiliate stuff, while some people just take it too far and make it really spammy, there are viable ways to make it work both in the info product space and in software.
Thanks for the question, Davis. I hope that was helpful.
My next question is from Jacob about launching a startup for the service/hospitality industry through COVID. He says, “Hey, Rob. Big fan. I’ve been listening to you since I was in high school. I’m bootstrapping a startup that is a self-served reputation management tool for the service/hospitality industry. It’s called Grow Glad and it helps you turn unhappy customers into happy customers and happy customers into advocates through SMS and machine learning.
As you can imagine, this is probably the worst time in history to launch this which is why it’s just sitting on a server right now not live. Luckily, I’m gainfully employed, so I’m not desperate to launch it, however, I’ve put quite some money into it. I ran growth marketing for a successful tech company, but even with my experience, I can’t figure out how to launch this company in the midst of COVID when restaurants and service-based shops can’t pay the bills. I’ve considered putting the bills for customers for up to three months, but that would wipe out my savings. What would you recommend based on your startup experience? Thanks.”
It seems pretty cut and dry to me. I would not launch it right now. I don’t see any way. The only way would be literally to launch it and say you can use it and don’t pay for three, or six, or nine months. As you said, that would wipe out your savings, so I don’t see that as a viable option.
In your shoes, I would just sit and wait. You’re gainfully employed. You don’t have a gun on your head or deadline to launch this, and I would wait until things start to ease up or continue to ease up and the environment becomes more conducive to this.
It’s just probably a bit of bad luck that this happened. Obviously, you’re probably working on this since long before COVID and that’s a bummer, but as a startup founder, we have to be agile. We have to make last-minute, quick decisions with incomplete information. Frankly, in this one, I think you do have more than enough information to make a sensible decision. Thanks for the question.
On to our last question of the day from Casey Collins who said, “Hey, Rob. I know you mentioned often that a founder should start small by building a WordPress plugin.” Breaking in here, the stairstep approach to bootstrapping doesn’t specifically say WordPress plugin. That is one of the examples. But step one of the stairstep approach is to build a small thing that’s relatively easy to build and sell on a one-time basis just so you can cut your teeth and learn some basic skills, make a little money before you try to do the hard stuff.
I would say SaaS is harder than a lot of these things. Back to Casey’s email. “Do you have any suggestions for alternatives to that? What about an Office 365 or G Suite add on? Any idea if paid for products in those marketplaces get any traction?”
My answer would be those are great ideas. The idea is not to stick to any one of these. I often say WordPress plugin, info product, Shopify add-on. I throw out random stuff. The commonality there usually is that there is a marketplace where you can easily get discovered. That’s the part that I think helps you get distribution without having to learn how to do all the marketing and all the other things around building a brand from scratch.
You can piggyback on these larger apps like G Suite or Office 365. I don’t have intimate knowledge of Office 365 or G Suite add-ons, but I bet you can go to research, find out are there forums where they hang out? You can DM some people. You could just try to build a quick one on a weekend, launch it, and see what happens. There’s a bunch of ways to do this. I don’t know if any of those add-ons are paid, that would again be a research thing, but there are obviously many other ideas.
There’s the Magento add-on. Obviously, there are WordPress plugins, there are themes, there are Shopify, there are Photoshop add-ons. Does Discourse base have a marketplace? That would be one I’d look at. Salesforce has its own Salesforce cloud ecosystem.
Even the ThemeForest family of companies, there’s a bunch of Envato and a few others where they sell things. Of course, they take a cut, and of course, I don’t think you’re going to build a million-dollar software company there, but could you build something doing $2000–$3000 a month? Yeah, I think so.
Maybe you have to get a little lucky. Maybe you have to put in a little bit of hard work. You’re going to build some skill, but it’s doing it with training wheels. Once you’ve done that where you learn how to write the code, how to shift the code, how to support it, how to do some type of copywriting, and how to interact with customers, then you can move up.
You can get a few more of those and pay for your time. The one thing that I do mention that is not in these ecosystems is I’ve often said create an ebook or a course and launch that. Those can obviously be one time and with those, you may have to build an audience.
If you just write an ebook, you probably are going to have to build an audience first because you’re not going to be able to run ads to it. If you don’t have people who know, like, and trust you, it’s going to be a hard way to go.
Ebooks may be one that if you don’t already have an audience then you look at the others. I do think building a course now that there are the Udemys, the Udacitys, the Teachables, there’s this whole class of course marketplaces. It’s basically the same thing. Building courses, recording yourself, talking to a screen, having some expertise and editing it, then getting in there and getting some discoverability, probably doing some marketing on your own, but you don’t have to do all of the work.
Again, this is not the end-all-be-all. If you already sold a seven-figure SaaS app or you’ve already built a bunch of your skills, they already have a head start, then I wouldn’t go back to step one. But if you never had a successful product, this is just a good way to go about learning how to do that.
If you want to see examples of founders who’ve done that, google Stairstep Approach to Bootstrapping. I give a bunch of examples in there and I probably know two or three more dozen that I didn’t know about when I published that blog post.
Thanks for that question, Casey. Sorry I couldn’t answer the specifics about Office 365 or G Suite specifically. Frankly, I don’t have intimate knowledge of a lot of these marketplaces, but I do see people having success in them, and assuming that there are paid add-ons, I have to imagine that there are some people having success in those marketplaces as well. Good luck, sir. Thanks for writing in.
That wraps us up for the day. If you have a question for me or me and a guest in a future episode, just send it to questions@startupsfortherestofus.com. If you send it as an attached voicemail, or as a Dropbox, or a Google Drive link, then that goes to the top of the stack, but I always appreciate text questions as well.
I love to hear from you and hear how the communities think about things and the challenges folks are facing and thinking through. That’s it for this week’s episode. Thanks so much for joining me. I’ll talk to you next week.
I’m going to be flying solo today. I’ve been doing several Q&A episodes over the last few months with guests, but I wanted to spend some time today and really dig into a few questions I’ve received. Also, I want to let you know that I’ve recorded two exclusive episodes of Startups for the Rest of Us that are available to subscribers of the email list.
The first episode is called Eight Things You Must Know When Launching Your SaaS and the other one is Ten Things You Should Know as You Scale Your SaaS. I cover both the launching and the scaling phase. If you go to startupsfortherestofus.com anywhere on that site you can subscribe to the email list on the homepage or the widget in the lower right. You will get both of those episodes, of those solo episodes of just me going through bullet points and thinking through the lessons I’ve learned in 20 years of entrepreneurship.
They also come with these really nice PDF guides that are well-designed and summarize each of the points. If you listen to the episode and you take something away from it that you want to refer back to, you have something in writing to jog the memory.
I think both of these episodes and the guides turned out really well and I think if you’re a fan of this show, you’ll enjoy them too. Just head to startupsfortherestofus.com, sign up to be on the mail list, and you’ll get those episodes in your inbox.
Let’s kick off with our first question from Arturo Ceballos.
Arturo: Hey, Rob. This is Arturo Ceballos out of Fresno, California and I actually know you from the Geekwise days when I was first learning how to code. Since then I’ve learned how to develop apps and I’ve tried to build by launching a handful of these now. It wasn’t until I started listening to your podcast that I realized that I was probably going about things the wrong way. Your podcast has been instrumental in changing the way that I think about starting a business and this time around, instead of starting by writing code, I like to do things your way.
I’m now an online marketing manager and I have an idea around helping other online marketers make better decisions with their ads by giving them context around what is and isn’t working for them. There are a couple of people in the market that do this, but not in the way that I’m imagining.
I think there are a lot of ways that we can innovate in the space and I want to see if my idea would actually help others. To get to my question, I listened to your podcast, the episode that came out last week around the first six stages of SaaS growth, and in there you mentioned that you’re running Facebook ads during your Drip pre-launch to different landing pages in order to test that different value propositions.
This is the stage that I find myself in right now. I’m assuming at that time your goal was to build out an email list. If so, what is it that you’re offering people in exchange for their email address? Were you just telling them that you notify them when Drip is ready? Or how did you know that people will pay for Drip? Or that the idea was even worth working on before writing any code?
You’ve probably answered this question a million times in the past. I’m sorry if I’m bringing it up again, but any advice or resources would be super helpful. I really thank you for your time and I appreciate everything that you do with the podcast. Keep up the great work. I know it’s helping a ton of other people. It definitely helped me. Thanks.
Rob: It’s a good question, Arturo, and thanks for sending it in. Congrats on your progress. I do remember you from Fresno. I remember you going through the coding school at Geekwise. That’s cool that you’re getting into marketing because I’ll tell you what. There are few things more powerful in the startup space than a developer who knows how to market. Those are two skills that most people pick one or the other and learning both (at least in that space) is pretty incredible.
There are two answers to this. One is what I did and the second is what I would do in your shoes. I think they are related, but they are not identical if that makes sense. What I did with Drip was I went out and pre-validated that at least a few people would be willing to pay, at that time I said $100 a month. It actually ended up being $50 a month for what I had in mind to build at Drip, for the vision I had for the product.
I did that by getting into email conversations with 17 founders and other people I knew through MicroConf. This is really the first time that I used my network and my audience to grow my software companies. I have, of course, used the audience I had built over (by then it was) 7–8 years of blogging and podcasting. I used that to offer my book, to sell tickets to MicroConf, to create a couple of courses about some different things.
I had used that personal brand site for that kind of stuff, but really all the software, almost without exception that I have built before then. I hadn’t sold much to my audience and hadn’t really used my network to expand that because it was in these bizarre little tiny niches for a lot of the stuff. There was a job board for electricians, there was a wedding website builder. The stuff where me talking to other founders at MicroConf really wasn’t going to help or me talking to the audience of Startups for the Rest of Us wasn’t going to generate any kind of customer base. I did a little bit with HitTail, but it really didn’t. It was tens of customers from my warm audience and the rest of it was just hustle, marketing, writing copy, support, and all of that stuff.
All that to say, with Drip I did lose my network for the first time, but if you don’t have that, then you just have to go back and do what I did before. I had no audience which was to hustle, put in the leg work, and have conversations. I had 17 conversations. I had 11 people say we’re willing to try it out and if it works, we’re willing to pay that price point that you mentioned. That was the validation for me. I heard Jason Cohen did this with WP Engine and he wanted 40 people to give him the thumbs up.
He said 40 people at $99 a month, that was his number. I said 10 and I just picked it randomly. I don’t think 10 is right or wrong. I don’t think 40 and more is better, but it’s just how much time do you want to spend before writing code. Once the 10 had said yes, that’s when I approached Derrick Reimer who’s contracting for me on HitTail and I said do you want to build this other app? You’re not doing full-time work on HitTail, and he said yeah, let’s do it. We met at the Iron Bird Cafe there in Fresno. I talked to him through. I said here’s what I think you should do. I have some validation. Let’s just talk to some screens and just go off and build it.
In retrospect, was that enough validation? Probably not. I think I was a little overconfident in my own ability to market it and I was probably overconfident in my network and my audience that I would be able to sell it to them.
There’s this thing, the curse of the audience is how I refer to it where if you have an audience and you’ve been selling them books, courses, and stuff and you think that you can sell them software in the same way almost without exception, it doesn’t work that way. It is much, much, much harder to sell a SaaS or any software of any kind, but especially a recurring subscription because it’s just not an impulse purchase, people have to have it in their workflow. A lot of these courses, people buy and they never read. It’s aspirational. Whereas, if you’re not paying for SaaS every month, it’s if it’s aspirational, you can’t sell it. It’s a whole different ball game.
I’ve seen literally a few dozen info-marketers who have projections or think of that because they have been marketing courses, coaching, and all that stuff, that they can do the same with SaaS. Eventually, you do figure it out, but it’s different. I would say it’s a lot harder to get people to try it than to get people to stick around.
To circle back on your comment about Facebook ads, in my mind I have already validated it right or wrong and probably more on the wrong side. Once we launched, I think some of those people did wind up using it and other people started using it and said this really doesn’t do much for me. Of the 11 who said yes, I think 4 or 5 probably wound up being paying customers. I do kind of […] my shoulders.
I don’t know, was that validated or not and I think that you can never get to 100%. Right now, you’re at zero percent or you’re maybe at 20% because it’s an idea in your head and how you get to 30%, 40%, 50%, 60%, even 70% is probably pretty high; 70% certainty. I was probably 70% certain but in reality, shouldn’t have been.
I was then trying to build the email list. That’s what the Facebook ads are for. I was trying to do that. I call it concentric circle marketing where on the circle, on the inside is your audience. It’s people you can reach directly on Twitter, via email, or even if they’re on your email list you can reach out directly to them.
Then, the next circle out is your network. It’s people that you may not be listening to but you do know and that you can reach out directly and say would you be willing to try this?
Then, that third layer is your network’s audience. Network’s audiences, which again, if you know people who host podcasts or if you know people who have any type of audience, then you can go to their podcast and get some distribution.
The fourth circle out is cold and that’s what I was doing with Facebook just to see if people cared enough about the value that we’re trying to provide an email address. I was promising nothing except for some value. I was basically saying improve conversion rates on your website or capture emails better than any other tool. It was that type of stuff because Drip originally was really just the little Drip widget. It was the email capture widget before it was Sumo, OptinMonster, and […]. It was before all of those. There was really no off-the-shelf javascript email capture widget.
I was testing things around that and did get ideas that converted most. I tried a bunch of different copies. It was a fun experiment, but I didn’t assume that was validation because that was just someone being intrigued enough to enter an email which isn’t a big commitment. If I had not already validated it, I would have either gone straight to my network or my audience and if I didn’t have one of those, I would have probably have done cold outreach.
This is where I’m getting it to being in your shoes. Today, I would probably try to find other marketing managers who you think are in your same role. You can find them on LinkedIn. You could cold outreach and say I’m a bootstrap founder. I’m starting a new software idea that helps you get more insight into your ads. I’m wondering if I can chat with you for 15 minutes or I can even ask you questions via email if that works even better for you.
I think that cold outbound outreach, of course, you have to send a lot of emails in order to make that work. That’s one way to do it. Or if you have a little bit of budget, obviously running Facebook ads on your landing page, but I would be personal about that one as well, being like, hey, I’m Arturo. I’m a bootstrap founder and I’m thinking about launching a tool that does this. Are you interested in this? Just send your email and let’s find time to chat. Or you can put a calend.ly link right there and just embed it and be like, book 20 minutes with me.
In addition, if there are already other tools that are doing this, that’s good. I would lean into that and not try to call your tools something else. I would put it in that category of whatever tool it is, the advertising insight tool, or whatever. I would go to their forums and I would go to the Facebook groups that talk about those tools, whether it’s the marketing manager Facebook groups, the forums, get into the Slack channels, whatever.
There are two things. One, you want to observe and you want to see what people are complaining about these tools. Is anyone saying I really need these XYZ insights, and that’s the tool that you’re thinking about building. If they’re not, if you participate for a bit, then you just ask some questions like, I’m having trouble as a marketer. I can’t get this XYZ insight into my ads and I would like more context around it. Does anyone else have that problem?
You can just couch it like that just to see if everyone weighs in because if you say you’re selling something or you say you’re building a product, people are either going to be put off by it or they’re going to be like that’s a great idea. Do it. You should do it. They want to be encouraging. But if you say I have a problem. Do you have it, yes or no, then you can get thoughts, feelings, and I’ll say it’s more unbiased. It’s less biased information and thoughts because you don’t really have skin in the game. They’re not going to offend you by saying they don’t. They’re just not going to chime in.
At that point, if a few people respond, you’ll have some names, you can DM them and say I have this problem. I’m actually thinking of solving it for myself. Would you be interested and talk about it? Those are all the ways.
Again, should you get 10 people willing to pay you $50 a month, or $100 a month, or should it be $40, or should it be $5? It’s just a made-up number. To me, five just doesn’t sound enough. I don’t think you’ve proven a market with five people telling you they’ll pay. I think 10 is reasonable and 20 is better. When I had 10 people saying yes, I had an email list of who knows 10 or 12,000 people at that point. I knew that if enough people validated, I could reach a lot more fairly quickly who I thought would-be customers.
If you don’t have that luxury, then maybe that’s something that you think about that you want to validate it more or by the time you launch, if you have 20 people willing to pay you $100, that’s $2000 in MRR. It all won’t come through, but if half of it does, that’s still $1000 in MRR throughout the gate. That may be worth the time upfront to land more sales in advance so to speak. Then, there’s a whole nother conversation here about should they write you a cheque that you don’t cash? Should you take payment and use it to pay for the app? Should you take payment as a commitment to this and that?
We’ve actually covered that topic. You can Google that it’s in the transcripts. I don’t think I want to rehash that here. It’s already taken a bit of time answering this, but thanks for the question, Arturo. I hope you keep me updated on your progress and I definitely wish you the best of luck getting this going.
My next question is from Ger and I apologize for mispronouncing his name, but you’ll hear him pronouncing it in the voicemail.
Ger: Hi Rob and guest. My name is Ger Apeldoorn and I’m one of the cofounders of RoutineFactory. RoutineFactory is a set of tools that helps people with a learning disability and autism spectrum disorder to be more self-reliant. Our main customers assisted living facilities and workplaces.
We are growing rapidly in our home country, the Netherlands, and our info board has less than 1% churn per year so I would say that we have a good amount of product/market fit. The thing that bugs me is that there’s so much of the market that we’re not serving right now. Not only because we’re leaving a lot on the table but also because we hear a lot of stories via our customers that RoutineFactory is making a big difference for the client’s self-reliance and confidence.
Care professionals are very hard to reach over the internet. Word of mouth is extremely important but that is very hard to get started. With a few customers that we have, I do try to motivate and to write about their experiences on social media, et cetera, to get the ball rolling.
As for my question, what would you do to grow internationally if you were standing in my shoes? Anyway, thank you very much and I hope to see you again in Dubrovnik later this year. By the way, if the answer is find partners, I would like to follow-up with a shoutout for people that want to get started with an already proven product. Just write me a line at info@routinefactory.com. Thanks.
Rob: Thanks for that question. A couple of things and note on Dubrovnik, which is MicroConf Europe. That was planned for October of this year 2020. We have had to postpone it due to COVID. It’s now scheduled for October of 2021. We hope to still have an event in Europe. It would most likely be in London in September and we’re obviously playing that by ear like everyone else is.
It’s interesting. I was not thinking about proposing that he find a partner in a different locale, but I think that’s an interesting enough idea that I left that part of the voicemail in. Obviously, if you’re interested in reaching out to him, he left his info in there. I think it’s info@routinefactory.com.
Of course, partnerships would be one thing I would entertain. I think the other idea, I was thinking of two different approaches. One would be to pick a country that is close to you, that’s culturally similar, that you feel like you have insight, and it’s easy pickings. It’s going to be probably another small market.
I’m imagining I’m comparing the Netherlands in my head to the United States as an example. Those are going to be culturally quite different but the size of the market is going to be substantially different. It’s going to be much much larger with care facilities.
When I think about you going to a bordering country that maybe you feel like you have more insight into, that’s going to be, I’m guessing an easier transition especially it’s in the EU. There’s just a bunch of stuff that makes it easier, but it’s not going to be nearly as big of a market. That’s the first thing I would think about.
The second one, of course, is to say what’s perhaps the biggest western market for this? I’m guessing the United States. I don’t have any knowledge on this, but it’s just purely based on population. Looking at English-speaking markets, I think that that would be a good assumption and then figure out how essentially to target building word of mouth in the United States.
I don’t know all the trade-offs there. My gut would be to go after the larger market. Might think there are some drawbacks there. Obviously, it’s going to be perhaps more competitive. It’s also going to mean that the support, the hours, you’re going to have to hire someone further west in order to have hours during US work hours and perhaps you’re not going to be able to charge in Euros.
I shouldn’t say I’m not going to be able to. It’s not going to be ideal for you to charge in Euros. That’s going to be a yellow flag for folks. There’s just going to be a lot of adjustments, I think, that you’ll have to make versus going after a much smaller market near you where it’s in the EU and you can still charge in Euros. Probably don’t need to change much about what you’re doing today and there may be care providers that reach across the boundaries. If they have five facilities, maybe there’s some of them in the Netherlands and some next door in a neighboring country. Those are some pros and cons that I think about.
Whatever you do, whichever approach you take, the way I think about getting into a new market like this is are there influencers? Are there? And there might not be, but that’s what I would just look at. Are there any podcasts, or blogs, or publications where getting a mention would make a difference and then strategize?
It’s not a cold email of hey, mention me, but strategizing how do we start that piece of it. You said they are hard to reach online and that’s fair, but are there anywhere online? Are they in these private Facebook groups, private Slack groups, forums? It’s places like that where you can hang around and be part of the community much like what I was talking about with Arturo.
You can participate and kind of not be overt that you have a product, but just learn the market, learn the space, and get a little bit of a reputation. Again, that may not be possible, either. There may literally be no forums for this, so in that case, then I would seriously consider doing cold outreach.
This is what really cold outreach is made for. It’s for folks who are not online often. I say not online, of course, they have email or phone numbers, but they are not spending all day on Quora and Twitter, like some of our audiences are.
That’s where getting good at cold outreach and the thing, the advantage you have is it sounds like you have something pretty unique that’s working and you have a reputation in a geographic space. I know you can get testimonials and it sounds like a product is pretty mature. It’s also a pain point and it helps people. I think that’s a big deal.
This is probably the same strategy for whether you would come to the United States or just go to a country right around you. It’s like when people aren’t online that much, how do you find them? You can email them. You can call them. You can go to local events like trade shows. Obviously, right at this moment, that’s not happening, but in six months, in nine months, that’s a way to reach them as well.
I hear some people scoff at the idea of going to in-person events, but I’m personally involved with a couple of companies who before COVID were just killing it at these offline events because their audience really doesn’t gather online, but they gather offline once or twice a year at a couple of industry events. You pay $10,000, you get a booth, and it feels terrible when you do it, but then you get 10,20,30 leads that you close.
You have the pricing to make this work. You can’t be charging $10 a month to make an app like this work with this type of sales process, but assuming you have that enterprise price point, I think that you have a lot of options in terms of expanding. Hopefully, those thoughts were helpful. Thanks again for the question Ger.
My next question is from Davis and it came in through Twitter back in January. Man, it seems like a lifetime ago. Pre-COVID times. Davis, it took me so long to answer this.
Davis says, “Hey, Rob. I sent a voicemail a few months back but I don’t think it ever aired.” Actually there was a voicemail that came through that’s all static, maybe that’s what happened. He says, “My question was about referrals/affiliate programs. We have many customers asking if we have one and we do not currently. Do you have any experience running a successful affiliate program?”
The answer is yes I do, but I have seen people do it more successfully than I have. I’m going to talk about what they’ve done. But then he follows up and he says, “My concern is that the people who would sign up and share their affiliate link are mostly the same people who would share our site anyway, so we might end up paying for the organic word of growth we would have gotten anyway sans affiliate programs, but on the flip side, one affiliate sending anything to their massive mailing list could be a huge source of traffic and customers.”
Here are my thoughts. I think that some people will share it organically and others will essentially want an affiliate program and they won’t share it unless you have one. I think that if you have people asking and they are willing to share it, then yes, I would set one up.
Now, there are some folks like running an affiliate program and just starting it, and having a link available almost no one is going to come in who has an audience and promotes your stuff. This is more like business development. At this point, it becomes enterprise sales, or at least having a big network, or at least having customers with audiences.
There’s a certain level of luxury to marketing to other net marketers as we saw with Leadpages, for example, in the early days where Clay Collins built Leadpages and a bunch of the customers were internet marketers with audiences. Boom, it was just like one, two, three. Set up that affiliate program, line up the webinar for next week, and that was the playbook.
That is a very unique conflux of things because if you (say) build software for construction firms, then whether you have an affiliate program or not, your customer’s probably aren’t going to be sharing with their massive audiences their construction firm. At that point, you have to do probably more of a reseller or an agency model if you need implementation.
Back to the original question. There are some dangers with affiliate programs that I think it’s not most people think. Number one, one danger is you spend a bunch of time implementing it and barely anybody uses it. The other is that I’ve heard this phrase used by someone who has seen the books of a popular SaaS app that is used by a lot of affiliates and a lot of webinars.
It’s not Leadpages. It’s a different one and the person told me they built a large business in terms of ARR, but it’s one of the least profitable SaaS companies I’ve ever seen. The reason was that they have this enormous affiliate commission. In internet marketing circles, giving away 30%, 40%, 50% commissions on an ebook or a course that really has no or very little marginal cost can be standard.
Back in the day, there were these trashy affiliate marketplaces. They would have commissions of 70%. It’s like you take 70% when you make the sale and I only get 30%. That doesn’t work with SaaS and if you’re solo and you build some $10,000, $20,000, $30,000 a month, okay. Yes, you can give away as much as you want. But SaaS net margins are kind of at the scale of let’s say 20%–50%, 30%–50%. If you build a SaaS company that is doing $10 million a year and it has 50% net margin, you are doing very, very well in terms of profitability.
If you’re giving away 30% of that or 30+ percent of your MRR to your affiliates forever if it goes past the first year. Some of these folks are limited at a year and then that shuts us down, but if you literally say perpetual commissions on anyone you bring and it’s 20%, or 30%, or 40% you can build a SaaS business that is barely break even or that really doesn’t just have the profit that most SaaS companies do.
That would be something that I would think about and I’ve actually talked to some founders who are doing affiliate stuff but they’re being careful not to have all their eggs in the affiliate basket because they don’t want 80%–90% of their customers to essentially have this massive lack of profitability or being barely profitable. That’s something that I think you need to certainly think about.
In addition, I guess circling back, if you have customers who do want the affiliate program personally, I would set it up and figure it out. Is it 15% or 20% affiliate commission? Is that viable? Is that respectable? Is that enough in your space? Are competitors doing it whether they’re affiliate commissions?
See what you’re comfortable with and if it has to be 30%, I would say 30% for the first year or for the first 18 months or something. Some time limit on it so you’re not giving away effectively the vast majority of your potential profit on every customer.
Then once you do set it up, that’s where the business development piece comes into play. You figure out your network. You figure out if anyone in your network has an audience that would potentially make a good customer, good prospects for your app and you can also do some cold emailing.
I remember doing this with HitTail which was an SEO keyword tool, I reached out to several ranked trackers which are in essence complementary apps, and I sent six or seven emails figuring I’d get zero or one response and I got six or seven affirmative responses immediately. It was literally a joint venture.
I just said we’re not going to build anything. We’re not going to integrate, but let’s just email our respective customer basis. Here’s how many customers plus the marketing list we have. Here’s how many you have. We did a mutual one and I said no affiliate links and let’s just recommend. I went in and used the tool of course and made sure I should become a customer for quite some time.
I only did it with one of them. I didn’t do it with a bunch, but it was a pretty nice way to go. In this case, you could do it where you don’t even need that list and do the reciprocal mailing. You can say would you be willing to promote? Here’s what you get out of it. I think there’s a way to be creative with this and I do think that affiliate stuff, while some people just take it too far and make it really spammy, there are viable ways to make it work both in the info product space and in software.
Thanks for the question, Davis. I hope that was helpful.
My next question is from Jacob about launching a startup for the service/hospitality industry through COVID. He says, “Hey, Rob. Big fan. I’ve been listening to you since I was in high school. I’m bootstrapping a startup that is a self-served reputation management tool for the service/hospitality industry. It’s called Grow Glad and it helps you turn unhappy customers into happy customers and happy customers into advocates through SMS and machine learning.
As you can imagine, this is probably the worst time in history to launch this which is why it’s just sitting on a server right now not live. Luckily, I’m gainfully employed, so I’m not desperate to launch it, however, I’ve put quite some money into it. I ran growth marketing for a successful tech company, but even with my experience, I can’t figure out how to launch this company in the midst of COVID when restaurants and service-based shops can’t pay the bills. I’ve considered putting the bills for customers for up to three months, but that would wipe out my savings. What would you recommend based on your startup experience? Thanks.”
It seems pretty cut and dry to me. I would not launch it right now. I don’t see any way. The only way would be literally to launch it and say you can use it and don’t pay for three, or six, or nine months. As you said, that would wipe out your savings, so I don’t see that as a viable option.
In your shoes, I would just sit and wait. You’re gainfully employed. You don’t have a gun on your head or deadline to launch this, and I would wait until things start to ease up or continue to ease up and the environment becomes more conducive to this.
It’s just probably a bit of bad luck that this happened. Obviously, you’re probably working on this since long before COVID and that’s a bummer, but as a startup founder, we have to be agile. We have to make last-minute, quick decisions with incomplete information. Frankly, in this one, I think you do have more than enough information to make a sensible decision. Thanks for the question.
On to our last question of the day from Casey Collins who said, “Hey, Rob. I know you mentioned often that a founder should start small by building a WordPress plugin.” Breaking in here, the stairstep approach to bootstrapping doesn’t specifically say WordPress plugin. That is one of the examples. But step one of the stairstep approach is to build a small thing that’s relatively easy to build and sell on a one-time basis just so you can cut your teeth and learn some basic skills, make a little money before you try to do the hard stuff.
I would say SaaS is harder than a lot of these things. Back to Casey’s email. “Do you have any suggestions for alternatives to that? What about an Office 365 or G Suite add on? Any idea if paid for products in those marketplaces get any traction?”
My answer would be those are great ideas. The idea is not to stick to any one of these. I often say WordPress plugin, info product, Shopify add-on. I throw out random stuff. The commonality there usually is that there is a marketplace where you can easily get discovered. That’s the part that I think helps you get distribution without having to learn how to do all the marketing and all the other things around building a brand from scratch.
You can piggyback on these larger apps like G Suite or Office 365. I don’t have intimate knowledge of Office 365 or G Suite add-ons, but I bet you can go to research, find out are there forums where they hang out? You can DM some people. You could just try to build a quick one on a weekend, launch it, and see what happens. There’s a bunch of ways to do this. I don’t know if any of those add-ons are paid, that would again be a research thing, but there are obviously many other ideas.
There’s the Magento add-on. Obviously, there are WordPress plugins, there are themes, there are Shopify, there are Photoshop add-ons. Does Discourse base have a marketplace? That would be one I’d look at. Salesforce has its own Salesforce cloud ecosystem.
Even the ThemeForest family of companies, there’s a bunch of Envato and a few others where they sell things. Of course, they take a cut, and of course, I don’t think you’re going to build a million-dollar software company there, but could you build something doing $2000–$3000 a month? Yeah, I think so.
Maybe you have to get a little lucky. Maybe you have to put in a little bit of hard work. You’re going to build some skill, but it’s doing it with training wheels. Once you’ve done that where you learn how to write the code, how to shift the code, how to support it, how to do some type of copywriting, and how to interact with customers, then you can move up.
You can get a few more of those and pay for your time. The one thing that I do mention that is not in these ecosystems is I’ve often said create an ebook or a course and launch that. Those can obviously be one time and with those, you may have to build an audience.
If you just write an ebook, you probably are going to have to build an audience first because you’re not going to be able to run ads to it. If you don’t have people who know, like, and trust you, it’s going to be a hard way to go.
Ebooks may be one that if you don’t already have an audience then you look at the others. I do think building a course now that there are the Udemys, the Udacitys, the Teachables, there’s this whole class of course marketplaces. It’s basically the same thing. Building courses, recording yourself, talking to a screen, having some expertise and editing it, then getting in there and getting some discoverability, probably doing some marketing on your own, but you don’t have to do all of the work.
Again, this is not the end-all-be-all. If you already sold a seven-figure SaaS app or you’ve already built a bunch of your skills, they already have a head start, then I wouldn’t go back to step one. But if you never had a successful product, this is just a good way to go about learning how to do that.
If you want to see examples of founders who’ve done that, google Stairstep Approach to Bootstrapping. I give a bunch of examples in there and I probably know two or three more dozen that I didn’t know about when I published that blog post.
Thanks for that question, Casey. Sorry I couldn’t answer the specifics about Office 365 or G Suite specifically. Frankly, I don’t have intimate knowledge of a lot of these marketplaces, but I do see people having success in them, and assuming that there are paid add-ons, I have to imagine that there are some people having success in those marketplaces as well. Good luck, sir. Thanks for writing in.
That wraps us up for the day. If you have a question for me or me and a guest in a future episode, just send it to questions@startupsfortherestofus.com. If you send it as an attached voicemail, or as a Dropbox, or a Google Drive link, then that goes to the top of the stack, but I always appreciate text questions as well.
I love to hear from you and hear how the communities think about things and the challenges folks are facing and thinking through. That’s it for this week’s episode. Thanks so much for joining me. I’ll talk to you next week.
Episode 502 | Accelerating Growth and a Failed Product Hunt Launch
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In his second appearance on the show (he first appeared on Episode 367), we chat with Benedikt Deicke from Userlist. Along with his co-founder, Jane Portman, they are building an easy to use customer messaging tool catered specifically towards SaaS companies.
In this show, we talk about some of the challenges in building a product while working full-time, finding the ideal SaaS pricing model, their underwhelming Product Hunt launch, as well as their recent purchase of the Userlist.com domain name.
Jane & Benedikt are also part of Tinyseed batch #2, and we explore Benedikt’s experience so far in the program, and the lessons he’s learned.
What we discuss with Benedikt Deicke
- 1:37 The story & motivation behind helpfounders.com
- 4:30 Userlist and slow growth in the early days
- 5:30 Challenges with building a SaaS while not full-time
- 7:50 What has helped with recent Userlist growth
- 9:00 Navigating SaaS pricing
- 12:30 An underwhelming Product Hunt launch
- 15:30 Acquiring the userlist.com domain name
- 17:30 The most challenging moments thus far in building Userlist
- 20:48 Why did Jane & Benedikt apply to Tinyseed
Links from the show:
- HelpFounders
- Benedikt Deicke | Twitter
- Jane Portman | Twitter
- Slow & Steady | Podcast
- Userlist
- Fighting to Gain Traction in a Crowded Space with Jane Portman of Userlist | Episode 471
- Userlist on Product Hunt
- Tinyseed
How can I support the podcast?
If you enjoyed this episode with Benedikt Deicke, let him know by clicking on the link below and sending him a quick shout out on Twitter:
Click here to thank Benedikt Deicke on Twitter.
Click here to share your number one takeaway from the episode.
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome to episode 502 of Startups For the Rest of Us. If you guessed that I am your host, Rob Walling you guessed correctly. This week, I talked with Benedikt Deicke from Userlist, and you’ll remember I spoke with his co-founder, Jane Portman, about six or eight months ago about their progress growing their startup. Since I spoke with Jane, Userlist has become part of TinySeed’s second batch, our 2020 batch and we talk a little bit about that today in the conversation.
Before we dive into that, if you’ve checked out the kinds of companies that TinySeed is investing in, and you’d be interested in investing in TinySeed and effectively diversifying your investment across many, many early-stage B2B SaaS companies with traction, and to see the companies we invested in in batch one and two with our first fund, you can just head to the homepage, tinyseed.com and you’ll see all the links there or you can hit this tinyseed.com/latest and we have a list of our second batch that we just announced.
The types of companies we invest in are bootstrapped cash-efficient. They’re the types of startups that you hear me talk about and espouse on Startups For the Rest of Us, and that you run into at MicroConf and other events that cater to those of us who are building ambitious yet sane startups. If this is an asset class you’ve considered investing in and you’re an accredited investor, TinySeed is a nice way to do that, because of the automatic diversification you get across many B2B SaaS companies with traction instead of having to seek out all that deal flow and do all the due diligence and all the research yourself, you can instead rely on us to do the legwork for you. Tinyseed.com/invest if you are interested.
Just a little more background on Benedikt, before we dive into the conversation, Benedikt is the co-founder of Userlist. It’s at userlist.com, and their headline is behavior-based customer messaging perfect for your SaaS, so they have email and in-app messages. With that, let’s dive into our conversation.
Benedikt, thank you so much for joining me on the show.
Benedikt: Thanks for having me.
Rob: It’s great to have you. It’s your first time on the podcast?
Benedikt: It’s my second time.
Rob: Oh, you and Mike did MicroConf Europe Recap.
Benedikt: Yeah, a couple of years ago.
Rob: That’s right. I think I was with my family in Europe taking a vacation after MicroConf Europe and you came on and of course, Jane Portman, your co-founder has been on at least twice, and she was on about six or eight months ago, talking about your journey together, building Userlist, and of course, we’ll talk through that today a bit. I wanted to start by asking you about Help Founders.
It’s at helpfounders.com, and folks who are listeners to this show know that, in essence, it’s free advertising for early-stage SaaS products. We have donated a few slots to Help Founders and folks have heard a couple of the ads essentially that I’ve read and there are fewer ads, and it’s more of me talking about the product. I actually had met one of the founders of the products through MicroConf Connect. It was cool, but I’m curious. What was your motivation and Jane’s motivation behind starting that initiative?
Benedikt: To be honest, it was mostly Jane’s idea, entirely Jane’s idea. It was her first response to this whole pandemic coming over us and causing problems for a lot of founders, and we just wanted to do something to help out with the stuff we can do. Both Jane and I run podcasts, so it felt like an easy decision to just give shoutouts to fellow founders in our podcasts and just help the community that way.
Luckily, once we started reaching out and promoting this idea, a lot of other people like you joined with their podcasts, and I think at some point, we had more podcasts or more slots on podcasts than actual products. I’m not entirely sure what the numbers are right now, but the support we got or the support Jane got with this was amazing.
Rob: That’s something I love about this community of bootstrappers, makers, whatever we want to call them. That the founder community that we work in is, in general, just a very positive community. I think that comes from doing hard things, and knowing that putting things out in the world is pretty hard, and the generosity that I think you saw where you have more ad slots than Startups asking for them is pretty cool.
Benedikt: That was definitely an exciting part, and so far, I think it’s going well. People are getting shout outs. Some podcasts do really amazing jobs like doing real in-depth teardowns, more or less of the products, and the product ideas. It’s even more than just ad spots, at least on some shows.
Rob: I want to change it up and talk about Userlist. Userlist is behavior-based customer messaging, perfect for your SaaS. That’s the headline on your homepage. It’s basically emails and in-app messaging for SaaS apps behavior-based. A competitor of customer.io. You and I had chatted a little bit offline briefly about how it helps to couch in a person’s mind who’s listening like, what is this product similar to?
You guys have been working on this for several years now, and I know that growth has started picking up for you, but that in talking to Jane, again on the podcast several months back that it was really slow early on that it was slow getting going. Did that surprise you how long it took you to go from starting to build to $1000 of MRR?
Benedikt: It was definitely slower than we expected, but I feel a lot of that has to do with just how long it takes to actually build a product like this with doing consulting on the side, and basically doing this part-time. I’m sure if we were able to fully focus on it from day one, it would have been a lot faster, just because we didn’t have too many other things going at the same time, but then again, who knows? This is only a one time experience and not sure, maybe I’m wrong about it, and it would be slow.
Rob: It is pretty typical, especially both you and Jane were doing it on the side while consulting, is that right?
Benedikt: We had to pay our bills in the early days like the product doesn’t pay. With consulting on the side, you only get maybe a day or two of focused work on the product, especially on the technical side. Implementing the hard stuff makes it really challenging with just one or two days per week, then having a longer break, trying to get back into it, trying to remember what you did last week, what’s the plan to move forward, what changes are still missing, and stuff like that. Since we were able to go full-time earlier this year, we move a lot faster with everything.
Rob: I always struggled with that when I was still building on the side of whether to try to carve out a day a week. I really didn’t have the luxury at the time of carving out two days but carving out one day a week or whether it was evening hours and some weekend hours. Of course, in the evening and weekends, I was tired or I didn’t want to be doing it. I wanted that to be out having fun, but if I carved out the day a week, it’s exactly what you said.
You’d lose the context, the mental RAM of loading all the entire code base and everything, all the objects up in your head, the model, and then it’s like, well, I only have like six or eight hours to work on this, and then it’s six days—five days gap—until the next time, and it’s really, really cumbersome, and that’s where I think the difference between an early hypothesis of TinySeed was getting folks who are trying to do this part-time and get them to full time.
Even in the first batch, and especially in the second batch, most of the founders were already doing it full time. While that hypothesis has held in a small way, it’s not the main focus of what we’re doing anymore, but I do feel like that step from part-time to full-time focus, if you can work 15 hours a week on it versus 45 hours a week, it’s not three times more productive. I think it’s 5–10 times more productive because all of your focus is there. All of your mental RAM is devoted to it and you can just keep it loaded up constantly.
Benedikt: Even on the days where you’re working on the product test, there are so much other stuff going on in the background that just takes focus away. Just being able to focus on one thing for the entire time is just super valuable because it just removes all the other background tasks and responsibilities you have with your clients. That makes it easier to execute on the product.
Rob: Your growth has picked up. Why do you think that is?
Benedikt: I think what helped is that we launched our in-app messaging feature and recently launched our new $9 startup plan. I think that lowered the barrier for some people to try the product and get started using it, even when they’re still in early stages. Previously, we had the lowest plan of $49 a month and I feel there’s still a reasonable price point but for someone who’s just starting out, it was a little bit too much.
We wanted to offer a better deal for small people similar to where we are and provide them with a product that they can integrate early and start using to send messages to their customers. I think that helped, the numbers show that since we launched that plan, we get more trials and more trials to convert, especially into the small plan.
Rob: You feel it’s working so far?
Benedikt: Yeah. I think it’s working so far. It’s still below our goal, but the time horizon for that is still two months out. We wanted to reevaluate after two months, three months, and I’m confident that we’ll get there.
Rob: Right, because the danger obviously for listeners is, if your current lowest pricing plan is $49, and you’re going to introduce a $9 plan, (1) you can cannibalize some of your existing MRR for people who are who qualify for that $9 plan who are already your customers, and (2) people who would come and would have signed up for $49 sign up for your $9 and so you’re basically dropping your average revenue per customer, and that’s the danger of it. What do you think about that?
Benedikt: Our hope to limit on the starter plan on the new $9 plan is 100 customers, and we hope that people in that range are more willing to pay for a $9 plan than they are for a $49 plan. Ultimately, I hope it’s more people who are willing to sign up instead, and those who would have signed up instead and now are paying less than they would have before.
Rob: That’s the thing, 100 customers, so that’s 100 contacts, 100 people, 100 email addresses, and if you’re running a SaaS app, and you have 50 customers, if your average revenue per user is $1000 a month or something, wow, that’s a $600,000 a year business, but a lot of the SaaS (I think) that’s probably signing up for this when you’re under 100 customers, you’re still pretty early stage.
Benedikt: I think I agree but that’s also one of the challenges with our pricing is one customer of our customers is valued a lot differently depending on their business model. If you’re running a premium business, then one customer or one user in Userlist isn’t worth much, but maybe it’s an enterprise business that just needs 50 users to be super profitable, then when using Userlist is worth a lot to them. That makes it hard, but so far, I feel this is a good middle ground.
Rob: We struggled with that running Drip, too. It’s a similar thing. We’d have a blogger with 600,000 people on their email list, and they didn’t have that much revenue. They didn’t make that much revenue off of each person, so they were worth $1 amount less and then we’d have a consulting agency with 500 contacts or 1000, but each contract was worth $30,000, $40,000, $50,000 to that agency, and we shrugged their shoulders and said the only way to get around this or to figure out how to get more value-based pricing is to not just have it be a number of subscribers. It didn’t introduce feature gating where I knew the agency wanted integration with some Salesforce or they wanted integration with some tool that only the agents will be using and that the blogger would not use.
If we were to go, we didn’t wind up going down this path, because it just wasn’t worth the time. There were more important things to work on, but that’s how we would have done it is implemented a feature or two, and then put it in a gated, whether it was an add on of $100 per month to have that integration or whether it’s just a separate tier that you’d have to be. If you wanted the most value of an agency, that’s how I would think about it.
Benedikt: We considered this when we launched in-app messages. Basically, the idea was let’s just launch in-app messages on the larger plan, I think starting at $99 per month, but ultimately we decided against it because it felt a little bit against our ethos or motivation to build a tool for people like us, and then artificially limiting an essential feature or somewhat essential feature felt the wrong way to go. It makes more sense when the actual features are only valuable to a certain type of customer, but within that message, it felt like it was the wrong way to go.
Rob: Speaking of the in-app messaging launch, that was just a few weeks back, and you would talk on your podcast about you and Jane focused on launching it on Product Hunt, but it didn’t quite go the way that you wanted. You want to talk listeners through what the goal was, I guess, to get a lot of exposure and what went wrong there?
Benedikt: The plan, as you said, was to get a lot of exposure, especially outside of our audience, because we have a mailing list and we send regular updates to the travels on our mailing list, our customers, our Twitter followers, and stuff like that. I think most of them were probably aware that we were building this and working on this because frankly, it took a long time and we’ve been talking about this for months now. The plan for the launch was to make a little bit of a splash and get it noticed outside of our communities and our audiences, and the plan was to basically launch it on Product Hunt on that day, send an email to our mailing list, announcing it linking to the Product Hunt page.
I tried to get a lot of eyes on the Product Hunt posting and a lot of AdWords there, so it would get on the front page and rank really well. It gets a lot of AdWords and stuff like that. The problem is that it didn’t happen. We posted it and sent the emails, tweeted about it. I guess a lot of people in our audience saw it and uploaded it, but it wasn’t enough to get us on the front page, and then the popular category for the day. That essentially meant that nobody else saw it, or very few people outside of our audience saw it. That was a little bit sad because it didn’t work out.
Rob: Was it like you put all your eggs in one basket, the Product Hunt basket and it didn’t work?
Benedikt: Yeah, absolutely. All of our communication around the launch was focused on our Product Hunt page, even in our Google Analytics stats for our website, there’s no way to notice the launch. There’s no spike in traffic, nothing. We put all our eggs in the Product Hunt basket and that didn’t work out. In a way it was a little bit of a failure, to be honest.
Rob: That’s a bummer. It’s always an experiment to do that. We each face that dilemma. Anytime we want to do a launch, it’s like, okay, we’re going to post it to Product Hunt. Do we send everyone there? Do we send some people to our landing page and some people to Product Hunt, and some people to Hacker News? There are a lot of moving parts. There’s a lot of gut feeling of let’s try it out. Here’s the thing. If it had worked, you would have gotten a lot of exposure. Just because it didn’t work doesn’t mean it’s the wrong decision. I think that’s something to think about.
Benedikt: That’s true but next time I probably at least link to the website as well, in the emails and stuff like that. Just be deliberate about also, using other platforms properly. For example, post it on Indie Hackers. We did that but also linked to the Product Hunt page. We just did a bad job at promoting the launch outside of Product Hunt. In hindsight that was a problem.
Rob: It could have had a little bit of link diversification is what you’re saying?
Benedikt: Yeah, link to the website here and there, and then maybe have a little banner on the website that links back to Product Hunt or something like that.
Rob: That’s cool. I used to describe you as, hey, it’s userlist.io because that was your domain name, but you bought the .com six months ago or whatever, and you paid a few thousand dollars for it. I think you said the price on your podcasts. Do you want to talk us through? Obviously, the thought process is because the.com is awesome and now your name can just be Userlist rather than everyone saying Userlist.io, but was that a risk for you guys? Did you feel it was a lot of money to pay? Do you think it’s been worth it?
Benedikt: It was a lot of money to pay but I think it was worth it. It’s so much better.
Rob: What was the price?
Benedikt: It was $4000. I think in the episode with Jane, I think you talked about this a little bit as well. If listeners want to get to full details on the negotiation stuff like that, they should probably just go back there.
Rob: I probably should have mentioned this episode earlier. We talked about Jane being on the podcast, it was episode 471 of the show called, Fighting to Gain Traction in a Crowded Space, and we do talk about just about a bunch of other interesting stuff that I’m not going to rehash here, but you had a third co-founder and how you guys work through that.
I’m curious over this to this 2½ years, what’s been the funnest part? What’s been the best part for you where you think, man, this is so cool?
Benedikt: Getting it into the hands of the first customers, the first beta customers, and seeing them use the product and get some value out of it. That was definitely something exciting, and seeing the product work in reality and not just on my development machine, my test setup. That was definitely exciting. Once we launched the launch of the product on Product Hunt went really well. That was also exciting. Joining TinySeed was also a cool milestone, to be honest.
Rob: I want to talk about that in a second because we’re essentially five weeks into batch two that you’re in, but a little more than that we’ve been in the Slack channel. I want to touch on your experience there. Before we do that I’m curious what one or two things have been the hardest for you? You can either take us back to a moment where you were shaking your head like this is terrible or just talk more generally.
Benedikt: The hardest part was definitely staying focused while we were still doing this on the site, keeping up the momentum, and making meaningful progress while also doing a lot of other stuff. That was definitely hard, and I also remember late last year, there was a phase where a lot of stuff was going on. I think it was shortly after we applied to TinySeed, and for some reason, during a couple of weeks, customer support was just really tough. There were a lot of requests by customers and also a lot of very hard support tasks with people asking us to review basically their entire setup.
Answering one of those tickets took well over an hour just to browse through their account, understand what they were doing, figure out all the edge cases. It just was a lot, and it was really tough on me, and I felt in that week or those two weeks, I felt I’m burning out. I can’t do this. I can’t do this anymore, but eventually got better, and since then I’ve been a little bit more deliberate about not having notifications for every single support ticket that comes in just to not get distracted by work stuff when I’m actually not working in the evenings and things like that.
Rob: It’s really hard in those early days because you’re trying to make every customer super happy, and what becomes completely not scalable later, is spending 60–90 minutes on a support ticket, but in the early days, I remembered us doing it as well. I’ve done it with multiple products where I’m going above and beyond because you’re scraping and clawing, not only for every customer to keep them around, but you wanted them to just have that wow moment and you want them to tell other people about your product. In order to do that, you have to sometimes do things that feel ridiculous when you say them out loud. It’s an hour on a support ticket but that was probably worth it. They’re probably a customer for life.
Benedikt: Yeah. Also, at this stage, we’re still learning so many things about how people use the product, so it’s also valuable just from a product development standpoint just to dig in and understand what people are doing with the tool. We still do that. When the need arises, we really dig in and try to understand the problem and analyze what’s going on, but I don’t get notifications for every single email in our support […] anymore.
Rob: I think there’s a moment in every product’s lifespan, and it’s typically fairly early on where it’s like, okay, I need to disable the email I get every time a credit card is charged because when you have five customers and they charged across a month, it’s like, oh, it’s no big deal. When you have 100 or 1000, it becomes ridiculous. That’s a cool milestone, and that’s the other one. At first, hey, we’re getting one support ticket a day or three a week, and then suddenly, it’s like, well, we’re getting three a day, we’re getting five a day, and that’s a good sign that things are moving in the right direction, but you have to figure out a balance there.
Very cool. TinySeed I hinted at that earlier, as I said, in your introduction, Userlist is, of course, a TinySeed batch two company for the 2020 batch. I’m curious. You and Jane, why did you decide to apply? What did you hope that you would get out of TinySeed?
Benedikt: I hinted that a couple of times and the answer is definitely focus. This was the main reason for us. We decided to go full-time in January and made that decision even before applying to TinySeed, but it was clear that we’d only have a runway of six months or so. Applying to TinySeed allowed us to extend that runway by a little over a year and just be able to focus on the product throughout this entire year and not worry about anything else.
Of course, we didn’t know it back then but now with the pandemic, it’s really, really nice to not have to worry about getting a new consulting gig, finding new work, and stuff like that. We got lucky there, I guess.
Rob: Pandemic was unexpected for a lot of us but it’s interesting to hear, because obviously, I said earlier, hey, our initial hypothesis two years ago, when we started it was to get people working full-time. You were effectively already doing that, but it’s an extension of the runway. In a way, it still fits that initial hypothesis just giving you more time to focus full-time, and I think that’s going to be valuable for you all.
Benedikt: It really works out that way for us in our particular situation. We honestly thought about applying for a batch one, but back then decided against it. Back then we were still three founders and I think you invested a little bit less money than you did this time. Back then it didn’t make a lot of sense in terms of we wouldn’t be able to pay the three of us salaries that would allow us to just focus full-time. Back then it didn’t make sense but this time, just being two founders and getting a little bit more money, it has absolutely made sense.
Rob: That makes a lot of sense. We’ve just made minor tweaks from batch one to batch two. I think the terms were virtually identical. Except for that for additional co-founders, we upped the amount. We increase the amount that we give. That’s cool to hear that that made a difference for you. You’re five weeks in technically to the batch but we’ve all been in the Slack channel now for a few months. Any surprises for you?
Benedikt: No surprise so far, I guess. Nothing big at least. It was an exciting day. We all join the Slack channel and discover that well-known faces and friends in the batch. There are certainly fun parts and a surprise. Other than that, I am really enjoying it so far, especially the weekly calls, with small lectures by you and Einar. Those have been really, really good. I’m also a little bit sad that we didn’t make it to MicroConf US didn’t happen because we were supposed to go there, meet everyone. That didn’t happen, but the replacement online retreat that Tracy came up with was really enjoyable. Even though it was like three hours on two days, which is a ridiculously long Zoom call. It was still a lot of fun.
Rob: It was such a bummer for everyone. There are worse things happening. It’s hard to complain, but that was one of the biggest disappointments I’ll say, around the pandemic was not being able to have the MicroConf here in Minneapolis and not being able to get together both with MicroConf folks but also all of you in TinySeed.
All right, sir. Thank you so much for coming on the show. I think we’re going to wrap up here. If folks want to check out what you’re working on, they can head to userlist.com, and of course, the Slow & Steady Podcast you released with Brian every week and @benediktdeicke on Twitter.
Benedikt: Go to the show notes and click on the link. It’s easier.
Rob: I won’t spell his name out. Very cool, man. Thanks again for coming on the show.
Benedikt: Thanks for having me.
Rob: Thanks again to Benedikt for joining me today. If you want to invest in companies similar to Userlist we are working on raising our second fund at tinyseed.com/invest. Next week’s episode I’m hoping to do a Q&A episode, so if you have any questions for me or our potential guests I will bring on, please send them to questions@startupsfortherestofus.com and of course voicemails go to the top of the stack. I believe we only have one maybe two voicemails right now, so it will likely get answered next week if you send a voicemail in, but text questions are always welcome as well. Thanks for joining me today. I’ll see you next time.
Before we dive into that, if you’ve checked out the kinds of companies that TinySeed is investing in, and you’d be interested in investing in TinySeed and effectively diversifying your investment across many, many early-stage B2B SaaS companies with traction, and to see the companies we invested in in batch one and two with our first fund, you can just head to the homepage, tinyseed.com and you’ll see all the links there or you can hit this tinyseed.com/latest and we have a list of our second batch that we just announced.
The types of companies we invest in are bootstrapped cash-efficient. They’re the types of startups that you hear me talk about and espouse on Startups For the Rest of Us, and that you run into at MicroConf and other events that cater to those of us who are building ambitious yet sane startups. If this is an asset class you’ve considered investing in and you’re an accredited investor, TinySeed is a nice way to do that, because of the automatic diversification you get across many B2B SaaS companies with traction instead of having to seek out all that deal flow and do all the due diligence and all the research yourself, you can instead rely on us to do the legwork for you. Tinyseed.com/invest if you are interested.
Just a little more background on Benedikt, before we dive into the conversation, Benedikt is the co-founder of Userlist. It’s at userlist.com, and their headline is behavior-based customer messaging perfect for your SaaS, so they have email and in-app messages. With that, let’s dive into our conversation.
Benedikt, thank you so much for joining me on the show.
Benedikt: Thanks for having me.
Rob: It’s great to have you. It’s your first time on the podcast?
Benedikt: It’s my second time.
Rob: Oh, you and Mike did MicroConf Europe Recap.
Benedikt: Yeah, a couple of years ago.
Rob: That’s right. I think I was with my family in Europe taking a vacation after MicroConf Europe and you came on and of course, Jane Portman, your co-founder has been on at least twice, and she was on about six or eight months ago, talking about your journey together, building Userlist, and of course, we’ll talk through that today a bit. I wanted to start by asking you about Help Founders.
It’s at helpfounders.com, and folks who are listeners to this show know that, in essence, it’s free advertising for early-stage SaaS products. We have donated a few slots to Help Founders and folks have heard a couple of the ads essentially that I’ve read and there are fewer ads, and it’s more of me talking about the product. I actually had met one of the founders of the products through MicroConf Connect. It was cool, but I’m curious. What was your motivation and Jane’s motivation behind starting that initiative?
Benedikt: To be honest, it was mostly Jane’s idea, entirely Jane’s idea. It was her first response to this whole pandemic coming over us and causing problems for a lot of founders, and we just wanted to do something to help out with the stuff we can do. Both Jane and I run podcasts, so it felt like an easy decision to just give shoutouts to fellow founders in our podcasts and just help the community that way.
Luckily, once we started reaching out and promoting this idea, a lot of other people like you joined with their podcasts, and I think at some point, we had more podcasts or more slots on podcasts than actual products. I’m not entirely sure what the numbers are right now, but the support we got or the support Jane got with this was amazing.
Rob: That’s something I love about this community of bootstrappers, makers, whatever we want to call them. That the founder community that we work in is, in general, just a very positive community. I think that comes from doing hard things, and knowing that putting things out in the world is pretty hard, and the generosity that I think you saw where you have more ad slots than Startups asking for them is pretty cool.
Benedikt: That was definitely an exciting part, and so far, I think it’s going well. People are getting shout outs. Some podcasts do really amazing jobs like doing real in-depth teardowns, more or less of the products, and the product ideas. It’s even more than just ad spots, at least on some shows.
Rob: I want to change it up and talk about Userlist. Userlist is behavior-based customer messaging, perfect for your SaaS. That’s the headline on your homepage. It’s basically emails and in-app messaging for SaaS apps behavior-based. A competitor of customer.io. You and I had chatted a little bit offline briefly about how it helps to couch in a person’s mind who’s listening like, what is this product similar to?
You guys have been working on this for several years now, and I know that growth has started picking up for you, but that in talking to Jane, again on the podcast several months back that it was really slow early on that it was slow getting going. Did that surprise you how long it took you to go from starting to build to $1000 of MRR?
Benedikt: It was definitely slower than we expected, but I feel a lot of that has to do with just how long it takes to actually build a product like this with doing consulting on the side, and basically doing this part-time. I’m sure if we were able to fully focus on it from day one, it would have been a lot faster, just because we didn’t have too many other things going at the same time, but then again, who knows? This is only a one time experience and not sure, maybe I’m wrong about it, and it would be slow.
Rob: It is pretty typical, especially both you and Jane were doing it on the side while consulting, is that right?
Benedikt: We had to pay our bills in the early days like the product doesn’t pay. With consulting on the side, you only get maybe a day or two of focused work on the product, especially on the technical side. Implementing the hard stuff makes it really challenging with just one or two days per week, then having a longer break, trying to get back into it, trying to remember what you did last week, what’s the plan to move forward, what changes are still missing, and stuff like that. Since we were able to go full-time earlier this year, we move a lot faster with everything.
Rob: I always struggled with that when I was still building on the side of whether to try to carve out a day a week. I really didn’t have the luxury at the time of carving out two days but carving out one day a week or whether it was evening hours and some weekend hours. Of course, in the evening and weekends, I was tired or I didn’t want to be doing it. I wanted that to be out having fun, but if I carved out the day a week, it’s exactly what you said.
You’d lose the context, the mental RAM of loading all the entire code base and everything, all the objects up in your head, the model, and then it’s like, well, I only have like six or eight hours to work on this, and then it’s six days—five days gap—until the next time, and it’s really, really cumbersome, and that’s where I think the difference between an early hypothesis of TinySeed was getting folks who are trying to do this part-time and get them to full time.
Even in the first batch, and especially in the second batch, most of the founders were already doing it full time. While that hypothesis has held in a small way, it’s not the main focus of what we’re doing anymore, but I do feel like that step from part-time to full-time focus, if you can work 15 hours a week on it versus 45 hours a week, it’s not three times more productive. I think it’s 5–10 times more productive because all of your focus is there. All of your mental RAM is devoted to it and you can just keep it loaded up constantly.
Benedikt: Even on the days where you’re working on the product test, there are so much other stuff going on in the background that just takes focus away. Just being able to focus on one thing for the entire time is just super valuable because it just removes all the other background tasks and responsibilities you have with your clients. That makes it easier to execute on the product.
Rob: Your growth has picked up. Why do you think that is?
Benedikt: I think what helped is that we launched our in-app messaging feature and recently launched our new $9 startup plan. I think that lowered the barrier for some people to try the product and get started using it, even when they’re still in early stages. Previously, we had the lowest plan of $49 a month and I feel there’s still a reasonable price point but for someone who’s just starting out, it was a little bit too much.
We wanted to offer a better deal for small people similar to where we are and provide them with a product that they can integrate early and start using to send messages to their customers. I think that helped, the numbers show that since we launched that plan, we get more trials and more trials to convert, especially into the small plan.
Rob: You feel it’s working so far?
Benedikt: Yeah. I think it’s working so far. It’s still below our goal, but the time horizon for that is still two months out. We wanted to reevaluate after two months, three months, and I’m confident that we’ll get there.
Rob: Right, because the danger obviously for listeners is, if your current lowest pricing plan is $49, and you’re going to introduce a $9 plan, (1) you can cannibalize some of your existing MRR for people who are who qualify for that $9 plan who are already your customers, and (2) people who would come and would have signed up for $49 sign up for your $9 and so you’re basically dropping your average revenue per customer, and that’s the danger of it. What do you think about that?
Benedikt: Our hope to limit on the starter plan on the new $9 plan is 100 customers, and we hope that people in that range are more willing to pay for a $9 plan than they are for a $49 plan. Ultimately, I hope it’s more people who are willing to sign up instead, and those who would have signed up instead and now are paying less than they would have before.
Rob: That’s the thing, 100 customers, so that’s 100 contacts, 100 people, 100 email addresses, and if you’re running a SaaS app, and you have 50 customers, if your average revenue per user is $1000 a month or something, wow, that’s a $600,000 a year business, but a lot of the SaaS (I think) that’s probably signing up for this when you’re under 100 customers, you’re still pretty early stage.
Benedikt: I think I agree but that’s also one of the challenges with our pricing is one customer of our customers is valued a lot differently depending on their business model. If you’re running a premium business, then one customer or one user in Userlist isn’t worth much, but maybe it’s an enterprise business that just needs 50 users to be super profitable, then when using Userlist is worth a lot to them. That makes it hard, but so far, I feel this is a good middle ground.
Rob: We struggled with that running Drip, too. It’s a similar thing. We’d have a blogger with 600,000 people on their email list, and they didn’t have that much revenue. They didn’t make that much revenue off of each person, so they were worth $1 amount less and then we’d have a consulting agency with 500 contacts or 1000, but each contract was worth $30,000, $40,000, $50,000 to that agency, and we shrugged their shoulders and said the only way to get around this or to figure out how to get more value-based pricing is to not just have it be a number of subscribers. It didn’t introduce feature gating where I knew the agency wanted integration with some Salesforce or they wanted integration with some tool that only the agents will be using and that the blogger would not use.
If we were to go, we didn’t wind up going down this path, because it just wasn’t worth the time. There were more important things to work on, but that’s how we would have done it is implemented a feature or two, and then put it in a gated, whether it was an add on of $100 per month to have that integration or whether it’s just a separate tier that you’d have to be. If you wanted the most value of an agency, that’s how I would think about it.
Benedikt: We considered this when we launched in-app messages. Basically, the idea was let’s just launch in-app messages on the larger plan, I think starting at $99 per month, but ultimately we decided against it because it felt a little bit against our ethos or motivation to build a tool for people like us, and then artificially limiting an essential feature or somewhat essential feature felt the wrong way to go. It makes more sense when the actual features are only valuable to a certain type of customer, but within that message, it felt like it was the wrong way to go.
Rob: Speaking of the in-app messaging launch, that was just a few weeks back, and you would talk on your podcast about you and Jane focused on launching it on Product Hunt, but it didn’t quite go the way that you wanted. You want to talk listeners through what the goal was, I guess, to get a lot of exposure and what went wrong there?
Benedikt: The plan, as you said, was to get a lot of exposure, especially outside of our audience, because we have a mailing list and we send regular updates to the travels on our mailing list, our customers, our Twitter followers, and stuff like that. I think most of them were probably aware that we were building this and working on this because frankly, it took a long time and we’ve been talking about this for months now. The plan for the launch was to make a little bit of a splash and get it noticed outside of our communities and our audiences, and the plan was to basically launch it on Product Hunt on that day, send an email to our mailing list, announcing it linking to the Product Hunt page.
I tried to get a lot of eyes on the Product Hunt posting and a lot of AdWords there, so it would get on the front page and rank really well. It gets a lot of AdWords and stuff like that. The problem is that it didn’t happen. We posted it and sent the emails, tweeted about it. I guess a lot of people in our audience saw it and uploaded it, but it wasn’t enough to get us on the front page, and then the popular category for the day. That essentially meant that nobody else saw it, or very few people outside of our audience saw it. That was a little bit sad because it didn’t work out.
Rob: Was it like you put all your eggs in one basket, the Product Hunt basket and it didn’t work?
Benedikt: Yeah, absolutely. All of our communication around the launch was focused on our Product Hunt page, even in our Google Analytics stats for our website, there’s no way to notice the launch. There’s no spike in traffic, nothing. We put all our eggs in the Product Hunt basket and that didn’t work out. In a way it was a little bit of a failure, to be honest.
Rob: That’s a bummer. It’s always an experiment to do that. We each face that dilemma. Anytime we want to do a launch, it’s like, okay, we’re going to post it to Product Hunt. Do we send everyone there? Do we send some people to our landing page and some people to Product Hunt, and some people to Hacker News? There are a lot of moving parts. There’s a lot of gut feeling of let’s try it out. Here’s the thing. If it had worked, you would have gotten a lot of exposure. Just because it didn’t work doesn’t mean it’s the wrong decision. I think that’s something to think about.
Benedikt: That’s true but next time I probably at least link to the website as well, in the emails and stuff like that. Just be deliberate about also, using other platforms properly. For example, post it on Indie Hackers. We did that but also linked to the Product Hunt page. We just did a bad job at promoting the launch outside of Product Hunt. In hindsight that was a problem.
Rob: It could have had a little bit of link diversification is what you’re saying?
Benedikt: Yeah, link to the website here and there, and then maybe have a little banner on the website that links back to Product Hunt or something like that.
Rob: That’s cool. I used to describe you as, hey, it’s userlist.io because that was your domain name, but you bought the .com six months ago or whatever, and you paid a few thousand dollars for it. I think you said the price on your podcasts. Do you want to talk us through? Obviously, the thought process is because the.com is awesome and now your name can just be Userlist rather than everyone saying Userlist.io, but was that a risk for you guys? Did you feel it was a lot of money to pay? Do you think it’s been worth it?
Benedikt: It was a lot of money to pay but I think it was worth it. It’s so much better.
Rob: What was the price?
Benedikt: It was $4000. I think in the episode with Jane, I think you talked about this a little bit as well. If listeners want to get to full details on the negotiation stuff like that, they should probably just go back there.
Rob: I probably should have mentioned this episode earlier. We talked about Jane being on the podcast, it was episode 471 of the show called, Fighting to Gain Traction in a Crowded Space, and we do talk about just about a bunch of other interesting stuff that I’m not going to rehash here, but you had a third co-founder and how you guys work through that.
I’m curious over this to this 2½ years, what’s been the funnest part? What’s been the best part for you where you think, man, this is so cool?
Benedikt: Getting it into the hands of the first customers, the first beta customers, and seeing them use the product and get some value out of it. That was definitely something exciting, and seeing the product work in reality and not just on my development machine, my test setup. That was definitely exciting. Once we launched the launch of the product on Product Hunt went really well. That was also exciting. Joining TinySeed was also a cool milestone, to be honest.
Rob: I want to talk about that in a second because we’re essentially five weeks into batch two that you’re in, but a little more than that we’ve been in the Slack channel. I want to touch on your experience there. Before we do that I’m curious what one or two things have been the hardest for you? You can either take us back to a moment where you were shaking your head like this is terrible or just talk more generally.
Benedikt: The hardest part was definitely staying focused while we were still doing this on the site, keeping up the momentum, and making meaningful progress while also doing a lot of other stuff. That was definitely hard, and I also remember late last year, there was a phase where a lot of stuff was going on. I think it was shortly after we applied to TinySeed, and for some reason, during a couple of weeks, customer support was just really tough. There were a lot of requests by customers and also a lot of very hard support tasks with people asking us to review basically their entire setup.
Answering one of those tickets took well over an hour just to browse through their account, understand what they were doing, figure out all the edge cases. It just was a lot, and it was really tough on me, and I felt in that week or those two weeks, I felt I’m burning out. I can’t do this. I can’t do this anymore, but eventually got better, and since then I’ve been a little bit more deliberate about not having notifications for every single support ticket that comes in just to not get distracted by work stuff when I’m actually not working in the evenings and things like that.
Rob: It’s really hard in those early days because you’re trying to make every customer super happy, and what becomes completely not scalable later, is spending 60–90 minutes on a support ticket, but in the early days, I remembered us doing it as well. I’ve done it with multiple products where I’m going above and beyond because you’re scraping and clawing, not only for every customer to keep them around, but you wanted them to just have that wow moment and you want them to tell other people about your product. In order to do that, you have to sometimes do things that feel ridiculous when you say them out loud. It’s an hour on a support ticket but that was probably worth it. They’re probably a customer for life.
Benedikt: Yeah. Also, at this stage, we’re still learning so many things about how people use the product, so it’s also valuable just from a product development standpoint just to dig in and understand what people are doing with the tool. We still do that. When the need arises, we really dig in and try to understand the problem and analyze what’s going on, but I don’t get notifications for every single email in our support […] anymore.
Rob: I think there’s a moment in every product’s lifespan, and it’s typically fairly early on where it’s like, okay, I need to disable the email I get every time a credit card is charged because when you have five customers and they charged across a month, it’s like, oh, it’s no big deal. When you have 100 or 1000, it becomes ridiculous. That’s a cool milestone, and that’s the other one. At first, hey, we’re getting one support ticket a day or three a week, and then suddenly, it’s like, well, we’re getting three a day, we’re getting five a day, and that’s a good sign that things are moving in the right direction, but you have to figure out a balance there.
Very cool. TinySeed I hinted at that earlier, as I said, in your introduction, Userlist is, of course, a TinySeed batch two company for the 2020 batch. I’m curious. You and Jane, why did you decide to apply? What did you hope that you would get out of TinySeed?
Benedikt: I hinted that a couple of times and the answer is definitely focus. This was the main reason for us. We decided to go full-time in January and made that decision even before applying to TinySeed, but it was clear that we’d only have a runway of six months or so. Applying to TinySeed allowed us to extend that runway by a little over a year and just be able to focus on the product throughout this entire year and not worry about anything else.
Of course, we didn’t know it back then but now with the pandemic, it’s really, really nice to not have to worry about getting a new consulting gig, finding new work, and stuff like that. We got lucky there, I guess.
Rob: Pandemic was unexpected for a lot of us but it’s interesting to hear, because obviously, I said earlier, hey, our initial hypothesis two years ago, when we started it was to get people working full-time. You were effectively already doing that, but it’s an extension of the runway. In a way, it still fits that initial hypothesis just giving you more time to focus full-time, and I think that’s going to be valuable for you all.
Benedikt: It really works out that way for us in our particular situation. We honestly thought about applying for a batch one, but back then decided against it. Back then we were still three founders and I think you invested a little bit less money than you did this time. Back then it didn’t make a lot of sense in terms of we wouldn’t be able to pay the three of us salaries that would allow us to just focus full-time. Back then it didn’t make sense but this time, just being two founders and getting a little bit more money, it has absolutely made sense.
Rob: That makes a lot of sense. We’ve just made minor tweaks from batch one to batch two. I think the terms were virtually identical. Except for that for additional co-founders, we upped the amount. We increase the amount that we give. That’s cool to hear that that made a difference for you. You’re five weeks in technically to the batch but we’ve all been in the Slack channel now for a few months. Any surprises for you?
Benedikt: No surprise so far, I guess. Nothing big at least. It was an exciting day. We all join the Slack channel and discover that well-known faces and friends in the batch. There are certainly fun parts and a surprise. Other than that, I am really enjoying it so far, especially the weekly calls, with small lectures by you and Einar. Those have been really, really good. I’m also a little bit sad that we didn’t make it to MicroConf US didn’t happen because we were supposed to go there, meet everyone. That didn’t happen, but the replacement online retreat that Tracy came up with was really enjoyable. Even though it was like three hours on two days, which is a ridiculously long Zoom call. It was still a lot of fun.
Rob: It was such a bummer for everyone. There are worse things happening. It’s hard to complain, but that was one of the biggest disappointments I’ll say, around the pandemic was not being able to have the MicroConf here in Minneapolis and not being able to get together both with MicroConf folks but also all of you in TinySeed.
All right, sir. Thank you so much for coming on the show. I think we’re going to wrap up here. If folks want to check out what you’re working on, they can head to userlist.com, and of course, the Slow & Steady Podcast you released with Brian every week and @benediktdeicke on Twitter.
Benedikt: Go to the show notes and click on the link. It’s easier.
Rob: I won’t spell his name out. Very cool, man. Thanks again for coming on the show.
Benedikt: Thanks for having me.
Rob: Thanks again to Benedikt for joining me today. If you want to invest in companies similar to Userlist we are working on raising our second fund at tinyseed.com/invest. Next week’s episode I’m hoping to do a Q&A episode, so if you have any questions for me or our potential guests I will bring on, please send them to questions@startupsfortherestofus.com and of course voicemails go to the top of the stack. I believe we only have one maybe two voicemails right now, so it will likely get answered next week if you send a voicemail in, but text questions are always welcome as well. Thanks for joining me today. I’ll see you next time.
Episode 501 | A Bluetick Update from Mike #Taber
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In the first episode of Startups For The Rest Of Us since our 500th milestone, Rob checks in with Mike Taber about his progress with Bluetick.
It’s been nearly 7 weeks since Rob last checked in (Episode 494) and a lot has happened in the world since then. They talk about business trajectory amidst COVID-19, the health of the sales pipeline and unique partnership opportunities, as well as technical debt and making decisions about code optimization.
What we discuss with Mike Taber
- 6:38 Rob and Mike reflect on what made the podcast successful
- 12:05 Has Bluetick seen an uptick in interest since COVID-19?
- 16:58 Is Mike an optimist, or a pessimist (and what would Mike’s wife say)?
- 18:55 The highs and lows from the past few weeks
- 20:41 Mike on driving new prospects for Bluetick
- 22:38 Bluetick and unique partnership opportunities
- 30:47 Managing technical debt and making decisions on optimizing your code
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How can I support the podcast?
If you enjoyed this episode with Mike Taber, let him know by clicking on the link below and sending him a quick shout out on Twitter:
Click here to thank Mike Taber on Twitter.
Click here to share your number one takeaway from the episode.
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: I can barely believe my ears. It’s another episode of Startups for the Rest of Us. Welcome to this week’s episode, it’s episode 501. Today I talk with Mike Taber of Bluetick to get his update that I get every month or two. It’s good to connect with Mike. Last time we spoke it was the beginning of the COVIDs quarantine process, so it was good to catch up with him today.
Before we dive into that, through helpfounders.com, I have volunteered up a couple of ad slots for startup founders. Specifically, I had an ad a few episodes back. Every so often, I will be talking about someone in our community in the Startups for the Rest of Us, MicroConf, Bootstrappers, self-funded, and indie-funded founder community. This week, the company I want to talk about is called Versoly, versoly.com. Versoly is a SaaS-focused landing page and website builder aimed of course at SaaS marketers and founders.
I had the pleasure of speaking with the founder through an impromptu meeting on MicroConf Connect. MicroConf Connect, if you don’t know, is (I think) about 1100 founders and aspiring founders in the Slack community that is helping each other out, sharing info, and asking questions. We did a MicroConf meet away where we were paired up with individuals and just got to have a conversation for 5 or 10 minutes. It spun the roulette wheel and connected you with the next person. It was super fun to be able to meet other like-minded people that I otherwise just wouldn’t have connected with, I wouldn’t jump on Zoom, or otherwise wind up in Squadcast talking to them.
I had the pleasure of meeting the founder of versoly.com. Versoly solves that problem of well I need this marketing side. I don’t want to build it in my app so that I have to do a code push to change it. I don’t really want to do it in WordPress. Should I do it in Squarespace? Do I do a static site builder? Versoly’s goal is to get you past that. Their headline is conversion-focused website builder. Versoly is a single platform to build landing pages, create blog posts, and collect leads; no code required. Check them out if you are in the market for that, and help out some fellow bootstrap founders.
Also, as a final reminder, if you’ve been wanting to get involved in a mastermind group with like-minded startup founders at any stage, head to microconfmasterminds.com. Applications close this week, and we will be doing matching here in the next couple of weeks.
I’ve been getting great feedback about recent episodes. Lots of praise but also some constructive feedback, and it’s super helpful for me to hear what you’re thinking about the episodes. I’ve been changing up formats and experimenting. I received a really nice email from a listener. He said, “Best episode ever,” as the subject line. He said, “I thought you’d like to know that the two-part episode this week,” which was episode 499 and 499½ that I recorded with Jordan Gal about the first six stages of SaaS growth, “was beyond words, stunning. I don’t know if people at the start of the journey will appreciate it quite as much, but speaking from a business in the product-market fit stage, this was utterly compelling. Two things made it so extraordinary. The similarities and differences of your two experiences, which played in my head the similarities differences with my own, and number two, the way you to build up a picture so similar to the experience I’ve lived and then explained what’s about to happen next, which played in my head as news that I need to know and be aware of. Thank you and please pass on my thanks to Jordan as well. This was very informative and inspirational.”
Thank you so much for writing that email. This was helpful in a couple of ways because, of course, it makes me feel good and it makes me feel like I’m onto something with it, but he specifically called out how this was helpful to him and how I’m able to now, in the future, think of how I can shape other episodes to have perhaps a similar focus or similar format. There was some unique experimentation with that episode with Jordan. It wasn’t an interview, but it was two people sharing their parallel experiences and comparing and contrasting.
I’m glad that it resonated. I know we had a great time recording it. That’s why I went on for so long because I felt like it was just so packed densely with information that I’m hoping can help startup founders like yourself. Keep an eye out for potentially more episodes like that in the future.
With that, let’s chat with Mike Taber, the co-host emeritus of Startups for the Rest of Us who co-hosted the show with me for the first 448 episodes, and now comes back every month or two to give us updates on his progress with his startup bluetick.io.
Mr. Mike #Taber. How are you doing this week?
Mike: I’m doing good, how are you?
Rob: I’m doing all right, man. It’s always good to chat with you, catch up, and hear how things have been going.
Mike: Yeah, definitely. What’s the news?
Rob: 500th episode went live last week, man. How does it feel to be the old guy at the club? Have you ever heard […] thing? You’re not that old, you’re just a little too old to be at the club.
Mike: Yes. I don’t know. It’s been a long ride.
Rob: Yeah, it’s a trip. A little more than a decade; 500 episodes. Although when I log into Castos, it looks like there’s actually like 523 audio files because we’ve done half episodes, we’ve done bonus episodes, you’ve done announcement episodes, and there’s this, but the numbering is what’s important.
Mike: I mentioned to my wife that out on the website there was episode 499.5 and she’s like what is that?
Rob: Here’s what happened, actually, I went to record this episode with Jordan Gal. It was just a really good conversation and I didn’t want to cut it off, but it was over an hour. We recorded for 1 hour and 15 minutes. I was like no problem. I will just cut this in half and air one this week and one next week. Of course, I had already had a bunch of stuff planned for episode 500, which was the next week. I want to do this as a two-parter. I was going to do it like a Tuesday, Thursday type thing. That’s what happened. Maybe, in retrospect, I should have just left it as 1 hour and 10 minutes episode. It worked out fine.
Mike: It’s fine. Just having those half episodes every once in a while it’s like oh here’s a little bonus or something like that. That’s totally fine. Plus it lets people split it up in their podcast player a little bit. They’re like oh what’s that?
Rob: It’s like hey 30-minute episode’s cool, and I agree. Any time I have a podcast that I like a lot and they unexpectedly release another episode, I’m stoked because I’m like oh two episodes this week. I get twice the fun. That’s a little bit what I was going for at that for 499.5. What do you think, man? In the 500th episode, I know that you’re not on Twitter, you’re not listening to the podcast anymore, but I talked a little bit about why I think the podcast has been successful and stuck around this long and all that.
One reason we stuck around is because we just kept showing up. I talked about consistency and just being authentic. We were always ourselves on the show rather than trying to play up parts, be dramatic, or play a role. Those were the two things that came to mind for me. As I listened back to 500, I was like oh there’s at least another two that I think I could name now, but I’m curious if you’ve given it any thought. The podcast has been successful, why did we stick around for so long?
Mike: Way to put me on the spot without anything in the outline.
Rob: I know. I totally should’ve given you a heads up. You have time though because you can edit out the silence, right?
Mike: I can’t.
Rob: It’ll get edited out.
Mike: I’m sure it would. I agree with you definitely on those two points. I think that the consistency of showing up every single week and being able to have people count on it and reliably know that that podcast episode was going to go live every Tuesday. I can only remember one instance where it didn’t go live on Tuesday morning when people expected it to, and it was because of some snafu in WordPress where it just didn’t get published for some reason. Everything was ready. It just didn’t go out at the time that we expected it to. It went out three or four hours later, but by 7:00 AM, 8:00 AM in the morning we were already getting emails like hey are you going to put a podcast out this week because I’m not seeing it my player?
I think that—I don’t want to call demand for it—the anticipation of knowing that it’s going to be there every Tuesday for some people, it’s part of their ritual, it’s part of their weekly commute or something along those lines. Maybe their daily run. They’re like oh it’s Tuesday, I get to go listen to this. I do think that that plays a major part in it. I also agree with you that the fact that we’re ourselves on the podcast probably has a lot to do with it because we’ve met people in person at MicroConf, other conferences, or in-person meetups and stuff like that. And I hear from people on occasion, they’re like, yeah, you’re really not any different than you sound like on your podcast.
I never really understood that before until my kids have started watching YouTube. They watch some of these shows where these people just act completely off the wall. They’re obviously late 20s, 30s, some of them are probably even older than that and they act like they’re 12. They make these ridiculous comments and it’s aimed at a younger audience, which I guess with YouTube, you’re not really not supposed to do that. I can almost guarantee that that’s not how those people act in real life. It’s an act, it’s a show for them, but we’re just really having a conversation. That definitely plays into what has been appealing to people. I mean, also being one of the first podcasts aimed at bootstrappers probably didn’t hurt, and the one that people recommend quite a bit. We’re actually out there doing this stuff and not just talking about it, but doing it as well.
Rob: It’s an interesting point because I have often thought, when we launched in 2010, the radio that I listened to was pretty heavily produced. I would listen to morning shows and those DJs are totally doing the performance thing with the horn honking (Sunday, Sunday, Sunday). Their voice is just like whoa. But some people have come on the scene who do have these big personalities. I think of like a GaryVee where when he actually sits down, he’s pretty chill, but definitely on his video blog, he played it up big time when he was doing the wine tasting, but it worked for him. That’s the thing is I wouldn’t say you should just be authentic because we did and it’s worked for us.
I honestly wonder if perhaps it’s to our detriment because you and I are chill, even-keeled people. Maybe if we had played it up and had a bunch of drama would we have twice the audience? Maybe it’s a counter factor and just the fact that we’ve been around 10 years has been the reason for success.
Mike: Shut up, Rob. You don’t know what you’re talking about.
Rob: Love it. We’ve never had arguments on the air, except for about desktop versus laptop, Mac versus Windows, but this will be it. This will be the argument.
Mike: We’ll just go back to an arm-wrestling match. It’s funny. I bring that up almost facetiously, but most of the audience probably doesn’t know this. The first MicroConf that we ran, the last question I put on the 45, 50 plus question survey was who would win in an arm-wrestling match, Mike or Rob? 75% of the audience said me. I think we should revisit that and put that on another survey.
Rob: Those poor suckers. We should and we should make it a little interesting. How about we put a little green down on this thing?
Mike: Then we’re actually going to have to have the arm-wrestling match at some point, though.
Rob: We’ll do the match. Once I know when it’s scheduled for, all the time when I’m on the phone calls, I’m just going to be doing curls with my right arm. Just pumping and pumping. I’m going to have a bicep on the arm. Well, man, it’s cool to have made it to 500, and I’m glad you’re able to join us again this week to catch us up on what you’ve been up to over the past seven weeks. It’s been seven weeks since our chat, episode 494.
Frankly, the two calls prior to that, our two conversations, were positive. You were upbeat, you were motivated, and things were working. You had more than doubled in about four or five months. Last time we talked, it was in late April. It was right at the beginning or a couple of weeks into the whole COVID quarantine stuff. You basically said that the current trajectory of growth had not continued. You had plateaued and I felt like both of us were like yeah, a lot of apps aren’t doing that right now. There’s so much uncertainty.
Since then, with companies that I’m working with and have insight into, stuff has started picking up again, at least to some extent. There are still those big winners, let’s say Zoom, Slack, or someone in the podcast space. Then, there are big losers that are software for schools that are all shut down. Whatever, we can think of examples. The people in the middle like 70%, at least based on the numbers I’m seeing, have seen an uptick in interest. People are marketing again and people are sending deals again. I’m curious to hear from your perspective, bluetick.io, is it following that trajectory as well over the past couple of months?
Mike: Yeah, I would say so. It definitely dipped a little bit after our last conversation probably seven weeks ago or something like that. It dipped for probably another three or four weeks after that. That was in terms of existing customers churning out and saying oh I’m going to put my subscription on hold for a little while then revisit this in a couple of months. Since then, things have started to tick back up again.
Last week, I actually had a customer who was already on board and they upgraded to the tune of another $500 a month or so. That’s good to see. Obviously, the tool itself is doing what it’s supposed to do and it’s working for them, so they’ve expanded the use of it by quite a bit. It’s nice to see that.
There were two other deals that I had been working on. One of them had that conversation internally about whether or not they were going to look into Bluetick and use it to replace the existing tool. They said look, we’ve made this decision internally that we’re not going to start any new vendor relationships right now, but we do want to revisit this. They just basically said not right now. There’s the other one that I was working on where that one’s sort of in limbo right now, still working on trying to figure out exactly what’s going on there. I haven’t been told no, but I haven’t been told yes, either.
Rob: One was a pilot and another was just a large customer on the phone, right? Did the pilot not go through?
Mike: Yeah, it was the pilot that they said we want to come back and revisit this because they didn’t have the time to actually dedicate to doing the pilot. They did some things here and there, but they really didn’t spend a lot of time on it. I talked to them a couple of times about it during the pilot and they said yeah we’re just really busy. We’re swamped, we’re trying to get things with our existing customer base and trying to retain those people. They just didn’t have the time to spend on working with a new tool to see if it was going to replace an existing tool. It was just internal priorities they couldn’t do it, but they said flat out this isn’t a no, we want to come back to this later.
Rob: That could be code for we just don’t want to tell you no, but you just don’t know, right?
Mike: It could be but I feel like they would have just said no.
Rob: Yeah. Do you have plans to circle back with them in a month or two or what’s that look like?
Mike: I have it on my calendar to go back to them. I forget exactly when the date is, but I think they said six months. I’ll probably give them like four or so and then touch base with them to see where things are at and start those conversations again because I know it’s going to take a little bit of time to get them either up to speed or allocate some time or what-have-you. Even if I talk to them, they have to have internal conversations first because it’s a team of people. It’s not just one person making the decision. That’s on my list of things to follow-up on.
The other one, I have talked to the person who put me in touch with them to see if it was something that they wanted to go forward with or if they were just kind of table in it for now. But they wanted to use it mainly because their sales reps were no longer out in the field and needed a better way to communicate.
There are some educational difficulties there. Some of them are essentially using MailChimp to send out “personalized emails” to everybody. I’m like that’s not really how it should be done, but this is just a different tool. I don’t think they really get the subtle nuances between them and things with subscriptions. People can unsubscribe and then they don’t see them, what are they using it for, and all that kind of stuff.
Rob: That’s disappointing to hear. I remember at the end of the last episode I said well that would be a big win if you got both of them to sign up. You said it will be a big win if I get one of them to sign up. I was like come on, Mike. Be more optimistic, but it sounds like that’s what happened. It’s a bummer that they didn’t come through.
Mike: Right. Like I said, the other one still could come through, I just don’t know yet. But even if it doesn’t, at least it was being evaluated. I’m more encouraged by the fact that I was in the running for an evaluation with a company that wanted to do a pilot to switch over from an existing tool and use Bluetick instead. I think that that’s a very encouraging sign, especially since between that, and I’ve had somebody else who upgraded their account and added a bunch of mailboxes to the tune of $500 a month as of last week. To me, those are encouraging signs.
Rob: Do you consider yourself an optimist, pessimist, or realist?
Mike: I don’t know. It depends on how full that whiskey glass is and whose whiskey it is.
Rob: Yeah, I could imagine.
Mike: I don’t know. There’s a lot of factors around it. I used to be much more of an optimist and now more of a realist.
Rob: Then life hit me like a freight train.
Mike: I wouldn’t say I’ve turned into a pessimist, but I also recognize that just because you want something to be true doesn’t mean that it’s going to be. There are various challenges or things that are completely outside of your control that factor into it. Some things you can do something about and some things you can’t.
Rob: Let me ask this question in a different way, would your wife say that you are an optimist or a pessimist?
Mike: Oh, good question. I don’t know. That’s a good question. I really don’t know. I don’t think she would say, pessimist.
Rob: It’s not that important. I was just hearing from you. We’ve known each other a long time and just hearing you talk about the sales and being like yeah, it’s not a no. I’m going to come back to them in four months. It’s good to hear your optimism in that scenario. It does seem like you’re feeling pretty good about things. Is that accurate?
Mike: Yeah, it is. The thing is, in that particular situation, the reason I’m optimistic is because it wasn’t a no. But even if it was a no, I would at least be able to have that conversation with them to understand why it was a no and then go do something about it. To me, that’s still a learning experience. I could still take something from it and I get something out of it. If they just said no, we don’t want to talk to you ever again. By the way, we hired a goon squad to come over and kick your dog, that’s a bit of a different situation and I’d feel bad about it, especially since they can’t find my dog because I don’t have one.
I view it as an opportunity to learn more and to be able to make things better. Obviously, if they hate the color of my eyes, there’s very little I can do about that but shut off the webcam.
Rob: I always ask you what are the highs and lows over the past seven weeks since we last spoke. Would it be accurate to say that the low is probably not closing either of those deals and the high is the $500 a month expansion revenue?
Mike: Yeah, I think so. I would agree with that.
Rob: I’ve been talking about how recurring revenue is the golden ticket of software sales, expansion revenue, and net negative churn is the golden ticket of SaaS of recurring revenue. If you can build a business that has expansion revenue, it’s unbelievable when you see it. Hypothetically, if you close zero new deals, your revenue would grow, your MRR would grow. It blows your mind when you see that happen. The fact that you had that, is this true expansion revenue where their usage expanded? Did they add another team because it’s seat-based, correct? Did they add another group of people after using it in production on one team? It wasn’t just a pilot where one person is using it, we added 10 people, that’s our usage. They actually added a whole another group?
Mike: Yes.
Rob: It’s a big deal. You should feel good about that.
Mike: Yeah. They put one person who is technical on their side in charge of the management of the accounting side of Bluetick. That person is managing mailboxes for a bunch of people inside the company. Basically, they’re using it for two entirely different things and they have two accounts in Bluetick where they can just toggle between the two of them. It’s all billed under the same account or same subscription, so to speak. It’s just two entirely different groups of people that are using it for entirely different things. It’s nice to see that that’s an option for people because I did add that in this past year where it lets them do that. Previously, you couldn’t do that. You’d have to sign up for a brand new account.
Rob: That makes sense. I’m curious, this is something I bring up every time because there’s a couple of concerns I have over the long term. One of them has always been the differentiation; why are people signing up, why are people sticking around. The other has been how are you going to continue to drive new prospects. Over the course of a few months, you had several sales teams or companies approach you and say hey we want to sign up. We either want to do a pilot, we want to sign up and evaluate, or whatever and you were in the sales process.
Obviously, we’ve just said the two of them didn’t close. The question is, are there any other new ones in the pipeline at this point? Have those bigger prospects—we were kind of calling like $500–$1000 a month—has that pipeline continued or is it mostly dry right now?
Mike: I would say at the moment it’s mostly dry. I do have some leads but nothing that is concrete that I’m reasonably confident that this is going to come in and we’re going to start something. It’s mostly early leads. If you look at a sales funnel and you say that they’re at the top of it, like they’re the 10%–20% range where you think they’re going to close, then at the bottom, they’re closer to 90%. There’s more of them that are at the 10%–30% range than there are below that. I don’t have any that are anything more than I would think 30% able to close in the near future. That said, I think that there’s a lot more up at that 10%–30% range than there have been in the past.
Rob: That’s a problem because if you look ahead—a month, two months, three months—unless you have a bunch of smaller customers in your pipeline, which I’m going to presume that isn’t happening right now because I don’t think you’re doing a bunch of marketing, then you’re looking to be flat from next time we talk. Unless between now and then, a larger customer comes and you’re able to close them in those seven weeks.
Mike: Yeah, that’s probably accurate. I really just don’t know how quickly some of these are going to move. There are some things that I’m working on with a potential partner where we’re essentially doing some sort of a bundled deal with my software. There are some synergies between the two, and then there’s going to be educational components and basically, a done-for-you service where it’s like here’s a bundled offering.
With all these things together, this is what you get and this is what it costs on a monthly basis. There’s an upfront payment for them to do. It’s not consulting work, but it’s like services work to get them up and running. It’s almost like a paid engagement to get things started and set up for them and then after that, they’re just paying for the software, but there are other things that we’ve kicked around where the idea is to do ongoing work for them and then we’re powering the services through the software. And part of that software is obviously Bluetick.
Rob: You told me a little more about this right before we started recording. Even more than you can say publicly on the podcast, I’m pretty bullish about this. It’s essentially business development, it’s a partnership where your software is included and sold by another company. It’s not with HitTail and without an invoice. Actually, with Drip too, we’d get these emails and it’s like hey I want a white label your software for realtors. I’m like cool what’s your footprint? How many realtors do you have access to? It’s like oh we’re just starting out. I’m going to build a website tomorrow. It’s like this is a complete waste of time, you’re going to waste my time. But this company is not that.
This is a company that has reach with a lot of folks in their vertical. It’s not realtors. I’ll be very, very clear about it. It was just an example I was using. They have reach, they’re legit, and they sell a lot of stuff and Bluetick being part of that makes a lot of sense if that goes through. You’ve been spending time on that putting that together and getting that moving?
Mike: Yeah. The majority of their customers are teams of people. They’re not selling to individuals or freelancers because their software is useless for those types of people. They do have an option for those types of people if they want to sign up, but that’s not really their core audience. Their core audiences are larger companies that maybe have 10, 20, 50, or 100 different reps working for them that they’re going to have licenses for. Bluetick does fit in pretty well with that, and I do think that there are opportunities there, especially since they’ve got an established customer base.
If we can present that to the existing customer base, not just the new customers that they’re bringing in but existing customers, then that’s an opportunity for growth as well. The relationship is such that I do think that there’s a high likelihood of some of those things closing. Like I said, if you’re talking from a sales funnel standpoint, I don’t think that they’re far enough along to really justify saying that it’s further along than it actually is. It’s in that 10%–30%.
Rob: It’s in the works, so to speak. Have you spent much time on other marketing approaches? Have you done any the warm/cold email, just anything else to speak of driving leads right now?
Mike: I have not. I have been heads down on a couple of things I can’t really talk about, at least not right now. I probably could maybe a couple of months out. I’m not sure.
Rob: It’s always hard to be on a podcast and that. I know what you’re talking about, of course, and it’s just stuff you can’t talk about, that’s where it gets tough. You’ve been spending a pretty significant chunk of your time, I’m going to say working on something else, but it’s like you’re not building another product so you don’t need to hear shiny object syndrome. You’re investing your time into something that I think you and I both agree could really lead to something for you.
Mike: Yeah. I don’t know how to really portray that for the listeners other than I’ve been fairly swamped and haven’t had enough time to dedicate to that stuff, but that’s that I have started carving some time out of my calendar from 3:00 to 5:00 each day to say this is going to be dedicated time towards marketing. That way, I at least get some of that time in. Whereas before, I wasn’t putting it on my calendar or making it a priority. Because of that it was just other things would creep in, that time would get eaten, and then the next day I’m in the same position. By allocating a couple of hours a day, I found that that has helped.
Rob: To be clear, the thing you’re investing a lot of time in it still includes Bluetick. It’s not like oh I’m going to go do this other thing and leave Bluetick behind; just for the listener. You’re not just moving from one thing to the next. Again, it sucks that we have to be coy about it, but this is the reality. I said this in episode 500 actually. I was talking about how hard it is, how I wish that every week two people could just sit on a microphone and could just update you on what we were doing and have it be just amazing radio. In my experience—and I think your experience doing it for 10 years—it’s just not always the case. Some weeks just nothing interesting happens. Other weeks interesting stuff happens that you can’t talk about.
This was a really hard thing for me during the Drip acquisition process that took 13 months and for 5 months, it was like 30 hours a week for me. Every week I’d show up and be like I got to think of something to tell people and felt a little inauthentic and awkward, but then you just can’t. You can’t talk about that. That’s what that is. We’ll circle up. Depending on timing on the next one, maybe I will check in with you and be like hey is it at a place where we can talk about it? Maybe we go a little further out. Maybe we’d go more than seven weeks in between if it makes sense to where we can talk about that.
I’m curious about the whole sealed .NET component that you had old customers, existing customers we’re still using it and you had implemented it with a feature flag such that new customers went on a different component. It was going to be, I believe, for the one that was going to do the pilot with you or they did the pilot with you, but is that on hold for now? Are new customers signing up with the new component, old customers are on old component, and you’re just there and you’re not going to migrate right now?
Mike: All of the new customers, as of a while back, are using the new version of it. I’ve not migrated over the existing customers mainly because that stuff still works fine, and it’s a lot of, I’ll say, data to just migrate for no particularly great reason because the stuff does still work. It’s just it would allow me to do other things. I will get to it eventually but right now it’s not necessarily a primary importance.
Rob: It doesn’t seem like it.
Mike: Yeah. If I really needed to switch somebody over to the new version I could do it, but I don’t necessarily know all the ins and outs of exactly which things may or may not break or may not come over correctly. I’m just leaving it as is. Honestly, a lot of the things that are not changed are from customers who’ve canceled and their data is scheduled for deletion or whatever. I’m not too worried about it. I hate to say like oh I’ll just let it go until those customers churn out and then just delete their accounts and I won’t have to worry about it. At some point, in the future, that could conceivably happen.
Rob: I don’t think that’s a bad approach. Hopefully, they all won’t churn out, but when you get down to the point where there’s a small number and you can do it by hand type of thing, migrate them over. It is technical debt, technically, but as long as it doesn’t hamper your feature development, and that’s what you said was like that prospect who was going to pay you whatever it was—$1000 a month or $1200 a month—you were going to do it what it took for them and that’s the case where you do it, when revenue is coming in. To me, more of a focus on driving leads and doing sales moves the business forward at this point.
Mike: Yeah. I don’t see any major impetus to go back and make changes to those existing accounts because, like I said, they work fine. It’s just that the new storage mechanism allows me to do more.
Rob: I think I’m just going to delete this from the future because I don’t know that it makes sense for me to keep asking you about it. It’s not done, it’s done enough, right? The fact that new customers are using something that you can write a test for and you’re happy with it, that happens all the time in SaaS. We still have 30 people on v1 billing and we’re on v6 billing. That happens, and they’re using old code. It’s not the end of the world. As engineers, I know you and we want all the I’s out and the T’s crossed, we want it gold-plated, and I want everything to be clean. It’s not always the reality.
In fact, it’s, in my experience, never the reality especially with a SaaS app that’s going quick, that needs new features, that need sales, and that needs all the stuff. You just don’t have the luxury sometimes to fix everything.
Mike: You don’t gold plate your code? We can’t be friends.
Rob: I do, but I tell other people not to. It’s funny there’s a start-up in batch two of Tiny Seed that is growing really quickly. They’re scaling up fast and he said, “When I wrote the code it felt like overkill, but now it doesn’t. I said, “Yeah, “It always feels like gold-plated code if you prematurely optimize, but if you actually do need to scale, then it feels like you made the right choice.” That’s the hard thing to know. It’s hard to know if you’re going to have to do that.
I felt like with Drip, Derrick made a lot of great engineering decisions and he wrote really good, scalable code. But we kept outpacing it and we would have, every four to six months, go back and do this and upgrade the database and stuff. That was taxing on both of us. It would have been crazy. It would have felt crazy to do a microsystems architecture from the start with all these different data stores when we were launching to 200 people. That would have sounded ridiculous, but if your aspirations really are to get to millions of dollars of revenue, I would do it differently this time. It’s such a hard judgment call.
Mike: I think that’s one of the interesting challenges that most people have as entrepreneurs is when you’re first building something and you don’t really have an audience, users, or people using the system or stressing it out in ways that you didn’t anticipate, you’re going to build it one way because you think that the parameters of the problem are a certain thing. As you start throwing stuff at it, you realize that you either made some poor assumptions or you were just wrong outright and then you have to redo them. You would have to do that refactoring process.
If you were to create a new SaaS app, if you decided we’re going to go back and we’re going to rewrite this, or you move on from one project to another that is in a similar domain or has similar types of operations, you’re going to build it fundamentally different because the challenges that you’re going to run into in the future. Most people do not have the experience of building multiple SaaS apps from the ground up. That’s what makes it hard.
If I were to redo things from today, oh yeah, there’s definitely a lot of decisions I would make very differently. I’m sure that you and Derrick would have made different decisions building Drip, but you don’t know those until afterward. At that point, you just got to deal with whatever technical debt you’ve built up.
Rob: Did you ever read the book The Mythical Man-Month by Fred Brooks?
Mike: I think I did but it was a long time ago. I don’t really remember.
Rob: It was like an early book, one of the first books on software project management. I think it was published in 1975. They were writing a bunch of operating systems for mainframes. Old by our comparison and really complex stuff. In the Mythical Man-Month, there is this concept. Each chapter is like an essay with a concept that he learned and that he posits in the book. One of them is called the second system effect. The concept is like architects and project managers tend to over architect, over embellish, and gold-plate their second project because you do your first project a bunch of stuff goes wrong, stuff doesn’t scale, there are bugs, there’s this, and there’s that.
The next one you want to do everything right and you overdo it. Again, it’s his theory that the third one is where you dial it in between, but I don’t know, man. Having seen really harsh scaling issues and being one of the people responsible to make that better, and to see how long it takes when you do hit scale, I don’t know if I’d call it over embellishment.
Mike: I don’t know. I think it depends a lot on what the specifics of those issues were because some scaling issues are easier to contend with than others. Sometimes, it just comes down to messaging, queuing, how up-to-date certain data has to be in the UI, and when you do stuff, but then there’s all this operational stuff.
Rob: Exactly. How long can you cache? That’s the thing, man. We did all that. That was the stuff we did for the first several years was all the caching, all the grouping queries, and we had read replicas of our of the database, but it was purely write load on a single data store. You have this Postgres database with 30,000 queries per second running on it. You just hit limits and we had terabytes. I don’t member what Amazon’s biggest box was in terms of RAM, but we had eight terabytes of RAM or whatever and it still couldn’t fit the whole data.
It’s those types of things where you’re at the extreme of it’s no longer I need to improve this code. It’s like we need an entirely different data store, whether it’s at a separate Postgres database or more likely an entire document database, or something that just has incredible write throughput.
Anyway, we’re way off track. This is an interesting tangent, but I don’t know if we need to keep covering it. I’m curious, as we think about wrapping up, there are two things. One is it sounds to me like your motivation is healthy and you’re feeling good. Your sleep is okay, is it?
Mike: Yeah, it’s generally pretty good, which I’m surprised at given the pandemic and everything else that’s going on and all the additional stress for everything. My wife’s business was holding out pretty well for a little while and then things started to take its major downturn.
Rob: I was going to ask you about that because she runs a fitness studio. I don’t know if folks know but obviously a brick-and-mortar. It’s tough.
Mike: I forget. I’d have to check with her, but I think that the revenue was down by 50% as of last I talked to her. It’s a subscription business but people are like I want to put my membership on hold. Granted, I get that. She’s done a lot of stuff to do virtual classes. She actually rented out her bikes. She has 20 spin bikes in her studio. What she did was for an additional, I think it was like, $50 a month on top of your existing membership, she would give you one of those bikes and you could take it home. Obviously, it’s got to be returned at some point, but while virtual classes are going on, you could use that spin bike to take the virtual class with the instructors that you liked and everything else.
It has offset to some extent the amount of money that she is not making, but there’s still a lot of people who’ve switched over and said yeah I just paused my membership until this is over. We live in Massachusetts and with the new guidelines that are coming out from the governor, as a fitness studio she’s in phase three. That starts presumably in three weeks. Phase two just started a couple of days ago. Three weeks, it’ll be the 28th or so of June, that’s when she’s supposed to be able to open up, but right now, it’s unclear how big her classes will be able to be. She may have to reduce the capacity to like 25%. There are lots of services types of businesses that can’t survive on 25% capacity, they just can’t. It’s a question of okay well how’s that going to go?
Rob: It’s really tough, man, for sure. Obviously, that’s got to be a source of stress for you.
Mike: It is. It’s more stressful for her than it is for me because I’m trying to not pay attention to it and keep my head down. That’s completely out of my control. It’s not exactly callousness. I guess it is to some extent but that’s her problem to deal with right now. If I get involved and get stressed out over it, there’s literally nothing I can do anyway, so why work myself up over it? She’s got things under control. I don’t know. I help out to whatever extent I can, but there’s only so much that I can do.
Rob: What are you looking forward to most between now and the next time we talk? Let’s say we talk in six, seven, or eight weeks. What are you excited about?
Mike: I have some things going on for, at least on the sales side of Bluetick, which as we mentioned before, I can’t really talk about them yet, but I’m excited to see how those turn out and what comes out of that. It’ll just be, hopefully, interesting. If not, I guess it’ll be a good story. It’ll be interesting to see what comes out of that, and it could be like additional integrations and stuff like that as well. We’ll see.
Rob: Very cool, man. As always, I hope you’re staying safe. Thanks for joining me on the show again.
Mike: No problem. Thanks for having me back. I will be back on Twitter in what is it, two days or so? Yeah, something like that. It’s been what, a year?
Rob: Was that your goal was to take a year off?
Mike: Yeah.
Rob: Wow. I’m fascinated to hear how that goes for you. If you feel like it is worth getting back on or if you should just stay off because I don’t know. I have some friends who’ve gone off of it and they don’t want to go back. As an experiment, I’m curious to hear your thoughts on it once you get back in there.
Mike: The year off was sort of an experiment anyway, but I really just needed a break from Twitter. I found it to be fairly refreshing, although I’m not on Facebook very much either. I posted once or twice but only because, I won’t say required by law, but required by friendly threats like hey we want to hear from you. I’ve been a couple of things here and there but I just don’t check it. It’s nice to have that aspect of it, but there are definitely people that I would say I’ve lost touch with or don’t interact with nearly as much as I used to, that I kind of miss that.
Rob: For sure. There’s a social aspect of it. Honestly, I bummed that you weren’t on when we did the big MicroConf 2020 announcement, that of course had to be all changed now that COVID was. I don’t know. There’s been milestones that I wanted you to be on Twitter and engaging in and I knew that you weren’t on it. It’ll be cool to have you back there to share in that.
Mike: Give me two days.
Rob: Two days. Sounds good, man.
Mike: I have not gone to look at my list of notifications either.
Rob: I am so going to go send you a bunch of DMs and @ mentions.
Mike: I’m just going to probably ignore them, to be honest.
Rob: If it’s older than a week should you really, or a couple of days if it’s a tweet. Cool. Thanks again, man.
Mike: All right. Good talking to you and I will talk to you next time.
Rob: Since Mike’s going to be back on Twitter soon, if you’re not following him he’s @SingleFounder on Twitter. Hey, if we’re not connected on Twitter, hit me up @robwalling. I hope you have a great week ahead. Thank you for listening. I’ll see you next Tuesday.
Before we dive into that, through helpfounders.com, I have volunteered up a couple of ad slots for startup founders. Specifically, I had an ad a few episodes back. Every so often, I will be talking about someone in our community in the Startups for the Rest of Us, MicroConf, Bootstrappers, self-funded, and indie-funded founder community. This week, the company I want to talk about is called Versoly, versoly.com. Versoly is a SaaS-focused landing page and website builder aimed of course at SaaS marketers and founders.
I had the pleasure of speaking with the founder through an impromptu meeting on MicroConf Connect. MicroConf Connect, if you don’t know, is (I think) about 1100 founders and aspiring founders in the Slack community that is helping each other out, sharing info, and asking questions. We did a MicroConf meet away where we were paired up with individuals and just got to have a conversation for 5 or 10 minutes. It spun the roulette wheel and connected you with the next person. It was super fun to be able to meet other like-minded people that I otherwise just wouldn’t have connected with, I wouldn’t jump on Zoom, or otherwise wind up in Squadcast talking to them.
I had the pleasure of meeting the founder of versoly.com. Versoly solves that problem of well I need this marketing side. I don’t want to build it in my app so that I have to do a code push to change it. I don’t really want to do it in WordPress. Should I do it in Squarespace? Do I do a static site builder? Versoly’s goal is to get you past that. Their headline is conversion-focused website builder. Versoly is a single platform to build landing pages, create blog posts, and collect leads; no code required. Check them out if you are in the market for that, and help out some fellow bootstrap founders.
Also, as a final reminder, if you’ve been wanting to get involved in a mastermind group with like-minded startup founders at any stage, head to microconfmasterminds.com. Applications close this week, and we will be doing matching here in the next couple of weeks.
I’ve been getting great feedback about recent episodes. Lots of praise but also some constructive feedback, and it’s super helpful for me to hear what you’re thinking about the episodes. I’ve been changing up formats and experimenting. I received a really nice email from a listener. He said, “Best episode ever,” as the subject line. He said, “I thought you’d like to know that the two-part episode this week,” which was episode 499 and 499½ that I recorded with Jordan Gal about the first six stages of SaaS growth, “was beyond words, stunning. I don’t know if people at the start of the journey will appreciate it quite as much, but speaking from a business in the product-market fit stage, this was utterly compelling. Two things made it so extraordinary. The similarities and differences of your two experiences, which played in my head the similarities differences with my own, and number two, the way you to build up a picture so similar to the experience I’ve lived and then explained what’s about to happen next, which played in my head as news that I need to know and be aware of. Thank you and please pass on my thanks to Jordan as well. This was very informative and inspirational.”
Thank you so much for writing that email. This was helpful in a couple of ways because, of course, it makes me feel good and it makes me feel like I’m onto something with it, but he specifically called out how this was helpful to him and how I’m able to now, in the future, think of how I can shape other episodes to have perhaps a similar focus or similar format. There was some unique experimentation with that episode with Jordan. It wasn’t an interview, but it was two people sharing their parallel experiences and comparing and contrasting.
I’m glad that it resonated. I know we had a great time recording it. That’s why I went on for so long because I felt like it was just so packed densely with information that I’m hoping can help startup founders like yourself. Keep an eye out for potentially more episodes like that in the future.
With that, let’s chat with Mike Taber, the co-host emeritus of Startups for the Rest of Us who co-hosted the show with me for the first 448 episodes, and now comes back every month or two to give us updates on his progress with his startup bluetick.io.
Mr. Mike #Taber. How are you doing this week?
Mike: I’m doing good, how are you?
Rob: I’m doing all right, man. It’s always good to chat with you, catch up, and hear how things have been going.
Mike: Yeah, definitely. What’s the news?
Rob: 500th episode went live last week, man. How does it feel to be the old guy at the club? Have you ever heard […] thing? You’re not that old, you’re just a little too old to be at the club.
Mike: Yes. I don’t know. It’s been a long ride.
Rob: Yeah, it’s a trip. A little more than a decade; 500 episodes. Although when I log into Castos, it looks like there’s actually like 523 audio files because we’ve done half episodes, we’ve done bonus episodes, you’ve done announcement episodes, and there’s this, but the numbering is what’s important.
Mike: I mentioned to my wife that out on the website there was episode 499.5 and she’s like what is that?
Rob: Here’s what happened, actually, I went to record this episode with Jordan Gal. It was just a really good conversation and I didn’t want to cut it off, but it was over an hour. We recorded for 1 hour and 15 minutes. I was like no problem. I will just cut this in half and air one this week and one next week. Of course, I had already had a bunch of stuff planned for episode 500, which was the next week. I want to do this as a two-parter. I was going to do it like a Tuesday, Thursday type thing. That’s what happened. Maybe, in retrospect, I should have just left it as 1 hour and 10 minutes episode. It worked out fine.
Mike: It’s fine. Just having those half episodes every once in a while it’s like oh here’s a little bonus or something like that. That’s totally fine. Plus it lets people split it up in their podcast player a little bit. They’re like oh what’s that?
Rob: It’s like hey 30-minute episode’s cool, and I agree. Any time I have a podcast that I like a lot and they unexpectedly release another episode, I’m stoked because I’m like oh two episodes this week. I get twice the fun. That’s a little bit what I was going for at that for 499.5. What do you think, man? In the 500th episode, I know that you’re not on Twitter, you’re not listening to the podcast anymore, but I talked a little bit about why I think the podcast has been successful and stuck around this long and all that.
One reason we stuck around is because we just kept showing up. I talked about consistency and just being authentic. We were always ourselves on the show rather than trying to play up parts, be dramatic, or play a role. Those were the two things that came to mind for me. As I listened back to 500, I was like oh there’s at least another two that I think I could name now, but I’m curious if you’ve given it any thought. The podcast has been successful, why did we stick around for so long?
Mike: Way to put me on the spot without anything in the outline.
Rob: I know. I totally should’ve given you a heads up. You have time though because you can edit out the silence, right?
Mike: I can’t.
Rob: It’ll get edited out.
Mike: I’m sure it would. I agree with you definitely on those two points. I think that the consistency of showing up every single week and being able to have people count on it and reliably know that that podcast episode was going to go live every Tuesday. I can only remember one instance where it didn’t go live on Tuesday morning when people expected it to, and it was because of some snafu in WordPress where it just didn’t get published for some reason. Everything was ready. It just didn’t go out at the time that we expected it to. It went out three or four hours later, but by 7:00 AM, 8:00 AM in the morning we were already getting emails like hey are you going to put a podcast out this week because I’m not seeing it my player?
I think that—I don’t want to call demand for it—the anticipation of knowing that it’s going to be there every Tuesday for some people, it’s part of their ritual, it’s part of their weekly commute or something along those lines. Maybe their daily run. They’re like oh it’s Tuesday, I get to go listen to this. I do think that that plays a major part in it. I also agree with you that the fact that we’re ourselves on the podcast probably has a lot to do with it because we’ve met people in person at MicroConf, other conferences, or in-person meetups and stuff like that. And I hear from people on occasion, they’re like, yeah, you’re really not any different than you sound like on your podcast.
I never really understood that before until my kids have started watching YouTube. They watch some of these shows where these people just act completely off the wall. They’re obviously late 20s, 30s, some of them are probably even older than that and they act like they’re 12. They make these ridiculous comments and it’s aimed at a younger audience, which I guess with YouTube, you’re not really not supposed to do that. I can almost guarantee that that’s not how those people act in real life. It’s an act, it’s a show for them, but we’re just really having a conversation. That definitely plays into what has been appealing to people. I mean, also being one of the first podcasts aimed at bootstrappers probably didn’t hurt, and the one that people recommend quite a bit. We’re actually out there doing this stuff and not just talking about it, but doing it as well.
Rob: It’s an interesting point because I have often thought, when we launched in 2010, the radio that I listened to was pretty heavily produced. I would listen to morning shows and those DJs are totally doing the performance thing with the horn honking (Sunday, Sunday, Sunday). Their voice is just like whoa. But some people have come on the scene who do have these big personalities. I think of like a GaryVee where when he actually sits down, he’s pretty chill, but definitely on his video blog, he played it up big time when he was doing the wine tasting, but it worked for him. That’s the thing is I wouldn’t say you should just be authentic because we did and it’s worked for us.
I honestly wonder if perhaps it’s to our detriment because you and I are chill, even-keeled people. Maybe if we had played it up and had a bunch of drama would we have twice the audience? Maybe it’s a counter factor and just the fact that we’ve been around 10 years has been the reason for success.
Mike: Shut up, Rob. You don’t know what you’re talking about.
Rob: Love it. We’ve never had arguments on the air, except for about desktop versus laptop, Mac versus Windows, but this will be it. This will be the argument.
Mike: We’ll just go back to an arm-wrestling match. It’s funny. I bring that up almost facetiously, but most of the audience probably doesn’t know this. The first MicroConf that we ran, the last question I put on the 45, 50 plus question survey was who would win in an arm-wrestling match, Mike or Rob? 75% of the audience said me. I think we should revisit that and put that on another survey.
Rob: Those poor suckers. We should and we should make it a little interesting. How about we put a little green down on this thing?
Mike: Then we’re actually going to have to have the arm-wrestling match at some point, though.
Rob: We’ll do the match. Once I know when it’s scheduled for, all the time when I’m on the phone calls, I’m just going to be doing curls with my right arm. Just pumping and pumping. I’m going to have a bicep on the arm. Well, man, it’s cool to have made it to 500, and I’m glad you’re able to join us again this week to catch us up on what you’ve been up to over the past seven weeks. It’s been seven weeks since our chat, episode 494.
Frankly, the two calls prior to that, our two conversations, were positive. You were upbeat, you were motivated, and things were working. You had more than doubled in about four or five months. Last time we talked, it was in late April. It was right at the beginning or a couple of weeks into the whole COVID quarantine stuff. You basically said that the current trajectory of growth had not continued. You had plateaued and I felt like both of us were like yeah, a lot of apps aren’t doing that right now. There’s so much uncertainty.
Since then, with companies that I’m working with and have insight into, stuff has started picking up again, at least to some extent. There are still those big winners, let’s say Zoom, Slack, or someone in the podcast space. Then, there are big losers that are software for schools that are all shut down. Whatever, we can think of examples. The people in the middle like 70%, at least based on the numbers I’m seeing, have seen an uptick in interest. People are marketing again and people are sending deals again. I’m curious to hear from your perspective, bluetick.io, is it following that trajectory as well over the past couple of months?
Mike: Yeah, I would say so. It definitely dipped a little bit after our last conversation probably seven weeks ago or something like that. It dipped for probably another three or four weeks after that. That was in terms of existing customers churning out and saying oh I’m going to put my subscription on hold for a little while then revisit this in a couple of months. Since then, things have started to tick back up again.
Last week, I actually had a customer who was already on board and they upgraded to the tune of another $500 a month or so. That’s good to see. Obviously, the tool itself is doing what it’s supposed to do and it’s working for them, so they’ve expanded the use of it by quite a bit. It’s nice to see that.
There were two other deals that I had been working on. One of them had that conversation internally about whether or not they were going to look into Bluetick and use it to replace the existing tool. They said look, we’ve made this decision internally that we’re not going to start any new vendor relationships right now, but we do want to revisit this. They just basically said not right now. There’s the other one that I was working on where that one’s sort of in limbo right now, still working on trying to figure out exactly what’s going on there. I haven’t been told no, but I haven’t been told yes, either.
Rob: One was a pilot and another was just a large customer on the phone, right? Did the pilot not go through?
Mike: Yeah, it was the pilot that they said we want to come back and revisit this because they didn’t have the time to actually dedicate to doing the pilot. They did some things here and there, but they really didn’t spend a lot of time on it. I talked to them a couple of times about it during the pilot and they said yeah we’re just really busy. We’re swamped, we’re trying to get things with our existing customer base and trying to retain those people. They just didn’t have the time to spend on working with a new tool to see if it was going to replace an existing tool. It was just internal priorities they couldn’t do it, but they said flat out this isn’t a no, we want to come back to this later.
Rob: That could be code for we just don’t want to tell you no, but you just don’t know, right?
Mike: It could be but I feel like they would have just said no.
Rob: Yeah. Do you have plans to circle back with them in a month or two or what’s that look like?
Mike: I have it on my calendar to go back to them. I forget exactly when the date is, but I think they said six months. I’ll probably give them like four or so and then touch base with them to see where things are at and start those conversations again because I know it’s going to take a little bit of time to get them either up to speed or allocate some time or what-have-you. Even if I talk to them, they have to have internal conversations first because it’s a team of people. It’s not just one person making the decision. That’s on my list of things to follow-up on.
The other one, I have talked to the person who put me in touch with them to see if it was something that they wanted to go forward with or if they were just kind of table in it for now. But they wanted to use it mainly because their sales reps were no longer out in the field and needed a better way to communicate.
There are some educational difficulties there. Some of them are essentially using MailChimp to send out “personalized emails” to everybody. I’m like that’s not really how it should be done, but this is just a different tool. I don’t think they really get the subtle nuances between them and things with subscriptions. People can unsubscribe and then they don’t see them, what are they using it for, and all that kind of stuff.
Rob: That’s disappointing to hear. I remember at the end of the last episode I said well that would be a big win if you got both of them to sign up. You said it will be a big win if I get one of them to sign up. I was like come on, Mike. Be more optimistic, but it sounds like that’s what happened. It’s a bummer that they didn’t come through.
Mike: Right. Like I said, the other one still could come through, I just don’t know yet. But even if it doesn’t, at least it was being evaluated. I’m more encouraged by the fact that I was in the running for an evaluation with a company that wanted to do a pilot to switch over from an existing tool and use Bluetick instead. I think that that’s a very encouraging sign, especially since between that, and I’ve had somebody else who upgraded their account and added a bunch of mailboxes to the tune of $500 a month as of last week. To me, those are encouraging signs.
Rob: Do you consider yourself an optimist, pessimist, or realist?
Mike: I don’t know. It depends on how full that whiskey glass is and whose whiskey it is.
Rob: Yeah, I could imagine.
Mike: I don’t know. There’s a lot of factors around it. I used to be much more of an optimist and now more of a realist.
Rob: Then life hit me like a freight train.
Mike: I wouldn’t say I’ve turned into a pessimist, but I also recognize that just because you want something to be true doesn’t mean that it’s going to be. There are various challenges or things that are completely outside of your control that factor into it. Some things you can do something about and some things you can’t.
Rob: Let me ask this question in a different way, would your wife say that you are an optimist or a pessimist?
Mike: Oh, good question. I don’t know. That’s a good question. I really don’t know. I don’t think she would say, pessimist.
Rob: It’s not that important. I was just hearing from you. We’ve known each other a long time and just hearing you talk about the sales and being like yeah, it’s not a no. I’m going to come back to them in four months. It’s good to hear your optimism in that scenario. It does seem like you’re feeling pretty good about things. Is that accurate?
Mike: Yeah, it is. The thing is, in that particular situation, the reason I’m optimistic is because it wasn’t a no. But even if it was a no, I would at least be able to have that conversation with them to understand why it was a no and then go do something about it. To me, that’s still a learning experience. I could still take something from it and I get something out of it. If they just said no, we don’t want to talk to you ever again. By the way, we hired a goon squad to come over and kick your dog, that’s a bit of a different situation and I’d feel bad about it, especially since they can’t find my dog because I don’t have one.
I view it as an opportunity to learn more and to be able to make things better. Obviously, if they hate the color of my eyes, there’s very little I can do about that but shut off the webcam.
Rob: I always ask you what are the highs and lows over the past seven weeks since we last spoke. Would it be accurate to say that the low is probably not closing either of those deals and the high is the $500 a month expansion revenue?
Mike: Yeah, I think so. I would agree with that.
Rob: I’ve been talking about how recurring revenue is the golden ticket of software sales, expansion revenue, and net negative churn is the golden ticket of SaaS of recurring revenue. If you can build a business that has expansion revenue, it’s unbelievable when you see it. Hypothetically, if you close zero new deals, your revenue would grow, your MRR would grow. It blows your mind when you see that happen. The fact that you had that, is this true expansion revenue where their usage expanded? Did they add another team because it’s seat-based, correct? Did they add another group of people after using it in production on one team? It wasn’t just a pilot where one person is using it, we added 10 people, that’s our usage. They actually added a whole another group?
Mike: Yes.
Rob: It’s a big deal. You should feel good about that.
Mike: Yeah. They put one person who is technical on their side in charge of the management of the accounting side of Bluetick. That person is managing mailboxes for a bunch of people inside the company. Basically, they’re using it for two entirely different things and they have two accounts in Bluetick where they can just toggle between the two of them. It’s all billed under the same account or same subscription, so to speak. It’s just two entirely different groups of people that are using it for entirely different things. It’s nice to see that that’s an option for people because I did add that in this past year where it lets them do that. Previously, you couldn’t do that. You’d have to sign up for a brand new account.
Rob: That makes sense. I’m curious, this is something I bring up every time because there’s a couple of concerns I have over the long term. One of them has always been the differentiation; why are people signing up, why are people sticking around. The other has been how are you going to continue to drive new prospects. Over the course of a few months, you had several sales teams or companies approach you and say hey we want to sign up. We either want to do a pilot, we want to sign up and evaluate, or whatever and you were in the sales process.
Obviously, we’ve just said the two of them didn’t close. The question is, are there any other new ones in the pipeline at this point? Have those bigger prospects—we were kind of calling like $500–$1000 a month—has that pipeline continued or is it mostly dry right now?
Mike: I would say at the moment it’s mostly dry. I do have some leads but nothing that is concrete that I’m reasonably confident that this is going to come in and we’re going to start something. It’s mostly early leads. If you look at a sales funnel and you say that they’re at the top of it, like they’re the 10%–20% range where you think they’re going to close, then at the bottom, they’re closer to 90%. There’s more of them that are at the 10%–30% range than there are below that. I don’t have any that are anything more than I would think 30% able to close in the near future. That said, I think that there’s a lot more up at that 10%–30% range than there have been in the past.
Rob: That’s a problem because if you look ahead—a month, two months, three months—unless you have a bunch of smaller customers in your pipeline, which I’m going to presume that isn’t happening right now because I don’t think you’re doing a bunch of marketing, then you’re looking to be flat from next time we talk. Unless between now and then, a larger customer comes and you’re able to close them in those seven weeks.
Mike: Yeah, that’s probably accurate. I really just don’t know how quickly some of these are going to move. There are some things that I’m working on with a potential partner where we’re essentially doing some sort of a bundled deal with my software. There are some synergies between the two, and then there’s going to be educational components and basically, a done-for-you service where it’s like here’s a bundled offering.
With all these things together, this is what you get and this is what it costs on a monthly basis. There’s an upfront payment for them to do. It’s not consulting work, but it’s like services work to get them up and running. It’s almost like a paid engagement to get things started and set up for them and then after that, they’re just paying for the software, but there are other things that we’ve kicked around where the idea is to do ongoing work for them and then we’re powering the services through the software. And part of that software is obviously Bluetick.
Rob: You told me a little more about this right before we started recording. Even more than you can say publicly on the podcast, I’m pretty bullish about this. It’s essentially business development, it’s a partnership where your software is included and sold by another company. It’s not with HitTail and without an invoice. Actually, with Drip too, we’d get these emails and it’s like hey I want a white label your software for realtors. I’m like cool what’s your footprint? How many realtors do you have access to? It’s like oh we’re just starting out. I’m going to build a website tomorrow. It’s like this is a complete waste of time, you’re going to waste my time. But this company is not that.
This is a company that has reach with a lot of folks in their vertical. It’s not realtors. I’ll be very, very clear about it. It was just an example I was using. They have reach, they’re legit, and they sell a lot of stuff and Bluetick being part of that makes a lot of sense if that goes through. You’ve been spending time on that putting that together and getting that moving?
Mike: Yeah. The majority of their customers are teams of people. They’re not selling to individuals or freelancers because their software is useless for those types of people. They do have an option for those types of people if they want to sign up, but that’s not really their core audience. Their core audiences are larger companies that maybe have 10, 20, 50, or 100 different reps working for them that they’re going to have licenses for. Bluetick does fit in pretty well with that, and I do think that there are opportunities there, especially since they’ve got an established customer base.
If we can present that to the existing customer base, not just the new customers that they’re bringing in but existing customers, then that’s an opportunity for growth as well. The relationship is such that I do think that there’s a high likelihood of some of those things closing. Like I said, if you’re talking from a sales funnel standpoint, I don’t think that they’re far enough along to really justify saying that it’s further along than it actually is. It’s in that 10%–30%.
Rob: It’s in the works, so to speak. Have you spent much time on other marketing approaches? Have you done any the warm/cold email, just anything else to speak of driving leads right now?
Mike: I have not. I have been heads down on a couple of things I can’t really talk about, at least not right now. I probably could maybe a couple of months out. I’m not sure.
Rob: It’s always hard to be on a podcast and that. I know what you’re talking about, of course, and it’s just stuff you can’t talk about, that’s where it gets tough. You’ve been spending a pretty significant chunk of your time, I’m going to say working on something else, but it’s like you’re not building another product so you don’t need to hear shiny object syndrome. You’re investing your time into something that I think you and I both agree could really lead to something for you.
Mike: Yeah. I don’t know how to really portray that for the listeners other than I’ve been fairly swamped and haven’t had enough time to dedicate to that stuff, but that’s that I have started carving some time out of my calendar from 3:00 to 5:00 each day to say this is going to be dedicated time towards marketing. That way, I at least get some of that time in. Whereas before, I wasn’t putting it on my calendar or making it a priority. Because of that it was just other things would creep in, that time would get eaten, and then the next day I’m in the same position. By allocating a couple of hours a day, I found that that has helped.
Rob: To be clear, the thing you’re investing a lot of time in it still includes Bluetick. It’s not like oh I’m going to go do this other thing and leave Bluetick behind; just for the listener. You’re not just moving from one thing to the next. Again, it sucks that we have to be coy about it, but this is the reality. I said this in episode 500 actually. I was talking about how hard it is, how I wish that every week two people could just sit on a microphone and could just update you on what we were doing and have it be just amazing radio. In my experience—and I think your experience doing it for 10 years—it’s just not always the case. Some weeks just nothing interesting happens. Other weeks interesting stuff happens that you can’t talk about.
This was a really hard thing for me during the Drip acquisition process that took 13 months and for 5 months, it was like 30 hours a week for me. Every week I’d show up and be like I got to think of something to tell people and felt a little inauthentic and awkward, but then you just can’t. You can’t talk about that. That’s what that is. We’ll circle up. Depending on timing on the next one, maybe I will check in with you and be like hey is it at a place where we can talk about it? Maybe we go a little further out. Maybe we’d go more than seven weeks in between if it makes sense to where we can talk about that.
I’m curious about the whole sealed .NET component that you had old customers, existing customers we’re still using it and you had implemented it with a feature flag such that new customers went on a different component. It was going to be, I believe, for the one that was going to do the pilot with you or they did the pilot with you, but is that on hold for now? Are new customers signing up with the new component, old customers are on old component, and you’re just there and you’re not going to migrate right now?
Mike: All of the new customers, as of a while back, are using the new version of it. I’ve not migrated over the existing customers mainly because that stuff still works fine, and it’s a lot of, I’ll say, data to just migrate for no particularly great reason because the stuff does still work. It’s just it would allow me to do other things. I will get to it eventually but right now it’s not necessarily a primary importance.
Rob: It doesn’t seem like it.
Mike: Yeah. If I really needed to switch somebody over to the new version I could do it, but I don’t necessarily know all the ins and outs of exactly which things may or may not break or may not come over correctly. I’m just leaving it as is. Honestly, a lot of the things that are not changed are from customers who’ve canceled and their data is scheduled for deletion or whatever. I’m not too worried about it. I hate to say like oh I’ll just let it go until those customers churn out and then just delete their accounts and I won’t have to worry about it. At some point, in the future, that could conceivably happen.
Rob: I don’t think that’s a bad approach. Hopefully, they all won’t churn out, but when you get down to the point where there’s a small number and you can do it by hand type of thing, migrate them over. It is technical debt, technically, but as long as it doesn’t hamper your feature development, and that’s what you said was like that prospect who was going to pay you whatever it was—$1000 a month or $1200 a month—you were going to do it what it took for them and that’s the case where you do it, when revenue is coming in. To me, more of a focus on driving leads and doing sales moves the business forward at this point.
Mike: Yeah. I don’t see any major impetus to go back and make changes to those existing accounts because, like I said, they work fine. It’s just that the new storage mechanism allows me to do more.
Rob: I think I’m just going to delete this from the future because I don’t know that it makes sense for me to keep asking you about it. It’s not done, it’s done enough, right? The fact that new customers are using something that you can write a test for and you’re happy with it, that happens all the time in SaaS. We still have 30 people on v1 billing and we’re on v6 billing. That happens, and they’re using old code. It’s not the end of the world. As engineers, I know you and we want all the I’s out and the T’s crossed, we want it gold-plated, and I want everything to be clean. It’s not always the reality.
In fact, it’s, in my experience, never the reality especially with a SaaS app that’s going quick, that needs new features, that need sales, and that needs all the stuff. You just don’t have the luxury sometimes to fix everything.
Mike: You don’t gold plate your code? We can’t be friends.
Rob: I do, but I tell other people not to. It’s funny there’s a start-up in batch two of Tiny Seed that is growing really quickly. They’re scaling up fast and he said, “When I wrote the code it felt like overkill, but now it doesn’t. I said, “Yeah, “It always feels like gold-plated code if you prematurely optimize, but if you actually do need to scale, then it feels like you made the right choice.” That’s the hard thing to know. It’s hard to know if you’re going to have to do that.
I felt like with Drip, Derrick made a lot of great engineering decisions and he wrote really good, scalable code. But we kept outpacing it and we would have, every four to six months, go back and do this and upgrade the database and stuff. That was taxing on both of us. It would have been crazy. It would have felt crazy to do a microsystems architecture from the start with all these different data stores when we were launching to 200 people. That would have sounded ridiculous, but if your aspirations really are to get to millions of dollars of revenue, I would do it differently this time. It’s such a hard judgment call.
Mike: I think that’s one of the interesting challenges that most people have as entrepreneurs is when you’re first building something and you don’t really have an audience, users, or people using the system or stressing it out in ways that you didn’t anticipate, you’re going to build it one way because you think that the parameters of the problem are a certain thing. As you start throwing stuff at it, you realize that you either made some poor assumptions or you were just wrong outright and then you have to redo them. You would have to do that refactoring process.
If you were to create a new SaaS app, if you decided we’re going to go back and we’re going to rewrite this, or you move on from one project to another that is in a similar domain or has similar types of operations, you’re going to build it fundamentally different because the challenges that you’re going to run into in the future. Most people do not have the experience of building multiple SaaS apps from the ground up. That’s what makes it hard.
If I were to redo things from today, oh yeah, there’s definitely a lot of decisions I would make very differently. I’m sure that you and Derrick would have made different decisions building Drip, but you don’t know those until afterward. At that point, you just got to deal with whatever technical debt you’ve built up.
Rob: Did you ever read the book The Mythical Man-Month by Fred Brooks?
Mike: I think I did but it was a long time ago. I don’t really remember.
Rob: It was like an early book, one of the first books on software project management. I think it was published in 1975. They were writing a bunch of operating systems for mainframes. Old by our comparison and really complex stuff. In the Mythical Man-Month, there is this concept. Each chapter is like an essay with a concept that he learned and that he posits in the book. One of them is called the second system effect. The concept is like architects and project managers tend to over architect, over embellish, and gold-plate their second project because you do your first project a bunch of stuff goes wrong, stuff doesn’t scale, there are bugs, there’s this, and there’s that.
The next one you want to do everything right and you overdo it. Again, it’s his theory that the third one is where you dial it in between, but I don’t know, man. Having seen really harsh scaling issues and being one of the people responsible to make that better, and to see how long it takes when you do hit scale, I don’t know if I’d call it over embellishment.
Mike: I don’t know. I think it depends a lot on what the specifics of those issues were because some scaling issues are easier to contend with than others. Sometimes, it just comes down to messaging, queuing, how up-to-date certain data has to be in the UI, and when you do stuff, but then there’s all this operational stuff.
Rob: Exactly. How long can you cache? That’s the thing, man. We did all that. That was the stuff we did for the first several years was all the caching, all the grouping queries, and we had read replicas of our of the database, but it was purely write load on a single data store. You have this Postgres database with 30,000 queries per second running on it. You just hit limits and we had terabytes. I don’t member what Amazon’s biggest box was in terms of RAM, but we had eight terabytes of RAM or whatever and it still couldn’t fit the whole data.
It’s those types of things where you’re at the extreme of it’s no longer I need to improve this code. It’s like we need an entirely different data store, whether it’s at a separate Postgres database or more likely an entire document database, or something that just has incredible write throughput.
Anyway, we’re way off track. This is an interesting tangent, but I don’t know if we need to keep covering it. I’m curious, as we think about wrapping up, there are two things. One is it sounds to me like your motivation is healthy and you’re feeling good. Your sleep is okay, is it?
Mike: Yeah, it’s generally pretty good, which I’m surprised at given the pandemic and everything else that’s going on and all the additional stress for everything. My wife’s business was holding out pretty well for a little while and then things started to take its major downturn.
Rob: I was going to ask you about that because she runs a fitness studio. I don’t know if folks know but obviously a brick-and-mortar. It’s tough.
Mike: I forget. I’d have to check with her, but I think that the revenue was down by 50% as of last I talked to her. It’s a subscription business but people are like I want to put my membership on hold. Granted, I get that. She’s done a lot of stuff to do virtual classes. She actually rented out her bikes. She has 20 spin bikes in her studio. What she did was for an additional, I think it was like, $50 a month on top of your existing membership, she would give you one of those bikes and you could take it home. Obviously, it’s got to be returned at some point, but while virtual classes are going on, you could use that spin bike to take the virtual class with the instructors that you liked and everything else.
It has offset to some extent the amount of money that she is not making, but there’s still a lot of people who’ve switched over and said yeah I just paused my membership until this is over. We live in Massachusetts and with the new guidelines that are coming out from the governor, as a fitness studio she’s in phase three. That starts presumably in three weeks. Phase two just started a couple of days ago. Three weeks, it’ll be the 28th or so of June, that’s when she’s supposed to be able to open up, but right now, it’s unclear how big her classes will be able to be. She may have to reduce the capacity to like 25%. There are lots of services types of businesses that can’t survive on 25% capacity, they just can’t. It’s a question of okay well how’s that going to go?
Rob: It’s really tough, man, for sure. Obviously, that’s got to be a source of stress for you.
Mike: It is. It’s more stressful for her than it is for me because I’m trying to not pay attention to it and keep my head down. That’s completely out of my control. It’s not exactly callousness. I guess it is to some extent but that’s her problem to deal with right now. If I get involved and get stressed out over it, there’s literally nothing I can do anyway, so why work myself up over it? She’s got things under control. I don’t know. I help out to whatever extent I can, but there’s only so much that I can do.
Rob: What are you looking forward to most between now and the next time we talk? Let’s say we talk in six, seven, or eight weeks. What are you excited about?
Mike: I have some things going on for, at least on the sales side of Bluetick, which as we mentioned before, I can’t really talk about them yet, but I’m excited to see how those turn out and what comes out of that. It’ll just be, hopefully, interesting. If not, I guess it’ll be a good story. It’ll be interesting to see what comes out of that, and it could be like additional integrations and stuff like that as well. We’ll see.
Rob: Very cool, man. As always, I hope you’re staying safe. Thanks for joining me on the show again.
Mike: No problem. Thanks for having me back. I will be back on Twitter in what is it, two days or so? Yeah, something like that. It’s been what, a year?
Rob: Was that your goal was to take a year off?
Mike: Yeah.
Rob: Wow. I’m fascinated to hear how that goes for you. If you feel like it is worth getting back on or if you should just stay off because I don’t know. I have some friends who’ve gone off of it and they don’t want to go back. As an experiment, I’m curious to hear your thoughts on it once you get back in there.
Mike: The year off was sort of an experiment anyway, but I really just needed a break from Twitter. I found it to be fairly refreshing, although I’m not on Facebook very much either. I posted once or twice but only because, I won’t say required by law, but required by friendly threats like hey we want to hear from you. I’ve been a couple of things here and there but I just don’t check it. It’s nice to have that aspect of it, but there are definitely people that I would say I’ve lost touch with or don’t interact with nearly as much as I used to, that I kind of miss that.
Rob: For sure. There’s a social aspect of it. Honestly, I bummed that you weren’t on when we did the big MicroConf 2020 announcement, that of course had to be all changed now that COVID was. I don’t know. There’s been milestones that I wanted you to be on Twitter and engaging in and I knew that you weren’t on it. It’ll be cool to have you back there to share in that.
Mike: Give me two days.
Rob: Two days. Sounds good, man.
Mike: I have not gone to look at my list of notifications either.
Rob: I am so going to go send you a bunch of DMs and @ mentions.
Mike: I’m just going to probably ignore them, to be honest.
Rob: If it’s older than a week should you really, or a couple of days if it’s a tweet. Cool. Thanks again, man.
Mike: All right. Good talking to you and I will talk to you next time.
Rob: Since Mike’s going to be back on Twitter soon, if you’re not following him he’s @SingleFounder on Twitter. Hey, if we’re not connected on Twitter, hit me up @robwalling. I hope you have a great week ahead. Thank you for listening. I’ll see you next Tuesday.
Episode 500
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This is a big milestone episode for Startups for the Rest of Us. Episode 500. Since the very first episode nearly a decade ago we’ve had more than 10 million downloads, answered more than 1,500 listener questions, and shared more than 292 hours of startup content.
Over the years, this podcast has developed a particular lens through which we view building and growing startups. We’ve focused on:
- Maintaining freedom, purpose, and relationships throughout the journey
- Diving deep into topics relating to building and growing startups, using an ambitious yet sane approach.
- Thinking in years, not months
- Not talking about the typical Silicon Valley startups (where fundraising is a goal in and of itself)
- Building real companies with real customers who pay us real money
- Not sacrificing our health or our relationships
As we look to 1,000 episodes and beyond, we decided to highlight the stories from the community as they share how the past 500 episodes have made an impact on their path to starting and growing successful (and sane) startups.
The cache of stories, lessons, real heartfelt moments are what really keep me coming back to Startups for the Rest of Us and why I recommend it to so many people. It’s not just one particular episode or one particular lesson, it’s the complete story arc of Rob, Mike, the team, and what they’ve built. It’s an exciting time to be a small part of this journey.
— Matt Medeiros
Building a self-funded startup on the internet doesn’t have to be complicated. We’re making a thing, we’re solving a problem. We’re selling our solution to customers. Rinse and repeat. The more attempts at doing that, the more that we’re going to learn and the more mistakes that we’ll make, the more wins that we’ll have.
— Brian Casel
What we discuss
- 2:26 – Launching MicroConf from the podcast
- 4:11 – The many types of episodes we’ve tried
- 7:18 – Why we think the show has worked
- 9:49 – How you can support the show
- 11:22 – Ian and Dan (Tropical MBA podcast) on the importance of the stairstep approach
- 13:33 – Ben Orenstein (Art of Product podcast) on the value of consistency
- 14:13 – Matt Medeiros (Matt Report podcast) says this podcast is the startup single source of truth
- 16:42 – Brian and Benedikt (Slow & Steady podcast) on small continuous progress over time
- 19:50 – Adrian Rosebrock (Listener)
- 20:16 – Jordan Gal (Bootstrapped Web podcast) speaks to the importance of perseverance
- 21:57 – Andy Baldacci (Effective Founder podcast) shares his experience with the stairstep approach
- 26:48 – Brian Casel (Bootstrapped Web podcast) on knowing there are “others just like me”
- 28:52 – Matt & Peter (Out of Beta podcast) on how they feel connected to the community
- 32:58 – Alvin (listener) loves the actionable, specific, and realistic feedback
- 34:58 – Shawn DeWolfe (Shawn DeWolfe Consulting) on how entrepreneurship feels attainable because of the podcast
Links from the show:
- What is a Micropreneur | Episode 1
- MicroConf
- The Stairstep Approach to Bootstrapping | robwalling.com
- Moving on From AuditShark | Episode 255
- A Startup Acquisition Story | Episode 298
How can I support the podcast?
If you enjoyed this episode, let us know by clicking on the link below and sending us a quick shout out on Twitter:
Click here to share your number one takeaway from the first 500 shows!
Episode 499.5 | The (First) Six Stages of SaaS Growth – Part 2
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This episode is part two in a two-part conversation. If you haven’t already, listen to Part 1 first.
This week is the second part of a conversation between Rob and Jordan Gal, the founder of CartHook. In the episode, Rob and Jordan dig into the 4th, 5th and 6th stages of SaaS growth and compare their journeys 1:1 between growing Drip and growing CartHook. They come across several parallels between their journeys, as well as some differences. This episode is part two in a two-part conversation.
Jordan started CartHook as cart abandonment software and later pivoted into a checkout replacement solution for Shopify. He has been on the podcast several times answering listener questions and has spoken at a handful of MicroConfs. He is also the co-host of the Bootstrapped Web podcast.
Every time we come up against the hill and then climb it and get to the top, when we look outward, we see so much more. So, the opportunity just keeps getting bigger the further we go. We’re not even close. We’re just barely getting started.
– Jordan Gal
What we discuss with Jordan Gal
- 1:10 Rob’s experience with Stage 4: Escape Velocity
- 4:35 Jordan Gal’s experience with Stage 4: Escape Velocity
- 9:06 Parallels between Drip & CartHook’s journeys
- 9:50 Jordon on hitting limitations and looking beyond money
- 15:27 A fast-growing business isn’t profitable
- 17:26 Rob’s experience with Stage 5: Scale
- 21:54 Jordan’s experience with Stage 5: Scale
- 25:10 Stage 6: Company Building
- 27:39 The range of skills founders need when building a startup
- 30:18 Jordan Gal on the future of CartHook
Links from the show:
- CartHook
- Bootstrapped Web
- Jordan Gal | Twitter
- [Watch] Two Years in the SaaS Trenches – Jordan Gal | MicroConf Starter 2017
- [Listen] “We Went from Hundreds of Free Trials to a Few Dozen…On Purpose” with Jordan Gal | Episode 476
How can I support the podcast?
If you enjoyed this episode with Jordal Gal, let him know by clicking on the link below and sending him a quick shout out on Twitter:
Click here to thank Jordan Gal on Twitter.
Click here to share your number one takeaway from the episode.
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome to the special bonus part two episode of Startups for the Rest of Us, this week. If you haven’t heard the episode that came out on Tuesday, Jordan Gal and I got into such a good conversation, we ran really long. I just let it go. I didn’t want to cut it off because we were talking through our journeys. I wanted to cover the first six stages of SaaS growth. It took us longer than I thought it would to get through everything, given the anecdotes and deep-diving into what it looked like to grow Drip and CartHook.
This episode covers the final stages of SaaS growth that we didn’t have time to cover in part one. If you haven’t already listened to part one, I would highly recommend doing that so you have the context as we finish up our conversation with Jordan Gal of CartHook.
Stage four, I’m calling escape philosophy. This is where you have product-market fit and you’ve discovered at least one, maybe two, repeatable channels that are driving leads. You’re converting. You have repeatable sustained growth. Maybe that growth rate is increasing month-to-month. Maybe it just fits $3000–$5000 a month.
If you haven’t raised the Series A, it doesn’t take that much time growing it to $5000 a month to build a hell of a business. For me, I put escape philosophy. It was for about $25,000 MRR up to about $80,000 MRR. It’s probably about $1 million when I think about it. Maybe three of three. During that time, we’ve already done some integrations, but we realized they were working really well. The more integrations we build, not only did we drive traffic, but we were able to retain customers more because they would link them up and there’s just a lot of value created. We did quite a bit of content with some success. It was enough success to keep doing it but it was not the main driver of growth. There was an ROI there. We did some pay-per-click and it worked.
I was doing a ton of podcasting, public speaking, and that was raising it. It was hard to measure but it just continued to have Drip in the conversation. They used to say Infusionsoft and Ontraport as the lower-end marketing automation because I ran thousands a month. Soon, I wanted Drip to be the number three or number two, frankly, just to be the other one that was mentioned in all the blog posts and in all the conversations.
I started hearing it on podcasts and seeing it on blogs with people I’ve never met, never talked to, didn’t reach out to, to say hey, should you mention this? It just started getting on people’s radar because enough people were using it. We also have a ‘Powered by Drip’ link that contributed during that time. I was doing more outreach to influencers and friends who I knew. We were doing cross-promotion and stuff.
It was a bunch of things. There was not one thing that worked amazingly for us. There were about probably two that drove half of our trials in any given month and three to probably grow 75% or 80%. During that time, we grew to a headcount of five people in total. It was me and Derrick, then we had a guy doing support, and another developer. They’re our first customer success.
A person, Ana Jacobs, who many of you know from MicroConf, she’s been in MicroConf circles. She was in Fresno and she was doing essentially marketing work and agency and really wanted to get into products. She was an early game-changer for us because I was doing all the sales demos and trying to do onboarding calls. I’m just not good at that. You’ve got to know your strengths and that’s not my strength at all. She was able to take that off my plate. Not only did I think our conversion rate went up but we’re able to handle bigger customers who wanted someone to hand-hold them.
At a certain point, I started saying I’m just not going to do these anymore. Although Drip’s starting price was $50 a month, we have people approaching us like hey, I remember bringing a list over and we’ll pay you $500-$800 a month. That’s substantial growth for an app that’s doing $40,000–$50,000 a month. The fact that we were able to service them, work with them, and do the extra that they want was a big transition for us during this time.
Still total chaos in terms of the business. I was starting to burn out, in all honesty. I made personal mental health mistakes in terms of just not hiring more out. Everyone was doing their job in terms of building products, onboarding customers, and anything else I took on. I shouldn’t have done that. It seemed like the right decision at that time to keep the business moving forward. I was trying to maximize growth. In fact, I maximize my personal unhappiness because I was doing a bunch of tasks that I didn’t want to do.
That was my escape philosophy phase. Really, your escape philosophy was more with the second product, what CartHook is now. You listed it as a $20,000–$80,000. I think we’re actually in a similar range of thinking about these stages.
Jordan: Yes. We broke every rule. We did not do what I would suggest anyone do. We just built an isolation and we just launched. We fully went the ‘build it and they will come’ route and it just happened to work. This stage for us was, again, a huge success and so much pain.
I’m looking at our ProfitWell graph from all time. It was a theme for us where we have a few months of incredibly fast growth, then sustained period of no growth, and then forcing our way out of it again. The reason it happened to us, it’s the same thing that happened in this phase from $20,000–$80,000, we got the product right. That’s what people wanted. That guest at a customizable check I would upsell that worked with Shopify and allows you to do all this marketing stuff, that’s what the market wanted.
As soon as we released it, the word of mouth was huge and we got overwhelmed with demands. We did one thing that was really, really, important for the whole trajectory of the business as soon as we released it and got too much demand. In the first 30 days, we had, let’s call it 100 or 200 sign-ups. It was $100 a month. We were like this. We found the right thing, but the product wasn’t quite ready yet. After that first month, it was just total chaos. We couldn’t keep up. We couldn’t onboard people. We didn’t even know how to support our own product. What we did, we decided we need to slow it down.
How do you slow down demand? We did it in two ways. We first said you have to do a demo. You got to talk to me. I want to understand who you are or what you’re trying to do and build a relationship. The second thing we did was we tripled the price. We went from $97 a month to $300 a month. We assumed those two things would lead to slower demands. No such thing happened. It just stayed exactly the same, which is where we realized okay, we mispriced the product. Thank God we realized it in 3X the price, and then I just went to work just doing one or two demos every day for forever.
Those demos are really important, obviously, to hear what people wanted but also for the psychology of the team. It was just still the four of us at this point. We eventually hired a few more. We ended up with a team of six or eight towards the end of this phase. In the beginning, it was just the four of us. The motivation we got from my conversations was wild. People were like, I cannot believe you built this. This is exactly what I want. We just heard a variation of that over and over and over. That gave us the motivation to just keep going.
The problem was that the product was just not good enough yet. A checkout product, you can’t be 75% good. If you do anything wrong, you cost people money. We went through this period of growth despite the product not being good enough which just meant a lot of very, very, frustrated customers. That just gets you after a while.
For me, mentally, in this period, I had a really rough time because I’ve basically gone two years of working on this product, took this huge risk, took money from friends and family, then from my point of view, I got it right. I found the right product at the right time for the right market which is rare enough, and then the tech just couldn’t satisfy it.
The tension within the team was tough. The tension with the customers was tough. We just kept growing. We got to around $80,000 in this phase. I’m supposed to be happy, right? I just went $0–$5000 in one year, $5–$20,000 in another year, then $20,000–$80,000 in four months. I’m supposed to be happy. I was anything but happy. It was mentally very difficult. As we brought in new employees, they just entered a world of pain. If you’re trying to support people, trying to help people get onboarded, everything we were doing was just filled with pain, but we knew we were on to the right thing. That just helped us get through it. It was not pretty.
Rob: Yeah. You effectively caught lightning in a bottle. You were early to that space of this replacing the checkout in Shopify. Again, it’s being prepared but getting a little lucky to have been at that place right at the right time and done that because if you have done it a year later, the window is over. You couldn’t do it.
It’s interesting to hear about our journeys. The parallels and then the not parallels. Drip was essentially entering a completely crowded market and trying to build a less expensive, easier to use version of these clunky, expensive tools that were generally not loved. That was a very different approach than what you took with CartHook which was I see an opportunity, I need to shoot this gap and get there right as this opens up. You’re being early.
I had a talk called The Unfair Advantages of Building a SaaS. One of them is being early. In this case, you were early. It was because you were there. Outsiders couldn’t have known that this opportunity was available. That’s the thing. Doing things in public, creating opportunities.
Jordan: Yeah, that’s right. I’m curious to hear from your side. At this stage for me is when I started to hit some real limitations in my experience. When it was a group of four of us, it was pretty straightforward, Guys, let’s make some money together. Let’s do this. Let’s change our lives by building this thing together.
Once we started hiring people, that got tested. I remember, specifically, one conversation that Ben pulled me aside and said look, man. You’re our leader. We need you to go beyond money. Our employees here don’t stand to make millions of dollars if we sell this thing. They need to work for something more than just that. That conversation with Ben I appreciate and think about all the time. That was a real turning point on me needing to look beyond money and create something of a mission, something more important.
I had a challenge because I am very against the ‘change the world, make the world a better place,’ […]. I didn’t want to become a phony and say that that type of thing is our mission when I didn’t believe it. I needed to figure out a way to authentically create a mission for the company that I felt was honest and sincere. Did you encounter something like that as you started to grow the team?
Rob: Not in that way. I think it’s because, from the start, building Drip wasn’t about making money. I never said that. It was more about building a really cool product. There was a lifestyle component to it, but by the time we have three, four, five people, it became, we are truly innovating in this space and building an amazing product for people who don’t like these other alternatives. Isn’t that cool? We are makers and we want to have a very high standard of building an amazingly easy-to-use product that is super powerful for people.
All of our team members, including me, loved the product. We were enamored with this power that we could have. When we looked around our competitors, we were like, that product’s like a toy compared to Drip. That product is super hard to use and expensive. We genuinely believe that we were not making the world a better place but we were email marketing and marketing automation just more accessible. I think at one point I said we’re trying to bring marketing automation to the masses, which is a little bit manifesto-ish and highfalutin. It sounds, in retrospect, whatever, but it really was.
That was something that our team was just onboard with. We talked about that during the interview process. As everyone comes in, it’s like look, this is Drip. You’ve heard about it. You’ve seen it. It’s this product that’s genuinely helping marketers do better things and be more relevant. The codebase is great and the product is easy to use. It’s powerful. It was just all of that. We were proud of it. There was a sense of pride among the Drip employees that I think, partially, I was really proud.
Derrick and I were really proud of what we built but also because it was a damn good product. I think from the start, I didn’t do it intentionally, right? It’s how we think about it. Derrick and I are makers. You know why I wanted to make money? It’s so I can make whatever I want to do, so I have the freedom to do that. Money has never been an end to me. It was the freedom that was the end. I think I accidentally stumbled into, oh, building a great product motivates other people as well or at least the people who should be on that bus.
Jordan: Yeah, I admire that and I think it’s fantastic. That was not my journey. I went into it trying to be clever. How do I basically make $50,000 a month for myself while not doing any work type of thing? It’s not surprising that you went in with that mindset and didn’t have to figure it out in the middle.
For me, it had to get figured out along the way. It’s only recently, over the past two years, that I fell in love with what we do. It took longer to get there. Where we found authenticity is in helping other entrepreneurs. That’s where we get our pride. As opposed to, we’re so proud of this product. We’re very proud of the results. We see these companies come in and just become more successful because of our product. Then, they hire more people. Then, they grow.
What we like to look at is we like to look at the individual level and not the business level. The people running the company, the people working at the company, they have better lives because we help them find more success. It took some time for the clouds to part and to have clarity on that.
Rob: That’s what it became for us was as well, actually. Users would come in from another tool. We call them Infusionsoft refugees where they were coming and try to escape this tool that they didn’t like. They would be so over the moon with it. They would tell us which is so much easier, or this is changing my business. That did become our huge part of motivation, it wasn’t the results. I’m glad you called that out. I think it started with, oh, didn’t we build a great product? Then, it became, oh, aren’t we helping entrepreneurs get more leads or do this easier?
Another memory I have from this escape philosophy phase was up until that $25,000–$80,000 MRR, I kept thinking we’re going to be profitable soon. We would be profitable. We’d break even then we’d grow. Then, I’d hire. Then, we’d grow. Then, I’d hire. We were never very rarely losing much money. Never raised funding. I was pulling some money off the HitTail for a while. At a certain point, Drip was totally sustainable.
I kept thinking much like you, like when is the time when I can start making money at this business? It comes down to this thing that says something that I said at several MicroConf talks of a fast-growing business isn’t really profitable. If you do want to make money out of it, you can. You’re just going to slow the growth.
Jordan: Yes. That is one of the absolute, most critical conversations in the entire experience of building this company. It was the conversation I had with you where I was not trying to be a jerk but it could’ve been viewed as a jerk question. I think we were at $10,000 MRR and you were over $100,000. I was like, you must be profitable. What are you possibly doing at that stage if you’re not pulling profit at $100,000? I could not even fathom it. I couldn’t imagine.
That’s what you said to me. You said look, when you get here, you will have a trade-off decision. If you starve it too early, you’re going to kill the whole trajectory of it. You might also exhaust your team because you won’t be investing in hiring to keep up with the growth. It might sound like an easy decision to be profitable but wait until you get here and then let me know. You were right and then another $100,000.
Rob: Oh, man. We should couch this whole thing of CartHook and Drip are very successful apps in the grand scheme of things. In terms of so few products making it to product-market fit, even fewer make it to a million ARR, fewer make it to multiple millions of ARR. I don’t want to normalize it and say everyone should travel the same journey that you and I did or anything like that.
I do want people to know that if you grow and you do grow fairly quickly in a space, you do have success, I think it’s good to be aware of these stages so that as you enter them, like when you hit product-market fit, it’s like okay, now I should be thinking about repeatable marketing channels. At a certain point, you find one or two and it’s like okay, mental check. I’m in an escape philosophy phase. What did I say about this? It’s going to be chaotic. It’s this and that. That’s really why I wanted to talk through this to get people set. Again, it’s not going to be for every app. It’s $20,000–$80,000. It’s this and that. I think certain apps grow faster and slower, obviously, but I do think that these stages can be helpful as a mental model.
That actually brings us to stage five which I’m calling scale. For Drip, that was $80,000. It was about a million, $83,300 and up. For us, we went into a million, and then into multiple millions. We have 10 people. We were acquired. I stuck around for a year-and-a-half. By the time I left, I believed there were about 60 people working on Drip under the lead pages umbrella. We weren’t independent of the whole scale phase. We were acquired basically mid-scale, I would say.
Part of the early scale was hiring more people, which again, was that decision, that tradeoff of we’re not going to be profitable. We’re still growing. I think this market’s very big. Part of that decision was I was burning out pretty bad but also do we raise money? Or do we sell?
I got five potential acquirers contacting us in a span of about 15 months. As you do when you get on the radar and you built this many brands, two emails a month, three emails a month, from people who said we will fund you. Sometimes, it was junior venture capitalist prospecting and stuff. Other times, it was serious people who I knew had the money and really wanted to invest in a fast-growing SaaS app.
That was a big decision for us as to whether to get acquired and take the chips off the table or whether to basically raise a round, double down, and be like all right, we’re going to do this for two, three, four more years before we think about next steps.
Jordan: We’ve talked about the corporate and the financing side of things a lot through this journey. I think you did things exactly right on the corporate position you are in. Like the amount of equity you had, you hadn’t raised money. You got to this point and then the risk-reward calculations of selling or not, I think you did the right thing. You don’t know what’s going to happen in the future and you built something that’s growing really fast, is very attractive, and you don’t need $100 million acquisition in order for it to be a success.
If you raised a bunch of money, if you’re at the exact same revenue that you were at but you had raised $3 million, you’re in a completely different world. You limit your option set when you take money early. I’ve always thought about that. What we’ve always looked at is how do we raise just enough to get going but to keep those relatively low acquisition offers into play? It’s just much more likely to get acquired for under $50 million than it is to get acquired for over $50 million.
Rob: Yeah. It was a calculated gamble. Derrick and I have talked about it since then over beers. I asked him—this was probably six or eight months after the acquisition, we’re having beers, and we’re still both working at Drip—do you ever wake up and regret it that we sold? He said never once. I said me neither. I have never woken up in a day.
I think part of that is the acquisition took 13 months. We have a hell of a long time to think about it. Derrick and I were very cautious. We think things through. We’re not flipping. It was not an impulse decision. By the time we got to that point, it was like no, we really want this to happen. The harder part would have been if we got there and that hadn’t happened because we were bought into it at that point.
I’ve heard you talking on your podcast about taking some chips off the table about the big raise from the clubhouse app and the founders each took a million off the table, I believe. Some people think oh my gosh, that’s catastrophic. How can you do that? It’s a pre-launch app so I’m like wow. I can’t even believe it.
Aside from that, taking enough chips off the table, I was like look, my whole net worth, I’m worth millions and millions of dollars in completely illiquid private company stock. I have whatever I have, $50,000 in the bank, and I had a couple of $100,000 in a retirement account. That’s my net worth right now and I’m concerned. There was a huge stock market drop and SaaS valuations were cut in half as we’re talking about the acquisitions. Recessions, competitors were just jumping at our heels. There was all this stuff going on that I was thinking, it was exactly that type of press. Let’s not talk it through the podcast before but it really is.
It’s like do I take some chips off the table here or do I double down, keep going, and see what happens?” It would be different for everyone, but I do think having a small win early on and getting to some money that is in your bank account where you can then take bigger risks like, I’m now in a position where I can just take bigger risks. I can grow a TinySeed which is not going to really pay me much for years. I can do that now because of this.
Stage five for Drip, as I’ve said, was scale. It was $80,000 and up to acquisition. For you, you named it out about $80,000–$200,000 of MRR. You want to talk through what your experience was like getting there?
Jordan: Yes. This was the opposite. Book cased by failure first and then really big success towards the end of the stage. When we got to $80,000 with all that pain, we came to the realization of okay, you know what we’re going to have to do? We’re going to have to break another cardinal sin. We’re going to have to rewrite the app. And we did.
Rock, who is now the CTO, is probably the CTO right now because he’s successfully pulled off a rewrite of an app with hundreds of customers and hundreds of thousands of dollars a day in payment processing. We got stuck at $80,000. We got stuck at $80,000 for months and the churn is wild. Churn was like 15% per month. Just growing and losing $20,000 in both directions every month. Just adding $20,000 in MRR and losing $20,000 in MRR. Just over and over and over. That’s why that stage was so exhausting.
We came to the conclusion that we had to rewrite it. It has to be better. We have to take the lessons learned, all the mistakes we made, and just make a better version of it. That’s what we did and then it worked. They pulled it off between Ben, […], and Rock. They pulled it off. As soon as we released version 2, the thing just popped. We went from $80,000–$200,000 again in just a handful of months. That stage was really okay.
Let’s build out the team, let’s build out a support team, a success team, QA, different engineering leads. Let’s get this thing ready so we can actually handle what we have in front of us. Let’s get marketing so I’m not doing it. Let’s get success so I can stop talking to customers. All these different things like building up the company. It was the rewrite and the growth from that is what allowed us to hire about 20 people. That’s when everything just became much more promising. That’s what I look at as that stage for us. Then, at the end of the stage, we got stuck around $200,000. That’s kind of what led us to the next phase.
Rob: I’m calling this the sixth stage of SaaS growth. Obviously, there are many more because we’re going to wrap this up around a few million single-digit ARR. Getting to $20 million, $50 million, $100 million. Of course, there are stages you get to 100 employees, 500, then 1000. We’re not going to cover those because we haven’t done them. After the scale phase, you specifically called out that there’s this transition of all right, we’re scaling but north of about $200,000 at least for you, given the timing, it became company-building where you have to, as a CEO, as a founder, your mindset has to shift. Talk us through what that phase has been, what it feels like.
Jordan: Yes. We built a team in that stage five, the $80,000–$200,000, but we really didn’t build the company infrastructure. We hired the people that we needed but when someone got hired, it was, here’s a laptop. Here’s someone else that does the job similar to yours. I wish you the best of luck. That was effectively our employee onboarding.
The next stage, the company-building stage is when we really have to figure out a lot more around process, a lot more around org structure, reporting structures, where the lines are in the company of who’s responsible for what, and under what circumstance. I needed a lot of help with that. I had never done it before. We hired people, coaches, actually, thanks to an intro from you, who has been hugely helpful (and still is). That’s the phase that we’re in now. We are well over $200,000 in MRR. It feels like we’re just now really starting to set the foundation for being able to grow to 50 and 100 employees. Before we do that, we really need to get our act together in many ways.
It feels like for a very long time, survival was just the only real goal. Now, we’re transitioning into, how do we make this a great place to work? How do we make the mission something that’s clear, that’s everyone’s working towards? How do we attract great talents? How do we keep the employees happy so that they don’t get bored of them wanting to go on to their next challenge? That’s pretty far removed from me convincing a potential customer that they should use our product because of X, Y, and Z. It’s just a new skill set that I’m being forced to learn.
What I will say is, I started off at the other end cynical. How do I make a repeatable revenue? This process of going from that to building a real company, by far the most fulfilling experience has just been the other people involved. Developing other people, watching them succeed, watching their confidence grow once they really settle in.
I talked about this week, we signed our biggest customer ever. I didn’t talk to them. It just makes me really proud and happy about what we’ve done, what we’ve built, and just watching the team kind of start to turn into a higher caliber version of ourselves. That feels like the stage we’re in now. It’s tough to tell what comes next. I’m sure it’ll be crazy because it’s been that way the whole way. This stage right now feels pretty amazing.
When the crisis hits, we just have the ability to take care of people the way we have been able to, it feels amazing. It’s much more fulfilling than starting out and saying let’s make money together. That part of it has been great.
Rob: Building a startup changes you for the better, doesn’t it?
Jordan: Yeah.
Rob: Yeah. You know what, with Drip as we talked through these stages, just the range of skill sets that you need if you’re going to start a company as a founder to do the customer development, to convince a developer to help you or to pay them or to scrap and cold email, to do a launch, and then to grow to $20,000. Then, to start hiring. Then, hire more. Then, hire managers who hire managers. Then, being at a company-building. What a broad range of skill sets that you have to learn on the fly or makeup as you go along or what have you.
This is a reason back in the day when venture capitalists would fund a company. The founder would grow it to a certain amount. Then, they’d oust the founder. They kind of have a clause. Either the VCs owned enough or they have a clause and it’s like hey, we can boot you. Oftentimes, the founder isn’t the best person to run a $100 million company because a $100 million company with X thousand employees is a very different skill set than what you and I have talked about today.
Personally (I’ll speak for myself), I don’t want to run a team of even 30 people. That doesn’t sound fun to me. Certainly, 50, 100, 1000, people. Maybe I don’t understand what that requires, but it sounds like a burden. It’s partially because my goal was never to build companies. My goal was never to make a bunch of money. It really was to achieve freedom so I can work on interesting problems, interesting projects, and make things. It all comes from making. When I roll that back, it’s like if I want to do that, then I need to make money. If I want to make money, I think I’m going to use my skill set and start a company.
Companies were a means to an end and have been. I, of course, loved talking about it or I wouldn’t have done 500 episodes of this. I’m curious, from your perspective, you’re going to come back on the podcast and you’re going to talk to us about stages seven and eight. Who knows what they’ll be. Do you see yourself running a team? You think you could be happy running a team of 50? 100?
Jordan: Yes. I think I could. I think that’s what I want. I remember when we started out. I remember looking at the Inc. 500 magazine every year as I grew up. The only thing I paid attention to was the ratio of revenue to employees. I didn’t care about the total revenue. I wanted the ratio. I wanted the revenue per employee because looking at a company that made $100 million but had 1000 employees, I looked at that and said that just sounds miserable.
If a company was making $20 million with eight employees, I thought to myself that’s what I want. I want efficiency, I want a small team. I want everyone to be in a small tight community. I still want that efficiency but I think I wanted it to be a lot bigger.
One of the things we’ve said is that every time we come up against the hill, then climb it, and get to the top of that hill, when we look outward, we see so much more. The opportunity just keeps getting bigger the further we go. We’re not even close. We’re just barely getting started. The more we grow, the more it feels that way.
Right now, if an amazing acquisition ever came through, something that I just could not say no to, I am 100% certain that I would regret selling because we’re just starting.
Rob: Just starting, man. I love it. I’m serious about you coming back to talk. We’ve got to figure out what’s after company-building.
Jordan: There’s not too much drama. That’s all I ask.
Rob: I love this conversation. This may be the longest episode of the Startups for the Rest of Us ever. I couldn’t cut it off. I feel like what we’re talking through, I think it’s insanely valuable. It certainly was entertaining for me to listen to your stories and reliving them with you.
Jordan: First, thank you for guiding along. Sorry for making it long. Just 2X the speed. I am proud of us that we stayed away from the darkness.
Rob: Yes.
Jordan: There’s a lot of darkness that we just didn’t touch on and that’s always there. There’s a skill in ignoring that darkness and moving forward that we exemplified in this podcast.
Rob: There are a whole nother hour and 10-minute episode of us just talking about the worst part of each of these stages. That’s something. Maybe that’ll be in your memoir.
Jordan: Thanks for having me on, man. I really appreciate it.
Rob: Absolutely. If folks want to keep up with you, you’re @jordangal on Twitter. Of course, carthook.com, if they want to check out what you’re working on. Bootstrapped Web, that’s the podcast I tune into every week. They can hear you on your journey, man. Thanks again.
Thanks again for joining us. Again, to recap these first six stages of SaaS growth are prelaunch, post-launch/pre-product-market fit, product-market fit, stage four’s escape philosophy, stage five is scale, and stage six is company-building.
I appreciate you joining me twice this week. I look forward to seeing you next Tuesday for episode 500. Talk to you then.
This episode covers the final stages of SaaS growth that we didn’t have time to cover in part one. If you haven’t already listened to part one, I would highly recommend doing that so you have the context as we finish up our conversation with Jordan Gal of CartHook.
Stage four, I’m calling escape philosophy. This is where you have product-market fit and you’ve discovered at least one, maybe two, repeatable channels that are driving leads. You’re converting. You have repeatable sustained growth. Maybe that growth rate is increasing month-to-month. Maybe it just fits $3000–$5000 a month.
If you haven’t raised the Series A, it doesn’t take that much time growing it to $5000 a month to build a hell of a business. For me, I put escape philosophy. It was for about $25,000 MRR up to about $80,000 MRR. It’s probably about $1 million when I think about it. Maybe three of three. During that time, we’ve already done some integrations, but we realized they were working really well. The more integrations we build, not only did we drive traffic, but we were able to retain customers more because they would link them up and there’s just a lot of value created. We did quite a bit of content with some success. It was enough success to keep doing it but it was not the main driver of growth. There was an ROI there. We did some pay-per-click and it worked.
I was doing a ton of podcasting, public speaking, and that was raising it. It was hard to measure but it just continued to have Drip in the conversation. They used to say Infusionsoft and Ontraport as the lower-end marketing automation because I ran thousands a month. Soon, I wanted Drip to be the number three or number two, frankly, just to be the other one that was mentioned in all the blog posts and in all the conversations.
I started hearing it on podcasts and seeing it on blogs with people I’ve never met, never talked to, didn’t reach out to, to say hey, should you mention this? It just started getting on people’s radar because enough people were using it. We also have a ‘Powered by Drip’ link that contributed during that time. I was doing more outreach to influencers and friends who I knew. We were doing cross-promotion and stuff.
It was a bunch of things. There was not one thing that worked amazingly for us. There were about probably two that drove half of our trials in any given month and three to probably grow 75% or 80%. During that time, we grew to a headcount of five people in total. It was me and Derrick, then we had a guy doing support, and another developer. They’re our first customer success.
A person, Ana Jacobs, who many of you know from MicroConf, she’s been in MicroConf circles. She was in Fresno and she was doing essentially marketing work and agency and really wanted to get into products. She was an early game-changer for us because I was doing all the sales demos and trying to do onboarding calls. I’m just not good at that. You’ve got to know your strengths and that’s not my strength at all. She was able to take that off my plate. Not only did I think our conversion rate went up but we’re able to handle bigger customers who wanted someone to hand-hold them.
At a certain point, I started saying I’m just not going to do these anymore. Although Drip’s starting price was $50 a month, we have people approaching us like hey, I remember bringing a list over and we’ll pay you $500-$800 a month. That’s substantial growth for an app that’s doing $40,000–$50,000 a month. The fact that we were able to service them, work with them, and do the extra that they want was a big transition for us during this time.
Still total chaos in terms of the business. I was starting to burn out, in all honesty. I made personal mental health mistakes in terms of just not hiring more out. Everyone was doing their job in terms of building products, onboarding customers, and anything else I took on. I shouldn’t have done that. It seemed like the right decision at that time to keep the business moving forward. I was trying to maximize growth. In fact, I maximize my personal unhappiness because I was doing a bunch of tasks that I didn’t want to do.
That was my escape philosophy phase. Really, your escape philosophy was more with the second product, what CartHook is now. You listed it as a $20,000–$80,000. I think we’re actually in a similar range of thinking about these stages.
Jordan: Yes. We broke every rule. We did not do what I would suggest anyone do. We just built an isolation and we just launched. We fully went the ‘build it and they will come’ route and it just happened to work. This stage for us was, again, a huge success and so much pain.
I’m looking at our ProfitWell graph from all time. It was a theme for us where we have a few months of incredibly fast growth, then sustained period of no growth, and then forcing our way out of it again. The reason it happened to us, it’s the same thing that happened in this phase from $20,000–$80,000, we got the product right. That’s what people wanted. That guest at a customizable check I would upsell that worked with Shopify and allows you to do all this marketing stuff, that’s what the market wanted.
As soon as we released it, the word of mouth was huge and we got overwhelmed with demands. We did one thing that was really, really, important for the whole trajectory of the business as soon as we released it and got too much demand. In the first 30 days, we had, let’s call it 100 or 200 sign-ups. It was $100 a month. We were like this. We found the right thing, but the product wasn’t quite ready yet. After that first month, it was just total chaos. We couldn’t keep up. We couldn’t onboard people. We didn’t even know how to support our own product. What we did, we decided we need to slow it down.
How do you slow down demand? We did it in two ways. We first said you have to do a demo. You got to talk to me. I want to understand who you are or what you’re trying to do and build a relationship. The second thing we did was we tripled the price. We went from $97 a month to $300 a month. We assumed those two things would lead to slower demands. No such thing happened. It just stayed exactly the same, which is where we realized okay, we mispriced the product. Thank God we realized it in 3X the price, and then I just went to work just doing one or two demos every day for forever.
Those demos are really important, obviously, to hear what people wanted but also for the psychology of the team. It was just still the four of us at this point. We eventually hired a few more. We ended up with a team of six or eight towards the end of this phase. In the beginning, it was just the four of us. The motivation we got from my conversations was wild. People were like, I cannot believe you built this. This is exactly what I want. We just heard a variation of that over and over and over. That gave us the motivation to just keep going.
The problem was that the product was just not good enough yet. A checkout product, you can’t be 75% good. If you do anything wrong, you cost people money. We went through this period of growth despite the product not being good enough which just meant a lot of very, very, frustrated customers. That just gets you after a while.
For me, mentally, in this period, I had a really rough time because I’ve basically gone two years of working on this product, took this huge risk, took money from friends and family, then from my point of view, I got it right. I found the right product at the right time for the right market which is rare enough, and then the tech just couldn’t satisfy it.
The tension within the team was tough. The tension with the customers was tough. We just kept growing. We got to around $80,000 in this phase. I’m supposed to be happy, right? I just went $0–$5000 in one year, $5–$20,000 in another year, then $20,000–$80,000 in four months. I’m supposed to be happy. I was anything but happy. It was mentally very difficult. As we brought in new employees, they just entered a world of pain. If you’re trying to support people, trying to help people get onboarded, everything we were doing was just filled with pain, but we knew we were on to the right thing. That just helped us get through it. It was not pretty.
Rob: Yeah. You effectively caught lightning in a bottle. You were early to that space of this replacing the checkout in Shopify. Again, it’s being prepared but getting a little lucky to have been at that place right at the right time and done that because if you have done it a year later, the window is over. You couldn’t do it.
It’s interesting to hear about our journeys. The parallels and then the not parallels. Drip was essentially entering a completely crowded market and trying to build a less expensive, easier to use version of these clunky, expensive tools that were generally not loved. That was a very different approach than what you took with CartHook which was I see an opportunity, I need to shoot this gap and get there right as this opens up. You’re being early.
I had a talk called The Unfair Advantages of Building a SaaS. One of them is being early. In this case, you were early. It was because you were there. Outsiders couldn’t have known that this opportunity was available. That’s the thing. Doing things in public, creating opportunities.
Jordan: Yeah, that’s right. I’m curious to hear from your side. At this stage for me is when I started to hit some real limitations in my experience. When it was a group of four of us, it was pretty straightforward, Guys, let’s make some money together. Let’s do this. Let’s change our lives by building this thing together.
Once we started hiring people, that got tested. I remember, specifically, one conversation that Ben pulled me aside and said look, man. You’re our leader. We need you to go beyond money. Our employees here don’t stand to make millions of dollars if we sell this thing. They need to work for something more than just that. That conversation with Ben I appreciate and think about all the time. That was a real turning point on me needing to look beyond money and create something of a mission, something more important.
I had a challenge because I am very against the ‘change the world, make the world a better place,’ […]. I didn’t want to become a phony and say that that type of thing is our mission when I didn’t believe it. I needed to figure out a way to authentically create a mission for the company that I felt was honest and sincere. Did you encounter something like that as you started to grow the team?
Rob: Not in that way. I think it’s because, from the start, building Drip wasn’t about making money. I never said that. It was more about building a really cool product. There was a lifestyle component to it, but by the time we have three, four, five people, it became, we are truly innovating in this space and building an amazing product for people who don’t like these other alternatives. Isn’t that cool? We are makers and we want to have a very high standard of building an amazingly easy-to-use product that is super powerful for people.
All of our team members, including me, loved the product. We were enamored with this power that we could have. When we looked around our competitors, we were like, that product’s like a toy compared to Drip. That product is super hard to use and expensive. We genuinely believe that we were not making the world a better place but we were email marketing and marketing automation just more accessible. I think at one point I said we’re trying to bring marketing automation to the masses, which is a little bit manifesto-ish and highfalutin. It sounds, in retrospect, whatever, but it really was.
That was something that our team was just onboard with. We talked about that during the interview process. As everyone comes in, it’s like look, this is Drip. You’ve heard about it. You’ve seen it. It’s this product that’s genuinely helping marketers do better things and be more relevant. The codebase is great and the product is easy to use. It’s powerful. It was just all of that. We were proud of it. There was a sense of pride among the Drip employees that I think, partially, I was really proud.
Derrick and I were really proud of what we built but also because it was a damn good product. I think from the start, I didn’t do it intentionally, right? It’s how we think about it. Derrick and I are makers. You know why I wanted to make money? It’s so I can make whatever I want to do, so I have the freedom to do that. Money has never been an end to me. It was the freedom that was the end. I think I accidentally stumbled into, oh, building a great product motivates other people as well or at least the people who should be on that bus.
Jordan: Yeah, I admire that and I think it’s fantastic. That was not my journey. I went into it trying to be clever. How do I basically make $50,000 a month for myself while not doing any work type of thing? It’s not surprising that you went in with that mindset and didn’t have to figure it out in the middle.
For me, it had to get figured out along the way. It’s only recently, over the past two years, that I fell in love with what we do. It took longer to get there. Where we found authenticity is in helping other entrepreneurs. That’s where we get our pride. As opposed to, we’re so proud of this product. We’re very proud of the results. We see these companies come in and just become more successful because of our product. Then, they hire more people. Then, they grow.
What we like to look at is we like to look at the individual level and not the business level. The people running the company, the people working at the company, they have better lives because we help them find more success. It took some time for the clouds to part and to have clarity on that.
Rob: That’s what it became for us was as well, actually. Users would come in from another tool. We call them Infusionsoft refugees where they were coming and try to escape this tool that they didn’t like. They would be so over the moon with it. They would tell us which is so much easier, or this is changing my business. That did become our huge part of motivation, it wasn’t the results. I’m glad you called that out. I think it started with, oh, didn’t we build a great product? Then, it became, oh, aren’t we helping entrepreneurs get more leads or do this easier?
Another memory I have from this escape philosophy phase was up until that $25,000–$80,000 MRR, I kept thinking we’re going to be profitable soon. We would be profitable. We’d break even then we’d grow. Then, I’d hire. Then, we’d grow. Then, I’d hire. We were never very rarely losing much money. Never raised funding. I was pulling some money off the HitTail for a while. At a certain point, Drip was totally sustainable.
I kept thinking much like you, like when is the time when I can start making money at this business? It comes down to this thing that says something that I said at several MicroConf talks of a fast-growing business isn’t really profitable. If you do want to make money out of it, you can. You’re just going to slow the growth.
Jordan: Yes. That is one of the absolute, most critical conversations in the entire experience of building this company. It was the conversation I had with you where I was not trying to be a jerk but it could’ve been viewed as a jerk question. I think we were at $10,000 MRR and you were over $100,000. I was like, you must be profitable. What are you possibly doing at that stage if you’re not pulling profit at $100,000? I could not even fathom it. I couldn’t imagine.
That’s what you said to me. You said look, when you get here, you will have a trade-off decision. If you starve it too early, you’re going to kill the whole trajectory of it. You might also exhaust your team because you won’t be investing in hiring to keep up with the growth. It might sound like an easy decision to be profitable but wait until you get here and then let me know. You were right and then another $100,000.
Rob: Oh, man. We should couch this whole thing of CartHook and Drip are very successful apps in the grand scheme of things. In terms of so few products making it to product-market fit, even fewer make it to a million ARR, fewer make it to multiple millions of ARR. I don’t want to normalize it and say everyone should travel the same journey that you and I did or anything like that.
I do want people to know that if you grow and you do grow fairly quickly in a space, you do have success, I think it’s good to be aware of these stages so that as you enter them, like when you hit product-market fit, it’s like okay, now I should be thinking about repeatable marketing channels. At a certain point, you find one or two and it’s like okay, mental check. I’m in an escape philosophy phase. What did I say about this? It’s going to be chaotic. It’s this and that. That’s really why I wanted to talk through this to get people set. Again, it’s not going to be for every app. It’s $20,000–$80,000. It’s this and that. I think certain apps grow faster and slower, obviously, but I do think that these stages can be helpful as a mental model.
That actually brings us to stage five which I’m calling scale. For Drip, that was $80,000. It was about a million, $83,300 and up. For us, we went into a million, and then into multiple millions. We have 10 people. We were acquired. I stuck around for a year-and-a-half. By the time I left, I believed there were about 60 people working on Drip under the lead pages umbrella. We weren’t independent of the whole scale phase. We were acquired basically mid-scale, I would say.
Part of the early scale was hiring more people, which again, was that decision, that tradeoff of we’re not going to be profitable. We’re still growing. I think this market’s very big. Part of that decision was I was burning out pretty bad but also do we raise money? Or do we sell?
I got five potential acquirers contacting us in a span of about 15 months. As you do when you get on the radar and you built this many brands, two emails a month, three emails a month, from people who said we will fund you. Sometimes, it was junior venture capitalist prospecting and stuff. Other times, it was serious people who I knew had the money and really wanted to invest in a fast-growing SaaS app.
That was a big decision for us as to whether to get acquired and take the chips off the table or whether to basically raise a round, double down, and be like all right, we’re going to do this for two, three, four more years before we think about next steps.
Jordan: We’ve talked about the corporate and the financing side of things a lot through this journey. I think you did things exactly right on the corporate position you are in. Like the amount of equity you had, you hadn’t raised money. You got to this point and then the risk-reward calculations of selling or not, I think you did the right thing. You don’t know what’s going to happen in the future and you built something that’s growing really fast, is very attractive, and you don’t need $100 million acquisition in order for it to be a success.
If you raised a bunch of money, if you’re at the exact same revenue that you were at but you had raised $3 million, you’re in a completely different world. You limit your option set when you take money early. I’ve always thought about that. What we’ve always looked at is how do we raise just enough to get going but to keep those relatively low acquisition offers into play? It’s just much more likely to get acquired for under $50 million than it is to get acquired for over $50 million.
Rob: Yeah. It was a calculated gamble. Derrick and I have talked about it since then over beers. I asked him—this was probably six or eight months after the acquisition, we’re having beers, and we’re still both working at Drip—do you ever wake up and regret it that we sold? He said never once. I said me neither. I have never woken up in a day.
I think part of that is the acquisition took 13 months. We have a hell of a long time to think about it. Derrick and I were very cautious. We think things through. We’re not flipping. It was not an impulse decision. By the time we got to that point, it was like no, we really want this to happen. The harder part would have been if we got there and that hadn’t happened because we were bought into it at that point.
I’ve heard you talking on your podcast about taking some chips off the table about the big raise from the clubhouse app and the founders each took a million off the table, I believe. Some people think oh my gosh, that’s catastrophic. How can you do that? It’s a pre-launch app so I’m like wow. I can’t even believe it.
Aside from that, taking enough chips off the table, I was like look, my whole net worth, I’m worth millions and millions of dollars in completely illiquid private company stock. I have whatever I have, $50,000 in the bank, and I had a couple of $100,000 in a retirement account. That’s my net worth right now and I’m concerned. There was a huge stock market drop and SaaS valuations were cut in half as we’re talking about the acquisitions. Recessions, competitors were just jumping at our heels. There was all this stuff going on that I was thinking, it was exactly that type of press. Let’s not talk it through the podcast before but it really is.
It’s like do I take some chips off the table here or do I double down, keep going, and see what happens?” It would be different for everyone, but I do think having a small win early on and getting to some money that is in your bank account where you can then take bigger risks like, I’m now in a position where I can just take bigger risks. I can grow a TinySeed which is not going to really pay me much for years. I can do that now because of this.
Stage five for Drip, as I’ve said, was scale. It was $80,000 and up to acquisition. For you, you named it out about $80,000–$200,000 of MRR. You want to talk through what your experience was like getting there?
Jordan: Yes. This was the opposite. Book cased by failure first and then really big success towards the end of the stage. When we got to $80,000 with all that pain, we came to the realization of okay, you know what we’re going to have to do? We’re going to have to break another cardinal sin. We’re going to have to rewrite the app. And we did.
Rock, who is now the CTO, is probably the CTO right now because he’s successfully pulled off a rewrite of an app with hundreds of customers and hundreds of thousands of dollars a day in payment processing. We got stuck at $80,000. We got stuck at $80,000 for months and the churn is wild. Churn was like 15% per month. Just growing and losing $20,000 in both directions every month. Just adding $20,000 in MRR and losing $20,000 in MRR. Just over and over and over. That’s why that stage was so exhausting.
We came to the conclusion that we had to rewrite it. It has to be better. We have to take the lessons learned, all the mistakes we made, and just make a better version of it. That’s what we did and then it worked. They pulled it off between Ben, […], and Rock. They pulled it off. As soon as we released version 2, the thing just popped. We went from $80,000–$200,000 again in just a handful of months. That stage was really okay.
Let’s build out the team, let’s build out a support team, a success team, QA, different engineering leads. Let’s get this thing ready so we can actually handle what we have in front of us. Let’s get marketing so I’m not doing it. Let’s get success so I can stop talking to customers. All these different things like building up the company. It was the rewrite and the growth from that is what allowed us to hire about 20 people. That’s when everything just became much more promising. That’s what I look at as that stage for us. Then, at the end of the stage, we got stuck around $200,000. That’s kind of what led us to the next phase.
Rob: I’m calling this the sixth stage of SaaS growth. Obviously, there are many more because we’re going to wrap this up around a few million single-digit ARR. Getting to $20 million, $50 million, $100 million. Of course, there are stages you get to 100 employees, 500, then 1000. We’re not going to cover those because we haven’t done them. After the scale phase, you specifically called out that there’s this transition of all right, we’re scaling but north of about $200,000 at least for you, given the timing, it became company-building where you have to, as a CEO, as a founder, your mindset has to shift. Talk us through what that phase has been, what it feels like.
Jordan: Yes. We built a team in that stage five, the $80,000–$200,000, but we really didn’t build the company infrastructure. We hired the people that we needed but when someone got hired, it was, here’s a laptop. Here’s someone else that does the job similar to yours. I wish you the best of luck. That was effectively our employee onboarding.
The next stage, the company-building stage is when we really have to figure out a lot more around process, a lot more around org structure, reporting structures, where the lines are in the company of who’s responsible for what, and under what circumstance. I needed a lot of help with that. I had never done it before. We hired people, coaches, actually, thanks to an intro from you, who has been hugely helpful (and still is). That’s the phase that we’re in now. We are well over $200,000 in MRR. It feels like we’re just now really starting to set the foundation for being able to grow to 50 and 100 employees. Before we do that, we really need to get our act together in many ways.
It feels like for a very long time, survival was just the only real goal. Now, we’re transitioning into, how do we make this a great place to work? How do we make the mission something that’s clear, that’s everyone’s working towards? How do we attract great talents? How do we keep the employees happy so that they don’t get bored of them wanting to go on to their next challenge? That’s pretty far removed from me convincing a potential customer that they should use our product because of X, Y, and Z. It’s just a new skill set that I’m being forced to learn.
What I will say is, I started off at the other end cynical. How do I make a repeatable revenue? This process of going from that to building a real company, by far the most fulfilling experience has just been the other people involved. Developing other people, watching them succeed, watching their confidence grow once they really settle in.
I talked about this week, we signed our biggest customer ever. I didn’t talk to them. It just makes me really proud and happy about what we’ve done, what we’ve built, and just watching the team kind of start to turn into a higher caliber version of ourselves. That feels like the stage we’re in now. It’s tough to tell what comes next. I’m sure it’ll be crazy because it’s been that way the whole way. This stage right now feels pretty amazing.
When the crisis hits, we just have the ability to take care of people the way we have been able to, it feels amazing. It’s much more fulfilling than starting out and saying let’s make money together. That part of it has been great.
Rob: Building a startup changes you for the better, doesn’t it?
Jordan: Yeah.
Rob: Yeah. You know what, with Drip as we talked through these stages, just the range of skill sets that you need if you’re going to start a company as a founder to do the customer development, to convince a developer to help you or to pay them or to scrap and cold email, to do a launch, and then to grow to $20,000. Then, to start hiring. Then, hire more. Then, hire managers who hire managers. Then, being at a company-building. What a broad range of skill sets that you have to learn on the fly or makeup as you go along or what have you.
This is a reason back in the day when venture capitalists would fund a company. The founder would grow it to a certain amount. Then, they’d oust the founder. They kind of have a clause. Either the VCs owned enough or they have a clause and it’s like hey, we can boot you. Oftentimes, the founder isn’t the best person to run a $100 million company because a $100 million company with X thousand employees is a very different skill set than what you and I have talked about today.
Personally (I’ll speak for myself), I don’t want to run a team of even 30 people. That doesn’t sound fun to me. Certainly, 50, 100, 1000, people. Maybe I don’t understand what that requires, but it sounds like a burden. It’s partially because my goal was never to build companies. My goal was never to make a bunch of money. It really was to achieve freedom so I can work on interesting problems, interesting projects, and make things. It all comes from making. When I roll that back, it’s like if I want to do that, then I need to make money. If I want to make money, I think I’m going to use my skill set and start a company.
Companies were a means to an end and have been. I, of course, loved talking about it or I wouldn’t have done 500 episodes of this. I’m curious, from your perspective, you’re going to come back on the podcast and you’re going to talk to us about stages seven and eight. Who knows what they’ll be. Do you see yourself running a team? You think you could be happy running a team of 50? 100?
Jordan: Yes. I think I could. I think that’s what I want. I remember when we started out. I remember looking at the Inc. 500 magazine every year as I grew up. The only thing I paid attention to was the ratio of revenue to employees. I didn’t care about the total revenue. I wanted the ratio. I wanted the revenue per employee because looking at a company that made $100 million but had 1000 employees, I looked at that and said that just sounds miserable.
If a company was making $20 million with eight employees, I thought to myself that’s what I want. I want efficiency, I want a small team. I want everyone to be in a small tight community. I still want that efficiency but I think I wanted it to be a lot bigger.
One of the things we’ve said is that every time we come up against the hill, then climb it, and get to the top of that hill, when we look outward, we see so much more. The opportunity just keeps getting bigger the further we go. We’re not even close. We’re just barely getting started. The more we grow, the more it feels that way.
Right now, if an amazing acquisition ever came through, something that I just could not say no to, I am 100% certain that I would regret selling because we’re just starting.
Rob: Just starting, man. I love it. I’m serious about you coming back to talk. We’ve got to figure out what’s after company-building.
Jordan: There’s not too much drama. That’s all I ask.
Rob: I love this conversation. This may be the longest episode of the Startups for the Rest of Us ever. I couldn’t cut it off. I feel like what we’re talking through, I think it’s insanely valuable. It certainly was entertaining for me to listen to your stories and reliving them with you.
Jordan: First, thank you for guiding along. Sorry for making it long. Just 2X the speed. I am proud of us that we stayed away from the darkness.
Rob: Yes.
Jordan: There’s a lot of darkness that we just didn’t touch on and that’s always there. There’s a skill in ignoring that darkness and moving forward that we exemplified in this podcast.
Rob: There are a whole nother hour and 10-minute episode of us just talking about the worst part of each of these stages. That’s something. Maybe that’ll be in your memoir.
Jordan: Thanks for having me on, man. I really appreciate it.
Rob: Absolutely. If folks want to keep up with you, you’re @jordangal on Twitter. Of course, carthook.com, if they want to check out what you’re working on. Bootstrapped Web, that’s the podcast I tune into every week. They can hear you on your journey, man. Thanks again.
Thanks again for joining us. Again, to recap these first six stages of SaaS growth are prelaunch, post-launch/pre-product-market fit, product-market fit, stage four’s escape philosophy, stage five is scale, and stage six is company-building.
I appreciate you joining me twice this week. I look forward to seeing you next Tuesday for episode 500. Talk to you then.
Episode 499 | The (First) Six Stages of SaaS Growth – Part 1
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This week is a conversation between Rob and Jordan Gal, the founder of Cart Hook. We dig into the six stages of SaaS growth. We compare our journeys 1:1 between growing Drip and growing CartHook. It’s shocking how well the journeys line up with each other. Some of the differences in the journey are also quite striking. This episode is part one, and part two will go live later this week.
Jordan started CartHook as cart abandonment software and became a checkout replacement solution for Shopify. He has been on the podcast a few times answering questions, and he has spoken at MicroConf a few times. He is also the co-host of the Bootstrapped Web podcast.
The finer points of the episode:
- 6:00 – Stage 1: Prelaunch
- 8:33 – How to create your own luck when your SaaS app is in the prelaunch phase
- 13:37 – Stage 2: Post Launch
- 14:25 – The journey to finding product-market fit
- 22:25 – The most challenging parts of the journey for Rob and Jordan
- 23:29 – Stage 3: Product Market Fit
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Every week on this show I cover topics related to building and growing startups using an ambitious approach that’s also sane, and that allows us to be human beings, have relationships, and hopefully not burn ourselves out.
This week’s episode feels like it’s going to be one of my favorite episodes in a long time. It’s a conversation with myself and Jordan Gal, the founder of CartHook. He and I dig into the six stages of SaaS growth. What we do is we compare our journeys one-to-one between growing Drip and growing CartHook.
What’s interesting is that we took different paths to get there. He raised money, we didn’t, and yet there are so many parallels between the two journeys and the stages line up shockingly well in terms of MRR ranges, of pre-launch, to product-market fit, and to escape velocity. I was struck by (a) some of the parallels, and (b) some of the deviations.
When we started, I figured it would be a normal-length episode. We wound up chatting for almost 1 hour and 15 minutes, so I’ve broken this up into a part one and a part two. Part one is what you’re listening to today, and in part two, we’ll go live on Thursday. I would kick it next week, but of course, episode 500 is next week, and I’ve been planning for that for several weeks. We’re just going to do a twofer this week. I didn’t want to drop a 70-minute episode in your feed today.
We cover the first few stages of SaaS growth in this episode. What’s interesting is I was going to call it the six stages of SaaS growth, but you’ll hear me, towards the end, realizing these aren’t the only six stages. There are stages after this. I have the parenthetical, the first six stages of SaaS growth as defined and discussed in the conversation you’re about to hear.
A little background on Jordan, in case you haven’t heard of him before, he started CartHook, which was cart abandonment software and became a checkout replacement solution for Shopify. It’s doing several million dollars a year in ARR. Jordan has been on Startups for the Rest of Us four or five times answering listener questions, walking through his journey. He’s just a founder in the space. He’s come to several MicroConfs, he’s spoken at multiple MicroConfs, and he’s executing well and doing what a lot of us are trying to achieve. He’s done a really good job executing over the last six-plus years as he’s grown CartHook. The time flies quickly. He’s also the co-host of the Bootstrapped Web podcast, so you may have heard him on there. With that, let’s dive into our conversation.
Jordan Gal, thanks for coming back on the show, man.
Jordan: Absolutely. Great to be here.
Rob: It’s always a pleasure. I’m really stoked to be talking through our journeys, our entrepreneurial journeys, and looking at these six stages of building and growing a SaaS. What’s a trip, what I like about this is I floated this idea to you, like would you be interested in coming on to talk about your journey because you’ve just made it so far so quickly. I know it probably doesn’t feel that way, but I was thinking back to growing Drip, there were some pretty distinct stages. There was the pre-launch, the post-launch, trying to find product-market fit and all these things. I was wondering if ours would at all match up.
When I typed mine out in an email, I shot it over, and how do these match up with what you have, it’s pretty close. The revenue numbers are not exact but the general headspace and what you’re trying to do at these stages, at least at this end of two is shockingly overlapping.
Jordan: Yes. I think because we both started at zero. We were forced into going through these individual stages. It is really different from stage to stage. I’m excited to go back into it. I’m a little worried about all the memories and emotions that it’ll bring up because it’s been a hell of a ride. A lot of it is good and plenty of challenges.
Rob: I’m wondering how much PTSD this is going to bring up for either of us. It’s as you said, of course, there are some great memories. I can reminisce and say oh, man. Remember the good old days? Remember when it was just two of us doing this thing? But you know what, it was super stressful when it was just two of us because we didn’t know if we were building anything people wanted. It was six months of just grinding it out with no market validation and all that. It’s easy to romanticize any of these stages.
Jordan: Yeah. It’s also easy to forget how far you’ve come. Rok and I had a moment the other day. Rob’s my CTO and really my co-founder at this point. We’re really partners. He runs the tech team, I run the rest. We had a moment because we hit 100X from the time he joined. We were like you know what? Let’s take a little time out, get on Zoom, have a drink, and have some laughs because we just keep going through these milestones. There’s so much to worry about and think about, it’s tough to even look back at what we’ve done.
Rob: I’m glad you guys took that time. That was something I was not good at with celebrating the wins and celebrating the transition, and oftentimes, even realizing we were making the transition from one stage to the next. It was Sherry, my wife, who encouraged me to slow down and be like you realize you just built a million-dollar business the day that we crossed $83,333. I was like wow, that really is something that I’d been wanting to do for a while.
Jordan: Yeah, and they change. Recently, this week I had a new milestone. We closed our biggest deal ever, and I never talked to the prospect at all.
Rob: Wow.
Jordan: The team did everything. We’ll get into these stages and the stage that we’re in now. Let’s get there. Let’s start at the beginning.
Rob: Six stages. I’ve named each of these stages because what I’ve noticed is I’ve already (and a lot of folks already) used terminology around this, like pre-launch, post-launch, pre-product market fit, and post-product market fit, but I’m tapping into your and my later experience. Have a couple of stages that I think are cool to define and think about because I think if you do get into the multiple millions of dollars, that you will enter those. We’ll get to those in a bit, but pre-launch, we’re going to start there.
Obviously, I could tell a bunch of stories of pre-launching different stuff, but I’ll stick to Drip for my examples here. Obviously, you’ll stick to CartHook. Pre-launch, for me, was a bunch of customer development, and it was a bunch of validation. That was even pre-building. It was going out. I had 17 email threads going with founders saying if we build this would you pay this much for it? I got about 10 or 11 people said yes, I would at least try it out.
For me, it was a lot of marketing as I had a contract developer who was building into the background first half-time, and then he switched over to full-time. That contractor is a guy that a lot of folks may know. His name is Derrick Reimer. At the time, he was just a 1099. He was a friend of mine who wrote Ruby, and he was a good developer. This was going to be really the first app that I had built that I wasn’t going to write any code on. It was partially an intentional decision to pick a language I didn’t know.
My memory of that was me and this contractor both working remotely. We would chat on the phone once or twice a week, and we had met once to basically spec out what the original version of Drip was going to be. I was thinking about that, I was building the marketing list, I was going on podcasts, and I was running some Facebook Ads to landing pages to test value propositions, I mean all the smoke test stuff. I was also doing some MicroConf stuff, speaking, and the podcast. I was staying busy, but it was very much one of many irons in the fire that I had going on. I’m curious to hear how your experience with pre-launch compares to that.
Jordan: Similar in that your real pre-launch started years prior. What allowed you to really hit the ground running was years of work prior, and yes, the same for me. I ran an ecommerce company with my brothers several years prior to starting CartHook. My customer development was my own experience. My pre-launch was consumed with figuring out how to get a product built if I am not technical myself. Going through all these different options, talking to agencies, looking for freelancers, looking for employees, and looking for co-founders. I just went through all these different options.
I knew the product that I wanted to build. It was a cart abandonment app. It was something similar to what I used as a merchant. I knew it made me money and didn’t cost too much. The ROI was great. I knew I wanted to build something that specifically generated new revenue for merchants so I could price based on a percentage of revenue. I had all that, and my pre-launch challenge was how do I get someone to build this? As often happens, it was preparation plus luck. The luck for me came in the form of bumping into an old family friend of my wife’s.
We were doing our 18-month excursion where we lived in a different city for a month or two to figure out where we wanted to move. While we were in San Francisco, I bumped into the younger brother of one of my wife’s friends from back in Connecticut at the laundromat. I had just known him through the years as the computer whiz kid. It was just a coincidence. We ran into each other, then we started having coffee, and then it turned out that he had been doing a bunch of freelance work. He really wanted to basically learn more on the business side.
We just had this match between I want something to build, he wanted to build something, and that’s what happened. I gave him a piece of the company, basically took three months off from freelancing, built the first version of the product, and then handed the baton over to me to start selling. That was my version of pre-launch.
Rob: Wow. The younger brother of a friend of a sister in a laundromat? Sounds like you’re making it up. It sounds ridiculous.
Jordan: Look, his line item on the cap table will speak the truth. That it’s very real, it’s there, and I hope it really works out for him.
Rob: Quite a trip. A lot of questions for you actually because I haven’t heard you talk much about this stage of your business. As an investor, I guess I should have said that upfront. I’ve invested a couple of times in a couple of rounds in CartHook. I’ve been along on the journey with you, but I wasn’t involved yet at this point. I’m wondering, did you validate this idea? I’m imagining this already existed at the time. Why did you decide to build something that already existed, if that was the case?
Jordan: I liked the low-risk approach of that. I used to use a product just like this, and it was a terrible product. It made me money. When I looked at software ideas after selling the ecommerce business, what I did was I looked through our credit card statements. In the ecommerce business, where were we spending our money? I just identified that app as really high value and really low quality. What I said was okay, what if I build a better version of that?
At this point in time, I don’t really have the intention to build a company. My intention is how do I make $10,000 a month so I can do whatever I want. I don’t know where the software thing is going to go, but I like the idea of recurring revenue.
Rob: Life’s now business.
Jordan. Exactly. I wasn’t full-time on it, I was just exploring. I had worked in a previous business where I was a partner that had this quirk. It generated revenue about a year after doing the work. I had about a year of income without doing any work. That’s when I just said okay, I need to register to replace this income, so I can maintain this freedom to explore. I wanted specifically low risk. I didn’t want to come up with something new and not know if it was going to be wanted by the market.
I had my own validation. What I did, really, as part of being able to convince Charlie, the developer that joined me as the original co-founder, I did the legwork to show him that he wasn’t going to waste three months of his time.
Rob: That’s what I was going to ask you.
Jordan: That was the big thing to convince him. I said look, I’m the business person. I’m not just talking. I used to be a merchant, and I’ve been emailing. I did the cold email thing—30 different people a day—I had an inbox full of people saying, yeah, that’s interesting. I would be interested in looking at that. I would pay for that.
Rob: We get emails in the podcast and I get just emails to me personally about how do I find a developer, a technical co-founder if I’m not technical? I always say you prove your worth as that non-developer side. You prove that you can market, you can make sales, that you will hustle, and you will do work alongside that developer so that they’re not working for three months, like you’re saying, while you’re sitting around doing your thing, and then suddenly you’re going to magically market this thing. Most people aren’t able to do that. I didn’t know that.
My next question was going to be how did you convince him to do it? I love that you basically lived that. You showed him that it was worth it and that you could potentially build it. It’s interesting. You thought that you could build something similar but just better because the UX, the user experience of the other one wasn’t good?
Jordan: Yeah. The design was horrible, the UX was horrible, and the onboarding was terrible. It was a bad piece of software but it made me 3000 or3000or4000 every single month, and I paid them $79 a month. I would never cancel it because it kept making me money. I basically said I want to be that guy. That was where I landed. I had a few other ideas. That’s my pre-lunch.
Rob: What’s cool is the parallel of when I launched Drip. I say ‘I’ because at that time, I viewed it as another one of my apps. As we get later on, it’s we because it was Derrick and I as co-founders, and then it was a team of people. When I launched Drip, I absolutely viewed it as a lifestyle business. Similar to you, I was thinking I had already grown HitTail to about 25,000 or25,000or30,000 a month. That wasn’t super interesting to me anymore, I wanted it to be bigger, but I didn’t expect it to grow as quickly as it did from a start.
Once we got into it a little bit I did, but I was really mostly thinking about it like you were just like hey, I want to freaking build a business that throws off a bunch of cash. It’s funny that we wind up going down similar about different paths.
Let’s talk about post-launch. For us with Drip, as we were working on this, it was from about obviously zero in MRR. We built for about six months and then started a slow launch where I would launch to 300 people on the list. I think the total list was 3400. It’s about 300 people every couple of weeks. Getting them and we were trying to get onboarding set. We were trying to not churn everybody out. By the end of that launch, we were between 7000 and7000and8000 a month in MRR.
Over the next six months, we were flailing trying to find product-market fit because I was driving traffic, I was marketing it, and I was doing all the things that I had done in the past that had worked and they weren’t working. Churn was too high, trial-to-paid was not great, and it just wasn’t working. From about 0 to around0toaround10,000 or $12,000, I view this as a pre-product market fit stage, post-launch/pre-product market fit.
For those you’ve heard product-market fit on the podcast a bunch of times, I have a text expander in my head of product-market fit equals you’ve built something people want and are willing to pay for. That’s how I think about it. And are able to reach them at scale and have a bunch of leads because to me, that’s escape velocity, which is two steps from now. That’s the stage I’m […] to. But at this point, it was me and I believe Derrick at that point I’d say hey, I’m thinking of buying a house, I need a couple of pay stubs, W-2 in order to buy a house. We switched him over from 1099 to W-2, and I think he was making about the same amount of money, but it was more of an accounting thing.
At the time, I believe, Derrick and I were the two W-2 employees, in essence, working on it. It was still super scrappy, we had no office. Derrick would come over to my house. There was a […] on my property and we would sit there, chat, map this stuff out, and talk about what we were building next. It was totally freewheeling. It’s just week-to-week, day-to-day. I was doing the email support for the first few months until we brought someone in. That’s my post-lunch, pre-product market fit story. I will add, this was perhaps the hardest part because it was the mental game of not knowing if we were going to find product-market fit.
It took us from November 2013 until about it started changing in May, but it really peaked in terms of churn just plummeted, trial-to-paid doubled, and just every sign of product-market fit you can imagine happened in a 90-day span from May to August of 2014. Depending on how you measure it, it was somewhere between six and nine months from launch to where, oh my gosh, the unit economics on this business all of a sudden are amazing. The ROI of dumping more leads into the top of this funnel is going to scale this thing. That was the moment that I feel like that was product-market fit. That’s that stage three, so I won’t go into there yet, but I’m curious to hear similarities and differences of your post-launch, pre-product market fit stage.
Jordan: Look, good for you because mine was an extended torture session of 12 months, I guess. It was not pretty. This stage, like really good off the ground, launching, and generating some revenue was really no fun. What happened was Charlie passed the baton over to me. He built the product to a point where it’s good enough and now let’s start to sell it. I started with cold email and it worked. I got it to 500 MRR, then500MRR,then1000, then 1500. And then, Charlie got the offer of a lifetime for just his dream job at1500.Andthen,Charliegottheofferofalifetimeforjusthisdreamjobat1500 a month. I had to just tell him you have to take this job. I’m not going to let you stay with me. I’m not even doing it full-time. It’s making $1500 a month. This is your dream job. You have to do it.
He agreed and he took the job and committed to continuing to help nights and weekends. Then I was alone again. I was doing it half the time, I didn’t really know if it was going to go anywhere, and I was just filled with doubt on it. I just kept going. I figured out a cold email system that allowed me to grow faster. I had information built with, got sent over to a VA, then they qualified, and then they sent those records over to another VA that loaded them up into the cold emailing software. What got spit out of the process was scheduled demos for me. Then I would just do a few demos a day and then we started to grow. That got to about $3000 a month and then a little bit more luck came my way.
For me, this first phase really ended when Adii Pienaar, God bless him. We know Adii from the MicroConf community and just from the startup scene overall. He’s a great guy. He built a company called Conversio that just recently got acquired by Campaign Monitor. He’s obviously from WooThemes and WooCommerce prior to that. When Adii was starting his new company, Conversio, he emailed me and effectively offered an acquisition/partnership. He said look, I think what you’re doing with CartHook is interesting. I have this thing going on. At the time, it was called Receiptful. He said would you think about joining me?
I knew that it was too early to have any financial impact, but the conversation got me thinking. It made me perk up and take the opportunity more seriously with what I was doing. By coincidence, I was in New York at the time and started telling some of my friends about this potential partnership/acquisition interest. That’s when my friends, who all went into finance and made far more money than all of us, said why would you do that? It’s so early. Why don’t you just take a few bucks from a few of us and really give it a go?
That’s what started the next chapter for me because when I entertained really taking money, I knew I needed a full-time technical co-founder. That’s when I found Ben Fisher and that’s when we teamed up and the business changed trajectory. That first phase was just 12 months of doubt, pain, taking every credit card over the phone, and just doing it that way until it got a little bit of interest. Then I used that interest to parlay up into investor interest and then raise money. That’s when the next stage started for me.
Rob: That is crazy. That is also another case of serendipity in essence, right? Just a weird conflux of ATP and are asking you all that stuff and not getting you talking to some friends who decide to convince you guys around. What’s a trip is that’s when, at least the way I have it in my Google spreadsheet that I track my angel investments, I have September 2015 of writing the first check. My memory is you were around $5000 MRR at that time. Did you raise me on this?
I probably told you this in the past, this was a pre-Drip exit for me, so I had some money, but I was not in a place to be crazy with cash. I was still trying to grow Drip, and I was honestly trying to conserve cash. I had done a couple of angel investments prior to that. One of the things that I liked about what you were doing because we knew each other, you’ve definitely done Attendee Talks. I don’t know if you’d spoken at a MicroConf yet or not, but we had definitely hung out at MicroConfs.
The way that you executed, you just hustled. The whole cold email system that you explained to me at the time (and I was super impressed by that), the fact that you had scrapped as a non-developer founder to $5000 MRR in SaaS, which I knew is hard enough to do if you’re the one writing the code and doing everything. The other thing is the Bootstrapped Web podcast. I listen to you talk every week or most weeks, I guess. Three weeks out of the month. I was like this guy’s sharp. He just thinks about things in a way that I think makes sense. It felt to me like you were going to be successful. It was literally a bet on you more than even an abandoned cart.
I was like, an abandoned cart? Cool. I don’t know the abandoned cart space, I don’t know if there are 10 apps, I don’t know ecommerce. But if you’re telling me you think there’s an opportunity there—I’ve seen you execute on this—I want to be involved in this. That was a big piece of it for me.
Jordan: Thank you for saying that, by the way. All of us have these serendipitous moments come through. What I got good at over the years was just identifying how to take one small little thing and just keep parlaying that up into bigger things. That is a theme throughout the company. The way I found Ben Fisher, the co-founder, is he signed up for my product. He just had a cool email address, then I looked him up, and he sounded legit. I got on the phone with him and then impressed him enough to join me as co-founder. It was, again, a tiny little breadcrumb. I think all of us are surrounded by these things.
Building up the radar on knowing I should pursue this little tiny thing because there might be something bigger. I don’t know if it’s talent, skill, luck, or some combination of them.
Rob: I had said that post-launch/pre-product market fit for me was the most painful, agonizing part of the journey, do you share that sentiment, or were there times later that have been worse?
Jordan: Two stages from now was the worst for me. I’ll explain that. For me, stage two—post-launch—just felt like an extended torture session that I had to go through on the way to the next thing. I didn’t like it. It wasn’t for me. I would love to skip it on any other company in the future. It’s just something that I had to just deal with until we got somewhere better.
Rob: If you look at the State of Independent SaaS Report that we did or just look general on the internet and see revenue reports, most people don’t make it to the next stage. Stage one was pre-launch, stage two is post-launch/pre-product market fit, and stage three is product-market fit. Again, build something people want and are willing to pay for. For me, with Drip, keep in mind I also had an advantage that I had an audience at this time. That’s a big part of what got me to 10,000–10,000–12,000 without having to do the hustle and send the cold emails. I was able to lean on that audience for that initial kick-start.
Stage three I have as product-market fit. The numbers that I wrote down—this is starting to be from memories, so you got to give it a little fuzzy around the edges—is from about 12,000 MRR is up to about12,000MRRisuptoabout25,000 MRR. That was me and two W-2 employees. It was me and Derrick. As we were going through this phase, this is when Derrick and I started talking like you’re indispensable here. Derrick was starting about going off and doing his own thing because he’s entrepreneurial. That’s when we had to have that conversation about let’s figure out a way to make this work for everyone and make it worth your while, basically, to stick around so you don’t feel like you’re working a day job.
During that time, we hired a second developer. We were just building the product out. We were playing catch-up. We were first at launch to try to compete. We were just going to be like an email capture thing and autoresponders, then it’s like we’re going to compete with MailChimp and AWeber, and then we realized that the real market with the real money in it was—not that MailChimp’s not a real market with real money—that we could go up-market and compete against the Infusionsoft. At the time, it was Office Autopilot that later rebranded to Ontraport. It’s really not on most people’s radar anymore. Then ActiveCampaign was just coming about. They had been I believe white-labeled software, downloadable software. They were not really SaaS for that long before then.
We realized, wow, there’s so much more money the higher price points there. This product-market fit stage was from 12,000–12,000–25,000. We were building out the product and I was just trying to find repeatable marketing channels that extended beyond my audience because I really had exhausted just the usual my things. I call it a concentric circle marketing where it’s like first I’m going to talk to everyone who listens to me—my email list, Twitter, and podcast list. The next one out is my friends’ audiences, so I go on podcasts, I do that. The further out you get it’s like can I make content and SEO work? Can I drive cold traffic from pay-per-click ads? Can I do webinars?
This was a very scrappy phase of just trying to find repeatable channels that drove repeatable traffic. Again, at about 25,000, that’s when I felt like we had started hitting our stride, which is stage four. I won’t go into that yet, but I’m curious to hear how your product-market fit, essentially25,000,that′swhenIfeltlikewehadstartedhittingourstride,whichisstagefour.Iwon′tgointothatyet,butI′mcurioustohearhowyourproduct−marketfit,essentially5000–$20,000, how that went, and how you think about it in retrospect.
Jordan: I remember when Drip launched. The power of getting off the ground. I remember because I was in the struggle at that time. I don’t know about the timing but I’m pretty sure we were under 10,000 in MRR. Once you get to10,000inMRR.Onceyougetto10,000 MRR in 60 days really shows the power of an audience. We still see that these days. We see my podcast co-host and friend Brian Casel launching something with an audience. We see Adam Wathan and Steve and how much value they give. Whenever they launch a product it’s so much easier. I will remember that for the future.
For us, this stage, that 5000–5000–20,000, was bookended with success at first and then failure toward the end of the stage. Right around 5000 is when we raised some money. We raised friends and family’s money. It was like5000iswhenweraisedsomemoney.Weraisedfriendsandfamily′smoney.Itwaslike275,000, and that allowed us to go full-time, focus on it, and hire two engineers. It was myself, Ben as co-founder, and two engineers. Those two engineers are still with the company, by the way. One of them is Rok who’s the CTO. The other one is Jan who is now on infrastructure.
We built something actually worth paying for. We improved the cart abandonment product and then I went on a search for a flywheel. Just something better than the cold email because as soon as we left the Volusion market, which is where I built my ecommerce business and it was really easy to email the owner of the company, cold email stopped working. Then we had to figure out a better way. What we ended up figuring out were partnerships. What we would do is we would do the integration with a platform, then we would try to do some co-marketing, and we hit onto this perfect situation with a platform called Cratejoy.
Cratjoy was a brand-new ecommerce company run by Amir. He used to work at Zynga, who’s super smart, and they were growing like crazy. Full-on hyper-growth was just crazy. Every one of their merchants kept asking them for cart abandonment email. They didn’t want to build it themselves, and I just stuck my head out at just the right time and said we will build it for you, and then you could just tell her customers that they could use us so you don’t have to worry about it. He was like that’s exactly what we need to do.
We did the integration and then what they did is they took us and just built us directly into their admin. Everybody that created a new account saw CartHook right in front of them and then a lot of people signed up. That ended up being so critical to the whole life of the company because as we started growing in this way, the failure bookend of this phase was really coming to terms with the fact that cart abandonment was just not going to do it for us. The market started to get crowded, everyone started to go cheaper, our differentiator started to get worn away.
Our thing was that we captured the email as soon as it was typed into the field, and only the larger, much more expensive solutions were doing it, and then everyone else started doing it. I just did not like the future of the company in cart abandonment, and that’s when we made the decision to build the second product. But we couldn’t have done it without the flywheel, specifically from Cratejoy because what it allows us to do is spend six months building a new product while the revenue just kept growing anyway.
Rob: You self-funded yourself out of revenues in essence. I remember the conversation where we talked on the phone and you said I see this opportunity that’s not cart abandonment, and I want to build a second product. I was like, shiny object syndrome. I was like you need to convince me. Every founder ever wants to build a new product, why? You convinced me. My memories were like look, this is super risky, it’s another product. You now have to go find product-market fit again, but you’re mired in this every day and you’re thinking about this 100 hours a week. This is where you want to go with it, then you got to trust your gut. This is that founder gut-check moment.
Jordan: Yeah. It was very risky but I pretend to be more risk-loving than I really am. I always want to protect the downside. In many ways, I’m risk-averse, but I want the cake and to eat it too. I want to take additional risk while also protecting the downside. That’s the situation I found myself in when we said at the very worst, this thing’s just going to keep growing but slowly, because of the flywheel we’ve built. Even if we take this risk, at worst, I pare everything down. It ends up as two people doing 20,000, and we can survive. It was definitely a huge risk to take to build a second product with a team of four people and20,000,andwecansurvive.Itwasdefinitelyahugerisktotaketobuildasecondproductwithateamoffourpeopleand100,000 in the bank.
Rob: You had this cart abandonment app that was thrown off, let’s say, $20,000 a month and you used it to build the second product. You want to tell folks what that was and why you saw an opportunity there? Why was it unique? There was timing involved in this.
Jordan: Yes, there was. That’s right. Here’s what was happening. Everyone knows Shopify now and the incredible success story rocket ship like ridiculous performance that they’ve had, especially since going public. When we were in the ecommerce market, this was four years ago, Shopify was becoming successful and being talked about, but it was not the clear, straightforward, obvious winner in the market.
What was happening was as Shopify got better at making it easy to launch a physical product business and the ecosystem around it of fulfillment and importing from China, all these things started coming together in such a way that made selling physical products almost as straightforward and hands-off as selling digital products.
What that did is it started to attract all the marketers that were traditionally in the digital marketing space selling courses and e-books, it started to attract them into the physical product world. It is much easier to sell a physical product than it is a digital one in many ways. You put a picture of it on the site, you write some copy around the benefits, you put a price, and then there’s a buy button. It is much more straightforward than a digital book that explains how to do X, Y, or Z. That started attracting people, and at the same time, ClickFunnels was exploding.
The reason ClickFunnels was exploding was because it was building products in the market of those traditional digital marketers, but it was showing them how to very easily build things that sell physical products. The problem with ClickFunnels was that it didn’t have the infrastructure on the backend like inventory, fulfillment, and shipping. It just had a great system to just put up a landing page and be able to sell, most importantly to sell with post-purchase upsells. What people were doing is they started selling physical products on ClickFunnels. They would find success, but then they would run into the issue of not having enough infrastructure to do fulfillment, shipping, and so on.
They were dealing with CSV exports and losing their minds. Then they went over to Shopify, which had a much better system for selling physical products. But when they did that, they lost a lot of the marketing strategy functionality around the checkout and post-purchase upsells. There was just this huge pool of marketers that wanted to sell on Shopify with the post-purchase upsell functionality. That’s what we saw as the opportunity. If we build post-purchase upsells and a customizable checkout for Shopify, all of these people that are currently on ClickFunnels and want to come over to Shopify will come over along with our ability to provide them what they want. That was the moment right there in the market.
Rob: That was the right bet based on your growth since then. It’s a trip, and you no longer have the cart abandonment functionality at all, right?
Jordan: That’s right. We sunset it from the public eye, maybe 6 or 12 months ago, and we just left some of the merchants that wanted to stay on. It is amazing how long people will keep software around if you keep making them money. We haven’t touched the thing in three years, but we still have people paying us $100 a month because it keeps making them money.
Rob: It’s back to your initial premise of I paid 3000 or3000or4000 a month, or I made 3000 or3000or4000 a month from this software, and I was never going to cancel it as a merchant. That’s the thing.
Sorry to break in here but that is the end of part one. To recap, Jordan and I talked through the pre-launch stage, the post-launch/pre-product market fit stage, and the product-market fit stage. Part two that comes out in about 48 hours, we will cover the remaining stages of SaaS growth. Thanks for listening. I’ll talk to you then.
This week’s episode feels like it’s going to be one of my favorite episodes in a long time. It’s a conversation with myself and Jordan Gal, the founder of CartHook. He and I dig into the six stages of SaaS growth. What we do is we compare our journeys one-to-one between growing Drip and growing CartHook.
What’s interesting is that we took different paths to get there. He raised money, we didn’t, and yet there are so many parallels between the two journeys and the stages line up shockingly well in terms of MRR ranges, of pre-launch, to product-market fit, and to escape velocity. I was struck by (a) some of the parallels, and (b) some of the deviations.
When we started, I figured it would be a normal-length episode. We wound up chatting for almost 1 hour and 15 minutes, so I’ve broken this up into a part one and a part two. Part one is what you’re listening to today, and in part two, we’ll go live on Thursday. I would kick it next week, but of course, episode 500 is next week, and I’ve been planning for that for several weeks. We’re just going to do a twofer this week. I didn’t want to drop a 70-minute episode in your feed today.
We cover the first few stages of SaaS growth in this episode. What’s interesting is I was going to call it the six stages of SaaS growth, but you’ll hear me, towards the end, realizing these aren’t the only six stages. There are stages after this. I have the parenthetical, the first six stages of SaaS growth as defined and discussed in the conversation you’re about to hear.
A little background on Jordan, in case you haven’t heard of him before, he started CartHook, which was cart abandonment software and became a checkout replacement solution for Shopify. It’s doing several million dollars a year in ARR. Jordan has been on Startups for the Rest of Us four or five times answering listener questions, walking through his journey. He’s just a founder in the space. He’s come to several MicroConfs, he’s spoken at multiple MicroConfs, and he’s executing well and doing what a lot of us are trying to achieve. He’s done a really good job executing over the last six-plus years as he’s grown CartHook. The time flies quickly. He’s also the co-host of the Bootstrapped Web podcast, so you may have heard him on there. With that, let’s dive into our conversation.
Jordan Gal, thanks for coming back on the show, man.
Jordan: Absolutely. Great to be here.
Rob: It’s always a pleasure. I’m really stoked to be talking through our journeys, our entrepreneurial journeys, and looking at these six stages of building and growing a SaaS. What’s a trip, what I like about this is I floated this idea to you, like would you be interested in coming on to talk about your journey because you’ve just made it so far so quickly. I know it probably doesn’t feel that way, but I was thinking back to growing Drip, there were some pretty distinct stages. There was the pre-launch, the post-launch, trying to find product-market fit and all these things. I was wondering if ours would at all match up.
When I typed mine out in an email, I shot it over, and how do these match up with what you have, it’s pretty close. The revenue numbers are not exact but the general headspace and what you’re trying to do at these stages, at least at this end of two is shockingly overlapping.
Jordan: Yes. I think because we both started at zero. We were forced into going through these individual stages. It is really different from stage to stage. I’m excited to go back into it. I’m a little worried about all the memories and emotions that it’ll bring up because it’s been a hell of a ride. A lot of it is good and plenty of challenges.
Rob: I’m wondering how much PTSD this is going to bring up for either of us. It’s as you said, of course, there are some great memories. I can reminisce and say oh, man. Remember the good old days? Remember when it was just two of us doing this thing? But you know what, it was super stressful when it was just two of us because we didn’t know if we were building anything people wanted. It was six months of just grinding it out with no market validation and all that. It’s easy to romanticize any of these stages.
Jordan: Yeah. It’s also easy to forget how far you’ve come. Rok and I had a moment the other day. Rob’s my CTO and really my co-founder at this point. We’re really partners. He runs the tech team, I run the rest. We had a moment because we hit 100X from the time he joined. We were like you know what? Let’s take a little time out, get on Zoom, have a drink, and have some laughs because we just keep going through these milestones. There’s so much to worry about and think about, it’s tough to even look back at what we’ve done.
Rob: I’m glad you guys took that time. That was something I was not good at with celebrating the wins and celebrating the transition, and oftentimes, even realizing we were making the transition from one stage to the next. It was Sherry, my wife, who encouraged me to slow down and be like you realize you just built a million-dollar business the day that we crossed $83,333. I was like wow, that really is something that I’d been wanting to do for a while.
Jordan: Yeah, and they change. Recently, this week I had a new milestone. We closed our biggest deal ever, and I never talked to the prospect at all.
Rob: Wow.
Jordan: The team did everything. We’ll get into these stages and the stage that we’re in now. Let’s get there. Let’s start at the beginning.
Rob: Six stages. I’ve named each of these stages because what I’ve noticed is I’ve already (and a lot of folks already) used terminology around this, like pre-launch, post-launch, pre-product market fit, and post-product market fit, but I’m tapping into your and my later experience. Have a couple of stages that I think are cool to define and think about because I think if you do get into the multiple millions of dollars, that you will enter those. We’ll get to those in a bit, but pre-launch, we’re going to start there.
Obviously, I could tell a bunch of stories of pre-launching different stuff, but I’ll stick to Drip for my examples here. Obviously, you’ll stick to CartHook. Pre-launch, for me, was a bunch of customer development, and it was a bunch of validation. That was even pre-building. It was going out. I had 17 email threads going with founders saying if we build this would you pay this much for it? I got about 10 or 11 people said yes, I would at least try it out.
For me, it was a lot of marketing as I had a contract developer who was building into the background first half-time, and then he switched over to full-time. That contractor is a guy that a lot of folks may know. His name is Derrick Reimer. At the time, he was just a 1099. He was a friend of mine who wrote Ruby, and he was a good developer. This was going to be really the first app that I had built that I wasn’t going to write any code on. It was partially an intentional decision to pick a language I didn’t know.
My memory of that was me and this contractor both working remotely. We would chat on the phone once or twice a week, and we had met once to basically spec out what the original version of Drip was going to be. I was thinking about that, I was building the marketing list, I was going on podcasts, and I was running some Facebook Ads to landing pages to test value propositions, I mean all the smoke test stuff. I was also doing some MicroConf stuff, speaking, and the podcast. I was staying busy, but it was very much one of many irons in the fire that I had going on. I’m curious to hear how your experience with pre-launch compares to that.
Jordan: Similar in that your real pre-launch started years prior. What allowed you to really hit the ground running was years of work prior, and yes, the same for me. I ran an ecommerce company with my brothers several years prior to starting CartHook. My customer development was my own experience. My pre-launch was consumed with figuring out how to get a product built if I am not technical myself. Going through all these different options, talking to agencies, looking for freelancers, looking for employees, and looking for co-founders. I just went through all these different options.
I knew the product that I wanted to build. It was a cart abandonment app. It was something similar to what I used as a merchant. I knew it made me money and didn’t cost too much. The ROI was great. I knew I wanted to build something that specifically generated new revenue for merchants so I could price based on a percentage of revenue. I had all that, and my pre-launch challenge was how do I get someone to build this? As often happens, it was preparation plus luck. The luck for me came in the form of bumping into an old family friend of my wife’s.
We were doing our 18-month excursion where we lived in a different city for a month or two to figure out where we wanted to move. While we were in San Francisco, I bumped into the younger brother of one of my wife’s friends from back in Connecticut at the laundromat. I had just known him through the years as the computer whiz kid. It was just a coincidence. We ran into each other, then we started having coffee, and then it turned out that he had been doing a bunch of freelance work. He really wanted to basically learn more on the business side.
We just had this match between I want something to build, he wanted to build something, and that’s what happened. I gave him a piece of the company, basically took three months off from freelancing, built the first version of the product, and then handed the baton over to me to start selling. That was my version of pre-launch.
Rob: Wow. The younger brother of a friend of a sister in a laundromat? Sounds like you’re making it up. It sounds ridiculous.
Jordan: Look, his line item on the cap table will speak the truth. That it’s very real, it’s there, and I hope it really works out for him.
Rob: Quite a trip. A lot of questions for you actually because I haven’t heard you talk much about this stage of your business. As an investor, I guess I should have said that upfront. I’ve invested a couple of times in a couple of rounds in CartHook. I’ve been along on the journey with you, but I wasn’t involved yet at this point. I’m wondering, did you validate this idea? I’m imagining this already existed at the time. Why did you decide to build something that already existed, if that was the case?
Jordan: I liked the low-risk approach of that. I used to use a product just like this, and it was a terrible product. It made me money. When I looked at software ideas after selling the ecommerce business, what I did was I looked through our credit card statements. In the ecommerce business, where were we spending our money? I just identified that app as really high value and really low quality. What I said was okay, what if I build a better version of that?
At this point in time, I don’t really have the intention to build a company. My intention is how do I make $10,000 a month so I can do whatever I want. I don’t know where the software thing is going to go, but I like the idea of recurring revenue.
Rob: Life’s now business.
Jordan. Exactly. I wasn’t full-time on it, I was just exploring. I had worked in a previous business where I was a partner that had this quirk. It generated revenue about a year after doing the work. I had about a year of income without doing any work. That’s when I just said okay, I need to register to replace this income, so I can maintain this freedom to explore. I wanted specifically low risk. I didn’t want to come up with something new and not know if it was going to be wanted by the market.
I had my own validation. What I did, really, as part of being able to convince Charlie, the developer that joined me as the original co-founder, I did the legwork to show him that he wasn’t going to waste three months of his time.
Rob: That’s what I was going to ask you.
Jordan: That was the big thing to convince him. I said look, I’m the business person. I’m not just talking. I used to be a merchant, and I’ve been emailing. I did the cold email thing—30 different people a day—I had an inbox full of people saying, yeah, that’s interesting. I would be interested in looking at that. I would pay for that.
Rob: We get emails in the podcast and I get just emails to me personally about how do I find a developer, a technical co-founder if I’m not technical? I always say you prove your worth as that non-developer side. You prove that you can market, you can make sales, that you will hustle, and you will do work alongside that developer so that they’re not working for three months, like you’re saying, while you’re sitting around doing your thing, and then suddenly you’re going to magically market this thing. Most people aren’t able to do that. I didn’t know that.
My next question was going to be how did you convince him to do it? I love that you basically lived that. You showed him that it was worth it and that you could potentially build it. It’s interesting. You thought that you could build something similar but just better because the UX, the user experience of the other one wasn’t good?
Jordan: Yeah. The design was horrible, the UX was horrible, and the onboarding was terrible. It was a bad piece of software but it made me 3000 or3000or4000 every single month, and I paid them $79 a month. I would never cancel it because it kept making me money. I basically said I want to be that guy. That was where I landed. I had a few other ideas. That’s my pre-lunch.
Rob: What’s cool is the parallel of when I launched Drip. I say ‘I’ because at that time, I viewed it as another one of my apps. As we get later on, it’s we because it was Derrick and I as co-founders, and then it was a team of people. When I launched Drip, I absolutely viewed it as a lifestyle business. Similar to you, I was thinking I had already grown HitTail to about 25,000 or25,000or30,000 a month. That wasn’t super interesting to me anymore, I wanted it to be bigger, but I didn’t expect it to grow as quickly as it did from a start.
Once we got into it a little bit I did, but I was really mostly thinking about it like you were just like hey, I want to freaking build a business that throws off a bunch of cash. It’s funny that we wind up going down similar about different paths.
Let’s talk about post-launch. For us with Drip, as we were working on this, it was from about obviously zero in MRR. We built for about six months and then started a slow launch where I would launch to 300 people on the list. I think the total list was 3400. It’s about 300 people every couple of weeks. Getting them and we were trying to get onboarding set. We were trying to not churn everybody out. By the end of that launch, we were between 7000 and7000and8000 a month in MRR.
Over the next six months, we were flailing trying to find product-market fit because I was driving traffic, I was marketing it, and I was doing all the things that I had done in the past that had worked and they weren’t working. Churn was too high, trial-to-paid was not great, and it just wasn’t working. From about 0 to around0toaround10,000 or $12,000, I view this as a pre-product market fit stage, post-launch/pre-product market fit.
For those you’ve heard product-market fit on the podcast a bunch of times, I have a text expander in my head of product-market fit equals you’ve built something people want and are willing to pay for. That’s how I think about it. And are able to reach them at scale and have a bunch of leads because to me, that’s escape velocity, which is two steps from now. That’s the stage I’m […] to. But at this point, it was me and I believe Derrick at that point I’d say hey, I’m thinking of buying a house, I need a couple of pay stubs, W-2 in order to buy a house. We switched him over from 1099 to W-2, and I think he was making about the same amount of money, but it was more of an accounting thing.
At the time, I believe, Derrick and I were the two W-2 employees, in essence, working on it. It was still super scrappy, we had no office. Derrick would come over to my house. There was a […] on my property and we would sit there, chat, map this stuff out, and talk about what we were building next. It was totally freewheeling. It’s just week-to-week, day-to-day. I was doing the email support for the first few months until we brought someone in. That’s my post-lunch, pre-product market fit story. I will add, this was perhaps the hardest part because it was the mental game of not knowing if we were going to find product-market fit.
It took us from November 2013 until about it started changing in May, but it really peaked in terms of churn just plummeted, trial-to-paid doubled, and just every sign of product-market fit you can imagine happened in a 90-day span from May to August of 2014. Depending on how you measure it, it was somewhere between six and nine months from launch to where, oh my gosh, the unit economics on this business all of a sudden are amazing. The ROI of dumping more leads into the top of this funnel is going to scale this thing. That was the moment that I feel like that was product-market fit. That’s that stage three, so I won’t go into there yet, but I’m curious to hear similarities and differences of your post-launch, pre-product market fit stage.
Jordan: Look, good for you because mine was an extended torture session of 12 months, I guess. It was not pretty. This stage, like really good off the ground, launching, and generating some revenue was really no fun. What happened was Charlie passed the baton over to me. He built the product to a point where it’s good enough and now let’s start to sell it. I started with cold email and it worked. I got it to 500 MRR, then500MRR,then1000, then 1500. And then, Charlie got the offer of a lifetime for just his dream job at1500.Andthen,Charliegottheofferofalifetimeforjusthisdreamjobat1500 a month. I had to just tell him you have to take this job. I’m not going to let you stay with me. I’m not even doing it full-time. It’s making $1500 a month. This is your dream job. You have to do it.
He agreed and he took the job and committed to continuing to help nights and weekends. Then I was alone again. I was doing it half the time, I didn’t really know if it was going to go anywhere, and I was just filled with doubt on it. I just kept going. I figured out a cold email system that allowed me to grow faster. I had information built with, got sent over to a VA, then they qualified, and then they sent those records over to another VA that loaded them up into the cold emailing software. What got spit out of the process was scheduled demos for me. Then I would just do a few demos a day and then we started to grow. That got to about $3000 a month and then a little bit more luck came my way.
For me, this first phase really ended when Adii Pienaar, God bless him. We know Adii from the MicroConf community and just from the startup scene overall. He’s a great guy. He built a company called Conversio that just recently got acquired by Campaign Monitor. He’s obviously from WooThemes and WooCommerce prior to that. When Adii was starting his new company, Conversio, he emailed me and effectively offered an acquisition/partnership. He said look, I think what you’re doing with CartHook is interesting. I have this thing going on. At the time, it was called Receiptful. He said would you think about joining me?
I knew that it was too early to have any financial impact, but the conversation got me thinking. It made me perk up and take the opportunity more seriously with what I was doing. By coincidence, I was in New York at the time and started telling some of my friends about this potential partnership/acquisition interest. That’s when my friends, who all went into finance and made far more money than all of us, said why would you do that? It’s so early. Why don’t you just take a few bucks from a few of us and really give it a go?
That’s what started the next chapter for me because when I entertained really taking money, I knew I needed a full-time technical co-founder. That’s when I found Ben Fisher and that’s when we teamed up and the business changed trajectory. That first phase was just 12 months of doubt, pain, taking every credit card over the phone, and just doing it that way until it got a little bit of interest. Then I used that interest to parlay up into investor interest and then raise money. That’s when the next stage started for me.
Rob: That is crazy. That is also another case of serendipity in essence, right? Just a weird conflux of ATP and are asking you all that stuff and not getting you talking to some friends who decide to convince you guys around. What’s a trip is that’s when, at least the way I have it in my Google spreadsheet that I track my angel investments, I have September 2015 of writing the first check. My memory is you were around $5000 MRR at that time. Did you raise me on this?
I probably told you this in the past, this was a pre-Drip exit for me, so I had some money, but I was not in a place to be crazy with cash. I was still trying to grow Drip, and I was honestly trying to conserve cash. I had done a couple of angel investments prior to that. One of the things that I liked about what you were doing because we knew each other, you’ve definitely done Attendee Talks. I don’t know if you’d spoken at a MicroConf yet or not, but we had definitely hung out at MicroConfs.
The way that you executed, you just hustled. The whole cold email system that you explained to me at the time (and I was super impressed by that), the fact that you had scrapped as a non-developer founder to $5000 MRR in SaaS, which I knew is hard enough to do if you’re the one writing the code and doing everything. The other thing is the Bootstrapped Web podcast. I listen to you talk every week or most weeks, I guess. Three weeks out of the month. I was like this guy’s sharp. He just thinks about things in a way that I think makes sense. It felt to me like you were going to be successful. It was literally a bet on you more than even an abandoned cart.
I was like, an abandoned cart? Cool. I don’t know the abandoned cart space, I don’t know if there are 10 apps, I don’t know ecommerce. But if you’re telling me you think there’s an opportunity there—I’ve seen you execute on this—I want to be involved in this. That was a big piece of it for me.
Jordan: Thank you for saying that, by the way. All of us have these serendipitous moments come through. What I got good at over the years was just identifying how to take one small little thing and just keep parlaying that up into bigger things. That is a theme throughout the company. The way I found Ben Fisher, the co-founder, is he signed up for my product. He just had a cool email address, then I looked him up, and he sounded legit. I got on the phone with him and then impressed him enough to join me as co-founder. It was, again, a tiny little breadcrumb. I think all of us are surrounded by these things.
Building up the radar on knowing I should pursue this little tiny thing because there might be something bigger. I don’t know if it’s talent, skill, luck, or some combination of them.
Rob: I had said that post-launch/pre-product market fit for me was the most painful, agonizing part of the journey, do you share that sentiment, or were there times later that have been worse?
Jordan: Two stages from now was the worst for me. I’ll explain that. For me, stage two—post-launch—just felt like an extended torture session that I had to go through on the way to the next thing. I didn’t like it. It wasn’t for me. I would love to skip it on any other company in the future. It’s just something that I had to just deal with until we got somewhere better.
Rob: If you look at the State of Independent SaaS Report that we did or just look general on the internet and see revenue reports, most people don’t make it to the next stage. Stage one was pre-launch, stage two is post-launch/pre-product market fit, and stage three is product-market fit. Again, build something people want and are willing to pay for. For me, with Drip, keep in mind I also had an advantage that I had an audience at this time. That’s a big part of what got me to 10,000–10,000–12,000 without having to do the hustle and send the cold emails. I was able to lean on that audience for that initial kick-start.
Stage three I have as product-market fit. The numbers that I wrote down—this is starting to be from memories, so you got to give it a little fuzzy around the edges—is from about 12,000 MRR is up to about12,000MRRisuptoabout25,000 MRR. That was me and two W-2 employees. It was me and Derrick. As we were going through this phase, this is when Derrick and I started talking like you’re indispensable here. Derrick was starting about going off and doing his own thing because he’s entrepreneurial. That’s when we had to have that conversation about let’s figure out a way to make this work for everyone and make it worth your while, basically, to stick around so you don’t feel like you’re working a day job.
During that time, we hired a second developer. We were just building the product out. We were playing catch-up. We were first at launch to try to compete. We were just going to be like an email capture thing and autoresponders, then it’s like we’re going to compete with MailChimp and AWeber, and then we realized that the real market with the real money in it was—not that MailChimp’s not a real market with real money—that we could go up-market and compete against the Infusionsoft. At the time, it was Office Autopilot that later rebranded to Ontraport. It’s really not on most people’s radar anymore. Then ActiveCampaign was just coming about. They had been I believe white-labeled software, downloadable software. They were not really SaaS for that long before then.
We realized, wow, there’s so much more money the higher price points there. This product-market fit stage was from 12,000–12,000–25,000. We were building out the product and I was just trying to find repeatable marketing channels that extended beyond my audience because I really had exhausted just the usual my things. I call it a concentric circle marketing where it’s like first I’m going to talk to everyone who listens to me—my email list, Twitter, and podcast list. The next one out is my friends’ audiences, so I go on podcasts, I do that. The further out you get it’s like can I make content and SEO work? Can I drive cold traffic from pay-per-click ads? Can I do webinars?
This was a very scrappy phase of just trying to find repeatable channels that drove repeatable traffic. Again, at about 25,000, that’s when I felt like we had started hitting our stride, which is stage four. I won’t go into that yet, but I’m curious to hear how your product-market fit, essentially25,000,that′swhenIfeltlikewehadstartedhittingourstride,whichisstagefour.Iwon′tgointothatyet,butI′mcurioustohearhowyourproduct−marketfit,essentially5000–$20,000, how that went, and how you think about it in retrospect.
Jordan: I remember when Drip launched. The power of getting off the ground. I remember because I was in the struggle at that time. I don’t know about the timing but I’m pretty sure we were under 10,000 in MRR. Once you get to10,000inMRR.Onceyougetto10,000 MRR in 60 days really shows the power of an audience. We still see that these days. We see my podcast co-host and friend Brian Casel launching something with an audience. We see Adam Wathan and Steve and how much value they give. Whenever they launch a product it’s so much easier. I will remember that for the future.
For us, this stage, that 5000–5000–20,000, was bookended with success at first and then failure toward the end of the stage. Right around 5000 is when we raised some money. We raised friends and family’s money. It was like5000iswhenweraisedsomemoney.Weraisedfriendsandfamily′smoney.Itwaslike275,000, and that allowed us to go full-time, focus on it, and hire two engineers. It was myself, Ben as co-founder, and two engineers. Those two engineers are still with the company, by the way. One of them is Rok who’s the CTO. The other one is Jan who is now on infrastructure.
We built something actually worth paying for. We improved the cart abandonment product and then I went on a search for a flywheel. Just something better than the cold email because as soon as we left the Volusion market, which is where I built my ecommerce business and it was really easy to email the owner of the company, cold email stopped working. Then we had to figure out a better way. What we ended up figuring out were partnerships. What we would do is we would do the integration with a platform, then we would try to do some co-marketing, and we hit onto this perfect situation with a platform called Cratejoy.
Cratjoy was a brand-new ecommerce company run by Amir. He used to work at Zynga, who’s super smart, and they were growing like crazy. Full-on hyper-growth was just crazy. Every one of their merchants kept asking them for cart abandonment email. They didn’t want to build it themselves, and I just stuck my head out at just the right time and said we will build it for you, and then you could just tell her customers that they could use us so you don’t have to worry about it. He was like that’s exactly what we need to do.
We did the integration and then what they did is they took us and just built us directly into their admin. Everybody that created a new account saw CartHook right in front of them and then a lot of people signed up. That ended up being so critical to the whole life of the company because as we started growing in this way, the failure bookend of this phase was really coming to terms with the fact that cart abandonment was just not going to do it for us. The market started to get crowded, everyone started to go cheaper, our differentiator started to get worn away.
Our thing was that we captured the email as soon as it was typed into the field, and only the larger, much more expensive solutions were doing it, and then everyone else started doing it. I just did not like the future of the company in cart abandonment, and that’s when we made the decision to build the second product. But we couldn’t have done it without the flywheel, specifically from Cratejoy because what it allows us to do is spend six months building a new product while the revenue just kept growing anyway.
Rob: You self-funded yourself out of revenues in essence. I remember the conversation where we talked on the phone and you said I see this opportunity that’s not cart abandonment, and I want to build a second product. I was like, shiny object syndrome. I was like you need to convince me. Every founder ever wants to build a new product, why? You convinced me. My memories were like look, this is super risky, it’s another product. You now have to go find product-market fit again, but you’re mired in this every day and you’re thinking about this 100 hours a week. This is where you want to go with it, then you got to trust your gut. This is that founder gut-check moment.
Jordan: Yeah. It was very risky but I pretend to be more risk-loving than I really am. I always want to protect the downside. In many ways, I’m risk-averse, but I want the cake and to eat it too. I want to take additional risk while also protecting the downside. That’s the situation I found myself in when we said at the very worst, this thing’s just going to keep growing but slowly, because of the flywheel we’ve built. Even if we take this risk, at worst, I pare everything down. It ends up as two people doing 20,000, and we can survive. It was definitely a huge risk to take to build a second product with a team of four people and20,000,andwecansurvive.Itwasdefinitelyahugerisktotaketobuildasecondproductwithateamoffourpeopleand100,000 in the bank.
Rob: You had this cart abandonment app that was thrown off, let’s say, $20,000 a month and you used it to build the second product. You want to tell folks what that was and why you saw an opportunity there? Why was it unique? There was timing involved in this.
Jordan: Yes, there was. That’s right. Here’s what was happening. Everyone knows Shopify now and the incredible success story rocket ship like ridiculous performance that they’ve had, especially since going public. When we were in the ecommerce market, this was four years ago, Shopify was becoming successful and being talked about, but it was not the clear, straightforward, obvious winner in the market.
What was happening was as Shopify got better at making it easy to launch a physical product business and the ecosystem around it of fulfillment and importing from China, all these things started coming together in such a way that made selling physical products almost as straightforward and hands-off as selling digital products.
What that did is it started to attract all the marketers that were traditionally in the digital marketing space selling courses and e-books, it started to attract them into the physical product world. It is much easier to sell a physical product than it is a digital one in many ways. You put a picture of it on the site, you write some copy around the benefits, you put a price, and then there’s a buy button. It is much more straightforward than a digital book that explains how to do X, Y, or Z. That started attracting people, and at the same time, ClickFunnels was exploding.
The reason ClickFunnels was exploding was because it was building products in the market of those traditional digital marketers, but it was showing them how to very easily build things that sell physical products. The problem with ClickFunnels was that it didn’t have the infrastructure on the backend like inventory, fulfillment, and shipping. It just had a great system to just put up a landing page and be able to sell, most importantly to sell with post-purchase upsells. What people were doing is they started selling physical products on ClickFunnels. They would find success, but then they would run into the issue of not having enough infrastructure to do fulfillment, shipping, and so on.
They were dealing with CSV exports and losing their minds. Then they went over to Shopify, which had a much better system for selling physical products. But when they did that, they lost a lot of the marketing strategy functionality around the checkout and post-purchase upsells. There was just this huge pool of marketers that wanted to sell on Shopify with the post-purchase upsell functionality. That’s what we saw as the opportunity. If we build post-purchase upsells and a customizable checkout for Shopify, all of these people that are currently on ClickFunnels and want to come over to Shopify will come over along with our ability to provide them what they want. That was the moment right there in the market.
Rob: That was the right bet based on your growth since then. It’s a trip, and you no longer have the cart abandonment functionality at all, right?
Jordan: That’s right. We sunset it from the public eye, maybe 6 or 12 months ago, and we just left some of the merchants that wanted to stay on. It is amazing how long people will keep software around if you keep making them money. We haven’t touched the thing in three years, but we still have people paying us $100 a month because it keeps making them money.
Rob: It’s back to your initial premise of I paid 3000 or3000or4000 a month, or I made 3000 or3000or4000 a month from this software, and I was never going to cancel it as a merchant. That’s the thing.
Sorry to break in here but that is the end of part one. To recap, Jordan and I talked through the pre-launch stage, the post-launch/pre-product market fit stage, and the product-market fit stage. Part two that comes out in about 48 hours, we will cover the remaining stages of SaaS growth. Thanks for listening. I’ll talk to you then.
Episode 498 | Selling During a Pandemic with Steli Efti
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This week Rob talks with Steli Efti about selling during a pandemic. They also talk about how to set yourself up for success as a founder during a possible recession and how to adjust your sales process. You don’t want to shy away from sales, but you also don’t want to be tone-deaf to the current state of the world. Steli is one of the world’s experts in startup sales and B2B sales. He runs a successful app called Close.com. He has written a number of ebooks on the topic of sales, and he has been a recognized expert for over a decade.
The finer points of the episode:
- 4:15 – Two big sales trends that Steli has noticed during the COVID-19 crisis
- 9:09 – The main thing you can do for your business right now
- 13:55 – How to approach a sales conversation while being sensitive to the current circumstances
- 16:33 – How Close.com managed to increase their revenue and grow through 2020
- 25:00 – How Steli sees his sales process looking after COVID-19
- 30:25 – Best practices for sending cold emails during the pandemic
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This is episode 498. We’re rapidly approaching episode 500 and I’m trying to cook up something a little special for you.
This week, I talk with Steli Efti of close.com. This is his third appearance on Startups for the Rest of Us. We dive deep into his knowledge and his advice on selling during a pandemic and what that looks like.
Frankly, we just don’t talk about selling during a pandemic. We talk about how you set yourself up for success as a founder, as we potentially enter a world-wide recession, and he talks about how you should adjust your sales approach in cold emailing during this time, whether it’s a pandemic, a recession, or however you want to define it. It’s just how to think about sales and how not to shy away from it but also how not to be tone-deaf during this time.
Before we dive in, I want to once again thank Basecamp for their partnership with MicroConf and Startups for the Rest of Us. We’re pleased to have them as a headline sponsor for MicroConf in 2020. Here’s a 60-second message from Basecamp.
Basecamp: We asked founders and entrepreneurs why they switched to Basecamp when their company started to grow. Christina Hedges hired some more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all.
Sometimes, information was in an email, sometimes in the chatroom. They spent too much time on conference calls to figure out what was going on. One day, they almost missed a deadline for an important customer because the information was in the wrong place. She knew they needed to get organized, but all the software she looked at seemed complicated and it would take too long to train everybody.
Then she found Basecamp. Basecamp puts all of your internal communication in one place so nothing slips through the cracks. Unlike other tools, Basecamp has an incredibly simple structure, organized around your teams and projects. Your team will immediately understand and start using it when they see the two-minute introduction video on our site. Go to basecamp.com to learn more and start a free trial.
Rob: If you haven’t heard of Steli before, he is one of the world’s experts in startup sales. Frankly, I would say just business-to-business sales. He speaks all over the world, he has a podcast, runs a company called close.com, which is a quite successful SaaS app that is CRM, software for salespeople.
Steli has been a many-time MicroConf speaker and he’s written a number of books and ebooks on the topic of sales. He’s been a salesperson for more than a decade. I always enjoy my conversations with him and I hope you enjoy the conversation we have today.
Steli Efti, thanks so much for joining me on Startups for the Rest of Us for your third appearance.
Steli: Thank you so much for having me back.
Rob: It’s always good to chat with you. I think we talked maybe seven or eight months ago and obviously, folks have heard your intro. They know you’ve just been steep in startup sales for what? Eight, nine, ten years?
Steli: Ten years.
Rob: Ten years. We’re getting older, aren’t we? I think today, I want to dig into some stuff that is related to the current crisis. Sales is one thing, but sales during a pandemic and quarantine, and just all the […] and uncertainty, I’m imagining that it has to have changed during this time. Just to kick it off, I would love to hear your thoughts on how you’ve seen that change, how you can help people adjust to this mindset. And then, I think we’ll dive into a little bit about how can companies position themselves. We will have a post-coronavirus world and how do we position ourselves to really be in a good position there.
Steli: Everything is part of the global pandemic as it turns out, finding toilet paper, hanging out with your family. Sales is indifferent in that sense. What’s funny is that the biggest thing that I’ve noticed is that the good and the bad just get amplified during a time like this. When you ramp up the anxiety level to 10, the weaknesses are just amplified so much. I think the sensibilities and sensitivities of people are just massively increased.
I see two big high-level trends. I’m sure we’re going to dig deeper and go to the nitty-gritty, the details, and the technical stuff for people. There are two big things that I’ve seen so far. One is counter-steering to even more selfishness and aggressiveness. Salespeople, entrepreneurs, business people, because their anxiety went up so much, kind of the worst side came out and they’re like, I don’t care. I need money right now. I need to hustle. I need to push. I need to be more aggressive than usual. I need to be more selfish than usual.
You’d get these emails that are so weird. I’ll give you an example. A business person I’ve known for 10 years, we’ve helped each other out. He has a couple of businesses, he does a lot of content, and we’ve always been friendly. I’ve always supported him with his stuff and he’s supported us with our stuff.
Then, we had an email exchange recently about me being on the podcast. First, it was a personal exchange and he was all about don’t worry about me, Steli. Life is good. Business is good. I’m doing fine. But then he was communicating with somebody on my marketing team and saying if Steli wants on the podcast, we have to charge $10,000–$15,000 for that because we have to survive. That was forwarded to me.
It was such a weird thing to do, like tell me directly everything is fine but then tell somebody on my marketing team I’m going to charge $15,000 so he can be on my podcast. No word about what’s in it for us, what is the benefit, what is the value I’m going to get. It’s such a selfish come on. I’m going to charge $10,000 because I need to survive.
I mean, I get it. We all need to survive, but that’s not a really good, compelling selling proposition for me. It was also weird because to me, the statement was the world is perfect, and to another person on my team the statement was I need to charge $10,000 or the world is ending.
Even worse, when I said let’s politely decline, let’s say thanks but no thanks, when the marketing person responded hey, that’s going to be outside our budget, but we wish you best of luck. Hopefully, everything’s going to be fine. He responded okay, just for you guys, $9000, but you have to take it this week or something like that. The weirdest thing ever. What is this? A special offer if I get this week or…?
Rob: It feels really tone-deaf.
Steli: It feels so selfish, so tone-deaf, so sleazy, and it only takes a moment to ruin your reputation. It really changes how I think and feel about this individual. I never want to deal with this person again. This is so weird.
To me, this is desperation and fear manifesting itself in the ugliest form possible. I don’t think that’s a way to succeed. I don’t think that that’s the way for you to make your business succeed. That’s not compelling. I don’t think he booked tons and tons of guests who will pay $10,000 because I paid attention and there’s no guest on his podcast recently. It’s just him.
To me, that’s one way to go, people being super selfish. Those are rare, to be honest. Most entrepreneurs and most salespeople have become uber-aggressive, but there’s a lot of tone-deafness in the world. These emails, you’ve gotten them, I’ve gotten them. People that listen to us right now gotten them where it’s like, don’t you know what’s going on in the world? Why did you send me this email? It seems so disconnected from what is happening in the world. That’s one thing.
The other trend that I see more often, though, and I think this going to be the problem the people that are listening to us now, which is the over-reaction, the difference in the opposite direction, which is people, salespeople, and founders having such high anxiety and fear to upset anybody, that they just stop communicating, stop selling, stop operating, because the thought was how could I ever try to do business during a time like this? People are going to get upset with me if I send them an email, if I give them a call, or if I try to close a deal. I can do that right now. People are hurting.
I think that that’s a really bad idea as well. I’ve told this to more people than ever before. I’ve had so many one-on-one conversations and my pleas are always the same. Lesson number one, the world is not going to become a better place by all of us stopping work. If I stop selling, my future is less secure, my family’s future is less secure, my employees’ future is less secure. Nobody benefits from me stopping to work because things are tough out there. I’m not helping anybody really.
So, it’s not the time to dig a hole and be, I’m going to just lay in here, lay low, and wait until all of this is over. The truth is that this might take a really long time to be “over,” whatever the hell that means—we all don’t know—and every day where you don’t do business, you are making the problem big and possible. You make the economy slow, the economy less secure, you’re making your family less secure, your business less secure. Nobody’s being helped by this.
My big ask to people has been—especially during a crisis—you have to keep selling, but you don’t do it in a tone-deaf way and I’m sure we’re going to go into more detail. My basic philosophy is I’m going to send a sales email. I’m going to make a sales call. I’m going to try to close a deal. I have done them. We’ll talk about this. We shifted a close.
We had one record month after the other this year from January up until May of prepays. Every month, we’ve had more prepays than ever before in the company’s history because we made that a focus. When we started, I didn’t know if this would work. Who wants to prepay for a year or two during a time like this. Probably nobody.
It turned out quite a lot of our customers wanted to and we can talk about how we did it and why it worked. You’d be surprised. People were still buying and selling, and you have to keep selling, but the way to do it in a (I think) respectful way is not to be overly aggressive and selfish. We need to increase our pricing because we have to survive. Here is the contract. You have two hours to sign it. That’s […].
But also not in an overly-apologetic way. I know everything is bad. Are you okay? Are you hurting? Are you afraid? I’m afraid. Did you read the bad news this morning? Nobody wants to hear that. People already have enough anxiety in their life. They don’t need you to email them with 10 links about world politics that are terrible. How is that helping them? That isn’t helping them. That isn’t making you look like a good person, either.
My approach has always been, during this crisis, you want to be honest. Not fake positive, not fake optimistic honest. Hey, is everything all right? Are you good? All right, how are things going right now? Are you continuing to do business? Are you stopping everything? Tell me about your world. Tell me about your forecast of the world. Do you think that things are going to pick up again in a month? In two months? Are there any signs that you’re looking for before you put the pedal to the metal and do more things or purchase more things, to invest in more things? How are you going to decide how to move forward?
I’ll ask someone these questions, but I always will ask them with what I would call high-energy. I want to talk to people not with fake enthusiasm, not with fake positivity but with energy because there’s a funny thing. During these times when everybody we’re talking to is excited, […], depressed, fearful, pissed, and all the news we’re reading are full of overwhelming facts, the last thing we need is one more person that talks to us, that makes us feel even worse about the world, that seems low energy, apologetic, or fearful.
That’s not the kind of energy we want to surround ourselves with. But if you can talk to somebody today, that even during these crazy times is honest, frank, and straightforward with you but seems to have energy, seems to have the ability to make decisions to do things, it makes people feel better. It makes people feel like I can have a conversation, I can make a decision, I can take action even during these times.
There’s this old quote from whatever her name is, Angelou or something. People can google her and find it. It’s like, “People won’t remember your name, people won’t remember the place, but people will never forget how you made them feel.” I think that, especially during times where we’re also anxious, afraid, and overwhelmed, when we interact with people that make us feel calm and confident, make us feel a little bit more energized than before, those are the type of people that we will want to gravitate towards and talk more to, and we will remember that these people stand out.
That’s how we’ve been selling it close and how I approached reaching out to people. Be honest, be frank, don’t be fake, but don’t be meek. Don’t whisper and don’t be apologetic. I know the time is so hard. Sorry that I’m talking to you right now. Nobody needs that. Nobody’s being helped by that attitude and energy that you bring to the table.
That’s the biggest thing. Don’t be afraid to sell. Selling is good for you. Selling is good for your family. Selling is good for your prospects if you’re selling them something that could provide value. We can talk a lot more about it, but that’s my big spiel around this. Don’t be so afraid because there is a way (I think) to do it, that won’t piss off all the people, that won’t make you a bad person, but it will make the world turn, the economy’s going to move forward, and your business still operates even during times where it’s harder to talk to prospects and close deals.
Rob: It sounds like what you’re saying is there is an elephant in the room. Address it upfront. Be honest, don’t be fake, have empathy, and ask questions with high energy (I think) is what you said. It’s like what is your forecast? What do you think you’re moving for? These are to get honest appraisals from people so that it’s not, again, this elephant in the room of COVID’s happening and we’re not talking about it. We’re ignoring it and I’m not bringing it up. You’re just basically saying bring it up, discuss it, and then move on with the conversation.
Steli: Yeah. Talk about it, but talk about it with curiosity and energy. Hey, what’s happening in your industry? I’m talking to lots of other people. I’m curious about you. What’s your outlook? How did you operate over the last couple of weeks? What are the signals you are waiting for moving forward? How optimistic or pessimistic are you about the future? Ask those questions with curiosity and energy versus being apologetic. I know. You know? What do you think about the future? How do you operate right now? It’s the same question, but I almost feel obligated to feel bad when you ask it that way. I almost feel obligated to tell you that things are worse than they are because you make it sound like that’s what I should do.
That’s really it. People will talk to you and they will give you answers. Those answers will be very good guideposts on how to proceed. Some people you’ll be surprised. You talk to them and they’re very optimistic. They’re like, oh, this is […], I think the world is going to be better out of this. I’m very optimistic. I’m not slowing down. I’ve been making money. I’ve been driving revenue. I’ve had some creative ideas. We’re doing well.
Now that’s a very different starting point for now talking about maybe the solution that we have or the things we could do together. For somebody to talk that tells you, my father and mother are in the hospital. I’m a mess. I haven’t made money for the last two months. I don’t know. I think I’m going to close shop next month. That’s kind of important. That’s a very different foundation to continue the conversation.
Maybe when things are so bad, all you can do is just be like, okay, is there something I can do to help? Can I refer any business to you? Can I just get out of your way and maybe touch base again in a month and see how things are going? Maybe the best thing you can do is to leave the person alone, maybe send an email a month from now and ask, hey, are you all right? Is your family fine? How about your business? And then that alone might make somebody remember you and appreciate you because you were there, you seem to care, you showed some humanity which we all appreciate during tough times.
The other person who was gung-ho, My business is running, I’m making money, I’m positive, with that person you’re like, let’s get in business. Let’s […] more good […] right now, and you might go and close a deal. But don’t try to avoid talking about these subjects, but also when you talk about them, don’t think they do need to come across as if you’re discussing some horrific thing because it might not be for your prospects. You should just check before you proceed in that direction.
Rob: That makes sense. I googled that quote while you were talking. It was from Maya Angelou. The one about how people remember the way you make them feel. I am curious. You mentioned that at close your team has pulled off an interesting feat of getting people to do annual prepays. Can you talk us through how that’s happened and how you’ve handled that?
Steli: We had an ‘oh, […]’ moment in February where I was convinced that a big crisis was ahead of us, that we needed to act really fast and decisively to prepare ourselves for the worst-case scenario, and we should do it ahead of time. Not wait, though it’s inevitable, but act really quickly. When it came to the way we were selling, up until that point the big focus of ours was to sign, sell, and close long-term contracts with some of our bigger new customers. We would sign one- to three-year contracts that were paid monthly (subscription revenue).
In fact, we met up with our sales team and we decided that if there’s a big crisis ahead of us and if there’s a big economic downturn ahead of us, a contract is not going to be worth much. A contract is only worth something in a stable world. If our customers are going out of business, that contract is useless. If they would go out of business unless they break the contract (they decide to break it) that contract is useless. We’re not going to start suing our customers during a global pandemic.
The first decision that we made was let’s pull away from contracts. They’re going to be useless during very turbulent times, so let’s not care about them. Let’s not focus on them anymore. What is going to be important during a crisis, cash is king. Now, fortunately (or unfortunately), we’re running a subscription business. Most of our customers are paying month-to-month and they have the option to stop at any time. That’s not good during a crisis or a global economic downturn because lots and lots of your customers could just decide to stop.
So let’s try to incentivize our customers to prepay. How do we do this during these uncertain times, in a very honest and direct way? Not sleazy, not trickster, just an honest offer. It’s quite simple. If you want to prepay during highly uncertain times where the risk of prepaying is much higher for you as a buyer, you should be getting a great deal. We’re going to give you an exceptional deal because these are exceptional times. If you feel like your cash situation is really strong, if you feel like your financial future is really stable, and you want to use this crisis to get amazing deals for you—fill that position as a customer—we’re going to make that an option for you. We’re going to offer you that.
Now, if you don’t want that, we totally get it. If you want to wait until the world is stable and safe again, that’s totally fine, but then you’re paying the stable and safe price, the price that everybody’s going to pay. You take more risk, you get a better deal. You take less risk, you get the worst deal. It’s a very simple, very honest proposition.
That’s what we did. We approached a lot of our customers, we offered them that, and for the self-service customers, we can […] up the offer if you prepay. Again, when we started I didn’t know if this would work. There were some voices when we were talking about this internally. They were saying aren’t people going to get really upset if we offer them this? I thought why should they get upset? There’s no lie. If I offer you an apartment for half the price because it’s a crisis, why would you scream at me? How dare you sell an apartment during a crisis! That’s a crazy thought process.
This is another thing that I would want to highlight here. Don’t assume what your prospect or customers could get upset about. Don’t assume it. Test it. Just test it to see. Maybe they’ll surprise you. So we did. We tried it and the first month that we really rolled this out was March and a lot of customers—to our surprise, honestly—were excited about it. Although at that point, everybody started knowing about what’s going on. They were like, this is just too good of a deal. We don’t care. We’ll do it.
March was an amazing cash for month for us. We said, well let’s continue doing this and see how it works. And April the same, and May the same. There have only been two cases out of a lot where people got upset. I’m telling you, Rob, it’s like hurt people hurt others, and upset people are getting upset. These two people got upset in very unreasonable ways.
They’re literally, hey, I saw your offer. I want an even steeper offer. Let’s say this is just an example. Your offer costs $100. I want it for $5 and I want to pay it monthly. It’s a global crisis, we’re hurting, and it’s your responsibility to give it to us. We said, hey, a lot of our customers are hurting. We’re hurting too. We’re a small business, we just can’t do $5. We’re really sorry but we can’t. We hope that you’re going to be fine. Then the person would be like, this is outrageous. I’m going to tweet about this. The world is ending and you can’t even give us your software for $5.
This person is unreasonable and I’m not going to bend my entire business for the few that are very loud and just going to get upset about anything anyway. I’m not […] me coming to your apartment going, Rob, I’m hurting. I need a place to stay. I want to buy your house for 10% because it’s a crisis. You’re like, Well, I want to still live here and it’s not for sale. I can give it to you for 10%. They’re like, outrageous. I’m going to write about this. People are dying and you can’t even give me your house!
People are crazy sometimes. There were two cases where I felt these people were just very unreasonable and I just assume these people were hurting so much that they’re kind of slightly out of their minds. We try to be empathetic, but we also keep it moving. We didn’t try to make them feel better because people are out of control. You just have to let them be. Nothing really happened. They then moved along and hopefully, they found some other solution that worked for them.
Most of our customers and most people either say, no, we can’t make that. We would want to take that deal, or, you know what? That’s a really good deal. We’ll think about it. Yes or no. It was a very simple thing.
Surprisingly, and just now, just in the last two weeks, our sales team has started seeing less prospect bite on the prepays. Maybe it’s because now, it finally is clicking for many of them. Maybe it’s just two weeks, so we decided that it’s too early to shift our strategy. Maybe it’s just the kind of deals that we got through the pipeline is too small of a sample size.
We’ll have to keep an eye on it. Maybe we’ll have to change the strategy at some point, but for the last couple of months, our cash position is drastically improved—almost doubled—which made our business a lot more stable, the job for people that work at Kohl’s a lot more secure, and also for our customers made it more secure that we’re going to be able to service them, offer them increased innovation and great support, and everything they need to be able to use our platform. Just a win-win-win for everybody.
There was no rocket science. There was no trickery, it was not some kind of a hack that we used. Just a very strong offer. We just approached our customers with it to see what the response would be and in our case—this might not be true for everybody—the response was really, really good.
Rob: That’s fascinating. You only approached existing customers, right? This wasn’t for new folks coming in?
Steli: Both, existing customers as well as new folks.
Rob: Got it. I feel like folks who are in a strong cash position, the stuff is on sale. Warren Buffett often says, “In a recession, stocks are on sale.” If I were a customer of clothes, I would view it as a wow. I’m getting clothes on sale right now because of this. And if I was in a strong cash position I would jump at it. I think big companies in that position have a real advantage, mostly coming out of a recession but going into it as well.
I’m curious. You’ve talked about how to sell during a pandemic, how to think about it in this way whether it’s getting cash, prepays, or whether it’s just being empathetic, being honest, and calling out the elephant the room. Let’s say three months, six months down the line, we are coming out of a recession. Maybe it’s nine months, whatever it is. Does the approach change?
At that point, let’s just make assumptions. I realize everything’s up in the air so I don’t want to make predictions, but let’s assume that we get through coronavirus and then it just becomes much much less of an issue over the next 3–6 months. Let’s assume that in 6–9 months, we’re in a recession and stuff is coming out. Is there a dramatic shift to how you would be doing sales now versus normal times versus coming out of a recession? Or is it basically the same?
Steli: It’s not the same. The fundamentals of selling are always going to be the same. At least I’m convinced of that said. That sense that never changes or shouldn’t change. I think the strategy needs to be more one where what I’m convinced of. Right or wrong, I don’t know what’s going to happen, obviously, but I’m convinced that the next 24 months are going to be hard to predict. It might play out like 15 months of quiet time, seems like we’re past and everything’s fine, then 3 insane months. It might be that every three months is big news. I just think it’s going to be hard to predict.
My sense is that there are a couple of really significant dominoes in the world that have fallen and we have not yet felt the impact of that. I think it’s going to come out later. My philosophy is very much one where it is a crisis until at least for three quarters in a row. No bad news or no new news has popped in terms of what’s going on. During a crisis time, I feel like it’s not the strongest or the biggest that will survive. It’s the most adaptable that do. I think the goal needs to be much more on being much more agile and quicker to respond to changing circumstances.
I think over the next 24 months, long-term planning, long term goals and strategies that you have to play out over a whole year, are going to be much riskier. Putting plans together that take a year to play out and assume that whatever is happening in the world today is just going to stay that way for the next 12 months, I just think it’s riskier. It might be good but it’s just higher risk.
I think from a sales perspective for the next 24 months, cash is king is going to stay true. I think that time to close the total deal value is going to stay true. What that means is that today, I would always prioritize closing deals a little faster and giving up a little bit of money for that speed versus trying to optimize for maximum money and taking more time to negotiate and close the deal.
Again as I said, today maybe you have a very large customer, maybe you were just days away from closing out of a $100,000 deal, but you think if you push a bit further you could get $130,000. But it might take you a month longer to do that. Today, I would advise you to take the $100,000 today, that will be wired tomorrow into your bank account, versus waiting for weeks and trying to get $130,000. Now, that might be bad advice because if the world isn’t changing, $30,000 extra would have been nice. But just as a general philosophy, whatever tactical philosophy you have during this time, you can’t win every single time.
My point of view is you want to close deals as quickly as possible during this time, not being rushed, not being uncareful, but not taking your sweet time as a negotiation tactic. If we let these people wait for another two weeks they are going to get more desperate and give us even more money. If you like Warren Buffett, you’re like, I have unlimited money in the bank and this is the time to really squeeze people and get great deals. Cool, that’s fine. But if you’re just operating a small business and you’re trying to get some big deals through, I would rather close the deal today than wait to make it slightly better and close it in a week from now.
I think having shorter cycles of planning, optimizing for cash flow and speed are strategies that I (at least) assume we at close are going to keep as our operating principle and guideposts for the next 12–24 months. That’s what I would advise people. What happens when we’re all convinced that we’re through this and the world is back to “normal” or the new normal, whatever that means? It’s very hard to say. I can’t really forecast. I assume fewer meetings in person, I assume that this time is going to accelerate the adoption of software and technology.
In many ways, this is going to benefit us, the people that are listening to this podcast, but in some ways it’s not going to be good for society. It’s a mixed bag. But travel, meetings in person, offices, offline, and any commerce, any selling that happens person-to-person, that happens in meetings, that happen to travel, I suspect is not going to rebound super quickly. More part of the funnel is going to be happening through technology, remotely through asynchronous communication. Again, I think that benefits startups and software funnels more so than many others in other industries.
Rob: Sure, because so many of us, especially in our community, are already remote. We’ve been doing it for years and people are finally catching up. I’ve heard some podcasters that I listen to, like the tech news space and the kind of cord-cutting space, that they have studios at their house with two fiber lines coming in. They’re hobbyists or one level above hobbyists, but they look really good on camera. They have nice HD cameras and really good microphones.
They’re laughing because the newscasters and the people who are used to doing this in a television studio who are now doing it from their home are using their iPhones with the crappy AirPods because they don’t have the studio set up. I think it’s funny that the rest of the space is catching up with those of us who have been doing it from home for years and being remote.
I think as we transition and start to get into wrap up, I’ve had several questions about cold email lately. I actually got a question a couple of months ago before the pandemic and someone said it would be great to hear a whole episode on cold email. Once the pandemic has started, I thought, is that worth doing now or should we maybe wait until things settle down a bit?
I’m curious to hear from you. I started getting cold emails (I’ll say) in 2011–2012, and early on I’ve hired a person to do cold email. I have bought software through it, but less and less these days just because you get so much. I feel like it’s such a shotgun approach that a lot of people are trying.
I’m curious right now. Given this space, you’ve already talked about the shift in selling during a pandemic, but is it still worth cold emailing right now? If so, what’s the adjustment to the approach?
Steli: I do think there is still power in cold emailing people. I think it still works in many areas. The question is always the approach. In a world where there is so much more cold email, spam email and whatever, you can’t just be average because average really equals noise. If you send me a really great email, it’s going to stand out more so than ever before because all the other emails I get are so terrible. But you really have to write great emails.
Great emails will never be out of fashion, but it’s just much harder work. It’s harder work. You need to be more thoughtful. You need to spend a lot more time and energy. People don’t like that. People just want to go and do a copy-paste email, send it to 10,000 people in one blast, and then assume that business is going to come in. Then, when that doesn’t happen they’re like, see? Cold email is that. It doesn’t work. We tried it. No. You just did it really, really badly.
I’ve always taught a principle when it comes to cold email that I think is timeless and just works now better than ever before, which is to actually think about it in UI/UX terms. A lot of times when we write cold emails, we think very selfishly. What do I want from Rob? Rob is an important business figure. He has money. He invests in startups, let’s say. I want him to use my tool to do investments, whatever the hell it is; let’s say I have a tool.
I’m going to send Rob an email telling him, Rob, I know you and I know you should buy my software because my software’s great. Here’s the link. Please give me money. That email is very selfish if you think about it. It’s just all about me, what I want from you right now. That’s not going to work well most of the time.
Now, what if I flip the script and I ask myself who is Rob? How does Rob’s email inbox look like? How many emails does he get every day? Why is what I have to offer could potentially be valuable to Rob? How can I first convince him to give me a little bit of his attention so we can start building a relationship, so eventually, I have a shot of showing him truly what I have to offer and he can honestly tell me if this is useful or not useful for him. How can I approach this email as a starting point into a long-term relationship I’m trying to nurture with Rob?
Then I’m asking myself how do I write a subject line so that Rob will pay attention to it? It will raise his curiosity, but it’s going to deliver what it promises. I can’t just send an email where the subject line is, ‘I […] children in my basement with a gun at their head.’ That’s going to get your attention. That’s going to get you to open the email, but that’s not a great start to a relationship. Some people try to be funny about these things and then they write, ‘Hahaha! Got you. It was just a joke. Now, let me pitch you my product.’
If you lie to me at the beginning of our relationship, I’m not going to want you in my life. Sorry for the terrible example here, horrific example, but the subject line can’t also be ‘Software that you’re going to need. Please click the link and pay me money.’ Anything like that you will know. Or ‘The 10 reasons why you should be in business with me.’ You’re not going to open that email. You know what’s coming. You know that this isn’t a good email for you.
I have to ask myself what can I do to start this relationship? Then, how do I think through the emails and step-by-step terms? What’s the very first question that you have when somebody emails you? When you open an email, Rob, from somebody that you don’t know, what’s the first thing you’re trying to answer?
Rob: First, I try to answer, do I know this person? If I don’t know this person, I’m always thinking about what they want from me? Are they asking for my time or are they giving me something? That’s what I’m figuring out. What do they want?
Steli: Who is this and what does this person want from me, right? That’s your focus. It makes sense to start with that. I can go on and on; we don’t have unlimited time. We’ll give people a resource later on like cold emails now to think about this. Let’s say I send you an email, Rob, and the starting point of my email list, hey, Rob. My name is Steli Efti. My company recently had a very big news on TechCrunch that we released a new feature. I think that you’re really going to enjoy the article. The other thing that I wanted to tell you is that there is a video attached that I think you’ll really enjoy. It’s a five-minute demo of our product.
At this point—at least I am this way; I don’t know how you are—I’m like, what the […] is this? Who are you and what do you want from me? Why are you starting off as if I already know? I don’t know what we’re talking about here and you’re already pointing me to links, homework, and videos to watch.
The reverse is somebody that talks too much about themselves. The first five paragraphs are like, hey, Rob. I recently listened to a podcast of you and you know? It reminded me of when I was 12 years old. I was 12, also like entrepreneurship. I never thought that I would move to Bulgaria one day and then make my way to Greece. You’re like, all right, it’s nice to hear all these things but who are you? And why are you assuming that I will read something that will take 10 minutes of my life about all these random things about you without me understanding what you want from me and what’s in it for me?
I could go on forever but these are just some examples of you writing this and you’re not getting to the point of, here’s who I am, here’s why I am reaching out to you right now, and here’s what I want from you. That doesn’t mean that if you do these things, that people are all going to respond, yes here’s all my money. But at least, people will quickly understand. Hey Rob, I’m Steli. I’m somebody that’s a micropreneur, that’s maybe the kind of audience that you have, the kind of people you’re talking to. I’m telling you why I’m reaching out right now. The reason I’m reaching out right now to you is I just finished my prototype. There are only a few people I think could give me feedback. You’re one of them. You’re one of the people that I respect the most, so I didn’t have a choice than to email you.
That’s kind of like, I get that. I don’t know about you, but if somebody sends me an email like that, I’m going to go, okay, I want to help this person. And then, here’s what I want from you. Please give me this amount of time. Maybe five minutes is already too long. Maybe watch a video is maybe too long already. But at least, it’s crystal clear. I know who you are, why you are getting in touch with me right now, and what you want me to do.
This is such a simple rule and 99% of the time, cold sales emails don’t get to these three questions quickly enough. They lose the listener or the reader before they ever had a chance because they ramble on over things. Either they assume you already know all these things, they jump the gun, and go too quickly into details. I’m like, wait a second. Who is this? What is this about? What are all these links? What are all these things?
Or they go too slow and I’m like, wait a sec. I haven’t said yes I want to read 20 pages about your life history before you tell me what you want from me. Just thinking through empathetically who is it that I’m reaching out, what does the inbox look like, what are the basic questions this person is going to have when they receive my email, and then designing an email in a way that answers the appropriate questions at the right time can make a world of a difference.
We put together a resource, Rob. It’s called actually good and bad emails during crisis. We collected really great sales emails during this pandemic that companies have been sending out, and really terrible ones, just as a resource for people. That’s just one thing we released.
A couple of other resources, how to lead sales teams through crisis, how to close deals through crisis. People want these resources and want to take a look. I have more questions. You can always get in touch with me, steli@close.com. In the subject line, just type in ‘Crisis toolkit’ and I will respond with a link for you and you can get all the stuff for free, but these are just some high-level pointers of how to think about this.
I think if you think through what the world looks like or the person you want to reach out to, and if you answer those questions quickly, who am I, why am I reaching out to you today, and what do I want from you, you’re already way ahead of the curve. Again, not everybody will respond ‘I want to give you that money,’ but your chance is going to be much higher to see some success with this.
Rob: Awesome. Thanks so much, Steli. You always bring the resources and I definitely appreciate that. I’ve gotten feedback about past episodes of people emailing you and getting the ebooks and such, the giveaway. I definitely appreciate that. I bet some people will take you up on it and I think there’s a lot of value.
Steli, if folks want to keep up with what you’re doing, you have a podcast with Hiten Shah called The Startup Chat they can check out. You’re @steli on Twitter and they can drop you an email steli@close.com. If they want to hear the crisis, what was the thing called?
Steli: Crisis toolkit.
Rob: Awesome. Thanks against, Steli.
Steli: Thank you so much for having me, Rob.
This week, I talk with Steli Efti of close.com. This is his third appearance on Startups for the Rest of Us. We dive deep into his knowledge and his advice on selling during a pandemic and what that looks like.
Frankly, we just don’t talk about selling during a pandemic. We talk about how you set yourself up for success as a founder, as we potentially enter a world-wide recession, and he talks about how you should adjust your sales approach in cold emailing during this time, whether it’s a pandemic, a recession, or however you want to define it. It’s just how to think about sales and how not to shy away from it but also how not to be tone-deaf during this time.
Before we dive in, I want to once again thank Basecamp for their partnership with MicroConf and Startups for the Rest of Us. We’re pleased to have them as a headline sponsor for MicroConf in 2020. Here’s a 60-second message from Basecamp.
Basecamp: We asked founders and entrepreneurs why they switched to Basecamp when their company started to grow. Christina Hedges hired some more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all.
Sometimes, information was in an email, sometimes in the chatroom. They spent too much time on conference calls to figure out what was going on. One day, they almost missed a deadline for an important customer because the information was in the wrong place. She knew they needed to get organized, but all the software she looked at seemed complicated and it would take too long to train everybody.
Then she found Basecamp. Basecamp puts all of your internal communication in one place so nothing slips through the cracks. Unlike other tools, Basecamp has an incredibly simple structure, organized around your teams and projects. Your team will immediately understand and start using it when they see the two-minute introduction video on our site. Go to basecamp.com to learn more and start a free trial.
Rob: If you haven’t heard of Steli before, he is one of the world’s experts in startup sales. Frankly, I would say just business-to-business sales. He speaks all over the world, he has a podcast, runs a company called close.com, which is a quite successful SaaS app that is CRM, software for salespeople.
Steli has been a many-time MicroConf speaker and he’s written a number of books and ebooks on the topic of sales. He’s been a salesperson for more than a decade. I always enjoy my conversations with him and I hope you enjoy the conversation we have today.
Steli Efti, thanks so much for joining me on Startups for the Rest of Us for your third appearance.
Steli: Thank you so much for having me back.
Rob: It’s always good to chat with you. I think we talked maybe seven or eight months ago and obviously, folks have heard your intro. They know you’ve just been steep in startup sales for what? Eight, nine, ten years?
Steli: Ten years.
Rob: Ten years. We’re getting older, aren’t we? I think today, I want to dig into some stuff that is related to the current crisis. Sales is one thing, but sales during a pandemic and quarantine, and just all the […] and uncertainty, I’m imagining that it has to have changed during this time. Just to kick it off, I would love to hear your thoughts on how you’ve seen that change, how you can help people adjust to this mindset. And then, I think we’ll dive into a little bit about how can companies position themselves. We will have a post-coronavirus world and how do we position ourselves to really be in a good position there.
Steli: Everything is part of the global pandemic as it turns out, finding toilet paper, hanging out with your family. Sales is indifferent in that sense. What’s funny is that the biggest thing that I’ve noticed is that the good and the bad just get amplified during a time like this. When you ramp up the anxiety level to 10, the weaknesses are just amplified so much. I think the sensibilities and sensitivities of people are just massively increased.
I see two big high-level trends. I’m sure we’re going to dig deeper and go to the nitty-gritty, the details, and the technical stuff for people. There are two big things that I’ve seen so far. One is counter-steering to even more selfishness and aggressiveness. Salespeople, entrepreneurs, business people, because their anxiety went up so much, kind of the worst side came out and they’re like, I don’t care. I need money right now. I need to hustle. I need to push. I need to be more aggressive than usual. I need to be more selfish than usual.
You’d get these emails that are so weird. I’ll give you an example. A business person I’ve known for 10 years, we’ve helped each other out. He has a couple of businesses, he does a lot of content, and we’ve always been friendly. I’ve always supported him with his stuff and he’s supported us with our stuff.
Then, we had an email exchange recently about me being on the podcast. First, it was a personal exchange and he was all about don’t worry about me, Steli. Life is good. Business is good. I’m doing fine. But then he was communicating with somebody on my marketing team and saying if Steli wants on the podcast, we have to charge $10,000–$15,000 for that because we have to survive. That was forwarded to me.
It was such a weird thing to do, like tell me directly everything is fine but then tell somebody on my marketing team I’m going to charge $15,000 so he can be on my podcast. No word about what’s in it for us, what is the benefit, what is the value I’m going to get. It’s such a selfish come on. I’m going to charge $10,000 because I need to survive.
I mean, I get it. We all need to survive, but that’s not a really good, compelling selling proposition for me. It was also weird because to me, the statement was the world is perfect, and to another person on my team the statement was I need to charge $10,000 or the world is ending.
Even worse, when I said let’s politely decline, let’s say thanks but no thanks, when the marketing person responded hey, that’s going to be outside our budget, but we wish you best of luck. Hopefully, everything’s going to be fine. He responded okay, just for you guys, $9000, but you have to take it this week or something like that. The weirdest thing ever. What is this? A special offer if I get this week or…?
Rob: It feels really tone-deaf.
Steli: It feels so selfish, so tone-deaf, so sleazy, and it only takes a moment to ruin your reputation. It really changes how I think and feel about this individual. I never want to deal with this person again. This is so weird.
To me, this is desperation and fear manifesting itself in the ugliest form possible. I don’t think that’s a way to succeed. I don’t think that that’s the way for you to make your business succeed. That’s not compelling. I don’t think he booked tons and tons of guests who will pay $10,000 because I paid attention and there’s no guest on his podcast recently. It’s just him.
To me, that’s one way to go, people being super selfish. Those are rare, to be honest. Most entrepreneurs and most salespeople have become uber-aggressive, but there’s a lot of tone-deafness in the world. These emails, you’ve gotten them, I’ve gotten them. People that listen to us right now gotten them where it’s like, don’t you know what’s going on in the world? Why did you send me this email? It seems so disconnected from what is happening in the world. That’s one thing.
The other trend that I see more often, though, and I think this going to be the problem the people that are listening to us now, which is the over-reaction, the difference in the opposite direction, which is people, salespeople, and founders having such high anxiety and fear to upset anybody, that they just stop communicating, stop selling, stop operating, because the thought was how could I ever try to do business during a time like this? People are going to get upset with me if I send them an email, if I give them a call, or if I try to close a deal. I can do that right now. People are hurting.
I think that that’s a really bad idea as well. I’ve told this to more people than ever before. I’ve had so many one-on-one conversations and my pleas are always the same. Lesson number one, the world is not going to become a better place by all of us stopping work. If I stop selling, my future is less secure, my family’s future is less secure, my employees’ future is less secure. Nobody benefits from me stopping to work because things are tough out there. I’m not helping anybody really.
So, it’s not the time to dig a hole and be, I’m going to just lay in here, lay low, and wait until all of this is over. The truth is that this might take a really long time to be “over,” whatever the hell that means—we all don’t know—and every day where you don’t do business, you are making the problem big and possible. You make the economy slow, the economy less secure, you’re making your family less secure, your business less secure. Nobody’s being helped by this.
My big ask to people has been—especially during a crisis—you have to keep selling, but you don’t do it in a tone-deaf way and I’m sure we’re going to go into more detail. My basic philosophy is I’m going to send a sales email. I’m going to make a sales call. I’m going to try to close a deal. I have done them. We’ll talk about this. We shifted a close.
We had one record month after the other this year from January up until May of prepays. Every month, we’ve had more prepays than ever before in the company’s history because we made that a focus. When we started, I didn’t know if this would work. Who wants to prepay for a year or two during a time like this. Probably nobody.
It turned out quite a lot of our customers wanted to and we can talk about how we did it and why it worked. You’d be surprised. People were still buying and selling, and you have to keep selling, but the way to do it in a (I think) respectful way is not to be overly aggressive and selfish. We need to increase our pricing because we have to survive. Here is the contract. You have two hours to sign it. That’s […].
But also not in an overly-apologetic way. I know everything is bad. Are you okay? Are you hurting? Are you afraid? I’m afraid. Did you read the bad news this morning? Nobody wants to hear that. People already have enough anxiety in their life. They don’t need you to email them with 10 links about world politics that are terrible. How is that helping them? That isn’t helping them. That isn’t making you look like a good person, either.
My approach has always been, during this crisis, you want to be honest. Not fake positive, not fake optimistic honest. Hey, is everything all right? Are you good? All right, how are things going right now? Are you continuing to do business? Are you stopping everything? Tell me about your world. Tell me about your forecast of the world. Do you think that things are going to pick up again in a month? In two months? Are there any signs that you’re looking for before you put the pedal to the metal and do more things or purchase more things, to invest in more things? How are you going to decide how to move forward?
I’ll ask someone these questions, but I always will ask them with what I would call high-energy. I want to talk to people not with fake enthusiasm, not with fake positivity but with energy because there’s a funny thing. During these times when everybody we’re talking to is excited, […], depressed, fearful, pissed, and all the news we’re reading are full of overwhelming facts, the last thing we need is one more person that talks to us, that makes us feel even worse about the world, that seems low energy, apologetic, or fearful.
That’s not the kind of energy we want to surround ourselves with. But if you can talk to somebody today, that even during these crazy times is honest, frank, and straightforward with you but seems to have energy, seems to have the ability to make decisions to do things, it makes people feel better. It makes people feel like I can have a conversation, I can make a decision, I can take action even during these times.
There’s this old quote from whatever her name is, Angelou or something. People can google her and find it. It’s like, “People won’t remember your name, people won’t remember the place, but people will never forget how you made them feel.” I think that, especially during times where we’re also anxious, afraid, and overwhelmed, when we interact with people that make us feel calm and confident, make us feel a little bit more energized than before, those are the type of people that we will want to gravitate towards and talk more to, and we will remember that these people stand out.
That’s how we’ve been selling it close and how I approached reaching out to people. Be honest, be frank, don’t be fake, but don’t be meek. Don’t whisper and don’t be apologetic. I know the time is so hard. Sorry that I’m talking to you right now. Nobody needs that. Nobody’s being helped by that attitude and energy that you bring to the table.
That’s the biggest thing. Don’t be afraid to sell. Selling is good for you. Selling is good for your family. Selling is good for your prospects if you’re selling them something that could provide value. We can talk a lot more about it, but that’s my big spiel around this. Don’t be so afraid because there is a way (I think) to do it, that won’t piss off all the people, that won’t make you a bad person, but it will make the world turn, the economy’s going to move forward, and your business still operates even during times where it’s harder to talk to prospects and close deals.
Rob: It sounds like what you’re saying is there is an elephant in the room. Address it upfront. Be honest, don’t be fake, have empathy, and ask questions with high energy (I think) is what you said. It’s like what is your forecast? What do you think you’re moving for? These are to get honest appraisals from people so that it’s not, again, this elephant in the room of COVID’s happening and we’re not talking about it. We’re ignoring it and I’m not bringing it up. You’re just basically saying bring it up, discuss it, and then move on with the conversation.
Steli: Yeah. Talk about it, but talk about it with curiosity and energy. Hey, what’s happening in your industry? I’m talking to lots of other people. I’m curious about you. What’s your outlook? How did you operate over the last couple of weeks? What are the signals you are waiting for moving forward? How optimistic or pessimistic are you about the future? Ask those questions with curiosity and energy versus being apologetic. I know. You know? What do you think about the future? How do you operate right now? It’s the same question, but I almost feel obligated to feel bad when you ask it that way. I almost feel obligated to tell you that things are worse than they are because you make it sound like that’s what I should do.
That’s really it. People will talk to you and they will give you answers. Those answers will be very good guideposts on how to proceed. Some people you’ll be surprised. You talk to them and they’re very optimistic. They’re like, oh, this is […], I think the world is going to be better out of this. I’m very optimistic. I’m not slowing down. I’ve been making money. I’ve been driving revenue. I’ve had some creative ideas. We’re doing well.
Now that’s a very different starting point for now talking about maybe the solution that we have or the things we could do together. For somebody to talk that tells you, my father and mother are in the hospital. I’m a mess. I haven’t made money for the last two months. I don’t know. I think I’m going to close shop next month. That’s kind of important. That’s a very different foundation to continue the conversation.
Maybe when things are so bad, all you can do is just be like, okay, is there something I can do to help? Can I refer any business to you? Can I just get out of your way and maybe touch base again in a month and see how things are going? Maybe the best thing you can do is to leave the person alone, maybe send an email a month from now and ask, hey, are you all right? Is your family fine? How about your business? And then that alone might make somebody remember you and appreciate you because you were there, you seem to care, you showed some humanity which we all appreciate during tough times.
The other person who was gung-ho, My business is running, I’m making money, I’m positive, with that person you’re like, let’s get in business. Let’s […] more good […] right now, and you might go and close a deal. But don’t try to avoid talking about these subjects, but also when you talk about them, don’t think they do need to come across as if you’re discussing some horrific thing because it might not be for your prospects. You should just check before you proceed in that direction.
Rob: That makes sense. I googled that quote while you were talking. It was from Maya Angelou. The one about how people remember the way you make them feel. I am curious. You mentioned that at close your team has pulled off an interesting feat of getting people to do annual prepays. Can you talk us through how that’s happened and how you’ve handled that?
Steli: We had an ‘oh, […]’ moment in February where I was convinced that a big crisis was ahead of us, that we needed to act really fast and decisively to prepare ourselves for the worst-case scenario, and we should do it ahead of time. Not wait, though it’s inevitable, but act really quickly. When it came to the way we were selling, up until that point the big focus of ours was to sign, sell, and close long-term contracts with some of our bigger new customers. We would sign one- to three-year contracts that were paid monthly (subscription revenue).
In fact, we met up with our sales team and we decided that if there’s a big crisis ahead of us and if there’s a big economic downturn ahead of us, a contract is not going to be worth much. A contract is only worth something in a stable world. If our customers are going out of business, that contract is useless. If they would go out of business unless they break the contract (they decide to break it) that contract is useless. We’re not going to start suing our customers during a global pandemic.
The first decision that we made was let’s pull away from contracts. They’re going to be useless during very turbulent times, so let’s not care about them. Let’s not focus on them anymore. What is going to be important during a crisis, cash is king. Now, fortunately (or unfortunately), we’re running a subscription business. Most of our customers are paying month-to-month and they have the option to stop at any time. That’s not good during a crisis or a global economic downturn because lots and lots of your customers could just decide to stop.
So let’s try to incentivize our customers to prepay. How do we do this during these uncertain times, in a very honest and direct way? Not sleazy, not trickster, just an honest offer. It’s quite simple. If you want to prepay during highly uncertain times where the risk of prepaying is much higher for you as a buyer, you should be getting a great deal. We’re going to give you an exceptional deal because these are exceptional times. If you feel like your cash situation is really strong, if you feel like your financial future is really stable, and you want to use this crisis to get amazing deals for you—fill that position as a customer—we’re going to make that an option for you. We’re going to offer you that.
Now, if you don’t want that, we totally get it. If you want to wait until the world is stable and safe again, that’s totally fine, but then you’re paying the stable and safe price, the price that everybody’s going to pay. You take more risk, you get a better deal. You take less risk, you get the worst deal. It’s a very simple, very honest proposition.
That’s what we did. We approached a lot of our customers, we offered them that, and for the self-service customers, we can […] up the offer if you prepay. Again, when we started I didn’t know if this would work. There were some voices when we were talking about this internally. They were saying aren’t people going to get really upset if we offer them this? I thought why should they get upset? There’s no lie. If I offer you an apartment for half the price because it’s a crisis, why would you scream at me? How dare you sell an apartment during a crisis! That’s a crazy thought process.
This is another thing that I would want to highlight here. Don’t assume what your prospect or customers could get upset about. Don’t assume it. Test it. Just test it to see. Maybe they’ll surprise you. So we did. We tried it and the first month that we really rolled this out was March and a lot of customers—to our surprise, honestly—were excited about it. Although at that point, everybody started knowing about what’s going on. They were like, this is just too good of a deal. We don’t care. We’ll do it.
March was an amazing cash for month for us. We said, well let’s continue doing this and see how it works. And April the same, and May the same. There have only been two cases out of a lot where people got upset. I’m telling you, Rob, it’s like hurt people hurt others, and upset people are getting upset. These two people got upset in very unreasonable ways.
They’re literally, hey, I saw your offer. I want an even steeper offer. Let’s say this is just an example. Your offer costs $100. I want it for $5 and I want to pay it monthly. It’s a global crisis, we’re hurting, and it’s your responsibility to give it to us. We said, hey, a lot of our customers are hurting. We’re hurting too. We’re a small business, we just can’t do $5. We’re really sorry but we can’t. We hope that you’re going to be fine. Then the person would be like, this is outrageous. I’m going to tweet about this. The world is ending and you can’t even give us your software for $5.
This person is unreasonable and I’m not going to bend my entire business for the few that are very loud and just going to get upset about anything anyway. I’m not […] me coming to your apartment going, Rob, I’m hurting. I need a place to stay. I want to buy your house for 10% because it’s a crisis. You’re like, Well, I want to still live here and it’s not for sale. I can give it to you for 10%. They’re like, outrageous. I’m going to write about this. People are dying and you can’t even give me your house!
People are crazy sometimes. There were two cases where I felt these people were just very unreasonable and I just assume these people were hurting so much that they’re kind of slightly out of their minds. We try to be empathetic, but we also keep it moving. We didn’t try to make them feel better because people are out of control. You just have to let them be. Nothing really happened. They then moved along and hopefully, they found some other solution that worked for them.
Most of our customers and most people either say, no, we can’t make that. We would want to take that deal, or, you know what? That’s a really good deal. We’ll think about it. Yes or no. It was a very simple thing.
Surprisingly, and just now, just in the last two weeks, our sales team has started seeing less prospect bite on the prepays. Maybe it’s because now, it finally is clicking for many of them. Maybe it’s just two weeks, so we decided that it’s too early to shift our strategy. Maybe it’s just the kind of deals that we got through the pipeline is too small of a sample size.
We’ll have to keep an eye on it. Maybe we’ll have to change the strategy at some point, but for the last couple of months, our cash position is drastically improved—almost doubled—which made our business a lot more stable, the job for people that work at Kohl’s a lot more secure, and also for our customers made it more secure that we’re going to be able to service them, offer them increased innovation and great support, and everything they need to be able to use our platform. Just a win-win-win for everybody.
There was no rocket science. There was no trickery, it was not some kind of a hack that we used. Just a very strong offer. We just approached our customers with it to see what the response would be and in our case—this might not be true for everybody—the response was really, really good.
Rob: That’s fascinating. You only approached existing customers, right? This wasn’t for new folks coming in?
Steli: Both, existing customers as well as new folks.
Rob: Got it. I feel like folks who are in a strong cash position, the stuff is on sale. Warren Buffett often says, “In a recession, stocks are on sale.” If I were a customer of clothes, I would view it as a wow. I’m getting clothes on sale right now because of this. And if I was in a strong cash position I would jump at it. I think big companies in that position have a real advantage, mostly coming out of a recession but going into it as well.
I’m curious. You’ve talked about how to sell during a pandemic, how to think about it in this way whether it’s getting cash, prepays, or whether it’s just being empathetic, being honest, and calling out the elephant the room. Let’s say three months, six months down the line, we are coming out of a recession. Maybe it’s nine months, whatever it is. Does the approach change?
At that point, let’s just make assumptions. I realize everything’s up in the air so I don’t want to make predictions, but let’s assume that we get through coronavirus and then it just becomes much much less of an issue over the next 3–6 months. Let’s assume that in 6–9 months, we’re in a recession and stuff is coming out. Is there a dramatic shift to how you would be doing sales now versus normal times versus coming out of a recession? Or is it basically the same?
Steli: It’s not the same. The fundamentals of selling are always going to be the same. At least I’m convinced of that said. That sense that never changes or shouldn’t change. I think the strategy needs to be more one where what I’m convinced of. Right or wrong, I don’t know what’s going to happen, obviously, but I’m convinced that the next 24 months are going to be hard to predict. It might play out like 15 months of quiet time, seems like we’re past and everything’s fine, then 3 insane months. It might be that every three months is big news. I just think it’s going to be hard to predict.
My sense is that there are a couple of really significant dominoes in the world that have fallen and we have not yet felt the impact of that. I think it’s going to come out later. My philosophy is very much one where it is a crisis until at least for three quarters in a row. No bad news or no new news has popped in terms of what’s going on. During a crisis time, I feel like it’s not the strongest or the biggest that will survive. It’s the most adaptable that do. I think the goal needs to be much more on being much more agile and quicker to respond to changing circumstances.
I think over the next 24 months, long-term planning, long term goals and strategies that you have to play out over a whole year, are going to be much riskier. Putting plans together that take a year to play out and assume that whatever is happening in the world today is just going to stay that way for the next 12 months, I just think it’s riskier. It might be good but it’s just higher risk.
I think from a sales perspective for the next 24 months, cash is king is going to stay true. I think that time to close the total deal value is going to stay true. What that means is that today, I would always prioritize closing deals a little faster and giving up a little bit of money for that speed versus trying to optimize for maximum money and taking more time to negotiate and close the deal.
Again as I said, today maybe you have a very large customer, maybe you were just days away from closing out of a $100,000 deal, but you think if you push a bit further you could get $130,000. But it might take you a month longer to do that. Today, I would advise you to take the $100,000 today, that will be wired tomorrow into your bank account, versus waiting for weeks and trying to get $130,000. Now, that might be bad advice because if the world isn’t changing, $30,000 extra would have been nice. But just as a general philosophy, whatever tactical philosophy you have during this time, you can’t win every single time.
My point of view is you want to close deals as quickly as possible during this time, not being rushed, not being uncareful, but not taking your sweet time as a negotiation tactic. If we let these people wait for another two weeks they are going to get more desperate and give us even more money. If you like Warren Buffett, you’re like, I have unlimited money in the bank and this is the time to really squeeze people and get great deals. Cool, that’s fine. But if you’re just operating a small business and you’re trying to get some big deals through, I would rather close the deal today than wait to make it slightly better and close it in a week from now.
I think having shorter cycles of planning, optimizing for cash flow and speed are strategies that I (at least) assume we at close are going to keep as our operating principle and guideposts for the next 12–24 months. That’s what I would advise people. What happens when we’re all convinced that we’re through this and the world is back to “normal” or the new normal, whatever that means? It’s very hard to say. I can’t really forecast. I assume fewer meetings in person, I assume that this time is going to accelerate the adoption of software and technology.
In many ways, this is going to benefit us, the people that are listening to this podcast, but in some ways it’s not going to be good for society. It’s a mixed bag. But travel, meetings in person, offices, offline, and any commerce, any selling that happens person-to-person, that happens in meetings, that happen to travel, I suspect is not going to rebound super quickly. More part of the funnel is going to be happening through technology, remotely through asynchronous communication. Again, I think that benefits startups and software funnels more so than many others in other industries.
Rob: Sure, because so many of us, especially in our community, are already remote. We’ve been doing it for years and people are finally catching up. I’ve heard some podcasters that I listen to, like the tech news space and the kind of cord-cutting space, that they have studios at their house with two fiber lines coming in. They’re hobbyists or one level above hobbyists, but they look really good on camera. They have nice HD cameras and really good microphones.
They’re laughing because the newscasters and the people who are used to doing this in a television studio who are now doing it from their home are using their iPhones with the crappy AirPods because they don’t have the studio set up. I think it’s funny that the rest of the space is catching up with those of us who have been doing it from home for years and being remote.
I think as we transition and start to get into wrap up, I’ve had several questions about cold email lately. I actually got a question a couple of months ago before the pandemic and someone said it would be great to hear a whole episode on cold email. Once the pandemic has started, I thought, is that worth doing now or should we maybe wait until things settle down a bit?
I’m curious to hear from you. I started getting cold emails (I’ll say) in 2011–2012, and early on I’ve hired a person to do cold email. I have bought software through it, but less and less these days just because you get so much. I feel like it’s such a shotgun approach that a lot of people are trying.
I’m curious right now. Given this space, you’ve already talked about the shift in selling during a pandemic, but is it still worth cold emailing right now? If so, what’s the adjustment to the approach?
Steli: I do think there is still power in cold emailing people. I think it still works in many areas. The question is always the approach. In a world where there is so much more cold email, spam email and whatever, you can’t just be average because average really equals noise. If you send me a really great email, it’s going to stand out more so than ever before because all the other emails I get are so terrible. But you really have to write great emails.
Great emails will never be out of fashion, but it’s just much harder work. It’s harder work. You need to be more thoughtful. You need to spend a lot more time and energy. People don’t like that. People just want to go and do a copy-paste email, send it to 10,000 people in one blast, and then assume that business is going to come in. Then, when that doesn’t happen they’re like, see? Cold email is that. It doesn’t work. We tried it. No. You just did it really, really badly.
I’ve always taught a principle when it comes to cold email that I think is timeless and just works now better than ever before, which is to actually think about it in UI/UX terms. A lot of times when we write cold emails, we think very selfishly. What do I want from Rob? Rob is an important business figure. He has money. He invests in startups, let’s say. I want him to use my tool to do investments, whatever the hell it is; let’s say I have a tool.
I’m going to send Rob an email telling him, Rob, I know you and I know you should buy my software because my software’s great. Here’s the link. Please give me money. That email is very selfish if you think about it. It’s just all about me, what I want from you right now. That’s not going to work well most of the time.
Now, what if I flip the script and I ask myself who is Rob? How does Rob’s email inbox look like? How many emails does he get every day? Why is what I have to offer could potentially be valuable to Rob? How can I first convince him to give me a little bit of his attention so we can start building a relationship, so eventually, I have a shot of showing him truly what I have to offer and he can honestly tell me if this is useful or not useful for him. How can I approach this email as a starting point into a long-term relationship I’m trying to nurture with Rob?
Then I’m asking myself how do I write a subject line so that Rob will pay attention to it? It will raise his curiosity, but it’s going to deliver what it promises. I can’t just send an email where the subject line is, ‘I […] children in my basement with a gun at their head.’ That’s going to get your attention. That’s going to get you to open the email, but that’s not a great start to a relationship. Some people try to be funny about these things and then they write, ‘Hahaha! Got you. It was just a joke. Now, let me pitch you my product.’
If you lie to me at the beginning of our relationship, I’m not going to want you in my life. Sorry for the terrible example here, horrific example, but the subject line can’t also be ‘Software that you’re going to need. Please click the link and pay me money.’ Anything like that you will know. Or ‘The 10 reasons why you should be in business with me.’ You’re not going to open that email. You know what’s coming. You know that this isn’t a good email for you.
I have to ask myself what can I do to start this relationship? Then, how do I think through the emails and step-by-step terms? What’s the very first question that you have when somebody emails you? When you open an email, Rob, from somebody that you don’t know, what’s the first thing you’re trying to answer?
Rob: First, I try to answer, do I know this person? If I don’t know this person, I’m always thinking about what they want from me? Are they asking for my time or are they giving me something? That’s what I’m figuring out. What do they want?
Steli: Who is this and what does this person want from me, right? That’s your focus. It makes sense to start with that. I can go on and on; we don’t have unlimited time. We’ll give people a resource later on like cold emails now to think about this. Let’s say I send you an email, Rob, and the starting point of my email list, hey, Rob. My name is Steli Efti. My company recently had a very big news on TechCrunch that we released a new feature. I think that you’re really going to enjoy the article. The other thing that I wanted to tell you is that there is a video attached that I think you’ll really enjoy. It’s a five-minute demo of our product.
At this point—at least I am this way; I don’t know how you are—I’m like, what the […] is this? Who are you and what do you want from me? Why are you starting off as if I already know? I don’t know what we’re talking about here and you’re already pointing me to links, homework, and videos to watch.
The reverse is somebody that talks too much about themselves. The first five paragraphs are like, hey, Rob. I recently listened to a podcast of you and you know? It reminded me of when I was 12 years old. I was 12, also like entrepreneurship. I never thought that I would move to Bulgaria one day and then make my way to Greece. You’re like, all right, it’s nice to hear all these things but who are you? And why are you assuming that I will read something that will take 10 minutes of my life about all these random things about you without me understanding what you want from me and what’s in it for me?
I could go on forever but these are just some examples of you writing this and you’re not getting to the point of, here’s who I am, here’s why I am reaching out to you right now, and here’s what I want from you. That doesn’t mean that if you do these things, that people are all going to respond, yes here’s all my money. But at least, people will quickly understand. Hey Rob, I’m Steli. I’m somebody that’s a micropreneur, that’s maybe the kind of audience that you have, the kind of people you’re talking to. I’m telling you why I’m reaching out right now. The reason I’m reaching out right now to you is I just finished my prototype. There are only a few people I think could give me feedback. You’re one of them. You’re one of the people that I respect the most, so I didn’t have a choice than to email you.
That’s kind of like, I get that. I don’t know about you, but if somebody sends me an email like that, I’m going to go, okay, I want to help this person. And then, here’s what I want from you. Please give me this amount of time. Maybe five minutes is already too long. Maybe watch a video is maybe too long already. But at least, it’s crystal clear. I know who you are, why you are getting in touch with me right now, and what you want me to do.
This is such a simple rule and 99% of the time, cold sales emails don’t get to these three questions quickly enough. They lose the listener or the reader before they ever had a chance because they ramble on over things. Either they assume you already know all these things, they jump the gun, and go too quickly into details. I’m like, wait a second. Who is this? What is this about? What are all these links? What are all these things?
Or they go too slow and I’m like, wait a sec. I haven’t said yes I want to read 20 pages about your life history before you tell me what you want from me. Just thinking through empathetically who is it that I’m reaching out, what does the inbox look like, what are the basic questions this person is going to have when they receive my email, and then designing an email in a way that answers the appropriate questions at the right time can make a world of a difference.
We put together a resource, Rob. It’s called actually good and bad emails during crisis. We collected really great sales emails during this pandemic that companies have been sending out, and really terrible ones, just as a resource for people. That’s just one thing we released.
A couple of other resources, how to lead sales teams through crisis, how to close deals through crisis. People want these resources and want to take a look. I have more questions. You can always get in touch with me, steli@close.com. In the subject line, just type in ‘Crisis toolkit’ and I will respond with a link for you and you can get all the stuff for free, but these are just some high-level pointers of how to think about this.
I think if you think through what the world looks like or the person you want to reach out to, and if you answer those questions quickly, who am I, why am I reaching out to you today, and what do I want from you, you’re already way ahead of the curve. Again, not everybody will respond ‘I want to give you that money,’ but your chance is going to be much higher to see some success with this.
Rob: Awesome. Thanks so much, Steli. You always bring the resources and I definitely appreciate that. I’ve gotten feedback about past episodes of people emailing you and getting the ebooks and such, the giveaway. I definitely appreciate that. I bet some people will take you up on it and I think there’s a lot of value.
Steli, if folks want to keep up with what you’re doing, you have a podcast with Hiten Shah called The Startup Chat they can check out. You’re @steli on Twitter and they can drop you an email steli@close.com. If they want to hear the crisis, what was the thing called?
Steli: Crisis toolkit.
Rob: Awesome. Thanks against, Steli.
Steli: Thank you so much for having me, Rob.
Episode 497 | Documenting SaaS for a Sale, Email Harvesting and Spam, and More Listener Questions
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This week Rob answers listener questions with TinySeed co-founder Einar Vollset. Einar has been on the selling side of many SaaS acquisitions. He is also a developer with a Ph.D. in computer science, so he has a well-rounded experience, and it makes him the perfect person to answer these listener questions. There are some interesting questions from listeners who are growing SaaS apps.
The finer points of the episode:
- 2:38 – What metrics you should be documenting on your SaaS app
- 9:04 – The things buyers checked on when we were selling Drip
- 13:00 – How to navigate creating the terms for a business partnership
- 18:43 – Should you be sending unsolicited marketing emails?
- 24:18 – Best strategies to make sales
- 27:32 – Potential opportunities to make sales during the COVID-19 crisis
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. It’s episode 497. I am your host, Rob Walling. Each week of the show, we cover topics relating to building and growing startups using an ambitious yet a sane approach. This week, I’m answering listener questions with my friend and co-founder of TinySeed, Einar Vollset. Welcome to the show.
Einar: Hello. Good to be here.
Rob: Good to have you back. If you’ve been listening to the show, even for the past few months, Einar has been on several episodes talking about entrepreneurship he has experienced. He went through Y Combinator in 2009, the company he started there was later sold to Google, and he’s been on the sell side of many seven- and eight-figure SaaS acquisitions, so he has expertise. My go-to for Einar is partnerships, business development, sales, outreach like cold-calling, cold-emailing, buying and selling SaaS valuations, pricing. That’s the high level. Anything I missed in there?
Einar: No, I think that’s pretty good. You’re making me sound like Glengarry Glen Ross salesperson but that’s good.
Rob: You’re going to get booed off the stage here at the Startups for the Rest of Us. People are like, “Get that guy.” But here’s the thing. You’re also a developer, so you have the cred with the crowd. You’ve been writing software for a few decades. You have a PhD in computer science which I’m going to let that one slide.
Einar: That’s fair. Absolutely.
Rob: Yeah. When we were hiring at a company I worked at in LA, we would get folks with a PhD in CS to apply for a senior developer position and instantly set off a yellow flag of can this person actually write code? Can they ship code? We had to see if they didn’t have work experience and they had just come out of the Masters or PhD, we’re just a little concerned about it.
Einar: Yeah. I get it. I don’t get so much with Masters and PhD. Actually there is a diminishing return if you start doing a PhD. It’s a problem, actually, for some of the people who were in grad school with me and then later on. They were like, “Yeah, I can’t even get an interview because everyone thinks I’m this non-producing wonk who comes up with opinions all day.” I know the feeling.
Rob: Academia can have that effect. It doesn’t always do that, of course. Hey, if you want to have a conversation with Einar, especially about TinySeed Fund too, just head to tinyseed.com/invest. Fill out that form, he’s on the other end of that. We are starting fundraising for that fund under five or six C.
Einar: That’s right.
Rob: All right. We are going to answer listener questions today. I picked a nice sampling of questions about SaaS and all the stuff that we talk about all the time and think about it. The first question is from Roger. The subject is documenting SaaS for a sale. He says, “I work on the technical side of a SaaS and the owner is interested in selling the company. They asked me to look into documenting the technical side but I have no idea where to start. Do you know of any resources or have any advice?” After listening to this question, let’s flip it and talk about what you should have documented for financial and SaaS metrics type of stuff because I think that’s interesting as well.
Einar: Yeah. I actually think—having done this a number of times—it obviously depends on the complexity of the product that’s being sold. There’s no indication here of what’s going on. But typically, actually quite surprisingly, I think the technical documentation and the sort of technical diligence that gets done in an acquisition is certainly better than what gets done for venture capital investments.
I’ve always been surprised at how light the technical diligence is during an acquisition. Typically, it’s confirmatory because fundamentally, if your business is able to be sold and it’s profitable, it’s growing, it’s doing what it needs to do on the business metrics, then the buyers usually have the assumption that you have your […] together to some degree. They’re like, “Well, it’s not going to be totally fake.”
That being said, certainly during diligence, at least if you’re talking a deal north of (say) $20 million, then there’s likely to be technical diligence and they’ll usually bring in—if it’s a financial sponsor—an external technical team to do the diligence. Sometimes there are firms that specialize just in doing that or they’ll have their internal development team take a look.
I think most developers think of, how am I documenting the code? Can I explain the code of this working? Are we doing best practices as it relates to X, Y, Z inside the code? I find that most of the time actually, what they’re looking for is more high level. Is there a single point of failure in terms of either technically or with a person?
Quite often what ends up happening in the smaller acquisitions is that there’s one guy who knows how a critical piece of this something works. Whatever it is like scheduling, whether it’s how to bring the site up if it goes down. A lot of the time, what they’re trying to ascertain is whether there is redundancy and business continuity in place. They are not in the situation where they buy the company, then it goes down, and it turns out that John, who was the only person who knew how something worked, has been fired, left, or whatever.
It’s usually quite surprising to people the kind of things that get asked. Certainly, they’ll be asking questions like where are you hosting things. Typically, the more standardized the answers are, the better. If you come and say, “Hey, we have this custom rack that runs out of my brother’s apartment and that’s where we’re serving everything in order to save 50¢ on the dollar and hosting cost,” they’re probably not going to be as impressed with that as if they just say, “Oh, yes. Just on AWS. It’s easy to use AWS,” or whatever. They like standard things.
They’ll ask higher-level questions like what are your development procedures? If a feature comes through from a product, how does it get implemented? What is the process by which things go into engineering? They’ll ask questions like what is your testing procedure? What’s your deployment procedure? Usually, it’s actually more higher-level process stuff and people than that is like, explain to me how you’re modularizing your code. They will ask some of those questions.
When I did diligence stuff, I would sometimes say, “Okay. Show me the last 10 pull requests with the code.” That used to freak people out but that level of detail and that low-level detail is actually quite unusual. With the exception of what you’re selling is a very technical, very detailed, technical product where it’s critical that the people understand exactly how your product works. Whereas you’d be surprised a lot of the time for the business people doing acquisitions, it actually doesn’t matter all that much specifically how you’ve written the code as long as they understand there’s a good process in there.
This is something where they could hire more people and it’s not completely loony tunes. If it’s something that’s hosted in your basement on a custom version of Lisp with a database that’s no longer supported, that’s going to be a problem. Even if it’s not a hack on PHP but if it’s PHP hosted on EC2, that’s great. They’re not really going to care that much about specifically which framework or PHP you’re using, or anything like that. That’s my high-level view of it.
I think you’d be surprised at what kind of thing they’re looking for during diligence in this most often process. Do you have that checklist of things in place? Do you have version control? If you’re using open-source software, are you using that according to licensing? Are you publishing things that you need to publish on the GPL? Things like that come up much more often than I think most developers assume. They think that I get into diligence, somebody will come through, they’ll have me like they’ll sit next to me and go through line by line of code and have me explain how it works. I’ve never seen that happen.
Rob: That’s been in line with my experience as well. I’ve been involved on the sell side of a lot fewer deals than you. But still, if I were to put it, personally, it’s two or three that are substantial enough that people wanted to review code, and then I think there were maybe four that I’ve been pulled into by startups that I’ve either invested in on an advisor or whatever. That’s typically advice I give as well as no one cares about your code comments because the people buying it aren’t developers and they don’t need to get into that level of detail of the code.
It’s a lot like I’ve compared it to a real estate investor who buys investment properties, will often buy multiple properties without ever seeing the properties because what they’re looking at are the numbers. If things have been rented for this many years and the maintenance has been X, Y, Z for this many years, they want to make the numbers work. If that happens, they don’t care if the kitchen has been granite, if it’s fake granite, or whatever because they’re not living there.
For better or worse, when a company is spending $10, $20, $30, a hundred million dollars on a product, they’re not buying it for the code quality. Unfortunately, as a developer, that’s not what is driving the price. Unless, as you said, it’s some extremely limited IP where it’s like we built the Google search engine and that’s worth a bunch of money or whatever but that’s not really what I’m looking at. I have a few things I jotted down. Specifically, when we sold Drip. They were really concerned. They asked a lot about any open source stuff that we used.
Einar: Oh, yeah. That happens all the time.
Rob: Yeah. There are certain types of licenses that essentially mean that if you use it, you should open-source all of your code for the entire app. We had been careful about that but you have to prove that there’s nothing in. They sent a consultant out who brought a Raspberry Pi, opened it up out of the package, plugged it. He said, “I’m not going to walk away with any of your code or any devices that plug into any of your machines.” He plugged it into Derek’s laptop into this big scan of the code and then he handed us the Raspberry Pi at the end. He was doing a big scan for patterns of license. I’m assuming that headers are there. Certainly much like a virus scanner, it just picks up a pattern of like, ding, this is a red flag license.
Einar: Absolutely. I think most developer types think that it’s not a big deal to use open source and that’s true, it isn’t. But it’s a big enough liability that typically if you’re selling a software company, you have to warrant that you’re not in violation of open source licenses. Basically, what that means is that if you do that and they get sued, the acquirer gets sued because of GPL violations that you did, they’ll come to you for the money. It’s that serious. If you have very good clarity on like, these are exactly the licenses we’re using. If we’ve made changes, for example with the GPL, then we publish those changes as required by the license. That stuff is important.
Rob: Yeah. The other thing that I’ve seen asked for a lot is not code-related but it’s IP agreements. Do you have an IP assignment agreement from every contractor, every employee, everyone who has ever touched basically anything in your code? That can be a big deal. Backup and recovery is something else that they asked. That’s like you said.
Einar: Disaster, continuity. Yeah.
Rob: Yup. It’s like, how often do you backup? How often do you recover? How do you test your backups? That kind of stuff. That’s something I would include in a technical doc. The original question is what should I document? Technically, it can be a four- or five-page doc plus a network diagram that is kept up today as best you can. It doesn’t have to be some 30-page home. In fact, we didn’t even have a network diagram. When […] was doing due diligence, click-ons flew out with their senior engineer like the head of engineering. He just said, “Walk me through on a whiteboard,” and that was the network diagram. They took a picture of it.
It was like Derek writing things and talking through, this is where there is a single point of failure in the database and blah, blah, blah. That was good enough for them. There was also a level of trust between Clay and I because he and I knew each other. He also knew that, as an engineer working with a co-founder who is an engineer, we would say we have 2½ lines of unit tests for every line of production code, which is pretty good. It implies that these guys probably know what they’re doing, so we were given a little bit of leeway there.
The last thing I’ll say is to document the tools you use. Just high-level languages, what editors you use, obviously, the database—Postgres, MySQL, whatever—version control, we use GitHub on this thing and it’s never been out in public or whatever. It’s just the basics if you think about it. I think both of us, what we’re saying is, it’s very unlikely that anyone will dig deeper than basically the top-level things that we’ve said here.
Einar: I think it’s true. I think the most helpful thing to think about is the documentation isn’t required to be at a level of detail where if you got a fresh developer and gave them the documentation, that was sufficient for him to start developing features on the code. That’s too detailed. The way you should think about it is what does a project manager need to know? What does an engineering manager need to know about the process by which we build software here and roughly how it’s structured? That’s the right level of documentation, at least to start. Inevitably, during the process, during some diligence, there’ll be some further questions, but then they can dig into that. You don’t need to write 100 pages worth of documenting every single thing. I think that’s probably a waste.
Rob: Our next question is from Fabbri. He said, “I bootstrapped the guilt box, a personal and SMB financial software as a side project for a few years. We’ve also developed our own banking data aggregation system for our B2C products. We’ve been approached a few times by companies to provide this service, the banking data aggregation, but haven’t had much bandwidth to also take on the B2B opportunities (obviously, of selling that to other businesses).
Recently, I was offered to provide the aggregation service to another startup. At first, I agreed with the founder on a fee per user and a retainer. Later, he offered me 5% equity, I assume, and in the startup to integrate the aggregation system, plus some additional funds because he wanted more control and a commitment for me. I’m hesitant to accept this since the aggregation system still serves my business and has the potential to serve others. Also, it took a few years of work to get it right for only 5% equity in another startup, but I think it could negotiate that. What are your thoughts on this?”
The subject line is a business partnership or B2B client. He’s kind of trying to decide between those two. It’s a little muddy and we don’t have all the details. I wish we have more info, but do you have thoughts on this about going into a business partnership versus keeping someone at arm’s length as a client?
Einar: Yeah. My gut feeling would be that this 5% equity to get more control and commitment like that, I’d be extremely wary of just because what kind of controls is he talking about? Does this preclude you from doing changes that you want to do? Are you now required to maintain this in a way that fits their business rather than yours? Also, what is the value of 5% of the equity? Now, you have to effectively do due diligence on them to figure out what is the value effectively of what they’re offering you for this.
It almost doesn’t sound like a partnership, it almost sounds more like a joint venture, that proposal. Although, it’s quite vague so it’s hard to tell. But certainly, I’d be very wary of doing the 5% equity piece. This sounds to me more like you have an enterprise-type integration plan, white-label plan, or something like that. It’s easier to do this lighter touch and effectively say, “This is something that you can buy, it’s going to cost a lot of money, or if you’re reselling it, then you have to give us a good chunk of the whatever revenue you’re getting in.”
That’s a much better, at least, starting point than getting to the point where it sounds like this potential partner effectively wants to control how this piece is being built, maybe exclusively get access for themselves. Giving all that away for 5% equity in an unknown startup is not something that I would do without a lot more information. It depends. If the startup is Zoom, sure, but if the startup is some no-name thing I’ve never heard of, then my general view is that I’d be very wary.
Rob: Yeah. I would echo that. Anytime you take a minority stake in a private company that you have no control in, that has no liquidity prospects—
Einar: Are you describing TinySeed, Rob?
Rob: No, of course not. I’m describing a lot of these stock deals. Whenever I hear there was an acquisition, I hear the purchase price, I always want to know how much of that was stock because if it’s stock in a public company, great, good for you. You can sell that in 6 or 18 months. But if it’s a private company, you are basically tying yourself to the fortune of that company for years. You can say I got $20, $30, $40 million in stock in a company that then goes bankrupt, you actually get nothing.
Einar: That’s happened to friends of mine, actually. They sold their startup to a company. This is 2001—got them old—and they were like, “Yeah. I sold my company for $10 million,” and they got $10 million worth of stock in a startup that went to zero. It happens.
Rob: I know. If someone were to approach me about selling my startup and they want to give me an all-stock deal, like you said, it just really depends on the company, their prospects, and where you think they’re going. But almost in all cases, I’d be like, you got to get enough cash that you feel good about this, that if that stock goes to zero, you at least don’t have massive regret around it.
Einar: That’s true for a type of M&A work we do, too. It’s not unusual in a deal that, say, $25 million that the founders are going to ask. Okay, you get some cash, you get some earn-out, you get some maybe owner financing, and then you have to roll a portion of your proceeds into the new company. Usually, the hurdle there, at that point, I always advise people, we need to do some diligence on the acquirer, that they’re not just something that’s going to blow up. That’s worth thinking about.
If that gets on that level, then you shouldn’t just accept 5% to walk away because there are all sorts of things like 5% preferred stock, 5% common stock. Are there any anti-dilution things in place? It agrees for 5% equity. If there’s no anti-dilution, this is common stock. The other guy could just issue another $10 million shares and dilute you down to 0.005% and you have no recourse.
Rob: Yeah. I’m in the same boat. I feel like the B2B client is the first step in an integration. Get to know them and how they are as a customer. It’s like the crawl-walk-run-type thing or that they’re dating before you get married. A B2B partnership, an acquisition, whatever, often those relationships are built over time so that you can see how they operate and learn more about the people involved and the company involved. If that’s helpful, Fabbri.
The next question is from Chris and it’s about email harvesting and spam. He says, “I recently read an article published on Medium. It’s about how to harvest email addresses. In one of the discussions with Bluetick, Mike Taber has talked about warm versus cold emails. Can you guys comment on the practice of sending unsolicited emails these days?
If you get enough spam complaints, won’t Mailchimp, Constant Contact, Infusionsoft, et cetera, shut down your account? I get a reasonable amount of these. If it’s something I have zero interest in, the company sounds cheesy, or I’m certain I did not sign-up but often the spam button. I have two small companies and I understand the need to fill up the funnel but I’m annoyed that someone is taking up my time to click delete.”
Before I toss it over to you, I do want to chime in that is a very big difference. If you scrape emails and get an essence of a cold email list and you put that in MailChimp, Constant Contact, Infusionsoft, Drip or anything, you will get banned. They will block your account because those tools are not designed for cold email. They’re designed for warm email, folks who have opted in to hear from you.
When this thing […], if you harvest emails or God forbid, by an email list, that is where you could go to a tool like Bluetick that uses your own known inbox, your own Gmail inbox or outbox (in this case) to send Yesware, ToutApp—there’s a bunch of them, you probably know more—that’s where those won’t be on you because it’s sending from your email inbox. It’s not like their IPs are impacted. With that, you want to comment on this?
Einar: Sure. I agree. These are definitely not the tools to use, although I’m constantly surprised at how many people are running cold outbound processes using tools like this and don’t realize how close they are to getting their whole account shut down. If they have marketing stuff in there too, that’s problematic.
My view is—this is also in the CAN-SPAM Act—actually sending cold business mail or solicit mail in the business context is not considered spam. Effectively, what’s going on is what’s annoying is not necessarily unsolicited, it is unhelpful email where you’re getting an email and it’s clear that this person knows not only anything about you and has never heard from you before but doesn’t really know what your business is.
To me, I get offended as a sales guy. I think you should do enough research so that you at least have a half a chance to know what kind of a company you’re trying to email. A good example of this actually is, I don’t know if you saw this, but we keep getting emails into the TinySeed account, at least I do, that says, “Hi. Been really excited about what you guys are up to there at TinySeed. Just wanted to let you know that our B2B SaaS accelerator is open for applications and would encourage TinySeed to apply.” I’m like, “You have no idea what TinySeed is. We’re not a B2B SaaS company, we’re effectively your competitor.” That’s generally my view of it.
Sales in general, particularly when it comes to B2B sales, the best stuff is almost like being an outsource consultant for your prospects. You’re effectively trying to figure out how do I reach out to this person or this company where I have figured out that they can add significant value to their bottom line or whatever by using the tool that I’m providing. You can imagine a consultant being hired by the company in question to figure out how to better do X, Y, Zs so that we improve our bottom line and they get paid to go out and pick your tool.
The best kind of consultative enterprise-type sales is effectively the inverse of that where you’ve done enough research that you’re confident that if this prospect took up your tool and used it, they would get significant benefit. You’re going to get a chunk of that as the sort of price you take for the service, whatever. But I don’t think you should email people unless you are pretty confident that this actually would be a value-add for the company in question.
It doesn’t sound like Chris is getting an awful lot of well-targeted emails. Similarly here, I get a bunch. It seems to be anything on LinkedIn, there is outsourced software, developing firms are notoriously bad at this. They just sort of blast everybody. There’s certainly a much better way to run that than what they’re doing.
Rob: Yeah. I have bought things, I’ve signed up for a couple of SaaS apps that have cold-emailed me over the years. I’ve also hired someone off in essence, an email campaign consultant. But let’s say I’ve done it five times. Each of those times, it was really well-targeted and it was obvious that they knew something and they were presenting something that made sense to me, not like a round of venture funding to an accelerator which is what I got in email this morning about that. We have in my TinySeed address like we have a list of venture capitalists who invest in companies like yours. I’m like really? Are you sure?
Einar: I don’t think you do.
Rob: Nope. That’s targeted. You should see the stuff we get to the podcast email address. It’s probably 10 emails a day, maybe 7 or 8 emails a day. A lot of its guest pitches, but a lot of it’s like SEO stuff like, “Let’s trade links and let’s do an article,” this and that. They’re so badly targeted. You can just tell a mile away if they’re actually a listener because they all act like they’re a listener but you can’t just say, “Hey, I’m a big fan of the show,” because that doesn’t cut it anymore. It’s like you really have to speak the language. All right. Thanks for the question, Chris. Hope that was helpful.
Next question is from Adam […], it’s about how to increase sales. He said, “I let go of my salesperson this week and this was about seven or eight weeks ago, right as the quarantine started. She’s now employed on a commission-only basis. But navigating from here, what would you suggest I do to make sales? It put some ideas like starting a blog. Should I start ads? Should I automate my sales flow as much as possible? It currently requires a demo so we started by opening it up past the demo. Should I just focus on maximizing profitability out of existing customers or give existing customers a significant discount so that there are still customers on the other side of this in my industry?”
Obviously, this is industry-dependent. I think he’s in one of those I have been talking about how it’s about 10% or 15% of companies that have knowledge of taking off because everyone’s working remotely. 10% or 15% are completely getting decimated because they are involved in things that when people are remote, they can’t can’t be done. There’s kind of this middle, let’s say, 70% -ish, 70%–80% that are just floating and just watching. They’re slowing down maybe, but they’re not certainly not cratering and they’re waiting to see what happens on the other side of the quarantine. I think Adam’s company falls within that. He has a lot of ideas here.
Einar: I have some meta thoughts, to be honest with you. Obviously, I think this was asked a month or two, I guess, ago. If they’re US-based, I think it probably was a mistake to let them go because you could have gotten PPP to pay for it.
Rob: I believe he’s in Australia.
Einar: Okay. Well, that’s even better. I actually don’t know about Australia, but in certain places like the UK, there’s Proper Paycheck Protection in the sense that they’re basically effectively paying a percentage of salary to keep them on payroll. That’s my first high-level comment. That’s something to look into. Just firing people willy nilly might not actually be the best move.
The second thing, which I have no idea what this product is, so it’s hard. In terms of his specific idea like a blog, I haven’t really done this. That, to me, sounds like someone who perhaps doesn’t realize how long the process is to build out a significant organic funnel-through a blog. I’ve seen several companies just decide, “Oh, we need to do a blog to get more customers.” They spend three or four months posting a blog post every week, they see zero inbound interest, and then they shut it down.
If it’s a hair on fire like, oh, crap, we’re going down, we just need more customers immediately, starting a blog is not going to do it in time. I think it’s a good thing to do, potentially, by yourself but it’s certainly not something they could just be like, “Oh yeah. I’m going to start blogging and then customers will come strolling through the virtual door.” Focus on ads, I think that’s the more interesting ones.
Obviously, it depends on your industry and whether people are a complete acquisition as it were spending freeze or whether people are potentially still looking in. I’ve actually seen several companies do pretty well right now with ads because they’re cheaper than they used to be, everything is at a discount like Facebook Ads or Google CPC. It can be immediate and they can scale. I actually think now is a pretty unique time to experiment with advertising just because, as you said, they’re at a discount, and if your industry is amenable and still buying then that potentially could work very well and it could scale pretty quickly.
The other stuff, honestly, I don’t know, automates the sales process. Well, that’s good, currently requires a demo. Give existing customers a significant discount so there are still customers on the other side, I wouldn’t volunteer it. People start canceling. I’d reach out and say, “Hey, what’s going on? Are you guys struggling? Do you need a discount? We can help you out.”
Rob: Discount or just deferment, right? “Hey, next three months, you’d have to pay, next two months, or whatever.” It’s scheduling software. I’ve actually talked to him about it before. He’s a super cool, dude. I was trying to remember exactly what it was, but I think it is for a lot of in-person businesses, I think like driving schools or just whatever, anything that needs scheduling and kind of back-office stuff. For him, I would think about deferments.
Einar: Yeah. Particularly, if you can say, if you have an annual plan, say like, “Okay. It’s coming up, you don’t have to renew it. Just renew it now, we won’t charge you for three or four months and it’ll run from a year from then.” Something like that makes sense, I think, because I think there’s a fair amount of industries which are in a position where they know that they’re going to reopen like, yes, summer for all time, hopefully. Part of the stuff they’re doing right now is looking at their processes and things. If you can land them now and like essentially book the revenue for the fall, that’s super helpful coming out of this.
Rob: Yeah, I’ve heard of a few companies. I’ve been watching a few companies do that where they are looking out to September, trying to find folks now, and basically giving them free access until then such that if things do re-open before then, the customer gets some value out of it.
It really depends, Adam. If your leads have completely dried up, is there some ads or some outreach you can do to companies? Like you said, if they’re totally shut down, then what are the owners or the managers doing? Are they thinking about how to improve the processes? Is this the time to potentially pitch that? If you still have leads coming in and your salesperson is on a commission basis and she’s able to handle them, I don’t know that I see a huge issue with that. Thanks for the question, Adam. I hope that was helpful.
Einar Vollset, that’s all the questions we have for today. If folks want to keep up with you, they can head to @einarvollset on Twitter or they can head to tinyseed.com/invest. Is that your contact info now?
Einar: That is my contact info now. It’s the easiest way to get my direct attention.
Rob: Exactly. […] there. You bet he will read that.
Einar: You’ll get a response pretty quickly.
Rob: That’s cool. Thanks for taking the time, man. Appreciate it.
Einar: Sure thing.
Rob: Thanks again to Einar for coming on the show. Hope you enjoyed our conversation. If you have a listener question, we only have about five or six in the queue. Remember, if you record an audio file, send me a Dropbox or a Google Drive link to questions at startupsfortherestofus.com. That will go to the top of the stack. I don’t believe we have any voicemails right now, so literally next Q&A episode, it would get answered. That’s all for this week. Thank you for listening, I’ll see you next time.
Einar: Hello. Good to be here.
Rob: Good to have you back. If you’ve been listening to the show, even for the past few months, Einar has been on several episodes talking about entrepreneurship he has experienced. He went through Y Combinator in 2009, the company he started there was later sold to Google, and he’s been on the sell side of many seven- and eight-figure SaaS acquisitions, so he has expertise. My go-to for Einar is partnerships, business development, sales, outreach like cold-calling, cold-emailing, buying and selling SaaS valuations, pricing. That’s the high level. Anything I missed in there?
Einar: No, I think that’s pretty good. You’re making me sound like Glengarry Glen Ross salesperson but that’s good.
Rob: You’re going to get booed off the stage here at the Startups for the Rest of Us. People are like, “Get that guy.” But here’s the thing. You’re also a developer, so you have the cred with the crowd. You’ve been writing software for a few decades. You have a PhD in computer science which I’m going to let that one slide.
Einar: That’s fair. Absolutely.
Rob: Yeah. When we were hiring at a company I worked at in LA, we would get folks with a PhD in CS to apply for a senior developer position and instantly set off a yellow flag of can this person actually write code? Can they ship code? We had to see if they didn’t have work experience and they had just come out of the Masters or PhD, we’re just a little concerned about it.
Einar: Yeah. I get it. I don’t get so much with Masters and PhD. Actually there is a diminishing return if you start doing a PhD. It’s a problem, actually, for some of the people who were in grad school with me and then later on. They were like, “Yeah, I can’t even get an interview because everyone thinks I’m this non-producing wonk who comes up with opinions all day.” I know the feeling.
Rob: Academia can have that effect. It doesn’t always do that, of course. Hey, if you want to have a conversation with Einar, especially about TinySeed Fund too, just head to tinyseed.com/invest. Fill out that form, he’s on the other end of that. We are starting fundraising for that fund under five or six C.
Einar: That’s right.
Rob: All right. We are going to answer listener questions today. I picked a nice sampling of questions about SaaS and all the stuff that we talk about all the time and think about it. The first question is from Roger. The subject is documenting SaaS for a sale. He says, “I work on the technical side of a SaaS and the owner is interested in selling the company. They asked me to look into documenting the technical side but I have no idea where to start. Do you know of any resources or have any advice?” After listening to this question, let’s flip it and talk about what you should have documented for financial and SaaS metrics type of stuff because I think that’s interesting as well.
Einar: Yeah. I actually think—having done this a number of times—it obviously depends on the complexity of the product that’s being sold. There’s no indication here of what’s going on. But typically, actually quite surprisingly, I think the technical documentation and the sort of technical diligence that gets done in an acquisition is certainly better than what gets done for venture capital investments.
I’ve always been surprised at how light the technical diligence is during an acquisition. Typically, it’s confirmatory because fundamentally, if your business is able to be sold and it’s profitable, it’s growing, it’s doing what it needs to do on the business metrics, then the buyers usually have the assumption that you have your […] together to some degree. They’re like, “Well, it’s not going to be totally fake.”
That being said, certainly during diligence, at least if you’re talking a deal north of (say) $20 million, then there’s likely to be technical diligence and they’ll usually bring in—if it’s a financial sponsor—an external technical team to do the diligence. Sometimes there are firms that specialize just in doing that or they’ll have their internal development team take a look.
I think most developers think of, how am I documenting the code? Can I explain the code of this working? Are we doing best practices as it relates to X, Y, Z inside the code? I find that most of the time actually, what they’re looking for is more high level. Is there a single point of failure in terms of either technically or with a person?
Quite often what ends up happening in the smaller acquisitions is that there’s one guy who knows how a critical piece of this something works. Whatever it is like scheduling, whether it’s how to bring the site up if it goes down. A lot of the time, what they’re trying to ascertain is whether there is redundancy and business continuity in place. They are not in the situation where they buy the company, then it goes down, and it turns out that John, who was the only person who knew how something worked, has been fired, left, or whatever.
It’s usually quite surprising to people the kind of things that get asked. Certainly, they’ll be asking questions like where are you hosting things. Typically, the more standardized the answers are, the better. If you come and say, “Hey, we have this custom rack that runs out of my brother’s apartment and that’s where we’re serving everything in order to save 50¢ on the dollar and hosting cost,” they’re probably not going to be as impressed with that as if they just say, “Oh, yes. Just on AWS. It’s easy to use AWS,” or whatever. They like standard things.
They’ll ask higher-level questions like what are your development procedures? If a feature comes through from a product, how does it get implemented? What is the process by which things go into engineering? They’ll ask questions like what is your testing procedure? What’s your deployment procedure? Usually, it’s actually more higher-level process stuff and people than that is like, explain to me how you’re modularizing your code. They will ask some of those questions.
When I did diligence stuff, I would sometimes say, “Okay. Show me the last 10 pull requests with the code.” That used to freak people out but that level of detail and that low-level detail is actually quite unusual. With the exception of what you’re selling is a very technical, very detailed, technical product where it’s critical that the people understand exactly how your product works. Whereas you’d be surprised a lot of the time for the business people doing acquisitions, it actually doesn’t matter all that much specifically how you’ve written the code as long as they understand there’s a good process in there.
This is something where they could hire more people and it’s not completely loony tunes. If it’s something that’s hosted in your basement on a custom version of Lisp with a database that’s no longer supported, that’s going to be a problem. Even if it’s not a hack on PHP but if it’s PHP hosted on EC2, that’s great. They’re not really going to care that much about specifically which framework or PHP you’re using, or anything like that. That’s my high-level view of it.
I think you’d be surprised at what kind of thing they’re looking for during diligence in this most often process. Do you have that checklist of things in place? Do you have version control? If you’re using open-source software, are you using that according to licensing? Are you publishing things that you need to publish on the GPL? Things like that come up much more often than I think most developers assume. They think that I get into diligence, somebody will come through, they’ll have me like they’ll sit next to me and go through line by line of code and have me explain how it works. I’ve never seen that happen.
Rob: That’s been in line with my experience as well. I’ve been involved on the sell side of a lot fewer deals than you. But still, if I were to put it, personally, it’s two or three that are substantial enough that people wanted to review code, and then I think there were maybe four that I’ve been pulled into by startups that I’ve either invested in on an advisor or whatever. That’s typically advice I give as well as no one cares about your code comments because the people buying it aren’t developers and they don’t need to get into that level of detail of the code.
It’s a lot like I’ve compared it to a real estate investor who buys investment properties, will often buy multiple properties without ever seeing the properties because what they’re looking at are the numbers. If things have been rented for this many years and the maintenance has been X, Y, Z for this many years, they want to make the numbers work. If that happens, they don’t care if the kitchen has been granite, if it’s fake granite, or whatever because they’re not living there.
For better or worse, when a company is spending $10, $20, $30, a hundred million dollars on a product, they’re not buying it for the code quality. Unfortunately, as a developer, that’s not what is driving the price. Unless, as you said, it’s some extremely limited IP where it’s like we built the Google search engine and that’s worth a bunch of money or whatever but that’s not really what I’m looking at. I have a few things I jotted down. Specifically, when we sold Drip. They were really concerned. They asked a lot about any open source stuff that we used.
Einar: Oh, yeah. That happens all the time.
Rob: Yeah. There are certain types of licenses that essentially mean that if you use it, you should open-source all of your code for the entire app. We had been careful about that but you have to prove that there’s nothing in. They sent a consultant out who brought a Raspberry Pi, opened it up out of the package, plugged it. He said, “I’m not going to walk away with any of your code or any devices that plug into any of your machines.” He plugged it into Derek’s laptop into this big scan of the code and then he handed us the Raspberry Pi at the end. He was doing a big scan for patterns of license. I’m assuming that headers are there. Certainly much like a virus scanner, it just picks up a pattern of like, ding, this is a red flag license.
Einar: Absolutely. I think most developer types think that it’s not a big deal to use open source and that’s true, it isn’t. But it’s a big enough liability that typically if you’re selling a software company, you have to warrant that you’re not in violation of open source licenses. Basically, what that means is that if you do that and they get sued, the acquirer gets sued because of GPL violations that you did, they’ll come to you for the money. It’s that serious. If you have very good clarity on like, these are exactly the licenses we’re using. If we’ve made changes, for example with the GPL, then we publish those changes as required by the license. That stuff is important.
Rob: Yeah. The other thing that I’ve seen asked for a lot is not code-related but it’s IP agreements. Do you have an IP assignment agreement from every contractor, every employee, everyone who has ever touched basically anything in your code? That can be a big deal. Backup and recovery is something else that they asked. That’s like you said.
Einar: Disaster, continuity. Yeah.
Rob: Yup. It’s like, how often do you backup? How often do you recover? How do you test your backups? That kind of stuff. That’s something I would include in a technical doc. The original question is what should I document? Technically, it can be a four- or five-page doc plus a network diagram that is kept up today as best you can. It doesn’t have to be some 30-page home. In fact, we didn’t even have a network diagram. When […] was doing due diligence, click-ons flew out with their senior engineer like the head of engineering. He just said, “Walk me through on a whiteboard,” and that was the network diagram. They took a picture of it.
It was like Derek writing things and talking through, this is where there is a single point of failure in the database and blah, blah, blah. That was good enough for them. There was also a level of trust between Clay and I because he and I knew each other. He also knew that, as an engineer working with a co-founder who is an engineer, we would say we have 2½ lines of unit tests for every line of production code, which is pretty good. It implies that these guys probably know what they’re doing, so we were given a little bit of leeway there.
The last thing I’ll say is to document the tools you use. Just high-level languages, what editors you use, obviously, the database—Postgres, MySQL, whatever—version control, we use GitHub on this thing and it’s never been out in public or whatever. It’s just the basics if you think about it. I think both of us, what we’re saying is, it’s very unlikely that anyone will dig deeper than basically the top-level things that we’ve said here.
Einar: I think it’s true. I think the most helpful thing to think about is the documentation isn’t required to be at a level of detail where if you got a fresh developer and gave them the documentation, that was sufficient for him to start developing features on the code. That’s too detailed. The way you should think about it is what does a project manager need to know? What does an engineering manager need to know about the process by which we build software here and roughly how it’s structured? That’s the right level of documentation, at least to start. Inevitably, during the process, during some diligence, there’ll be some further questions, but then they can dig into that. You don’t need to write 100 pages worth of documenting every single thing. I think that’s probably a waste.
Rob: Our next question is from Fabbri. He said, “I bootstrapped the guilt box, a personal and SMB financial software as a side project for a few years. We’ve also developed our own banking data aggregation system for our B2C products. We’ve been approached a few times by companies to provide this service, the banking data aggregation, but haven’t had much bandwidth to also take on the B2B opportunities (obviously, of selling that to other businesses).
Recently, I was offered to provide the aggregation service to another startup. At first, I agreed with the founder on a fee per user and a retainer. Later, he offered me 5% equity, I assume, and in the startup to integrate the aggregation system, plus some additional funds because he wanted more control and a commitment for me. I’m hesitant to accept this since the aggregation system still serves my business and has the potential to serve others. Also, it took a few years of work to get it right for only 5% equity in another startup, but I think it could negotiate that. What are your thoughts on this?”
The subject line is a business partnership or B2B client. He’s kind of trying to decide between those two. It’s a little muddy and we don’t have all the details. I wish we have more info, but do you have thoughts on this about going into a business partnership versus keeping someone at arm’s length as a client?
Einar: Yeah. My gut feeling would be that this 5% equity to get more control and commitment like that, I’d be extremely wary of just because what kind of controls is he talking about? Does this preclude you from doing changes that you want to do? Are you now required to maintain this in a way that fits their business rather than yours? Also, what is the value of 5% of the equity? Now, you have to effectively do due diligence on them to figure out what is the value effectively of what they’re offering you for this.
It almost doesn’t sound like a partnership, it almost sounds more like a joint venture, that proposal. Although, it’s quite vague so it’s hard to tell. But certainly, I’d be very wary of doing the 5% equity piece. This sounds to me more like you have an enterprise-type integration plan, white-label plan, or something like that. It’s easier to do this lighter touch and effectively say, “This is something that you can buy, it’s going to cost a lot of money, or if you’re reselling it, then you have to give us a good chunk of the whatever revenue you’re getting in.”
That’s a much better, at least, starting point than getting to the point where it sounds like this potential partner effectively wants to control how this piece is being built, maybe exclusively get access for themselves. Giving all that away for 5% equity in an unknown startup is not something that I would do without a lot more information. It depends. If the startup is Zoom, sure, but if the startup is some no-name thing I’ve never heard of, then my general view is that I’d be very wary.
Rob: Yeah. I would echo that. Anytime you take a minority stake in a private company that you have no control in, that has no liquidity prospects—
Einar: Are you describing TinySeed, Rob?
Rob: No, of course not. I’m describing a lot of these stock deals. Whenever I hear there was an acquisition, I hear the purchase price, I always want to know how much of that was stock because if it’s stock in a public company, great, good for you. You can sell that in 6 or 18 months. But if it’s a private company, you are basically tying yourself to the fortune of that company for years. You can say I got $20, $30, $40 million in stock in a company that then goes bankrupt, you actually get nothing.
Einar: That’s happened to friends of mine, actually. They sold their startup to a company. This is 2001—got them old—and they were like, “Yeah. I sold my company for $10 million,” and they got $10 million worth of stock in a startup that went to zero. It happens.
Rob: I know. If someone were to approach me about selling my startup and they want to give me an all-stock deal, like you said, it just really depends on the company, their prospects, and where you think they’re going. But almost in all cases, I’d be like, you got to get enough cash that you feel good about this, that if that stock goes to zero, you at least don’t have massive regret around it.
Einar: That’s true for a type of M&A work we do, too. It’s not unusual in a deal that, say, $25 million that the founders are going to ask. Okay, you get some cash, you get some earn-out, you get some maybe owner financing, and then you have to roll a portion of your proceeds into the new company. Usually, the hurdle there, at that point, I always advise people, we need to do some diligence on the acquirer, that they’re not just something that’s going to blow up. That’s worth thinking about.
If that gets on that level, then you shouldn’t just accept 5% to walk away because there are all sorts of things like 5% preferred stock, 5% common stock. Are there any anti-dilution things in place? It agrees for 5% equity. If there’s no anti-dilution, this is common stock. The other guy could just issue another $10 million shares and dilute you down to 0.005% and you have no recourse.
Rob: Yeah. I’m in the same boat. I feel like the B2B client is the first step in an integration. Get to know them and how they are as a customer. It’s like the crawl-walk-run-type thing or that they’re dating before you get married. A B2B partnership, an acquisition, whatever, often those relationships are built over time so that you can see how they operate and learn more about the people involved and the company involved. If that’s helpful, Fabbri.
The next question is from Chris and it’s about email harvesting and spam. He says, “I recently read an article published on Medium. It’s about how to harvest email addresses. In one of the discussions with Bluetick, Mike Taber has talked about warm versus cold emails. Can you guys comment on the practice of sending unsolicited emails these days?
If you get enough spam complaints, won’t Mailchimp, Constant Contact, Infusionsoft, et cetera, shut down your account? I get a reasonable amount of these. If it’s something I have zero interest in, the company sounds cheesy, or I’m certain I did not sign-up but often the spam button. I have two small companies and I understand the need to fill up the funnel but I’m annoyed that someone is taking up my time to click delete.”
Before I toss it over to you, I do want to chime in that is a very big difference. If you scrape emails and get an essence of a cold email list and you put that in MailChimp, Constant Contact, Infusionsoft, Drip or anything, you will get banned. They will block your account because those tools are not designed for cold email. They’re designed for warm email, folks who have opted in to hear from you.
When this thing […], if you harvest emails or God forbid, by an email list, that is where you could go to a tool like Bluetick that uses your own known inbox, your own Gmail inbox or outbox (in this case) to send Yesware, ToutApp—there’s a bunch of them, you probably know more—that’s where those won’t be on you because it’s sending from your email inbox. It’s not like their IPs are impacted. With that, you want to comment on this?
Einar: Sure. I agree. These are definitely not the tools to use, although I’m constantly surprised at how many people are running cold outbound processes using tools like this and don’t realize how close they are to getting their whole account shut down. If they have marketing stuff in there too, that’s problematic.
My view is—this is also in the CAN-SPAM Act—actually sending cold business mail or solicit mail in the business context is not considered spam. Effectively, what’s going on is what’s annoying is not necessarily unsolicited, it is unhelpful email where you’re getting an email and it’s clear that this person knows not only anything about you and has never heard from you before but doesn’t really know what your business is.
To me, I get offended as a sales guy. I think you should do enough research so that you at least have a half a chance to know what kind of a company you’re trying to email. A good example of this actually is, I don’t know if you saw this, but we keep getting emails into the TinySeed account, at least I do, that says, “Hi. Been really excited about what you guys are up to there at TinySeed. Just wanted to let you know that our B2B SaaS accelerator is open for applications and would encourage TinySeed to apply.” I’m like, “You have no idea what TinySeed is. We’re not a B2B SaaS company, we’re effectively your competitor.” That’s generally my view of it.
Sales in general, particularly when it comes to B2B sales, the best stuff is almost like being an outsource consultant for your prospects. You’re effectively trying to figure out how do I reach out to this person or this company where I have figured out that they can add significant value to their bottom line or whatever by using the tool that I’m providing. You can imagine a consultant being hired by the company in question to figure out how to better do X, Y, Zs so that we improve our bottom line and they get paid to go out and pick your tool.
The best kind of consultative enterprise-type sales is effectively the inverse of that where you’ve done enough research that you’re confident that if this prospect took up your tool and used it, they would get significant benefit. You’re going to get a chunk of that as the sort of price you take for the service, whatever. But I don’t think you should email people unless you are pretty confident that this actually would be a value-add for the company in question.
It doesn’t sound like Chris is getting an awful lot of well-targeted emails. Similarly here, I get a bunch. It seems to be anything on LinkedIn, there is outsourced software, developing firms are notoriously bad at this. They just sort of blast everybody. There’s certainly a much better way to run that than what they’re doing.
Rob: Yeah. I have bought things, I’ve signed up for a couple of SaaS apps that have cold-emailed me over the years. I’ve also hired someone off in essence, an email campaign consultant. But let’s say I’ve done it five times. Each of those times, it was really well-targeted and it was obvious that they knew something and they were presenting something that made sense to me, not like a round of venture funding to an accelerator which is what I got in email this morning about that. We have in my TinySeed address like we have a list of venture capitalists who invest in companies like yours. I’m like really? Are you sure?
Einar: I don’t think you do.
Rob: Nope. That’s targeted. You should see the stuff we get to the podcast email address. It’s probably 10 emails a day, maybe 7 or 8 emails a day. A lot of its guest pitches, but a lot of it’s like SEO stuff like, “Let’s trade links and let’s do an article,” this and that. They’re so badly targeted. You can just tell a mile away if they’re actually a listener because they all act like they’re a listener but you can’t just say, “Hey, I’m a big fan of the show,” because that doesn’t cut it anymore. It’s like you really have to speak the language. All right. Thanks for the question, Chris. Hope that was helpful.
Next question is from Adam […], it’s about how to increase sales. He said, “I let go of my salesperson this week and this was about seven or eight weeks ago, right as the quarantine started. She’s now employed on a commission-only basis. But navigating from here, what would you suggest I do to make sales? It put some ideas like starting a blog. Should I start ads? Should I automate my sales flow as much as possible? It currently requires a demo so we started by opening it up past the demo. Should I just focus on maximizing profitability out of existing customers or give existing customers a significant discount so that there are still customers on the other side of this in my industry?”
Obviously, this is industry-dependent. I think he’s in one of those I have been talking about how it’s about 10% or 15% of companies that have knowledge of taking off because everyone’s working remotely. 10% or 15% are completely getting decimated because they are involved in things that when people are remote, they can’t can’t be done. There’s kind of this middle, let’s say, 70% -ish, 70%–80% that are just floating and just watching. They’re slowing down maybe, but they’re not certainly not cratering and they’re waiting to see what happens on the other side of the quarantine. I think Adam’s company falls within that. He has a lot of ideas here.
Einar: I have some meta thoughts, to be honest with you. Obviously, I think this was asked a month or two, I guess, ago. If they’re US-based, I think it probably was a mistake to let them go because you could have gotten PPP to pay for it.
Rob: I believe he’s in Australia.
Einar: Okay. Well, that’s even better. I actually don’t know about Australia, but in certain places like the UK, there’s Proper Paycheck Protection in the sense that they’re basically effectively paying a percentage of salary to keep them on payroll. That’s my first high-level comment. That’s something to look into. Just firing people willy nilly might not actually be the best move.
The second thing, which I have no idea what this product is, so it’s hard. In terms of his specific idea like a blog, I haven’t really done this. That, to me, sounds like someone who perhaps doesn’t realize how long the process is to build out a significant organic funnel-through a blog. I’ve seen several companies just decide, “Oh, we need to do a blog to get more customers.” They spend three or four months posting a blog post every week, they see zero inbound interest, and then they shut it down.
If it’s a hair on fire like, oh, crap, we’re going down, we just need more customers immediately, starting a blog is not going to do it in time. I think it’s a good thing to do, potentially, by yourself but it’s certainly not something they could just be like, “Oh yeah. I’m going to start blogging and then customers will come strolling through the virtual door.” Focus on ads, I think that’s the more interesting ones.
Obviously, it depends on your industry and whether people are a complete acquisition as it were spending freeze or whether people are potentially still looking in. I’ve actually seen several companies do pretty well right now with ads because they’re cheaper than they used to be, everything is at a discount like Facebook Ads or Google CPC. It can be immediate and they can scale. I actually think now is a pretty unique time to experiment with advertising just because, as you said, they’re at a discount, and if your industry is amenable and still buying then that potentially could work very well and it could scale pretty quickly.
The other stuff, honestly, I don’t know, automates the sales process. Well, that’s good, currently requires a demo. Give existing customers a significant discount so there are still customers on the other side, I wouldn’t volunteer it. People start canceling. I’d reach out and say, “Hey, what’s going on? Are you guys struggling? Do you need a discount? We can help you out.”
Rob: Discount or just deferment, right? “Hey, next three months, you’d have to pay, next two months, or whatever.” It’s scheduling software. I’ve actually talked to him about it before. He’s a super cool, dude. I was trying to remember exactly what it was, but I think it is for a lot of in-person businesses, I think like driving schools or just whatever, anything that needs scheduling and kind of back-office stuff. For him, I would think about deferments.
Einar: Yeah. Particularly, if you can say, if you have an annual plan, say like, “Okay. It’s coming up, you don’t have to renew it. Just renew it now, we won’t charge you for three or four months and it’ll run from a year from then.” Something like that makes sense, I think, because I think there’s a fair amount of industries which are in a position where they know that they’re going to reopen like, yes, summer for all time, hopefully. Part of the stuff they’re doing right now is looking at their processes and things. If you can land them now and like essentially book the revenue for the fall, that’s super helpful coming out of this.
Rob: Yeah, I’ve heard of a few companies. I’ve been watching a few companies do that where they are looking out to September, trying to find folks now, and basically giving them free access until then such that if things do re-open before then, the customer gets some value out of it.
It really depends, Adam. If your leads have completely dried up, is there some ads or some outreach you can do to companies? Like you said, if they’re totally shut down, then what are the owners or the managers doing? Are they thinking about how to improve the processes? Is this the time to potentially pitch that? If you still have leads coming in and your salesperson is on a commission basis and she’s able to handle them, I don’t know that I see a huge issue with that. Thanks for the question, Adam. I hope that was helpful.
Einar Vollset, that’s all the questions we have for today. If folks want to keep up with you, they can head to @einarvollset on Twitter or they can head to tinyseed.com/invest. Is that your contact info now?
Einar: That is my contact info now. It’s the easiest way to get my direct attention.
Rob: Exactly. […] there. You bet he will read that.
Einar: You’ll get a response pretty quickly.
Rob: That’s cool. Thanks for taking the time, man. Appreciate it.
Einar: Sure thing.
Rob: Thanks again to Einar for coming on the show. Hope you enjoyed our conversation. If you have a listener question, we only have about five or six in the queue. Remember, if you record an audio file, send me a Dropbox or a Google Drive link to questions at startupsfortherestofus.com. That will go to the top of the stack. I don’t believe we have any voicemails right now, so literally next Q&A episode, it would get answered. That’s all for this week. Thank you for listening, I’ll see you next time.
Episode 496 | “The Press Covers Exceptions, Don’t Compare Yourself to Slack or Zoom”
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This interview was recorded several months ago, but is still relevant despite the pandemic. Colin Nederkoorn, the co-founder of customer.io has taken a unique approach to building their company. Customer.io does marketing automation for the entire customer lifecycle. They have raised funding, but not traditional venture money, and they’ve run it more like a self-funded SaaS. Colin and his cofounder John left their jobs with no savings, and they set out to build an analytics tool. Their story is powerful because of their unconventional approach and ability to persevere through hard times.
The finer points of the episode:
- 4:05 – The customer.io founder journey
- 5:23 – Their approach to selecting investors
- 7:01 – Reflecting on how Colin and John bootstrapped a SaaS app after leaving their jobs with no savings
- 8:02 – Why they pivoted from an analytics company to selling marketing solutions
- 13:15 – Finding the balance between innovation vs following the best practices
- 18:37 – How customer.io became a remote company, and the advantages/disadvantages of building a remote team
- 22:05 – What customer.io is doing to support the bootstrapping startup community (and why they care about bootstrappers)
- 24:30 – Marketing approaches that customer.io used in the earlier days
- 31:55 – The highs and lows of building customer.io
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. As always, I am your host, Rob Walling. Thanks for joining me this week. Thanks to everyone who reached out about last episode 495 where I went solo. I got more positive feedback about that episode than I have in six, eight, nine months. I appreciate folks reaching out. Let me know what I’m doing right and let me know what constructively could be doing a bit better.
In this episode, I air an interview that I did months ago. It was certainly pre-pandemic and it may even have been before the end of last year. While there are no mentions of COVID or Coronavirus in the interview, I think there are so many lessons learned from the journey of this founder, Colin, the co-founder of Customer.io. Customer.io has taken such a unique approach to thinking about how to build their business, the way that they got it started, and the way that they didn’t go down the venture track but also didn’t straight bootstrap. They were one of the first companies that I had ever heard doing that.
Before we dive into that conversation, if you haven’t heard of helpfounders.com, you can head there. It’s a collaboration between a bunch of podcasts that are intended to help Bootstrap founders and folks who may be impacted by COVID or maybe it’s just an effort to give back, so different podcasts. A lot of us in the bootstrapping space offered up just a couple ad slots but really it’s just more of here’s this company. Here’s what they do just to make the Startups for the Rest of Us listenership aware. This is all voluntary. It’s a non-paid sponsorship. It’s really to give back to the community.
The company I want to talk about this week is called Hugo. It’s at hugo.team. According to the founder Darren Chait, he says Hugo is centralized, searchable meeting notes that connect with tools such as Zoom, Slack, Zendesk, and HubSpot. It’s free for up to 40 users. The target market is SaaS companies of all sizes including brands you already know such as Atlassian, Shopify, and Spotify. They were a good addition to the other work-from-home tools that are growing in popularity. If that sounds interesting, head over to hugo.team.
With that, I hope you enjoy my conversation with the co-founder of Customer.io, Colin Nederkoorn.
Today with me on the show, I have Mr. Colin Nederkoorn from Customer.io. Colin, thank you so much for joining me.
Colin: Hey, Rob, great to be here.
Rob: I’m actually pretty surprised that we haven’t had you on the show before now because you’ve just been in this bootstrapper/ these days, I’m calling it an indie-funded space where folks are raising small rounds but they want to keep control of their company. They want to stay independent. I really feel like you were one of the first, if not the first companies, to do that. I think we have some really good stuff to dive into today.
Colin: Thanks. It’s interesting because I’ve never felt like I belonged in any community, but certainly I share more values with the bootstrapper community than I do with the ‘venture-funded grow at all costs’ community. I guess there’s that great quote from Groucho Marx. I forget what the quote is.
Rob: He says, “I would never be a member of a club that would have me.” That makes sense. As I’ve watched you, certainly, you want to build a real product for real customers who pay you real money, which is something I often say on the show. That is much more in line with this non-venture track startup software.
For folks who haven’t heard of Customer.io, you guys effectively built out and launched over the course of 2012. You really had your public launch in 2013. According to your website right now, your HTML title tag is marketing automation for the whole customer lifecycle. Your headline is, “With Customer.io, you can send targeted emails, push notifications, and SMS to low return, create stronger relationships, and drive subscriptions.” I know you started off doing a lot of emails but now you’re in push in SMS.
In 2012, you guys designed your first logo. As we know what’s important in SaaS is not building a product and selling it to people. It’s designing a logo and printing business cards in 2012. I want to ask you a question about that in a second. I want to get to the timeline so folks can keep it in their head.
April Fool’s Day of 2012, you guys had your first full-time days working on this. You quit salary jobs with no runway, five customers paying you $10 a month, no savings and no income, which we’ll get into in a second. This is great. You can’t make this stuff up. You wind up raising about $225,000 from friends and family later that year. As I said, you launched January 2013 with between $5000 and $10,000 MRR. That’s when you raised a seed round.
You extended that friends and family around to $750,000. You’ve never taken truly venture money, institutional money. It’s been more from people who are willing to just support your vision of building a profitable company not go Unicorn, go IPO, or go home type of thing.
Colin: I think that’s pretty true. I don’t know if I could say that we articulated that well in the early days. I don’t know that we had those values but I don’t know that we self-selected investors based on that alignment. I imagine some of our investors, the other investments that they made either have died or are really big companies now.
Rob: Has that caused you any issues in terms of investors who did want you to go Unicorn? Some investors don’t want a profitable business or they don’t want whatever at $10, $30, $50 million exits. They only want Unicorns.
Colin: Not really. We have about 40 people on the cap table which our lawyer always tells us that’s a lot of people on the cap table. Anytime we need to get people to sign documents, it’s a big headache to get everyone to sign. What that’s meant is that for the people who are investing in a lot of high growth startups, we’re not in the front of their minds. Early on, we got a lot of help from people, but now we don’t hear from them too much. They have a big pile of money. They make a lot of investments. We’re just one of them.
Rob: Today, you have more than 1400 paying customers, 57 remote employees. You mentioned you have a small office in Portland with about five people but effectively a remote-first company. You told me offline that you have been public with revenue recently, that you guys are doing $11.5 million ARR, and that you grew 32% last year.
I wanted everyone to have the context as we go into this conversation to hear about your journey, truly bootstrapping this in 2012, to then raising a small amount of funding to get you to profitability, to help with growth, but never taking the massive plunge that a lot of folks do. I’m curious. You and your co-founder John left your jobs without savings, without income, expecting to be able to make this work. How did that come about? These days that would be an anti-pattern because we know SaaS takes forever. What was your thinking back then?
Colin: I can’t even understand why we did that. It just doesn’t make any sense reflecting back on it. Our milestone that we wanted to hit to go full time was 5 companies paying us $10 a month. How you get from there to full-time salaries is a pretty big leap. I think we just knew that we had to do it and then we’d figure it out. We’d do some consulting or we’d start doing services for companies and be able to charge more. But if we didn’t take the leap, then we wouldn’t be in the ocean. We’d still be on the beach and we’d still be trying to figure out how to take the leap. By throwing ourselves way into deep water, it forced us to figure out how to survive and what we needed to do to realize the business.
Rob: You set out to build an analytics platform. What caused you to alter that course and instead go after email?
Colin: We decided in January that we wanted to build the company. I think in the very early days, we spent some time talking with prospective customers. This was right around the time of Lean Startup, Eric Reis’s transformative book. We spent a lot of time going out and talking to people who we thought would be good customers. What we learned was this is what people felt. I still don’t know how true this is but people felt like they had tons of different analytics tools that help them understand their business. The struggles that they were having were they could see what was going wrong but they couldn’t influence it.
We heard that a few different times. We thought to ourselves with that analytics data, we can make something happen. We can send an email. If we’re embedded into a website or mobile app, we actually know what happens after someone clicks on the email and they go back to the app. We can build this amazing circle or we can close the loop (essentially) and show people the impact of the emails that they’re sending in influencing someone’s behavior in your product. That seemed really compelling. When we started talking to people about that, they wanted that because it actually moved their business, whereas giving them another analytics dashboard didn’t.
Rob: Customer is one of the first tools, if not the first that I ever heard of, where the data that you use to send emails could come from inside a SaaS app, a mobile app I believe you focused on. At that time the ESPs that I was using that were popular were Mailchimp and AWeber. I’d vaguely heard of Infusionsoft. There was Constant Contact but those were just marketing places. They were purely about email blasts which are totally not personal, not behavioral, not anything. Customer was the first one where I thought it’s a very clever use. I love how you guys came about that by saying we’re going to use analytics to power email rather than send emails in order to get some type of click-throughs or whatever.
Colin: I think that we were coming from a venture-funded startup. Interestingly, after we heard this from the people doing customer development, we looked back at our company and said, “Oh, wait, that’s the problem here too. Our marketing person wants to send emails in Mailchimp but she asks the engineering team, “Can you please export a list of people who have done this but not that.” Then, there were all of these transactional messages that were in the code of the application that that same marketing person would want to tweak the language in and we would have to put a ticket. I think we were doing Kanban boards at this point. We would write up a notecard. As the head of product and the head of engineering, my co-founder and I would always deprioritize that no card because it wasn’t that interesting to us.
Customer.io, when we thought about it, if you had the data, you could send that newsletter without having to ask engineers to export anything. If you pull the content out of the code of the application, you could make changes to your transactional emails and all of your trigger-based emails without having to ask an engineer to do anything. It was all about strengthening the relationship between your engineering team and your marketing folks, product, or whoever was responsible for talking to customers.
Rob: That makes a lot of sense but it was a big leap. There are obviously a lot of tools that do it today but we’re talking effectively eight years ago that you were working on this. I have one question for you about designing the logo and getting business cards. Did you ever use those business cards because I chuckle these days. I think I printed some on the move for one conference that I went to or something. Was that something you look back on and you were like, why did we do that so early?
Colin: I think when you start a company, it just doesn’t feel real. I think people print business cards and they make a logo because somehow that makes it more real to them. When you tell someone I’ve started a company and you hand them a business card and it has a logo, maybe that convinces them that you’re real, too.
I think it’s just a lack of confidence in a company actually coming out of the other end of this process. People want to start with business cards and so we did as well. We were going to meetups and other things like that like going to social events where you’re like, “Hey, we started a company.” “Oh, cool. What does it do?” “It does A, B, and C. Here’s my business card. Contact me.” It’s so silly but I think it’s like a playing company. It’s part of the package of the playing company. I don’t have business cards now.
Rob: I was going to ask. Do you still have business cards? No. None of us do. Unless you’re literally in person with people at conventions and you don’t want to do the exchange of your conferences, events, or whatever. You don’t want to do that type this into your phone type of thing. There’s just not a ton of reason to do it these days.
I read through several interviews that you’ve done over the years. I like to do that to prepare for these interviews. There’s something you said and one of them struck me. It’s something I wanted to dig into. You said, “So much of what people consider conventional has never felt right to me and our company.” Could you expand on that and maybe talk about one or two conventional things that you guys don’t do or maybe some unconventional things that you do at Customer.io?
Colin: I think there’s really a balance here. There are things that you want to innovate on and there are things that you should try to find best practices for. The things that felt wrong to me was certainly venture scaling a company didn’t feel right to me. Typically, what I would see is most venture-funded startups fail for one. The approach that I would see founders take when they were scaling a company with venture money was that it was really undisciplined and they were just spending cash all over the place. But at the end of the day, it didn’t matter because they would end up crashing the company and landing a job, working as an investor, as an entrepreneur in residence, or whatever, something like that.
It just bugs me that essentially irresponsible behavior can end up with a positive outcome for people but that’s how that world works. I didn’t feel like I wanted to participate in that. Trying to straddle the line between bootstrapping a company and raising money is something that I never felt like we wanted to do either of those things, the conventional way that people do those things.
We’ve explored things like how to organize the company and how to run the company. Holacracy is something that people have experimented with. That somewhere where maybe at this time we want to explore things like that, but I’ve realized that that’s not a place you want to be innovative and challenge the norm. Unless your company is all about how companies work, you should probably not challenge the norm there and just use the tried and true methods that have worked over the years.
Certainly on stuff like running a remote company, we faced a lot of skepticism from early customers. Our now CMO once told me that he worked at a publicly-traded company back then and he had to go to bat for us internally to say that we’re actually a legitimate business because we made this choice to build a remote company and we didn’t have physical office places.
There’s a bunch of decisions like that. I think I’m a contrarian by nature. I typically feel like an outsider and I like being an outsider. I like the challenge that that creates for people. For me personally, I think the struggle is important. Feeling like an outsider means that it’s never the easy path when you look at technology companies.
I imagine a lot of bootstrappers feel like outsiders in technology but the happy path is you go to Stanford because you come from legacy or something like that. You have a legacy into Stanford. You graduate from Stanford. Maybe you work in consulting or you join a startup. Maybe you go to an investor and work at an investor for a while or you work in Google or Facebook. Out of your experience at Google and Facebook, you can go and raise a really big round of funding. None of those things felt right to me or particularly accessible to me. I resist all of it because I see how it works on the happy path if that makes sense.
Rob: That makes sense. I think that’s where the bootstrapper is in that indie-funded path. I think why it has so much traction is that most of us are outsiders. Most of us don’t go to Stanford. Most of us don’t know a venture capitalist who lives down the street from us. Most of us don’t grow up in the Bay Area. I think there’s a real appeal to having a path where you don’t need to know someone to break into it, where it feels like this, where you are an outsider that you can’t break through those doors. What you and John did is you didn’t go the bootstrap route and you didn’t go to that funded route. You pick the third path that so few had gone down at that point.
Now, there are more companies. There’s EDBC now that is effectively funding companies to become profitable. There’s a Tiny Seed Accelerator I run that is funding companies with the option to become profitable. Even though I’ve done about a dozen angel investments on my own, half of those are in essentially fund-strapped companies. Part of the Startups for the Rest of Us’ drinking game is when I say fund strapping. I always say it’s a term coined by Colin from Customer.io. It’s always the same thing. People have given me crap about it because they’re like why do you say that every time? It was this really novel concept back then. I can imagine that trying to stay away from dogma is almost what it sounds like. You didn’t want to go down the dogma of the VC nor the dogma of bootstrap necessarily. We’re thinking, is there another path.
I think remote is another big thing that in 2012–2013 (as you’re saying), people wouldn’t take you seriously if you didn’t have an office. Was that a decision from the start like this is just what we’re going to do? Have you ever regretted that? I’ve had remote companies. I’ve had a non-remote. I’ve had half remote companies. I know the value of being in an office with someone. Talk to me through that.
Colin: It’s hard. There are many things which are harder when you’re a remote company. We didn’t set out to be remote but we knew the value of deep work at that point. When it was just two of us, we were sitting next to each other, communicating with each other in a campfire chat, because I knew that if I had an idea and I wanted to share that idea with John but he was deep in work, I could just type it in the chat. He would ignore it, continue doing what he was doing, and he’d get back to me later. We definitely knew the value of deep work. We set up to support asynchronous and remote really early on.
We chose to do remote out of necessity because I couldn’t see a path forward building the company in New York City, trying to find the people that we needed and be able to attract them at the salaries we needed to pay to compete against other venture-funded startups in New York City, the investment banks, and all of the people who could pay way more than we could. We had to find a thing that we could offer that none of those people could offer.
To me the value of working for Customer.io as a developer or anyone on the team is you get to do the type of work that you would do if you were in San Francisco or New York, except you can be anywhere. Let’s say you get a co-located job in Cincinnati, Ohio, chances are the engineering problems you’re going to be working on there are not that interesting but we have really interesting engineering problems. That appeals to the flexibility of the work. The interest of the work is what was exciting to me and what was our competitive advantage, essentially, to hire quality people wherever they were in the world.
Rob: That’s the promise and the beauty of hiring remote. You don’t have to pay Berry or New York salaries. You can hire in whatever, the Midwest, the South, in the middle of nowhere, in Washington. You’re able to pay to give someone a higher standard of living without them having to have a long commute.
Colin: We couldn’t afford New York and San Francisco salaries out of necessity at that point, but it was never the goal to spend less on salaries. One of the things that we do now, we increase salaries as soon as we could, 2014–2015, we pay market rates now. We benchmark to the US national average. I think it’s the 75th percentile of the US national average for all of our roles. One of the things we’re still figuring out is how to make adjustments against that for international. My philosophy on this is that if you live in a less expensive place, I want to share in that benefit with you, the benefit of a cheaper cost of living. If you live in a more expensive place, we’ll share in the cost as well, but we won’t fully adjust the salary for that more expensive place.
Rob: I think I want to ask one question. There’s so much to talk about because you’ve been doing this for eight years. There are a lot of aspects of the customer that I think are interesting to listeners. You had mentioned to me offline before we started that Customer.io is not necessarily ideal for bootstrappers as customers because of the pricing. It’s $150 a month to get started. You guys want to fix that. You would prefer to help bootstrappers out. Do you want to talk a little bit about what you want to offer folks who are listening today?
Colin: I personally think it’s a little unfair that there are all these offers and opportunities out there for venture-funded startups. AWS has credits you can get and all of the companies out there do that. I want to find a way for us to better give back to that community and better support the bootstrapper community.
I think as we talked about earlier, we started at $10 a month. Over time, we raised our prices. One of the things that we found by raising our prices is a lower churn because if you have a really low price point, many people will sign up but also many people will churn. We were pulled by our customers to make the product more and more sophisticated. Because of that, if you’re one person working on a company, the investment required to use Customer.io effectively is probably beyond what you want to do.
The sophistication in Customer.io is probably beyond what you want to do, but I think that not every bootstrapped company is really looking to be a solopreneur company in the long run. I think for those companies that want to grow, expand their team, and are looking for a high growth rate, we want Customer.io as a product to be accessible to those people so that they get the value that the companies that pay us thousands or $2000 a month. All of that sophistication, they get that available to them on day one of their company.
I think you shouldn’t have to use crappy tools, basically. We think Customer.io is a really amazing, flexible tool. We want more people to have access to it but it takes investment. If you’re a solopreneur, you probably don’t want to do the investment required to get the value out of Customer.io. We’re exploring this right now. If this sounds interesting to you after checking out Customer.io, if you go to customer.io/bootstrapper that will give you a little more information. We want to have a conversation with you and figure out how to give you an offer that really helps you get started in the product.
Rob: Circling back, I want to look at some marketing approaches that you guys used in the early days and how you got traction. Obviously, this whole journey is hard but I think you and I both know that the first three months, six months, nine months are really trying because you don’t know if you’ve built anything people want. People are giving you all different kinds of feedback. People are telling you you’re too expensive, you don’t have the features, whatever, and you’d have this fragile idea. You’ve been working on this for eight years, $11.5 million ARR now, much less fragile. In the early days, you’ve talked about Twitter actually being an early sales channel and that your word-of-mouth was very strong. Can you talk about how that came about, why that worked, and what worked at the time?
Colin: There were a couple of things that happened in the early days for us. One, this area that we were focused on became a pretty hot space for conversation in tech in general. I think this guy, Paul Stamatiou, wrote a blog post about User Retention as a Service. People were just talking about this in general.
What I would do before we had a product to sell, I would see people talking about the problems we were trying to solve on Twitter, I would reach out to them, and I would say, hey, I want to understand this better. Can we talk? I don’t have anything to sell you but we’re working on this problem. That was a way to gather information to figure out if we were building the right thing.
What I found is under the guise of not selling something, trick people into having a conversation with you but really you’re trying to sell them something. That’s happened to me a couple of times as CEO. It’s really annoying but we were genuinely not able to sell someone anything. That made for really useful conversations with future prospective customers.
I think at that time Rand Fishkin was talking about this problem. He introduced me to people on his team at Moz who were working on it. We did a customer development call. They never became a customer but I learned really useful information from that. It’s pretty typical. We had a signup page where people could register their interest. We would send people to that page and we’re getting a decent number of signups there.
The other thing that happened at this time is I think Patrick McKenzie introduced me to this guy Ramit Sethi. Ramit runs I Will Teach You To Be Rich. He agreed to meet us for coffee. He asked what we were doing to build an audience and communicate with people as we were building the audience. I said we’re collecting all these email addresses. In six months when we launch, we’re going to email them to let them know.
I don’t know if these are his exact words but it was something along the lines of you guys are idiots. You got to talk to the people whose email addresses that you’re collecting because in six months when you email them, they’re not going to remember you. Figure out how you can provide value for them in the meantime. They signed up for something. Give them what you can now that will help build your audience, then they’ll at least remember you when you launch the thing that you want to sell them. That was hugely valuable advice.
One of the things that we were able to do—I don’t know how easy or possible it is to do today, because there’s just so much content marketing out there—we built our newsletter list, we started writing about email copywriting like trigger messages, and had a pretty good following of early-stage companies and CEOs of startups basically, one- to five-person startups primarily. That really helped us in the early days. Over time, I wasn’t able to keep myself motivated to continue to write content and do content marketing. That fell off a little bit, but fortunately, we’ve built a bunch of evergreen content and still have a lot of inbound today. That’s really how the word-of-mouth engine got kicked off.
Rob: That makes sense. That really has become a playbook. It was emerging during that time. I’ll say 2011–2013, 2014 content marketing playbook. It sounds like you and your team by this point executed really well on the product, but you also got maybe a little lucky in terms of hitting this thing at an inflection point with targeted messaging event-based behavioral stuff. I think that’s something that I’ve been talking about. We’re really thinking about this concept of what do I think the keys to success are. I think there are just three things. I think it’s this simple. I think it’s skill, hard work, and luck. It’s a combination of those three. One plus one plus one equals success.
At varying times, if you have a lot more luck, you may need less skill and experience if you get lucky to hit it. If you don’t have a lot of luck and you want to just purely do something you can repeat over and over without having to make a billion-dollar bet, then you need skill/experience and a lot of adding. You need a lot of hard work. It sounds like you had a little of all of them because I’m just going to assume in knowing what I know about you that you guys work your asses off. The hard work was there and you had development skills for sure. It sounds as I just said, you get a little lucky with that thing, but it sounds like you’ve executed very well on that vision is an addition.
Colin: The way I think about luck is that it’s not evenly distributed. You can’t just go anywhere into any market. There’s some luck that you can tap into. There are some areas and there are some products that you could build today where you’d be extremely lucky relative to other products.
I think we were really fortunate in the space that we picked. We had a lot of interest at that time. We had a lot of competitors at that time but it was really nascent. We were able to build a very immature product and get some traction. Now, there’s a much larger moat where the expectations of what our product needs to do on day one are much higher.
When we had five customers paying us $10 a month, the reason we were limiting how many customers we could service and the way that all that stuff worked was my co-founder would write a MapReduce script behind the scenes when someone would set up a campaign. They would write in plain English what they wanted the campaign to do. We would manually look at the data that they were sending in to figure out if it was possible. If it was possible, we’d write a manual like MapReduce query to find the right people to match the campaign.
You could not launch a product today with that approach. Nobody would take you seriously. I think our experience working in tech helped us know that that was an interesting space to go after. Our luck in picking that space has helped us a lot to become successful and really just the luck of who we met along the way.
Rob: There’s always a little bit of that in all these stories especially when it’s folks like us coming from the outside who didn’t have some in this space. I’m curious. What’s the high point of building a customer? What’s a moment you can think over here like this is amazing, I love what I’m doing here, and I’m euphoric at this moment?
Colin: I don’t have a moment where everything was so amazing like I’m sitting there with a glass of champagne, I’m looking at some company dashboard, takes over, and then all of a sudden, I drink the champagne and feel just like pure joy. I don’t have that. Basically, every time one of the people on our team has a child, every time someone buys a house, every time one of our customers is really happy with us and gives us the feedback that our support was amazing or they were able to accomplish something in their job that they hadn’t been able to accomplish before, it’s those micro-moments that make me feel a great degree of satisfaction just deep inside. It’s not revenue-driven. It’s what having this company and what having this product allows us to do and allows the people touched by it to do in their lives that create the lasting feeling of success, if you can even call it that, but really just satisfaction.
Rob: How about on the flip side? What’s been the hardest part?
Colin: There have been moments, knock on wood can’t really happen to us anymore, but we made some decisions early on technology choices. I think in 2015, we had an outage that lasted 24 hours. Basically what had happened was we were using this database technology called FoundationDB. It was acquired by Apple. Apple would not let FoundationDB renew any service contracts and they took the product off the market. We were in production with this thing with no migration path. The service went down. We were hosting the database ourselves but our database went down. We couldn’t recover it and we couldn’t get any help.
I thought that was it. I thought we were going to have to call our customers and say, sorry but we can’t get your data back. We can’t bring the service up. You’re gonna have to take emergency action to migrate away from Customer.io. That’s the lowest point I’ve personally experienced in the company. If you can imagine as a business how you could fail your customers in the most dramatic way, that is it. If service goes down all of a sudden and there’s no recovery, no migration path, no time, that’s it.
Rob: That is devastating. My palms are literally sweaty thinking about it because we never had outages that long but I know exactly. I’ve been in your shoes. How did you get out of this? Don’t leave us hanging. How did you figure it out?
Colin: My co-founder was trying a bunch of things. I think we had someone else on the engineering team or maybe a couple more people on the engineering team who were helping him with this. We’re just trying things, trying to figure out how to recover the database. One of the key aspects of this is this was a distributed data store. There were lots of machines essentially running one underlying database.
The big problem with that is one, it wasn’t necessary for the type of business that we had. Customer data doesn’t relate to any other customer data. There was no need to have a big distributed data store to run our business. Basically there was one single point of failure again. The idea of these things is that a server can go down and the database will stay up but the problem is you still have this single point of failure. When a server goes down, there’s data that needs to get moved around and it overwhelms the network.
We receive a ton of data all the time from our customers sending us data. That made it even harder to recover. It got bad enough that on Twitter I was like, “Hey, we really need some help. If anyone knows anyone who worked at FoundationDB, please can you connect us?” I reached out on LinkedIn to a bunch of people who had worked at that company and were now working in Apple. Some people responded to us. I think we got some help from one or two people there.
We were ultimately able to recover this whole time. As soon as the acquisition happened, we were immediately trying to figure out how to migrate away but it was too much data. We couldn’t do it fast enough, but we ended up getting things back up and running and had to really massage that database every single day to keep it running while we created a migration path.
Rob: Wow. These are the kinds of stories that don’t make it to the front page of TechCrunch. It’s the growth curve of Slack and Zoom that you’ve mentioned offline, how Zoom goes public, Uber and all this, but how many people are talking about the realities of what it feels like to grow up.
Colin, we’re coming up on time. If folks want to hear more about you, they can go to @alphacolin on Twitter. Thanks so much for joining me.
Colin: Thanks, Rob.
Rob: Thanks again to Colin for coming on the show. As we wrap up, I have a couple of emails that came in that I just wanted to mention here before I take us out. I got an email from Adam. He was responding to episode 479 where we talked quite a bit about marketplaces. I think there may have been a question about who’s talking about building marketplaces. He says that they have a podcast that covers building their marketplace called Menyu. The podcast covers their bootstrapping journey. If that sounds interesting to you, check that out.
The other email I received was from Justin. He said, “I just wanted to say thank you. Your show has been invaluable to me and my co-founders over the years. We’ve built a tool. We’re revamping and launching in a few months, but everything from figuring out what LTV for our customers will be to evaluate whether a free model could work for us. You shed insight on a lot of issues we’re going through. I hope we can buy you a beer sometime in appreciation.” Thanks for that, Justin. I really appreciate that. Justin is with forekast.com.
If you have feedback or questions for the show, you can do what Justin did and email questions@startupsfortherestofus.com. I read every email that comes into that inbox.
If you haven’t left us a five-star review in whatever podcast app that you listen to, I’d really appreciate it. We’re in Spotify, Downcast, Overcast, iTunes, and all the Apple podcasts. We’re in all the places. Every five-star review that you leave puts a big smile on my face. It also helps keep me motivated to keep doing the show and it helps us to find new listeners. Thanks for tuning in this week. I’ll see you next time.
In this episode, I air an interview that I did months ago. It was certainly pre-pandemic and it may even have been before the end of last year. While there are no mentions of COVID or Coronavirus in the interview, I think there are so many lessons learned from the journey of this founder, Colin, the co-founder of Customer.io. Customer.io has taken such a unique approach to thinking about how to build their business, the way that they got it started, and the way that they didn’t go down the venture track but also didn’t straight bootstrap. They were one of the first companies that I had ever heard doing that.
Before we dive into that conversation, if you haven’t heard of helpfounders.com, you can head there. It’s a collaboration between a bunch of podcasts that are intended to help Bootstrap founders and folks who may be impacted by COVID or maybe it’s just an effort to give back, so different podcasts. A lot of us in the bootstrapping space offered up just a couple ad slots but really it’s just more of here’s this company. Here’s what they do just to make the Startups for the Rest of Us listenership aware. This is all voluntary. It’s a non-paid sponsorship. It’s really to give back to the community.
The company I want to talk about this week is called Hugo. It’s at hugo.team. According to the founder Darren Chait, he says Hugo is centralized, searchable meeting notes that connect with tools such as Zoom, Slack, Zendesk, and HubSpot. It’s free for up to 40 users. The target market is SaaS companies of all sizes including brands you already know such as Atlassian, Shopify, and Spotify. They were a good addition to the other work-from-home tools that are growing in popularity. If that sounds interesting, head over to hugo.team.
With that, I hope you enjoy my conversation with the co-founder of Customer.io, Colin Nederkoorn.
Today with me on the show, I have Mr. Colin Nederkoorn from Customer.io. Colin, thank you so much for joining me.
Colin: Hey, Rob, great to be here.
Rob: I’m actually pretty surprised that we haven’t had you on the show before now because you’ve just been in this bootstrapper/ these days, I’m calling it an indie-funded space where folks are raising small rounds but they want to keep control of their company. They want to stay independent. I really feel like you were one of the first, if not the first companies, to do that. I think we have some really good stuff to dive into today.
Colin: Thanks. It’s interesting because I’ve never felt like I belonged in any community, but certainly I share more values with the bootstrapper community than I do with the ‘venture-funded grow at all costs’ community. I guess there’s that great quote from Groucho Marx. I forget what the quote is.
Rob: He says, “I would never be a member of a club that would have me.” That makes sense. As I’ve watched you, certainly, you want to build a real product for real customers who pay you real money, which is something I often say on the show. That is much more in line with this non-venture track startup software.
For folks who haven’t heard of Customer.io, you guys effectively built out and launched over the course of 2012. You really had your public launch in 2013. According to your website right now, your HTML title tag is marketing automation for the whole customer lifecycle. Your headline is, “With Customer.io, you can send targeted emails, push notifications, and SMS to low return, create stronger relationships, and drive subscriptions.” I know you started off doing a lot of emails but now you’re in push in SMS.
In 2012, you guys designed your first logo. As we know what’s important in SaaS is not building a product and selling it to people. It’s designing a logo and printing business cards in 2012. I want to ask you a question about that in a second. I want to get to the timeline so folks can keep it in their head.
April Fool’s Day of 2012, you guys had your first full-time days working on this. You quit salary jobs with no runway, five customers paying you $10 a month, no savings and no income, which we’ll get into in a second. This is great. You can’t make this stuff up. You wind up raising about $225,000 from friends and family later that year. As I said, you launched January 2013 with between $5000 and $10,000 MRR. That’s when you raised a seed round.
You extended that friends and family around to $750,000. You’ve never taken truly venture money, institutional money. It’s been more from people who are willing to just support your vision of building a profitable company not go Unicorn, go IPO, or go home type of thing.
Colin: I think that’s pretty true. I don’t know if I could say that we articulated that well in the early days. I don’t know that we had those values but I don’t know that we self-selected investors based on that alignment. I imagine some of our investors, the other investments that they made either have died or are really big companies now.
Rob: Has that caused you any issues in terms of investors who did want you to go Unicorn? Some investors don’t want a profitable business or they don’t want whatever at $10, $30, $50 million exits. They only want Unicorns.
Colin: Not really. We have about 40 people on the cap table which our lawyer always tells us that’s a lot of people on the cap table. Anytime we need to get people to sign documents, it’s a big headache to get everyone to sign. What that’s meant is that for the people who are investing in a lot of high growth startups, we’re not in the front of their minds. Early on, we got a lot of help from people, but now we don’t hear from them too much. They have a big pile of money. They make a lot of investments. We’re just one of them.
Rob: Today, you have more than 1400 paying customers, 57 remote employees. You mentioned you have a small office in Portland with about five people but effectively a remote-first company. You told me offline that you have been public with revenue recently, that you guys are doing $11.5 million ARR, and that you grew 32% last year.
I wanted everyone to have the context as we go into this conversation to hear about your journey, truly bootstrapping this in 2012, to then raising a small amount of funding to get you to profitability, to help with growth, but never taking the massive plunge that a lot of folks do. I’m curious. You and your co-founder John left your jobs without savings, without income, expecting to be able to make this work. How did that come about? These days that would be an anti-pattern because we know SaaS takes forever. What was your thinking back then?
Colin: I can’t even understand why we did that. It just doesn’t make any sense reflecting back on it. Our milestone that we wanted to hit to go full time was 5 companies paying us $10 a month. How you get from there to full-time salaries is a pretty big leap. I think we just knew that we had to do it and then we’d figure it out. We’d do some consulting or we’d start doing services for companies and be able to charge more. But if we didn’t take the leap, then we wouldn’t be in the ocean. We’d still be on the beach and we’d still be trying to figure out how to take the leap. By throwing ourselves way into deep water, it forced us to figure out how to survive and what we needed to do to realize the business.
Rob: You set out to build an analytics platform. What caused you to alter that course and instead go after email?
Colin: We decided in January that we wanted to build the company. I think in the very early days, we spent some time talking with prospective customers. This was right around the time of Lean Startup, Eric Reis’s transformative book. We spent a lot of time going out and talking to people who we thought would be good customers. What we learned was this is what people felt. I still don’t know how true this is but people felt like they had tons of different analytics tools that help them understand their business. The struggles that they were having were they could see what was going wrong but they couldn’t influence it.
We heard that a few different times. We thought to ourselves with that analytics data, we can make something happen. We can send an email. If we’re embedded into a website or mobile app, we actually know what happens after someone clicks on the email and they go back to the app. We can build this amazing circle or we can close the loop (essentially) and show people the impact of the emails that they’re sending in influencing someone’s behavior in your product. That seemed really compelling. When we started talking to people about that, they wanted that because it actually moved their business, whereas giving them another analytics dashboard didn’t.
Rob: Customer is one of the first tools, if not the first that I ever heard of, where the data that you use to send emails could come from inside a SaaS app, a mobile app I believe you focused on. At that time the ESPs that I was using that were popular were Mailchimp and AWeber. I’d vaguely heard of Infusionsoft. There was Constant Contact but those were just marketing places. They were purely about email blasts which are totally not personal, not behavioral, not anything. Customer was the first one where I thought it’s a very clever use. I love how you guys came about that by saying we’re going to use analytics to power email rather than send emails in order to get some type of click-throughs or whatever.
Colin: I think that we were coming from a venture-funded startup. Interestingly, after we heard this from the people doing customer development, we looked back at our company and said, “Oh, wait, that’s the problem here too. Our marketing person wants to send emails in Mailchimp but she asks the engineering team, “Can you please export a list of people who have done this but not that.” Then, there were all of these transactional messages that were in the code of the application that that same marketing person would want to tweak the language in and we would have to put a ticket. I think we were doing Kanban boards at this point. We would write up a notecard. As the head of product and the head of engineering, my co-founder and I would always deprioritize that no card because it wasn’t that interesting to us.
Customer.io, when we thought about it, if you had the data, you could send that newsletter without having to ask engineers to export anything. If you pull the content out of the code of the application, you could make changes to your transactional emails and all of your trigger-based emails without having to ask an engineer to do anything. It was all about strengthening the relationship between your engineering team and your marketing folks, product, or whoever was responsible for talking to customers.
Rob: That makes a lot of sense but it was a big leap. There are obviously a lot of tools that do it today but we’re talking effectively eight years ago that you were working on this. I have one question for you about designing the logo and getting business cards. Did you ever use those business cards because I chuckle these days. I think I printed some on the move for one conference that I went to or something. Was that something you look back on and you were like, why did we do that so early?
Colin: I think when you start a company, it just doesn’t feel real. I think people print business cards and they make a logo because somehow that makes it more real to them. When you tell someone I’ve started a company and you hand them a business card and it has a logo, maybe that convinces them that you’re real, too.
I think it’s just a lack of confidence in a company actually coming out of the other end of this process. People want to start with business cards and so we did as well. We were going to meetups and other things like that like going to social events where you’re like, “Hey, we started a company.” “Oh, cool. What does it do?” “It does A, B, and C. Here’s my business card. Contact me.” It’s so silly but I think it’s like a playing company. It’s part of the package of the playing company. I don’t have business cards now.
Rob: I was going to ask. Do you still have business cards? No. None of us do. Unless you’re literally in person with people at conventions and you don’t want to do the exchange of your conferences, events, or whatever. You don’t want to do that type this into your phone type of thing. There’s just not a ton of reason to do it these days.
I read through several interviews that you’ve done over the years. I like to do that to prepare for these interviews. There’s something you said and one of them struck me. It’s something I wanted to dig into. You said, “So much of what people consider conventional has never felt right to me and our company.” Could you expand on that and maybe talk about one or two conventional things that you guys don’t do or maybe some unconventional things that you do at Customer.io?
Colin: I think there’s really a balance here. There are things that you want to innovate on and there are things that you should try to find best practices for. The things that felt wrong to me was certainly venture scaling a company didn’t feel right to me. Typically, what I would see is most venture-funded startups fail for one. The approach that I would see founders take when they were scaling a company with venture money was that it was really undisciplined and they were just spending cash all over the place. But at the end of the day, it didn’t matter because they would end up crashing the company and landing a job, working as an investor, as an entrepreneur in residence, or whatever, something like that.
It just bugs me that essentially irresponsible behavior can end up with a positive outcome for people but that’s how that world works. I didn’t feel like I wanted to participate in that. Trying to straddle the line between bootstrapping a company and raising money is something that I never felt like we wanted to do either of those things, the conventional way that people do those things.
We’ve explored things like how to organize the company and how to run the company. Holacracy is something that people have experimented with. That somewhere where maybe at this time we want to explore things like that, but I’ve realized that that’s not a place you want to be innovative and challenge the norm. Unless your company is all about how companies work, you should probably not challenge the norm there and just use the tried and true methods that have worked over the years.
Certainly on stuff like running a remote company, we faced a lot of skepticism from early customers. Our now CMO once told me that he worked at a publicly-traded company back then and he had to go to bat for us internally to say that we’re actually a legitimate business because we made this choice to build a remote company and we didn’t have physical office places.
There’s a bunch of decisions like that. I think I’m a contrarian by nature. I typically feel like an outsider and I like being an outsider. I like the challenge that that creates for people. For me personally, I think the struggle is important. Feeling like an outsider means that it’s never the easy path when you look at technology companies.
I imagine a lot of bootstrappers feel like outsiders in technology but the happy path is you go to Stanford because you come from legacy or something like that. You have a legacy into Stanford. You graduate from Stanford. Maybe you work in consulting or you join a startup. Maybe you go to an investor and work at an investor for a while or you work in Google or Facebook. Out of your experience at Google and Facebook, you can go and raise a really big round of funding. None of those things felt right to me or particularly accessible to me. I resist all of it because I see how it works on the happy path if that makes sense.
Rob: That makes sense. I think that’s where the bootstrapper is in that indie-funded path. I think why it has so much traction is that most of us are outsiders. Most of us don’t go to Stanford. Most of us don’t know a venture capitalist who lives down the street from us. Most of us don’t grow up in the Bay Area. I think there’s a real appeal to having a path where you don’t need to know someone to break into it, where it feels like this, where you are an outsider that you can’t break through those doors. What you and John did is you didn’t go the bootstrap route and you didn’t go to that funded route. You pick the third path that so few had gone down at that point.
Now, there are more companies. There’s EDBC now that is effectively funding companies to become profitable. There’s a Tiny Seed Accelerator I run that is funding companies with the option to become profitable. Even though I’ve done about a dozen angel investments on my own, half of those are in essentially fund-strapped companies. Part of the Startups for the Rest of Us’ drinking game is when I say fund strapping. I always say it’s a term coined by Colin from Customer.io. It’s always the same thing. People have given me crap about it because they’re like why do you say that every time? It was this really novel concept back then. I can imagine that trying to stay away from dogma is almost what it sounds like. You didn’t want to go down the dogma of the VC nor the dogma of bootstrap necessarily. We’re thinking, is there another path.
I think remote is another big thing that in 2012–2013 (as you’re saying), people wouldn’t take you seriously if you didn’t have an office. Was that a decision from the start like this is just what we’re going to do? Have you ever regretted that? I’ve had remote companies. I’ve had a non-remote. I’ve had half remote companies. I know the value of being in an office with someone. Talk to me through that.
Colin: It’s hard. There are many things which are harder when you’re a remote company. We didn’t set out to be remote but we knew the value of deep work at that point. When it was just two of us, we were sitting next to each other, communicating with each other in a campfire chat, because I knew that if I had an idea and I wanted to share that idea with John but he was deep in work, I could just type it in the chat. He would ignore it, continue doing what he was doing, and he’d get back to me later. We definitely knew the value of deep work. We set up to support asynchronous and remote really early on.
We chose to do remote out of necessity because I couldn’t see a path forward building the company in New York City, trying to find the people that we needed and be able to attract them at the salaries we needed to pay to compete against other venture-funded startups in New York City, the investment banks, and all of the people who could pay way more than we could. We had to find a thing that we could offer that none of those people could offer.
To me the value of working for Customer.io as a developer or anyone on the team is you get to do the type of work that you would do if you were in San Francisco or New York, except you can be anywhere. Let’s say you get a co-located job in Cincinnati, Ohio, chances are the engineering problems you’re going to be working on there are not that interesting but we have really interesting engineering problems. That appeals to the flexibility of the work. The interest of the work is what was exciting to me and what was our competitive advantage, essentially, to hire quality people wherever they were in the world.
Rob: That’s the promise and the beauty of hiring remote. You don’t have to pay Berry or New York salaries. You can hire in whatever, the Midwest, the South, in the middle of nowhere, in Washington. You’re able to pay to give someone a higher standard of living without them having to have a long commute.
Colin: We couldn’t afford New York and San Francisco salaries out of necessity at that point, but it was never the goal to spend less on salaries. One of the things that we do now, we increase salaries as soon as we could, 2014–2015, we pay market rates now. We benchmark to the US national average. I think it’s the 75th percentile of the US national average for all of our roles. One of the things we’re still figuring out is how to make adjustments against that for international. My philosophy on this is that if you live in a less expensive place, I want to share in that benefit with you, the benefit of a cheaper cost of living. If you live in a more expensive place, we’ll share in the cost as well, but we won’t fully adjust the salary for that more expensive place.
Rob: I think I want to ask one question. There’s so much to talk about because you’ve been doing this for eight years. There are a lot of aspects of the customer that I think are interesting to listeners. You had mentioned to me offline before we started that Customer.io is not necessarily ideal for bootstrappers as customers because of the pricing. It’s $150 a month to get started. You guys want to fix that. You would prefer to help bootstrappers out. Do you want to talk a little bit about what you want to offer folks who are listening today?
Colin: I personally think it’s a little unfair that there are all these offers and opportunities out there for venture-funded startups. AWS has credits you can get and all of the companies out there do that. I want to find a way for us to better give back to that community and better support the bootstrapper community.
I think as we talked about earlier, we started at $10 a month. Over time, we raised our prices. One of the things that we found by raising our prices is a lower churn because if you have a really low price point, many people will sign up but also many people will churn. We were pulled by our customers to make the product more and more sophisticated. Because of that, if you’re one person working on a company, the investment required to use Customer.io effectively is probably beyond what you want to do.
The sophistication in Customer.io is probably beyond what you want to do, but I think that not every bootstrapped company is really looking to be a solopreneur company in the long run. I think for those companies that want to grow, expand their team, and are looking for a high growth rate, we want Customer.io as a product to be accessible to those people so that they get the value that the companies that pay us thousands or $2000 a month. All of that sophistication, they get that available to them on day one of their company.
I think you shouldn’t have to use crappy tools, basically. We think Customer.io is a really amazing, flexible tool. We want more people to have access to it but it takes investment. If you’re a solopreneur, you probably don’t want to do the investment required to get the value out of Customer.io. We’re exploring this right now. If this sounds interesting to you after checking out Customer.io, if you go to customer.io/bootstrapper that will give you a little more information. We want to have a conversation with you and figure out how to give you an offer that really helps you get started in the product.
Rob: Circling back, I want to look at some marketing approaches that you guys used in the early days and how you got traction. Obviously, this whole journey is hard but I think you and I both know that the first three months, six months, nine months are really trying because you don’t know if you’ve built anything people want. People are giving you all different kinds of feedback. People are telling you you’re too expensive, you don’t have the features, whatever, and you’d have this fragile idea. You’ve been working on this for eight years, $11.5 million ARR now, much less fragile. In the early days, you’ve talked about Twitter actually being an early sales channel and that your word-of-mouth was very strong. Can you talk about how that came about, why that worked, and what worked at the time?
Colin: There were a couple of things that happened in the early days for us. One, this area that we were focused on became a pretty hot space for conversation in tech in general. I think this guy, Paul Stamatiou, wrote a blog post about User Retention as a Service. People were just talking about this in general.
What I would do before we had a product to sell, I would see people talking about the problems we were trying to solve on Twitter, I would reach out to them, and I would say, hey, I want to understand this better. Can we talk? I don’t have anything to sell you but we’re working on this problem. That was a way to gather information to figure out if we were building the right thing.
What I found is under the guise of not selling something, trick people into having a conversation with you but really you’re trying to sell them something. That’s happened to me a couple of times as CEO. It’s really annoying but we were genuinely not able to sell someone anything. That made for really useful conversations with future prospective customers.
I think at that time Rand Fishkin was talking about this problem. He introduced me to people on his team at Moz who were working on it. We did a customer development call. They never became a customer but I learned really useful information from that. It’s pretty typical. We had a signup page where people could register their interest. We would send people to that page and we’re getting a decent number of signups there.
The other thing that happened at this time is I think Patrick McKenzie introduced me to this guy Ramit Sethi. Ramit runs I Will Teach You To Be Rich. He agreed to meet us for coffee. He asked what we were doing to build an audience and communicate with people as we were building the audience. I said we’re collecting all these email addresses. In six months when we launch, we’re going to email them to let them know.
I don’t know if these are his exact words but it was something along the lines of you guys are idiots. You got to talk to the people whose email addresses that you’re collecting because in six months when you email them, they’re not going to remember you. Figure out how you can provide value for them in the meantime. They signed up for something. Give them what you can now that will help build your audience, then they’ll at least remember you when you launch the thing that you want to sell them. That was hugely valuable advice.
One of the things that we were able to do—I don’t know how easy or possible it is to do today, because there’s just so much content marketing out there—we built our newsletter list, we started writing about email copywriting like trigger messages, and had a pretty good following of early-stage companies and CEOs of startups basically, one- to five-person startups primarily. That really helped us in the early days. Over time, I wasn’t able to keep myself motivated to continue to write content and do content marketing. That fell off a little bit, but fortunately, we’ve built a bunch of evergreen content and still have a lot of inbound today. That’s really how the word-of-mouth engine got kicked off.
Rob: That makes sense. That really has become a playbook. It was emerging during that time. I’ll say 2011–2013, 2014 content marketing playbook. It sounds like you and your team by this point executed really well on the product, but you also got maybe a little lucky in terms of hitting this thing at an inflection point with targeted messaging event-based behavioral stuff. I think that’s something that I’ve been talking about. We’re really thinking about this concept of what do I think the keys to success are. I think there are just three things. I think it’s this simple. I think it’s skill, hard work, and luck. It’s a combination of those three. One plus one plus one equals success.
At varying times, if you have a lot more luck, you may need less skill and experience if you get lucky to hit it. If you don’t have a lot of luck and you want to just purely do something you can repeat over and over without having to make a billion-dollar bet, then you need skill/experience and a lot of adding. You need a lot of hard work. It sounds like you had a little of all of them because I’m just going to assume in knowing what I know about you that you guys work your asses off. The hard work was there and you had development skills for sure. It sounds as I just said, you get a little lucky with that thing, but it sounds like you’ve executed very well on that vision is an addition.
Colin: The way I think about luck is that it’s not evenly distributed. You can’t just go anywhere into any market. There’s some luck that you can tap into. There are some areas and there are some products that you could build today where you’d be extremely lucky relative to other products.
I think we were really fortunate in the space that we picked. We had a lot of interest at that time. We had a lot of competitors at that time but it was really nascent. We were able to build a very immature product and get some traction. Now, there’s a much larger moat where the expectations of what our product needs to do on day one are much higher.
When we had five customers paying us $10 a month, the reason we were limiting how many customers we could service and the way that all that stuff worked was my co-founder would write a MapReduce script behind the scenes when someone would set up a campaign. They would write in plain English what they wanted the campaign to do. We would manually look at the data that they were sending in to figure out if it was possible. If it was possible, we’d write a manual like MapReduce query to find the right people to match the campaign.
You could not launch a product today with that approach. Nobody would take you seriously. I think our experience working in tech helped us know that that was an interesting space to go after. Our luck in picking that space has helped us a lot to become successful and really just the luck of who we met along the way.
Rob: There’s always a little bit of that in all these stories especially when it’s folks like us coming from the outside who didn’t have some in this space. I’m curious. What’s the high point of building a customer? What’s a moment you can think over here like this is amazing, I love what I’m doing here, and I’m euphoric at this moment?
Colin: I don’t have a moment where everything was so amazing like I’m sitting there with a glass of champagne, I’m looking at some company dashboard, takes over, and then all of a sudden, I drink the champagne and feel just like pure joy. I don’t have that. Basically, every time one of the people on our team has a child, every time someone buys a house, every time one of our customers is really happy with us and gives us the feedback that our support was amazing or they were able to accomplish something in their job that they hadn’t been able to accomplish before, it’s those micro-moments that make me feel a great degree of satisfaction just deep inside. It’s not revenue-driven. It’s what having this company and what having this product allows us to do and allows the people touched by it to do in their lives that create the lasting feeling of success, if you can even call it that, but really just satisfaction.
Rob: How about on the flip side? What’s been the hardest part?
Colin: There have been moments, knock on wood can’t really happen to us anymore, but we made some decisions early on technology choices. I think in 2015, we had an outage that lasted 24 hours. Basically what had happened was we were using this database technology called FoundationDB. It was acquired by Apple. Apple would not let FoundationDB renew any service contracts and they took the product off the market. We were in production with this thing with no migration path. The service went down. We were hosting the database ourselves but our database went down. We couldn’t recover it and we couldn’t get any help.
I thought that was it. I thought we were going to have to call our customers and say, sorry but we can’t get your data back. We can’t bring the service up. You’re gonna have to take emergency action to migrate away from Customer.io. That’s the lowest point I’ve personally experienced in the company. If you can imagine as a business how you could fail your customers in the most dramatic way, that is it. If service goes down all of a sudden and there’s no recovery, no migration path, no time, that’s it.
Rob: That is devastating. My palms are literally sweaty thinking about it because we never had outages that long but I know exactly. I’ve been in your shoes. How did you get out of this? Don’t leave us hanging. How did you figure it out?
Colin: My co-founder was trying a bunch of things. I think we had someone else on the engineering team or maybe a couple more people on the engineering team who were helping him with this. We’re just trying things, trying to figure out how to recover the database. One of the key aspects of this is this was a distributed data store. There were lots of machines essentially running one underlying database.
The big problem with that is one, it wasn’t necessary for the type of business that we had. Customer data doesn’t relate to any other customer data. There was no need to have a big distributed data store to run our business. Basically there was one single point of failure again. The idea of these things is that a server can go down and the database will stay up but the problem is you still have this single point of failure. When a server goes down, there’s data that needs to get moved around and it overwhelms the network.
We receive a ton of data all the time from our customers sending us data. That made it even harder to recover. It got bad enough that on Twitter I was like, “Hey, we really need some help. If anyone knows anyone who worked at FoundationDB, please can you connect us?” I reached out on LinkedIn to a bunch of people who had worked at that company and were now working in Apple. Some people responded to us. I think we got some help from one or two people there.
We were ultimately able to recover this whole time. As soon as the acquisition happened, we were immediately trying to figure out how to migrate away but it was too much data. We couldn’t do it fast enough, but we ended up getting things back up and running and had to really massage that database every single day to keep it running while we created a migration path.
Rob: Wow. These are the kinds of stories that don’t make it to the front page of TechCrunch. It’s the growth curve of Slack and Zoom that you’ve mentioned offline, how Zoom goes public, Uber and all this, but how many people are talking about the realities of what it feels like to grow up.
Colin, we’re coming up on time. If folks want to hear more about you, they can go to @alphacolin on Twitter. Thanks so much for joining me.
Colin: Thanks, Rob.
Rob: Thanks again to Colin for coming on the show. As we wrap up, I have a couple of emails that came in that I just wanted to mention here before I take us out. I got an email from Adam. He was responding to episode 479 where we talked quite a bit about marketplaces. I think there may have been a question about who’s talking about building marketplaces. He says that they have a podcast that covers building their marketplace called Menyu. The podcast covers their bootstrapping journey. If that sounds interesting to you, check that out.
The other email I received was from Justin. He said, “I just wanted to say thank you. Your show has been invaluable to me and my co-founders over the years. We’ve built a tool. We’re revamping and launching in a few months, but everything from figuring out what LTV for our customers will be to evaluate whether a free model could work for us. You shed insight on a lot of issues we’re going through. I hope we can buy you a beer sometime in appreciation.” Thanks for that, Justin. I really appreciate that. Justin is with forekast.com.
If you have feedback or questions for the show, you can do what Justin did and email questions@startupsfortherestofus.com. I read every email that comes into that inbox.
If you haven’t left us a five-star review in whatever podcast app that you listen to, I’d really appreciate it. We’re in Spotify, Downcast, Overcast, iTunes, and all the Apple podcasts. We’re in all the places. Every five-star review that you leave puts a big smile on my face. It also helps keep me motivated to keep doing the show and it helps us to find new listeners. Thanks for tuning in this week. I’ll see you next time.
Episode 495 | Advice, Competition, Marketing, and Managing Developers (A Rob Solo Adventure)
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Today, Rob flies solo to talk about 7 different things that he has learned in his 20 years of entrepreneurship. He also offers some feedback about what he is seeing in the startup communities today, advice on how to deal with competition, marketing tips, and how to build a team of developers.
The finer points of the episode:
- 2:35 – Be careful about over-generalizing from one win
- 3:33 – The three things you need in order to succeed in building a startup
- 8:10 – How to handle feedback you get on your product
- 12:48 – Rob’s personal experience and opinion on dealing with competition in the startup space
- 15:35 – Why word-of-mouth is not the right answer for where your leads are coming from
- 18:40 – The real reason why some startups are “transparent”
- 21:05 – Advice on how to build a team of developers
Items mentioned in this episode:
Welcome to this week’s episode of Startups for the Rest of Us. As always I’m your host, Rob Walling. Every week on this show I get on the mic, I often have a guest or sometimes do an entire round table of guests. Today, I’m flying solo and I do this two, maybe three times a year when I either have trouble finding a guest or I find that I have stuff on my mind that I’ve been thinking about and developing a framework for, and I just want to get it out there in a way that I don’t have time to spend four, six, eight hours trying to blog post.
I think it’s more substantive and perhaps will reach more people in a deep fashion than posting it into Twitter. Today’s episode is going to be walking through seven different, I would almost call them advice but it’s more like these are things that I’ve learned in my 20 years of entrepreneurship and some things that are going on in the world today that I feel like I have commentary on.
When I say in the world, I don’t mean COVID-19. I mean more in our startup communities. I’m going to be talking about advice and feedback, a little bit about how to give a little bit, a little bit about taking it, and we’re going to be talking about competition and some specific experiences I’ve had around it. Talk a little bit about some marketing stuff and it’s not going to be high-level, this is how you market. It’s just some specific advice and mistakes. I think antipatterns in ways that I think people have been thinking about marketing as well as managing developers.
This all revolves around sometimes just one, but often it’s 5, 10, 20 conversations that I’ve had with colleagues, founders, or aspiring founders. When I start hearing the same thing over and over and I realize that I’m thinking about this in a different way than perhaps the early stage founder or just someone who hasn’t been in our space for a long time. I just like to bring these things up and talk them through.
One thing I want to say before I start is that it’s such a trip. Probably once a month I get an email that says, “I’ve been listening to your podcast for years and I had bought Start Small, Stay Small years ago. I had no idea that you were the same Rob.” Every couple of months, I’m going to say that I wrote Start Small, Stay Small. If you’ve read the book, thanks. I appreciate it, but just to clear the air so that you know that I’m one the same. I wanted to do that.
Let’s dive in. I have three things that I wanted to say about advice and feedback. The first one is something that I think has always happened, but it definitely has gotten more and more prevalent in the startup space. The more people that are just online and doing social stuff trying to build personal brands. I just want to ask if you are a founder who has had some modicum of success, please be really careful about overgeneralizing from one win.
I think of it the first time you launch a product and you have some success, suddenly you feel like you know exactly how to launch a product and that your experience applies to every product everywhere for all eternity. I’ve seen folks grow an app to 10,000, 30,000, 50,000 a month with no employees and they typically admit that they got pretty lucky. They found a niche that happened to grow, they rode a wave, or maybe they didn’t. Maybe they really just worked hard and it took them five, six, seven years to get there.
But then, going out and giving advice on this is how to start a startup and this is how everyone should do it is really dangerous. I had this mental model and I brought it up in the podcast in the past about the three things that you need to succeed in (let’s say) building a startup. One is hard work, the second is luck, and the third is skill.
You might have these in varying degrees. If you have tremendous skill in marketing, or tremendous skill in building an audience or building a network, or tremendous skill on choosing niches and building a great product, you may need less luck and I personally always think you should put hard work in because that’s the one you control the easiest in the short term is to work hard. I don’t mean 90-hour weeks, of course. If you listen to this podcast, you know that my entire entrepreneurial career, I’ve worked 40 hours a week or less except for some very short stints where I did work 60 hours a week for 6 weeks at a time, 8 weeks at a time to get some hard stuff done.
Hard work and focus (I think) is table stakes in my opinion, although if you are really lucky, I do know a founder who happened to be at the right place at the right time and just stumbled into a hobby, became something that was really popular. He got really lucky and sold the company for tens of millions of dollars. He didn’t actually work that hard. Self admittedly, he never really worked that hard but he did have the skill to build a team and he did really get lucky in the right place at the right time so it’s totally possible.
Then of course, there are folks who don’t get lucky at all. They just put tons of hard work and they build skills, and it takes them five or ten years to get where someone who got lucky maybe would have gotten to in one year. Those three things I think make up the building blocks, but to build a SaaS app or any company to $3000, $4000, $5000, $6000 is hard. Typically, you need to put in some hard work. Typically, you probably need a little bit of luck although not at that scale. I do think that to get to tens of millions or hundreds of millions, that you do need all these things to fall into place.
Oftentimes, after your first one, you just don’t know. You don’t know what made it work. You think you do, but after your second one, your third one, your fourth one, you start to see the patterns. I’ve grown seven businesses to at least six figures in revenue. Seven six-figured businesses I’ve created in the past of about 15 years. Actually, some of those weren’t six; they were at least six. There are few that are seven figures. Seven six- and seven-figured businesses is probably a better way to put it.
After the first one, I really did think that I’d do it all and it’s such a natural thing to want to go out and tell everyone about. When I did the second one, I realized nope. The things that I thought made it successful, some of them were right but about half of them were wrong, and when I go back and read writings that I did 10 years ago, it’s a little painful for me. I think most folks are not doing this intentionally. I think it’s a natural human desire to want to teach and I think it’s a natural human desire to want to talk about how you have the right answers.
Just consider this, most people giving advice are doing it to build a personal brand so they can sell you a book, or a course, or they’re even some investors who do that, and a lot of Silicon Valley folks like the venture capitalist would blog in order to get followers and then people will say they know what they’re doing. But really consider a question that I often ask myself when I see a new expert or a new name come on the scene. I typically ask myself have they done it at least twice? Obviously there are exemptions.
Jeff Bezos has not built two Amazons. The Collison brothers, actually I think they did have a startup before Stripe that was successful. Most founders I know really who know their stuff, they have done multiple. I look at Eaton Shaw, Jason Cohen, David Cancel, Dan Martell, people who have done it two, three, four, five times and there’s definitely a learned experience and definitely a different communication of their learnings as they get further along.
That’s the big question I ask myself. If someone is giving advice, I think, have they done it at least twice or three times that they can start seeing patterns. I also ask, are they giving advice on something that they really are expert in? Because again if you grow an app to $30,000 a month then you’re working on your own, that is so different than building a team, building a startup, and knowing how to build a team culture, knowing how to hire people, knowing how to cross a million dollars in ARR, knowing how to cross $2, $3, $4 million. It becomes such a different experience.
As I’ve watched founders who I’ve invested in or I’ve worked with or just known through MicroConf in this podcast. Each step you’re learning a lot and overtime I think that you’re really building that corpus and that wisdom so to speak so that you can share with others. I’ll stop there on the advice and I want to switch to this topic of feedback.
What I mean here is if you’re building a product, you’re trying to build something that people want, maybe you do have product/market fit, and things are growing. There’s always going to be someone who wants to give you feedback about your product, who doesn’t tend to know what they’re talking about but thinks they do. It’s often hard to tell. So, the thing that I have started doing because when we were growing Drip and frankly every business I’ve ever grown has this whether it’s a MicroConf, TinySeed, Drip, HitTail, or stuff that I grew before, someone wants to give you feedback.
In the early days when someone gave me feedback, I thought they must be an expert because I don’t give feedback to someone unless I feel like I really know what I’m talking about. Other people don’t necessarily have that bar. I would get an email when we were running Drip and we’re literally doing millions of dollars in revenue. Someone would say you really need to change this font color, change this button, or this tab in the interface. Just these really small things that are nitpicks and frankly are not going to change the business. They’re not going to change the business. The UX was really good and really solid. Could you find one pixel out of place? Of course you could. Does that change the business? Should we be focused on that?
It comes from people who I think are not entrepreneurs. They’re not founders. They’re not thinking about the business. They’re thinking about their particular expertise. That’s where it has gotten to a point where I really need someone to have some type of credentials before I listen to them and I don’t mean academic credentials, but when someone emails me out of the blue, if it’s Eaton Shaw, Ruben Gomez, Brennan Dunn, or Jordan Gal in the email and saying, “Hey, there’s something in your product I think you should fix,” I’m going to listen to it because they’re a founder. They are product-focused people who know how to build a good product and their feedback is very likely coming from a place of I’m trying to help you build a better product versus feedback coming from someone I don’t know and when I go to look at them, either they are not a UX designer at all and they just have an opinion or they are a developer and designer and they’re trying to sell me their services.
I just don’t know their motivation and frankly making changes that random people on the internet suggest about your writing, your product, your podcast, your blog, or your conference, it’s dangerous. Now taking it in aggregate, of course, is great. If you fear the same thing from all the people especially if you have thousands of customers, when you start hearing the same thing you have to look for patterns, yes you should do that. I’m not saying don’t listen to anyone. I’m saying be wary of the individual who feels like they are so confident in their advice, but how do you know if they know anything? And oftentimes they don’t.
This is different than someone coming in your app and saying, “Hey, I’m confused by this. I’m confused by this onboarding. I don’t know what to do here.” That’s bad. You don’t want people to be confused. It’s different than someone sending you a screencast and saying, “You really need to change this,” because it’s always like that’s your opinion. That’s your opinion and one person has said this and since I have 3000 customers, I’m going to go with my opinion on this one and not chase down a rabbit hole. That’s number two. That’s be wary of product feedback from people without credentials.
Third thing is something that Sarah Hatter said. Sarah Hatter runs CoSupport and she said on a MicroConf talk once and it resonated with me, was years ago, probably five or six years ago now, and keeping on the topic of advice and feedback, this is the last piece of this. She said, “Don’t take business advice from people who have crappy personal lives.” Let that sink in. A lot of people who give business advice have crappy personal lives. Oftentimes you don’t know, but if you do know, it’s a really interesting thing to think about how someone treats people and I’ve added this to the end.
“Don’t take business advice from people who have crappy personal lives,” and my addition is, “or who treat people in a way you don’t want to treat people.” The reason I’ve added that is because from what I’ve seen, you can be successful in business and treat people right or you can be successful in business and treat people like […].
If you don’t want to do the latter, then don’t take advice from people who do because I do think that it’s a contributing factor to their success. If you try to replicate their success with their advice, but you treat people right, you treat them fairly and you’re nice to them, I think there’s just a disconnect there. I’m not sure that advice is going to translate into what you think it’s going to do.
Let’s move on from advice and feedback to talk about competition. This is an interesting one. Again, this is one that has happened to me several times. I think three maybe more and it’s happened over the course of 15 years. I’ve been an entrepreneur for 20 although I was a consultant early on and really started building products 2003, 2004 and started. I think about 15-17 years is really my entrepreneurial career, but I’ve had three people say almost this exact sentence to me over the course of this time and I want you to hear it.
The sentence is, “There’s plenty of room in the market for all of us.” The first time I heard it, it was from someone who had essentially seen that I was having success in a space and proceeded to copy what I was doing in a way that was really obviously a copy. As we talked about it, the person said, “There’s plenty of market for all of us,” with a smile and a pat on the back because they didn’t want to make an enemy.
The first time I was like, “Oh yeah. No, that’s a really good point,” then I watched him replicate pieces of our positioning, a bunch of features, start to try to take our customers, and just on and on. The second time I heard it, I knew what it was. It was years later and I knew exactly it was someone trying not to make me mad and trying to be friendly with a competitor but that they were going to screw me again. They’re going to backstab me, but I didn’t say anything. The third time I called someone on it and I said, “I’m not sure that that’s the case,” and it really put this person on their heels because they didn’t expect that. But it’s just a fascinating sentiment.
I do believe that markets are big and the free market is fine, but don’t sit there and look me in the eye and tell me that we’re buds, that we’re friends, right before you stab me in the back. If you feel like you have this conversation and someone ever tells you, “Hey, there’s plenty of market for both of us,” just expect them to start drafting off you if they’re not already. What will be interesting is that you’ll be able to tell their next three moves by looking at the last three moves that you made. It becomes painfully, painfully obvious with folks like this who are copying you.
I’m not saying don’t worry about competition. I do think that you should focus on your customers and your audience, but I do think that competition, especially people like this who try to act like that they’re not competing with you but they are effectively ripping off what you’re doing, sometimes even the same naming, I do think it’s something that can be upsetting, to be honest. Frankly, when I talk to people who do have competition who are basically copying them—you’re the innovator, you spend time to do it, you prove it out, and then someone just starts copying it piece by piece—it’s frustrating on a personal level.
There’s something about it as a maker having someone replicate it and typically they claim that it’s their own and claim that they came up with it. That’s the frustrating part. Just be wary of that when you’re in a space and someone tells you that there’s plenty of market for all of us.
Next, I want to talk a little bit about marketing. I have two thoughts here. I’ve heard entrepreneurs who launch a business, business growing relatively well, and when I ask them where your leads or where you’re new customers are coming from, they say word-of-mouth. When I dig into that, the real answer is I don’t know where they’re coming from. So if you don’t know, don’t say word-of-mouth. Say you don’t know or find out because I think it’s really dangerous not to know where your customers are coming from.
I bought a business at one point where the founder told me that customers come from word-of-mouth. I said, “Why is that?” and she said, “It keeps going up to the right. It’s growing slowly,” but in Google it just says direct traffic and it turns out it’s not word-of-mouth. There were a number of factors. I’m going to point to a number of things that would be really hard to track.
You can go on podcast and mention the URL. You can talk from the stage. Someone could read about it in a book. They could read about it in a newspaper or magazine. They can have their referral being cleared out when they click through. They can be on a different device than when they originally heard about it. It could be a returning visit. There are just all these things that can lead to you not knowing where they’re coming from and you’re not going to be able to attribute 100%. You can’t do it.
But having an idea and frankly asking customers tends to be the best way. Asking where they first heard about you or where they heard about you right before they signed up for first touch and last touch attribution, and then of course looking at Google Analytics or whatever analytics you use, these are all good approaches. But the right answer to where my customers are coming from is almost never word-of-mouth.
Word-of-mouth is a component. I remember with Drip, word-of-mouth as far as we could measure it was 15%, 20%, 25% depending on how you measure it. Word-of-mouth is when someone else mentions me on a podcast or is that podcast marketing, it’d be that kind of stuff. But it was somewhere in the teens to the twenties of growth and that’s great.
Once you get to the seven figures of revenue, you build this thing that Jason Lemkin calls a mini brand, were not a brand like Coca-Cola or Chevrolet, but you are a small brand in a small niche and the conversation goes from marketing automation to Infusionsoft and Ontraport. When we started Drip, that’s what it was. Infusionsoft and Ontraport, and I wanted to be the third. I wanted it to be Infusionsoft, Ontraport, and Drip. Then quickly, Ontraport went on its way out it seemed then it was Infusionsoft, ActiveCampaign, and Drip, and those were the three.
We built this mini brand and yes, did we have word-of-mouth? Absolutely. Did we have a mini brand? Absolutely. But I knew that 30% of our new users came from integrations. I knew that X% came from organic search traffic. I knew that X% come from the podcasts that I was on. You can always pinpoint it but while you can build good word-of-mouth, it’s often less than you think it is. Just be wary.
If you don’t know where your customers are coming from, that’s something you’ll see me push my table on often. Where they’re coming from, how you can find more of them, because if you don’t know where they’re coming from, it’s just people referring to one another, your growth will always be capped. It will be capped at the rate that people will tell one another about them. This is different from affiliate marketing. I’m not going down that whole thing. I don’t consider that word-of-mouth because it tends to be very intentional when that works.
The second thing about marketing and then I’ll move on to managing developers. My second thought here is (and this may be obvious to you) to some folks whom I’ve talked to, it’s not, so I’ll just say it and move on. It’s not that big of a deal. Transparency in the startup space is mostly about marketing. Most transparency, I’d say 90% maybe 95%, is just spreading the word so that people will talk about them and that’s okay. Marketing is fine, but I don’t have a problem with marketing. I have a problem with disingenuous marketing in all honesty.
When a big name, huge affiliate marketer, blogger, podcaster that we all know always says yes, I have affiliate commissions but doesn’t talk about how most of the products that he promotes, he gets shares in the company. He has an ownership stake in the company, but you never hear him disclose that. That to me is disingenuous and I don’t like that kind of stuff.
I feel the same way about transparency and I don’t know that people realize that again, I would say 9 out of 10, or 19 out of 20 folks doing transparency are doing it to spread the word for marketing or to brag. I think there’s a lot of bragging about how much money I made, look at me, or frankly to get attention for a personal brand so they can sell you something like a course.
Again, I don’t think this is bad on its own. Just think about this the next time you see a company being transparent with all the good things that happen to them. It can be a range of things. It’s whether having all your revenue dashboard public or whether it’s publishing all your salaries or your internal thought processes or income, whatever. There’s a bunch of ways to be transparent. You just really think about why this person is doing it. Are they doing it to help you or are they doing it to draw attention to themselves?
As savvy consumers of a lot of things in 2020, I do think we need to be aware of whose advertising to us, whose marketing to us, what the messages are, and what the thoughts are behind it. Whether it’s Apple putting a billboard up or whether it’s a commercial, you got to teach your kids how to interpret commercials and say, “Wow, the toys aren’t actually going to be that fun. It looks fun because the kids on there are making it look fun but really once you get it home, it’s going to be kind of boring.” Same thing with transparency. Just know the thought process behind it and be aware of that.
Again, I’m not saying no one should be transparent. I’m not saying it’s a terrible thing and I’m not saying that marketing is bad. To be really clear, just know what’s going on behind a lot of the transparency that you see.
Last topic for today, it’s on managing developers and this one comes from I think only two conversations maybe three that I’ve had during my career and it’s typically what it’s always been when I worked at a larger organization. My advice is don’t try to quantify software development. Software development is a craft. Software development is not manufacturing.
The difference is building really good software, you need crafts people and you can’t do this by building an assembly line. You can build […] software by building an assembly line. You can build a car on a manufacturing line, but it’s much harder to build an amazingly intricate piece of art or a piece of furniture on an assembly line. That takes a craftsperson. There’s just a certain element of creativity and craft that you need and software development can be either.
It can be manufacturing, but good software development is a craft and what I’ve seen manufacturing lines at big companies of 20, 30, 40 developers and they want to quantify stuff like lines of code written, bugs fixed, that’s when you go down this line of (a) building crappy software, and (b) all your good developers are going to leave.
This really comes up when I’m talking to someone who has never written code or who has actually just wasn’t a developer. They were managers and they could quantify at a high level the support team, it’s ticket resolved and time to answer the ticket and the happiness of the customer. They can look at sales and they can say leads talk to, close time, and how much money they brought in. Then they will look at the development and they will say I want to do the same thing there.
I always told them that doesn’t work. There’s no number. There’s no set of numbers. No, we can look at some OKRs and KPIs, two acronyms that I despise and hopefully I never have to use them at another company again, but we can put some things down and we’re shipping features. What’s our velocity? There are ways to quantify this.
There are agile development and sprints, and all this stuff. Yes, it’s cool. It’s good and we can have estimates and try to hit them. Yes, I believe all that. But to purely try to quantify things like I’ve seen people try to do, it doesn’t work in a way that you wanted to, and it backfires, and you’re going to lose your best developers. If you want to build A+ or A software, you need really good developers and you need to treat it like a craft.
If you want to build C- or D+ software, then that’s fine treat it like manufacturing. It really is this thought of how we can not treat every department as if it were an MBA, that we got a degree and we think we can middle manage all the departments because software development is not the same as customer support.
Those are my thoughts for today. You might think of them as if I was blogging. That would have been the last six months of blog posts and instead of condensed them into audio format, hopefully, you get some nuggets of wisdom out of these thoughts that I’ve been having over the past several months.
I’ll be back next Tuesday morning with another episode of Startups for the Rest of Us. As always, if you have thoughts or feedback, you can head up to startupsfortherestofus.com. Post a comment on each episode. I read all the comments or you can tweet me at @robwalling. Thank you for listening this week. I’ll see you next time.
I think it’s more substantive and perhaps will reach more people in a deep fashion than posting it into Twitter. Today’s episode is going to be walking through seven different, I would almost call them advice but it’s more like these are things that I’ve learned in my 20 years of entrepreneurship and some things that are going on in the world today that I feel like I have commentary on.
When I say in the world, I don’t mean COVID-19. I mean more in our startup communities. I’m going to be talking about advice and feedback, a little bit about how to give a little bit, a little bit about taking it, and we’re going to be talking about competition and some specific experiences I’ve had around it. Talk a little bit about some marketing stuff and it’s not going to be high-level, this is how you market. It’s just some specific advice and mistakes. I think antipatterns in ways that I think people have been thinking about marketing as well as managing developers.
This all revolves around sometimes just one, but often it’s 5, 10, 20 conversations that I’ve had with colleagues, founders, or aspiring founders. When I start hearing the same thing over and over and I realize that I’m thinking about this in a different way than perhaps the early stage founder or just someone who hasn’t been in our space for a long time. I just like to bring these things up and talk them through.
One thing I want to say before I start is that it’s such a trip. Probably once a month I get an email that says, “I’ve been listening to your podcast for years and I had bought Start Small, Stay Small years ago. I had no idea that you were the same Rob.” Every couple of months, I’m going to say that I wrote Start Small, Stay Small. If you’ve read the book, thanks. I appreciate it, but just to clear the air so that you know that I’m one the same. I wanted to do that.
Let’s dive in. I have three things that I wanted to say about advice and feedback. The first one is something that I think has always happened, but it definitely has gotten more and more prevalent in the startup space. The more people that are just online and doing social stuff trying to build personal brands. I just want to ask if you are a founder who has had some modicum of success, please be really careful about overgeneralizing from one win.
I think of it the first time you launch a product and you have some success, suddenly you feel like you know exactly how to launch a product and that your experience applies to every product everywhere for all eternity. I’ve seen folks grow an app to 10,000, 30,000, 50,000 a month with no employees and they typically admit that they got pretty lucky. They found a niche that happened to grow, they rode a wave, or maybe they didn’t. Maybe they really just worked hard and it took them five, six, seven years to get there.
But then, going out and giving advice on this is how to start a startup and this is how everyone should do it is really dangerous. I had this mental model and I brought it up in the podcast in the past about the three things that you need to succeed in (let’s say) building a startup. One is hard work, the second is luck, and the third is skill.
You might have these in varying degrees. If you have tremendous skill in marketing, or tremendous skill in building an audience or building a network, or tremendous skill on choosing niches and building a great product, you may need less luck and I personally always think you should put hard work in because that’s the one you control the easiest in the short term is to work hard. I don’t mean 90-hour weeks, of course. If you listen to this podcast, you know that my entire entrepreneurial career, I’ve worked 40 hours a week or less except for some very short stints where I did work 60 hours a week for 6 weeks at a time, 8 weeks at a time to get some hard stuff done.
Hard work and focus (I think) is table stakes in my opinion, although if you are really lucky, I do know a founder who happened to be at the right place at the right time and just stumbled into a hobby, became something that was really popular. He got really lucky and sold the company for tens of millions of dollars. He didn’t actually work that hard. Self admittedly, he never really worked that hard but he did have the skill to build a team and he did really get lucky in the right place at the right time so it’s totally possible.
Then of course, there are folks who don’t get lucky at all. They just put tons of hard work and they build skills, and it takes them five or ten years to get where someone who got lucky maybe would have gotten to in one year. Those three things I think make up the building blocks, but to build a SaaS app or any company to $3000, $4000, $5000, $6000 is hard. Typically, you need to put in some hard work. Typically, you probably need a little bit of luck although not at that scale. I do think that to get to tens of millions or hundreds of millions, that you do need all these things to fall into place.
Oftentimes, after your first one, you just don’t know. You don’t know what made it work. You think you do, but after your second one, your third one, your fourth one, you start to see the patterns. I’ve grown seven businesses to at least six figures in revenue. Seven six-figured businesses I’ve created in the past of about 15 years. Actually, some of those weren’t six; they were at least six. There are few that are seven figures. Seven six- and seven-figured businesses is probably a better way to put it.
After the first one, I really did think that I’d do it all and it’s such a natural thing to want to go out and tell everyone about. When I did the second one, I realized nope. The things that I thought made it successful, some of them were right but about half of them were wrong, and when I go back and read writings that I did 10 years ago, it’s a little painful for me. I think most folks are not doing this intentionally. I think it’s a natural human desire to want to teach and I think it’s a natural human desire to want to talk about how you have the right answers.
Just consider this, most people giving advice are doing it to build a personal brand so they can sell you a book, or a course, or they’re even some investors who do that, and a lot of Silicon Valley folks like the venture capitalist would blog in order to get followers and then people will say they know what they’re doing. But really consider a question that I often ask myself when I see a new expert or a new name come on the scene. I typically ask myself have they done it at least twice? Obviously there are exemptions.
Jeff Bezos has not built two Amazons. The Collison brothers, actually I think they did have a startup before Stripe that was successful. Most founders I know really who know their stuff, they have done multiple. I look at Eaton Shaw, Jason Cohen, David Cancel, Dan Martell, people who have done it two, three, four, five times and there’s definitely a learned experience and definitely a different communication of their learnings as they get further along.
That’s the big question I ask myself. If someone is giving advice, I think, have they done it at least twice or three times that they can start seeing patterns. I also ask, are they giving advice on something that they really are expert in? Because again if you grow an app to $30,000 a month then you’re working on your own, that is so different than building a team, building a startup, and knowing how to build a team culture, knowing how to hire people, knowing how to cross a million dollars in ARR, knowing how to cross $2, $3, $4 million. It becomes such a different experience.
As I’ve watched founders who I’ve invested in or I’ve worked with or just known through MicroConf in this podcast. Each step you’re learning a lot and overtime I think that you’re really building that corpus and that wisdom so to speak so that you can share with others. I’ll stop there on the advice and I want to switch to this topic of feedback.
What I mean here is if you’re building a product, you’re trying to build something that people want, maybe you do have product/market fit, and things are growing. There’s always going to be someone who wants to give you feedback about your product, who doesn’t tend to know what they’re talking about but thinks they do. It’s often hard to tell. So, the thing that I have started doing because when we were growing Drip and frankly every business I’ve ever grown has this whether it’s a MicroConf, TinySeed, Drip, HitTail, or stuff that I grew before, someone wants to give you feedback.
In the early days when someone gave me feedback, I thought they must be an expert because I don’t give feedback to someone unless I feel like I really know what I’m talking about. Other people don’t necessarily have that bar. I would get an email when we were running Drip and we’re literally doing millions of dollars in revenue. Someone would say you really need to change this font color, change this button, or this tab in the interface. Just these really small things that are nitpicks and frankly are not going to change the business. They’re not going to change the business. The UX was really good and really solid. Could you find one pixel out of place? Of course you could. Does that change the business? Should we be focused on that?
It comes from people who I think are not entrepreneurs. They’re not founders. They’re not thinking about the business. They’re thinking about their particular expertise. That’s where it has gotten to a point where I really need someone to have some type of credentials before I listen to them and I don’t mean academic credentials, but when someone emails me out of the blue, if it’s Eaton Shaw, Ruben Gomez, Brennan Dunn, or Jordan Gal in the email and saying, “Hey, there’s something in your product I think you should fix,” I’m going to listen to it because they’re a founder. They are product-focused people who know how to build a good product and their feedback is very likely coming from a place of I’m trying to help you build a better product versus feedback coming from someone I don’t know and when I go to look at them, either they are not a UX designer at all and they just have an opinion or they are a developer and designer and they’re trying to sell me their services.
I just don’t know their motivation and frankly making changes that random people on the internet suggest about your writing, your product, your podcast, your blog, or your conference, it’s dangerous. Now taking it in aggregate, of course, is great. If you fear the same thing from all the people especially if you have thousands of customers, when you start hearing the same thing you have to look for patterns, yes you should do that. I’m not saying don’t listen to anyone. I’m saying be wary of the individual who feels like they are so confident in their advice, but how do you know if they know anything? And oftentimes they don’t.
This is different than someone coming in your app and saying, “Hey, I’m confused by this. I’m confused by this onboarding. I don’t know what to do here.” That’s bad. You don’t want people to be confused. It’s different than someone sending you a screencast and saying, “You really need to change this,” because it’s always like that’s your opinion. That’s your opinion and one person has said this and since I have 3000 customers, I’m going to go with my opinion on this one and not chase down a rabbit hole. That’s number two. That’s be wary of product feedback from people without credentials.
Third thing is something that Sarah Hatter said. Sarah Hatter runs CoSupport and she said on a MicroConf talk once and it resonated with me, was years ago, probably five or six years ago now, and keeping on the topic of advice and feedback, this is the last piece of this. She said, “Don’t take business advice from people who have crappy personal lives.” Let that sink in. A lot of people who give business advice have crappy personal lives. Oftentimes you don’t know, but if you do know, it’s a really interesting thing to think about how someone treats people and I’ve added this to the end.
“Don’t take business advice from people who have crappy personal lives,” and my addition is, “or who treat people in a way you don’t want to treat people.” The reason I’ve added that is because from what I’ve seen, you can be successful in business and treat people right or you can be successful in business and treat people like […].
If you don’t want to do the latter, then don’t take advice from people who do because I do think that it’s a contributing factor to their success. If you try to replicate their success with their advice, but you treat people right, you treat them fairly and you’re nice to them, I think there’s just a disconnect there. I’m not sure that advice is going to translate into what you think it’s going to do.
Let’s move on from advice and feedback to talk about competition. This is an interesting one. Again, this is one that has happened to me several times. I think three maybe more and it’s happened over the course of 15 years. I’ve been an entrepreneur for 20 although I was a consultant early on and really started building products 2003, 2004 and started. I think about 15-17 years is really my entrepreneurial career, but I’ve had three people say almost this exact sentence to me over the course of this time and I want you to hear it.
The sentence is, “There’s plenty of room in the market for all of us.” The first time I heard it, it was from someone who had essentially seen that I was having success in a space and proceeded to copy what I was doing in a way that was really obviously a copy. As we talked about it, the person said, “There’s plenty of market for all of us,” with a smile and a pat on the back because they didn’t want to make an enemy.
The first time I was like, “Oh yeah. No, that’s a really good point,” then I watched him replicate pieces of our positioning, a bunch of features, start to try to take our customers, and just on and on. The second time I heard it, I knew what it was. It was years later and I knew exactly it was someone trying not to make me mad and trying to be friendly with a competitor but that they were going to screw me again. They’re going to backstab me, but I didn’t say anything. The third time I called someone on it and I said, “I’m not sure that that’s the case,” and it really put this person on their heels because they didn’t expect that. But it’s just a fascinating sentiment.
I do believe that markets are big and the free market is fine, but don’t sit there and look me in the eye and tell me that we’re buds, that we’re friends, right before you stab me in the back. If you feel like you have this conversation and someone ever tells you, “Hey, there’s plenty of market for both of us,” just expect them to start drafting off you if they’re not already. What will be interesting is that you’ll be able to tell their next three moves by looking at the last three moves that you made. It becomes painfully, painfully obvious with folks like this who are copying you.
I’m not saying don’t worry about competition. I do think that you should focus on your customers and your audience, but I do think that competition, especially people like this who try to act like that they’re not competing with you but they are effectively ripping off what you’re doing, sometimes even the same naming, I do think it’s something that can be upsetting, to be honest. Frankly, when I talk to people who do have competition who are basically copying them—you’re the innovator, you spend time to do it, you prove it out, and then someone just starts copying it piece by piece—it’s frustrating on a personal level.
There’s something about it as a maker having someone replicate it and typically they claim that it’s their own and claim that they came up with it. That’s the frustrating part. Just be wary of that when you’re in a space and someone tells you that there’s plenty of market for all of us.
Next, I want to talk a little bit about marketing. I have two thoughts here. I’ve heard entrepreneurs who launch a business, business growing relatively well, and when I ask them where your leads or where you’re new customers are coming from, they say word-of-mouth. When I dig into that, the real answer is I don’t know where they’re coming from. So if you don’t know, don’t say word-of-mouth. Say you don’t know or find out because I think it’s really dangerous not to know where your customers are coming from.
I bought a business at one point where the founder told me that customers come from word-of-mouth. I said, “Why is that?” and she said, “It keeps going up to the right. It’s growing slowly,” but in Google it just says direct traffic and it turns out it’s not word-of-mouth. There were a number of factors. I’m going to point to a number of things that would be really hard to track.
You can go on podcast and mention the URL. You can talk from the stage. Someone could read about it in a book. They could read about it in a newspaper or magazine. They can have their referral being cleared out when they click through. They can be on a different device than when they originally heard about it. It could be a returning visit. There are just all these things that can lead to you not knowing where they’re coming from and you’re not going to be able to attribute 100%. You can’t do it.
But having an idea and frankly asking customers tends to be the best way. Asking where they first heard about you or where they heard about you right before they signed up for first touch and last touch attribution, and then of course looking at Google Analytics or whatever analytics you use, these are all good approaches. But the right answer to where my customers are coming from is almost never word-of-mouth.
Word-of-mouth is a component. I remember with Drip, word-of-mouth as far as we could measure it was 15%, 20%, 25% depending on how you measure it. Word-of-mouth is when someone else mentions me on a podcast or is that podcast marketing, it’d be that kind of stuff. But it was somewhere in the teens to the twenties of growth and that’s great.
Once you get to the seven figures of revenue, you build this thing that Jason Lemkin calls a mini brand, were not a brand like Coca-Cola or Chevrolet, but you are a small brand in a small niche and the conversation goes from marketing automation to Infusionsoft and Ontraport. When we started Drip, that’s what it was. Infusionsoft and Ontraport, and I wanted to be the third. I wanted it to be Infusionsoft, Ontraport, and Drip. Then quickly, Ontraport went on its way out it seemed then it was Infusionsoft, ActiveCampaign, and Drip, and those were the three.
We built this mini brand and yes, did we have word-of-mouth? Absolutely. Did we have a mini brand? Absolutely. But I knew that 30% of our new users came from integrations. I knew that X% came from organic search traffic. I knew that X% come from the podcasts that I was on. You can always pinpoint it but while you can build good word-of-mouth, it’s often less than you think it is. Just be wary.
If you don’t know where your customers are coming from, that’s something you’ll see me push my table on often. Where they’re coming from, how you can find more of them, because if you don’t know where they’re coming from, it’s just people referring to one another, your growth will always be capped. It will be capped at the rate that people will tell one another about them. This is different from affiliate marketing. I’m not going down that whole thing. I don’t consider that word-of-mouth because it tends to be very intentional when that works.
The second thing about marketing and then I’ll move on to managing developers. My second thought here is (and this may be obvious to you) to some folks whom I’ve talked to, it’s not, so I’ll just say it and move on. It’s not that big of a deal. Transparency in the startup space is mostly about marketing. Most transparency, I’d say 90% maybe 95%, is just spreading the word so that people will talk about them and that’s okay. Marketing is fine, but I don’t have a problem with marketing. I have a problem with disingenuous marketing in all honesty.
When a big name, huge affiliate marketer, blogger, podcaster that we all know always says yes, I have affiliate commissions but doesn’t talk about how most of the products that he promotes, he gets shares in the company. He has an ownership stake in the company, but you never hear him disclose that. That to me is disingenuous and I don’t like that kind of stuff.
I feel the same way about transparency and I don’t know that people realize that again, I would say 9 out of 10, or 19 out of 20 folks doing transparency are doing it to spread the word for marketing or to brag. I think there’s a lot of bragging about how much money I made, look at me, or frankly to get attention for a personal brand so they can sell you something like a course.
Again, I don’t think this is bad on its own. Just think about this the next time you see a company being transparent with all the good things that happen to them. It can be a range of things. It’s whether having all your revenue dashboard public or whether it’s publishing all your salaries or your internal thought processes or income, whatever. There’s a bunch of ways to be transparent. You just really think about why this person is doing it. Are they doing it to help you or are they doing it to draw attention to themselves?
As savvy consumers of a lot of things in 2020, I do think we need to be aware of whose advertising to us, whose marketing to us, what the messages are, and what the thoughts are behind it. Whether it’s Apple putting a billboard up or whether it’s a commercial, you got to teach your kids how to interpret commercials and say, “Wow, the toys aren’t actually going to be that fun. It looks fun because the kids on there are making it look fun but really once you get it home, it’s going to be kind of boring.” Same thing with transparency. Just know the thought process behind it and be aware of that.
Again, I’m not saying no one should be transparent. I’m not saying it’s a terrible thing and I’m not saying that marketing is bad. To be really clear, just know what’s going on behind a lot of the transparency that you see.
Last topic for today, it’s on managing developers and this one comes from I think only two conversations maybe three that I’ve had during my career and it’s typically what it’s always been when I worked at a larger organization. My advice is don’t try to quantify software development. Software development is a craft. Software development is not manufacturing.
The difference is building really good software, you need crafts people and you can’t do this by building an assembly line. You can build […] software by building an assembly line. You can build a car on a manufacturing line, but it’s much harder to build an amazingly intricate piece of art or a piece of furniture on an assembly line. That takes a craftsperson. There’s just a certain element of creativity and craft that you need and software development can be either.
It can be manufacturing, but good software development is a craft and what I’ve seen manufacturing lines at big companies of 20, 30, 40 developers and they want to quantify stuff like lines of code written, bugs fixed, that’s when you go down this line of (a) building crappy software, and (b) all your good developers are going to leave.
This really comes up when I’m talking to someone who has never written code or who has actually just wasn’t a developer. They were managers and they could quantify at a high level the support team, it’s ticket resolved and time to answer the ticket and the happiness of the customer. They can look at sales and they can say leads talk to, close time, and how much money they brought in. Then they will look at the development and they will say I want to do the same thing there.
I always told them that doesn’t work. There’s no number. There’s no set of numbers. No, we can look at some OKRs and KPIs, two acronyms that I despise and hopefully I never have to use them at another company again, but we can put some things down and we’re shipping features. What’s our velocity? There are ways to quantify this.
There are agile development and sprints, and all this stuff. Yes, it’s cool. It’s good and we can have estimates and try to hit them. Yes, I believe all that. But to purely try to quantify things like I’ve seen people try to do, it doesn’t work in a way that you wanted to, and it backfires, and you’re going to lose your best developers. If you want to build A+ or A software, you need really good developers and you need to treat it like a craft.
If you want to build C- or D+ software, then that’s fine treat it like manufacturing. It really is this thought of how we can not treat every department as if it were an MBA, that we got a degree and we think we can middle manage all the departments because software development is not the same as customer support.
Those are my thoughts for today. You might think of them as if I was blogging. That would have been the last six months of blog posts and instead of condensed them into audio format, hopefully, you get some nuggets of wisdom out of these thoughts that I’ve been having over the past several months.
I’ll be back next Tuesday morning with another episode of Startups for the Rest of Us. As always, if you have thoughts or feedback, you can head up to startupsfortherestofus.com. Post a comment on each episode. I read all the comments or you can tweet me at @robwalling. Thank you for listening this week. I’ll see you next time.
