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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including how to market a podcast, what to do with business profits, building features vs. integrating and more.
Items mentioned in this episode:
- MicroConf
- ZoomAdmin
- Big Snow Tiny Conf
- Business of Software Conference
- FemtoConf
- Brian Casel “Tiny Conferences”
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about when to pull profits out of your business, the balancing act of building features versus integrating, how to market a podcast, and more listener questions. This is Startups For The Rest Of Us episode 417.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Mike: No.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 416 | MicroConf Europe 2018 Recap
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike recap MicroConf Europe 2018. The guys go through the list of speakers of the two day event and highlight some of their key takeaways from each presentation.
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Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be recapping MicroConf Europe 2018. This is Startups For The Rest Of Us 416.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: You know, I’m still in Croatia. We’re taking an extended little vacation after MicroConf Europe ended a couple of days ago. Even actually the day the day this goes live next week, I think that’s a day before Halloween, we’re flying back on Tuesday in order to get the kids back for Halloween. They really didn’t want to miss Halloween.
Mike: Oh, interesting.
Rob: Yeah. About that time, we would have been here for over two weeks I believe. Maybe 16 days or something. It’s been a really fun time. I am pleasantly surprised. I found a lot of good things about Croatia. We have travelled a lot so I tend to have high expectations of the places that I go. I want them to be interesting, fun, have history, have natural beauty, have cities with cool thing, just have all the stuff. Croatia has offered that. I’m really impressed with it.
Mike: I came back yesterday. The place is amazing. I don’t even know how to put it into words, to be honest. It was just crazy how awesome the city was. I did a walking tour. I went around like a Game of Thrones tour there, so I went on that. I think Zander went on one of the six hours. Mine was only two but it was still fantastic. What I really liked about the tour was that it actually went into history of the city itself, it wasn’t just Game of Thrones because they also had a tour of the city walls that you could go on. I think it was self-guided.
But you could walk around the entire city, and of course, because the city was built in I don’t even know exactly what year, but I think the walls, they said, they think they were built anywhere between 1100 and 1400, and the city never been breached by a siege. It went into a lot of the history of the Ottoman Empire being nearby and how they were like a conduit back to them from the ocean. It was just fascinating because I’m sort of a history buff, I enjoy history, but I don’t necessarily know a vast array of history but I always find it fascinating.
Rob: Dubrovnik specifically is where the conference is. I think my favorite part of the trip, we were up North, there’s an amazing natural park, waterfalls that was great, we went to some islands, those were fun and sleepy because it’s offseason now which has been nice. I mean, the fact that it hasn’t been crowded, it’s still pretty warm, and it’s inexpensive to be here right now compared to the high season. Dubrovnik has definitely been our favorite time. I’m a wid bit […] we’re going to have been here a week by tomorrow and we’re going to extend our stay and stay for another two or three days and fly out directly from here just because there’s more to do. I went on the two-hour Game of Thrones tour as well and I had a great time. It was nice to be able to walk around and see the scenes, but also get some amazing pictures of the city. I’m impressed. Thumbs up for me.
Mike: Cool.
Rob: How about you?
Mike: Well, like I said, I just got back. I’m burrowing through my emails. That’s the funny part because I’m going through and trying to clear up my email box and of course, because it’s the middle of the day, I’m still getting them in. It’s kind of brushing your teeth while eating oreos but I think I’m down to under a hundred or so right now. It’s just a matter of figuring out what to do with a lot of the rest of them and kind of […] them in and still like, “What to do? When?”
Rob: Yep, yep. It’s just getting it all, gathering it, and it’s like, “Do I throw this into Trello? Do I boomerang…” When I get back, I will boomerang things that I don’t want to log into Trello, I don’t want to put somewhere else, but I know that I need to get to it in a week or so. I will just boomerang it because I know that by that time I will have less in my inbox and I’m just trying to churn through things. I’ve kept up pretty well with email, fortunately. I got a sim card when I got here and so as we were riding on trains or ferries and boats and that kind of stuff, I’ve been trying to keep up with stuff, but it’s always tough on vacation to try to balance that.
Mike: Yep.
Rob: Cool. We are talking about MicroConf Europe 2018 today.
Mike: Yeah. Why don’t we go through some of the speakers, kind of talk about the gist of what it is they were talking about, and kind of pull out some takeaways that the audience can use.
Rob: Sounds great.
Mike: The first speaker was Steli Efti and he talked about what he called, The 7 Deadly Startup Sales Sins. I don’t if he arranged or structured the talk exactly like this when he started because I know he’s given a very similar talk the past couple of weeks at different conferences, but he basically, took the talk itself and shortened it a little bit so that he could do a lot more Q&A. I thought that was a really great way to handle this especially for the size of the audience this year because he was able to really dig in and start digging into people’s specific problems and challenges that they were having about how do you address certain sales situations or how do you handle certain types of objections that other people would have, how you transition between one part of the sales process and the other, how do you get the sales team and the marketing team and the product team all on the same page. I think that was extremely helpful for the audience. He did a fantastic job.
Rob: The nice part is having a talk that I think we had slotted 35 minutes for talks and then you get some Q&A time, 35-40 minutes I think, and he went out for 20 or 25 minutes, but you can pack a lot in that amount of time. We’ve actually shortened our talk times over the years. But for our very first year, we have everybody an hour. That’s a long time to get up on stage, even including Q&A, that’s got 50 minute talk just starts to feel long. We shortened to 45 and sometimes, we do 35, and then 30, and then we found as long as we can fill the days with good content, having more of a shorter talk I think is something that works pretty well. Steli knew, he didn’t accidentally go short.
We’ve had folks do that where they get up there and it’s like, “Boom!” 20 minutes and they’re done and that’s like, “Oh, no. What do we do?” But it was not like that at all. In his first five minutes he goes like, “Look, I’m going to do a short but we’re going to do a lot of Q&A.” and there was. There were a ton of questions. He totally filled out the time. I thought it was a well-delivered talk, as you would expect from Steli. He’s a good speaker, good content, it was a good talk. I thought that was well-received.
Mike: Next we have Ashley Baxter come in from Scotland. Her talk title was, Idea to Execution and Beyond. What I found fascinating about her and one of the reasons I sought her out as a speaker was because she’s in software, she’s been a software developer, and she’s also in the insurance industry. It’s not an industry where you would think that you would probably want to go, I think for the most part. I certainly would not want to deal with the insurance industry. But her company is re-selling insurance to freelancers. She talked about how she built her business and how she grew it, and what people were really looking for, and how to dive into the idea itself, and then also expanding and really hit on the actual pain points that your customers are having, and how to use those in not just your marketing material, but how you talk to them.
She showed some extremely crappy ways of how she was gathering information from the audience that she was going after just by using a simple type form where she’s like, “Oh, people thought this was part of the process to get the information and it really wasn’t. It was just I used that because I didn’t have any feedback loop from the insurance company themselves where they were actually filling-up the information.” She gathered all email address upfront and then send them over and people just kind of thought that, “Oh, this is part of that process.” and it wasn’t. It was so she can get the information she needed.
Rob: Yeah, this was the first time I had met Ashley. When she said she was talking about insurance, I was like, “Oh, no. What have we done?” But she’s like, “No, it’s kind of a joke. I’m not actually talking about the insurance. I’m talking about doing the startup and validating it and the steps I took.” I thought her talk turned out really well. I enjoyed it. I heard some folks talking in hallway about how they enjoyed hearing her journey because it’s a little bit non-traditional. It’s not a SaaS app, but we’ve had really good talks from some folks who sell information products, some people who sell physical products. There are things to be learned and passed along across this disciplines.
Mike: Third speaker on our first day is Aleth Gueguen. Her talk was the Bulletproof Path to Privacy for your Software Business. She does a lot of stuff with the GDPR, a lot of consulting with various companies. But she kind of describes herself as a privacy advocate. Most of what she talked about was things that you would think are generally common sense and in certain cases they are. Obviously, certain companies where she has done consulting, they go in a different direction or they lean too much on the legal team for example. She’s like, “If you’re going to be putting together a privacy policy, yes, the legal team should have an input, but the marketing team should write it.” Because it’s really about how you are portraying your company and what you’re doing to your customers versus making it overly, I’ll say, aimed at covering your ass in terms of the legalities of it.
Yes, you do want to do that, but when you have a lawyer write that stuff, it’s very different in terms of tone and feel when the users are reading it versus when the marketing team writes it because you are presenting your company to the users like, “Hey, this is what we do with your data and this is why you should trust us.” Not saying you shouldn’t have the legal team review it afterwards, but it depends on your starting point and it’s going to have a very different tone and feel depending on who you have offer it.
Rob: This was another one when Aleth said she was speaking about GDPR. I was like, “Well, this can go one of two ways. It can be really boring or it can be super helpful.” What I like about what she said is when GDPR started coming on our radar at Drip—this is shortly before I had moved on from Drip—I said, “Let legal worry about it.” He said, “No. If they do it, it’ll be a mess. We, as product people, know the product and legal will not. They just won’t have the experience or the knowledge to be able to do this. We need to do it first then they need to make it legal speak.” and it worked out. That’s what we did. Brendan read the whole GDPR document, it’s 200 and something pages, and it worked out really well. She wasn’t recommending you read the whole thing, but she was saying, “You, as a product person, you have to own this.” I think that’s super important.
This is similar to negotiations I’ve seen. If your company is going to be acquired, you don’t want lawyers negotiating before the stuff needs to go to legal. There’s a point where it needs in a contract, before then, keep the lawyers out of it, and either have an investment maker or a broker, of if you’re going to be negotiating yourself, you handle it. But the lawyers in general will make things complicated and they can kill deals just with their approach. They’re trained to do things a certain way and it’s not always the right way.
GDPR, it was actually a really good talk. A couple of people said it was the best talk they’d heard on GDPR. It wasn’t like walking through legislation, it was saying, “Here’s a minimum viable approach to this. Here’s the next level up. Here’s some ways to think about.” It was much more from a more experienced person, not just someone who read a boring document.
Mike: It was definitely positioned as like, “This is the common sense way to approach it for companies that don’t have unlimited resources to be able to do it.”
Rob: Yeah, that’s right. And then we had some attendee talks in the afternoon. We have four attendee talks this year and that’s where admitted topics and they were voted on in advanced based on the topic. The presenter voted in advanced who should give the talks. I thought those went well. There were 12-minute talks, we did four of them in an hour, and they tend to move pretty quick. In general, we tend to have a pretty good luck in it, so that was the case again this year.
Mike: I would agree with that. I do want to call out a special thanks to Benedikt Deicke for putting together a attendee talk at the last minute because we did have an attendee talk that who had been voted on and was going to come and do that and he ended-up having to change his plans, and wasn’t able to make it to MicroConf Europe so I contacted Benedikt a few days before MicroConf and asked him. I was like, “Do you think you could put something together? Yes or No?” and I didn’t want to put him on the spot and force him to do it, but if he hadn’t been able to, we probably wouldn’t have been able to get away with it. But at the same time, I wanted to give him the opportunity if he wanted to. He put together a great talk. I thought it was exceptionally well done for the amount of time that he had.
Rob: Yup, I agree. Kudos to him for stepping up and doing that. And then I wrapped the day up with my talk. I called it, I really messed with the title a lot, and I finally landed on The State of Bootstrapping in 2018. I kind of talked through my journey as a bootstrapper, the phases of doing literally six years of nights and weekends, on and off and never making more $100 a month from the stuff I launched. Then there was this three-year period where I stair-stepped up to having like a house payment type of money, like $1000-$2000 a month. Then over that three years, I got to full-time income.
I went through the phases of what that looked like for me, funding options I have like, finding being nights and weekends, it’s a day job, or you can have savings or whatever. Then I looked at the funding options that we have today because they are definitely more a founder-friendly options. Obviously, I talked about venture capital, what that looks like. I still don’t think it’s fit for almost everyone in the room. Talked about fund-strapping which of course, I’ve talked about on this podcast before. I mentioned what I believe is the next wave or next generation of funding for our crowd basically, for the the MicroConf bootstrapping community which is kind of these funds like […] VC or accelerators I’m launching with TinySeed, at tinyseedfund.com which is bootstrapper-friendly accelerator.
I talked through all that and I got a lot of good questions afterwards. A couple of people said, “I wish you’d spend more time talking about TinySeed,” and I said, “The intent was not for it to be an advertisement for what I’m doing.” It’s not, “Hey, look at what I’m doing.” because if you don’t care about that, why are you sitting in the dock for 30 or 40 minutes. I really wanted it to be helpful to you no matter what you do. If it convinced you that bootstrapping is still the best way for you, then good, at least I convinced at something. If I convinced that you should consider fund-strapping or an accelerator like TinySeed or whatever, my goal was accomplished as well.
Mike: Then we had an evening event out on the terrace right outside where the main hall was where we had the conference itself, and that was sponsored by FE International. It was an absolutely gorgeous view from there because you could see, not just down to the water, the hotel was literally right on the water, and then they have like an infinity pool there with a swim up bar and a hot tub over to the side. It was just like, you could watch the sunset.
I think the second day I was there, there were probably 15 or 20 people just sitting out there, watching the sunset, and there were a few people who took timelapse videos. There’s a couple that got uploaded into the Slack group. It was just amazing view.
Rob: The hotel was the nicest, I’d say the nicest hotel we’ve had at MicroConf Europe at and by far the best location and the best view. Everyone commented on that. Every room has an ocean view. It’s really crazy. It’s so cool to be able to do that and to do it off-season so it wasn’t outrageously expensive. It was €110 a night for these rooms that I believe are twice that, I think they’re €220 in the high season or €240 or something. It’s nice.
Mike: I would say the only confusing thing about the hotel is that because you’re basically coming in from the back and it’s sort of on a cliff, the lobby is above all the other floors. The first floor is actually where you could go down, there’s a place to eat, and you can walk out into the pool area. But the lobby is actually–I think they call it the RC level but was like 9 or 10 or something like that. It’s at the top of the hotel and so the bottom.
Rob: Thank you to FE International for sponsoring MicroConf Europe and for sponsoring that evening event.
Mike: And then on day two, we had Adii Pienaar who came in and talked about fundstrapping. He talked about how he had bootstrapped his company and then he did a seed round, and then he almost did a Series A round and decided that instead of doing that, he just didn’t have the heart to try and convince people—the VCs—that that was the direction that the company really deserved to go in. Instead of trying to spend his effort there he turned around and said, “Okay, well let me just make this company profitable and I can do whatever they want.” They cut expenses, went through a couple of rough decisions, but ultimately, he has made the company profitable and they’ve been profitable since the beginning of the year. It was nice to see that path that he took.
He could’ve probably gotten funding if he really wanted to and he just said, “You know what, I don’t have to. I’m just going to make this company profitable.” and it gave some options. I think it was a nice follow-up to the talk that you had had where you talked about the different funding options and how money makes you make different decisions and profit from Adii’s […] but also gives you an optionality that I think that you don’t always have if you take a giant pile of money and you’re trying to build a big business that needs to grow fast because of the investors.
Rob: Yup. That makes a lot of sense. His was one of my favorite talks, to be honest, because he was so raw. Talk about the emotion, the ups and downs, and really kind of told the whole story. I didn’t feel like he held anything back, he gave exact numbers, he talked about a potential acquisition, and talked about, I believe he said what the price was. It was really so cool to hear all the details and then talk like that. I really appreciated him in coming into this with both the topic and the honesty.
Mike: Next, Dr. Sherry Walling came and she talked about mainly trying to keep the alignment that you have as an entrepreneur, making sure that you are aligned both mentally and physically with the goals that you have as a human being. She talked about how entrepreneurs are basically disruptors and there’s a sense that you want to do something that makes you belong but you also want to be successful. Sometimes those things have a little bit of friction between them but having alignment across that spectrum makes things a lot easier for you.
Rob: I missed most of her talk because I was watching the kids. We have three kids here with us and it was the middle of the day, so I had them, and then I caught the last 15 minutes of the talk. When I walked in, it was towards the end. All the eyes were up on her so I knew that she was capturing the audience. People weren’t off on their phone doing Twitter and stuff. It was good. I heard good things about it in the evening events as well.
But she spent a long time trying to figuring out exactly what she wanted to speak about this year and felt like she was going out on a limb with it. I felt like it really resonated.
Mike: The third talk of day two was Simon Payne. It was the CTO of LeadPages. He had left LeadPages I think shortly before you joined. He’s brought a couple of different things. He ran ConvertPlayer and more recently he’s been involved in a company called EventsFrame which helps event organizers sell tickets, and has different pricing structures.
What I found fascinating about that is that one of the things that they did to help get it out there was they did an AppSumo deal. He’s actually done two different AppSumo deals. First one was a while back and then this one was with EventsFrame. He talked about the behind-the-scene stuff like how that worked, what the, not necessarily the specific numbers of it, but what he saw in terms of like, “Oh, we started out with a hefty amount of traffic here and then there’s follow-up emails, and this is how we dealt with people who are already using the software,” and then they saw the AppSumo deal.
You do something like that where you don’t necessarily have control over who it goes to or the messaging, you may have to deal with customer support issues of somebody who says, “Hey, I bought this at this price and now I see this thing over here where you’re offering that.” He talked about how they handled that. I thought it was a really interesting way of approaching some of the objections that people may have about that.
Rob: For sure. And then we have typically seen this. If you’re doing a SaaS app, you […] craft a different plan that doesn’t match any of the plans on your pricing page. You probably put it in between two of the plans. Whatever you do, you just make it different so there is no direct comparison. They had some clever ways of working around that as well. Overall, it sounds like it was pretty successful for them and they’re off to a good start with EventsFrame. I enjoyed the talk. I like stories, he talked about the story and if you’re thinking about doing an AppSumo deal or even any of the deal a day things, it will apply to any of them. I felt like there was some value there.
Next up was Ashley Greene. The title of her talk was, Tech Changes, People Don’t: User Research Is Your Secret Growth Weapon. She is a user-research expert, that’s what she does for a living. She’s a consultant. She talked a lot about segmenting your users and surveying them, and figuring out which folks use which features, and which folks asks for which features. I caught most of it. I was actually in the middle of, there was this conference stuff coming up, so I kept having to get up. But the pieces that I caught I liked and I could tell there were certain folks in the audience who it really resonated with.
With talks like this, about user research, some people aren’t at the phase where it matters yet or they’re past the phase where it matters although you’re kind of never past that phase. But essentially, in the early days of customer […] that’s when, I would say, matters most. As a product matures, you can still do it, but it’s definitely, I would say not as, in my opinion, not as critical or something you should do. You’re doing everyday and make something in the early days. There were definitely some people who were really focused in on it, a lot of good questions for her at the end of the talk.
And then you wrapped up the day and the conference with the talk called, I’m Not Even Supposed to be Here. What’s that all about?
Mike: Well, we had a speaker who canceled at the last minute. I was flying out on Friday and I got an email on Thursday saying, “Look, there’s some stuff going on.” I’m not going to talk about it on the podcast because it’s his story, but I totally understand why he had to cancel. I feel more bad for him that he had to cancel than me for having to fill in. But just because he wasn’t able to make it, I didn’t want to leave the attendees in a lurch so I ended-up coming up with a talk at the very last minute to basically fill the time.
You could tell me how it went, but I completely pulled it out of thin air to be perfectly honest on extremely short notice. I had to work from notes. I would say that the presentation was probably the worst talk that I’ve ever given, but given the timeframe and the zero practice and everything else, it probably wasn’t terrible.
Rob: That was the thing, you had no practice, and you literally had notes that you had learn from, so it was tough. I would agree with you. Certainly, you’ve given talks that are a lot better than it both in prep, it’s hard. The first part, you have a lot of jokes, Morgan Freeman kind of internet meme stuff, and I felt the timing on some of them was off. I think by that time, people were tired. It was two days into the conference and I think it didn’t necessarily resonate with everyone but then you went into like, “Things go wrong, what do you do when they go wrong?” You started giving examples of all the things that have gone wrong behind-the-scenes at MicroConf over the past 16 conferences we’ve run. That part was fun for me, for sure. I think people got a kick out of it. And then you went into stuff that has gone wrong with you, like health issues and such, and kind of wrapped it up with, “Here’s what we do about it. We’re entrepreneurs.” I felt overall it was a good message.
The content was good, the delivery was unpracticed. It is what it is at that point, but we need some way to wrap up the conf.
Mike: After that, we had another evening reception on the terrace again and it was sponsored by SureSwift Capital. Again, another big thanks and shout out to SureSwift for stepping up and helping us to sponsor and support MicroConf. This is the third time that they’ve sponsored MicroConf. Honestly, it’s great to have sponsors like SureSwift Capital and FE International who really just want to support the community. They want to help people be successful. They like to interact with the attendees too. I think in general, the sponsors we have at MicroConf are fantastic in their attitudes and their willingness to just come in and help. They’re like, “We just want to support this community.” Obviously, I can’t say enough good things about both FE International and SureSwift.
Rob: It’s really nice to have, like you said, sponsors that I would do business with or have done business with because then you know, I can genuinely vouch for them, I don’t feel bad about letting them come up and talk on stage for two or three minutes or ask for information or intro-ing them to people, or whatever. We would thank them up from stage like, “Thanks to these guys. They’re legit. We like them.” It’s nice to have that luxury I think.
Mike: Yeah, it’s nice for everybody I think, everybody involved.
Rob: Overall, 16th, one in the bag. How does it feel?
Mike: It feels good. I’m hoping that I will get a goodnight of sleep tonight. I just got back yesterday. I think I left at one o’clock, Croatia time. When I got home, it was 9:00 PM for me, so it was like three o’clock in the morning, something like that. 13 hours of travel, 14 hours of travel which I really shouldn’t be complaining because I know that there are some people who come into MicroConf Vegas and they travelled 25 or 30 hours to be there.
Rob: Totally. That’s the thing for me too. I don’t know if you can hear it in my voice, but I have a little bit of head cold, I’m also super tired. It’s Thursday and the conference ended Tuesday night so you’d expect on Wednesday you’d be tired, but then last night, Sherry and I just went down to the bar to literally have a drink and to have a conversation. Of course, we’ve run into some MicroConf and the we stayed way too late. I still haven’t caught up on sleep. I’m trying to make a plan to do that tonight. But it’s almost dinner time and already I’m thinking, “You know, it’d be nice to just hit the bar and just have a little…watch the sunset right now.” We’ll see where all that leads.
Mike: After the evening reception was over, there were a ton of people that went down to the —actually, I should say up—to the reception area or the lobby area because they have a bar there and they have a piano and somebody went and got on the piano. One of the attendees plays piano and he just played for like 1 hour, 1 ½ or something like that. It reminded me a lot of the very first MicroConf when Marcus got onto the piano up in Andrew Warner’s room. We were all hanging out there. It reminded me a lot of that.
Rob: Yeah, it was fun. It was impromptu. I thought it was really neat. It kind of showed the community that’s like, the conference was over, the conference party was over, and yet, there people were gathering, hanging out, talking, networking/making jokes/playing the piano and just having drinks. I thought that was nice.
Mike: I would totally agree and I would totally go back.
Rob: I know. We’ll have to see if we can pull it off again next year because Croatia sure is a nice destination.
Mike: Well, with that said, I think you should take us out.
Rob: That wraps us up for the day. If you have a question for us, call our voicemail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 415 | Product-Founder Fit, Stairstepping, Free Trials vs. Money Back Guarantees, and More Listener Questions
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In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including trials versus money back guarantees, product founder fit, the stair-step approach, and more.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about product founder fit, stair stepping, free trials versus money-back guarantees, and more listener questions. This is Startups For The Rest Of Us episode 415.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve build your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. Croatia, sir. When this goes live, you and I are at MicroConf Europe.
Mike: Yes, that should definitely be fun. People have asked numerous times like, “What was it that made you select Croatia?” and it’s like, “Well, we’ve never been there before and it becomes a business expense.” Seems like a good reason as any.
Rob: And it’s hard for us to get to from the States but it’s reasonably easy to get there from within the EU. It’s gorgeous. It’s where they filmed a lot of Game of Thrones like the exterior scenes. Obviously, we do MicroConf Europe because we love to see everybody and it’s fun to get the people together and offer the value that we do through the MicroConfs, but we have always been pretty deliberate about where to place it.
First couple of years, we’re in Prague, and that was actually suggested by our coordinator at the time, Dan Taylor, and it turned out really cool because Prague was a fun city to be in. And then next, we picked Barcelona because you and I hadn’t been there and people want to go there. Then we went to Lisbon last year. Croatia is I think a nice next step. We’ve looked at Berlin and Greece, and a bunch of other cities and countries, and I think someday we’ll obviously move it to another place but I, for one, am very excited about this.
I’m going there with my family, wife and kids for two-and-a-half weeks. We’ll be in Dubrovnik itself for about a week but we will be surrounding cities kind of exploring. I don’t know if you’ve looked at images of Croatia or even just read up on it but there’s a lot to do there.
Mike: Yeah, definitely. I did look into it a little bit and there’s way more than you would actually think for a small country like that. It would be cool to just hang around. I’m personally looking forward to go and around looking at Dubrovnik itself just because it kind of mentally overlap between the stuff I’ve seen on Game of Thrones and then what the actual city looks like but I did hear that there’s a Game of Throne tour or something like that. I don’t know. I’m hoping I’ll have time to do that but we’ll see.
Rob: I agree. That’s going to be a no brainer for me for sure. This week we are answering some listener questions that have come in. With this episode, if we get through all of these, I believe that clears out our question queue. If you have a question for us you want to answered soon in the next couple of weeks, send it into us. Email us at questions@startupsfortherestofus.com or call our voicemail number. As always, voicemails and audio questions go to the top of the queue.
Our first question is about how many commitments you need to validate an idea, it’s a follow-up question to episode 410, it’s from Chris Palmer. He says, “Hey, I have a question for you. You say you should find 30 people to validate your idea. I’m working on an enterprise software concept with what I would pitch at an ARR, it’s annual run rate or annual cost, of between $10,000 and $150,000 plus. In other words, roughly based on company population plus paid-for seats. What I want to know, in your opinion, is 30 people or 30 companies still a good target number for validation? I used to work in a team. The company had 80,000 people and they will use the product. I’ve spoken to two other companies. One of the people who’s really interested is the director of communication at a large company. I’m going through my network to speak to more people. Cold contacting has not worked.”
It sounds like he has three companies that he’s at least in conversation with. Back to the question. “Given the income per customer, what number should I set? I’m confident with my validation statement and the concept’s possible success. Also, I just wanted to say thank you for your advice last year regarding a situation I was in. Your advice was super helpful. Thanks, Chris.” What do you think, Mike?
Mike: I don’t want to call it an edge case, but this is one of those situations where there’s general guidelines that you can follow, and then there’s cases like this where things fall so far out of what is normal in those situations that they don’t tend to apply. Most of the guidance that I’ve talked about in terms of how many people should you really talk to, it kind of assumes that people are paying a reasonable low monthly rate for it.
Enterprise sales are very, very different and depending on who it is you’re selling inside the company, it’s going to be a very different sales. If you’re selling to the IT director, it’s a different sale than if you were selling to the marketing director. The marketing director is only concerned about their own team versus if you’re selling to the IT director, you have to convince them not just that it is good for their team but also for the entire company, too. That’s what it sounds like this situation is because it’s based on company population versus the size of the IT team.
Rob: That’s why I’m glad he sent this in because it makes me question assumptions that we might have when we kind of call out rules of thumb. There’s always going to be an edge case with the rule of thumb and it’s neat when we can hear about one and then actually talk about, “Well, this is how we would think through that.”
Mike: Right. I think in this case it sounds to me the product is aimed at the entire company. I don’t want to use WinZip as an example, but I’m going to. WinZip is typically installed on every computer in most organizations just because—not almost all organizations—people who have it, they’re going to install it everywhere. You’re not going to buy it for just one team, for example, because it’s going to be used by pretty much the entire organization.
If you’re licensing like that, then it is a much more difficult sale because you have to convince them not only can you deliver on whatever the promises are but there’s value there for everybody and they’re going to be able to get around the training issues, any support problems, those are going to need to be taken cared of, and they’re going to want to probably test it inside of their environment.
In addition, you mentioned that you used to work on a team in a company of 80,000 people and when you have software like that that gets installed and deployed across the entire environment, what you end up with every single day of the week, there are people whose hard drive fail and they need to have either the hard drive replaced or the machine replaced and they’re re-imaging machines left and right. You have to be able to deploy that software in some way. Now, if that software can be remotely pushed, great. Otherwise, it needs to be embedded into the software image. You also need to figure out how’s that licensing stuff going to work.
Back to your question about how many people you need to validate it, it depends on how much money do you need. I would think you’d want to get commitments from enough companies that you’re able to basically do this full-time because I think it’s going to be hard to do it part time especially when you’re trying to make commitments to an enterprise company and if you’re trying to roll it out to the entire organization site unseen, I don’t know how you would get the commitment from them to buy it or maybe even an upfront payment for it without having something actually deliver to them. I feel there’s a lot of landmines here and it’s just going to be hard. Rob, why don’t you chime in here because maybe we can pass some ideas around for that.
Rob: Yeah. This is a tough one. To be honest, I don’t know if Chris is a single founder. I’m going to assume he’s bootstrapping and either single or maybe has one co-founder. It’s really, really hard to sell into the enterprise. You experienced this with AuditShark, right? It’s a lot of work, it’s a long lead time, and you kind of live or die by two customers or three customers because, again, if you’re going to sell it for $100,000 for an annual license, you only need one or two of those to go full-time on it. But landing one or two can take you a year or two years of just conversations.
It’s definitely an all-or-nothing. It’s riskier than trying to do this $10 or $30 or $50 a month thing where you can just cobble people together. I don’t know if it’s easier or harder, but I do think that there is a big barrier if you don’t already have that list of logos at your back to show you, “Hey, this is where we’ve implemented it.” because enterprises are slow-moving and they’re not very trusting of new technology in general, and rightfully so, because they’ve probably been burned by a bunch in the past.
I think that, that’s a challenge that you’ll face so know that going into it. I would recommend against this approach. But with that said, you have an idea and you are talking to three companies. I guess I feel similar to you that if you get yeses from all three, but you need more than just a yes. You need some type of written LOI, letter of intent, that if you can deliver this, they’ll go through with it because the problem is, how long is it going to take you to build this? You can get these verbal commitments and then is it going to take you six months or a year to build it? Are even the same people still going to be in the same roles at that company? Are they going to follow through on this verbal commitment they forgot about, most likely, to pay you $100,000 To that, I think that’s a challenge. How does he overcome that?
Mike: Well, you said letter of intent. I think an enterprise company is going to shy away from that just because it’s going to have to involve the legal team. You could ask them for a purchase order, you can send them an invoice, for example, that can’t be paid until 30 days or 60 days after delivery or sign-off or something like that. You’re going to have to put lines on the sand for you to be able to deliver. If you can’t meet them, then either it gets pushed out or if it gets pushed out too far, then the whole thing is dead.
One other thing that I did think of is that you could essentially treat it as a consulting engagement because if you can find enough companies to pay you on a consulting basis to deliver a solution, it doesn’t have to be yours, it can be something you cobbled together from a bunch of different places, and then you gradually morph it into your own code and your own full-blown product and then pull all the data over.
I would probably approach it from that side of things. Maybe you deliver it as a virtual machine that you give to them and then they can host it in their own environment. That’s probably more likely to succeed, but again, it’s a matter of getting them to sign off on, “Hey, we know we’re going to pay more for this than otherwise,” but there’s nothing here that says that this is a desktop application or a hosted web app. I don’t know if that would actually be viable.
Rob: Yeah. I do like the idea of consulting, actually. That’s a nice way to get that revenue upfront, the consulting revenue that you’re billing, and then be able to build that product, you have to write in the code and repurpose it to other people. I think with enterprise, that’s not a terrible way to go. You’re going to be plotting along as you go anyway. That’s going to take awhile to get these approvals.
So, yeah, it’s certainly not 30. I mean, back to his original question, he said you said to find 30 in order to validate. That is with lower-priced bootstrap SaaS in mind. This is a different case. I don’t know that I even have that. I could take a guess of if you get three commitments or five commitments, that sounds right. But then again, just as we’ve said, those commitments, what are they worth unless they’ve sign something. I don’t even know if verbal commitments from enterprise companies is worth doing.
I would venture to say that the approach needs to be something entirely different. I can see this consulting idea—he kind of call that—where start consulting with one or two of them, build that out and see if the feature sets overlap, you may get to the point where enterprise stuff is so tough because you can build a feature set and then every enterprise wants something different and they’re used to getting customizations so you really are not building a repeatable product. You’re building a code base that you then augment and do customer consulting for each one. I’ve read a […] so that maybe the road you’re going down here.
Mike: The other nice thing that can offer as consulting where offers you is that it gets you into that enterprise sales process and teaches you how to negotiate it, and you’re more likely to get somebody to sign off on consulting engagement in an enterprise company than you are to have them purchase a piece of software for every user in the organization when they don’t necessarily know for sure if it’s going to work out for them or not. But for whatever reason, they’re more than willing to pay large sums of consulting dollars for that kind of stuff.
Then based on that, you establish this list of people that you came in and did consulting for, and then maybe come back to them later and say, “Hey, we’ve left and you’re now on your own. Is this working out for you?” It’s probably not because most of those consulting engagements they get down once and then that’s it, and then people just let it drop because they’ve got other priorities, but if there’s software in place, it will help them because then they don’t have to manually do things.
Rob: Thanks for the question, Chris, always good to hear from you. Our next question is about stair stepping and where does stair step from where they are. It’s from Will Gant. He says, “Long time listener, three-time MicroConf attendee. Trying to figure out how to stair step my way out of a current situation. I thought it might be a question to discuss. A buddy of mine and I have built a podcast, The Complete Developer Podcast, completedeveloperpodcast.com. In the software development space, it’s taken us three years, we just got our 250,000th download. We’ve got about 15,000 downloads a month and we generate about 2000 downloads in the first six weeks of an episode release. We also have a meetup group, it gets 10-40 attendees once a month, and on meetup.com, the group has about 850 developers in it. It’s only in Nashville, but we’re considering expanding.”
“We’ve tried a bunch of ways to monetize this. We’ve tried sponsorships but the CPM cost per thousand rates for podcast are so low, it doesn’t seem worthwhile. We’ve tried Patreon. Our email list is very small but we’re working on it. We both have full-time jobs. I plan to stay at mine for at least three years, but I like to consider having something else to transition to if it comes time to move along.”
“We’re in the process of putting together an audio book that we’ll sell under the podcast brand. I’ve personally written a small ebook, took a couple of weeks to write. We plan to continue podcasting. We’re getting everything done with 8-12 hours of work each week apiece. That’s 16-24 person-hours. We could cut some of that by outsourcing and process improvements. My question is, what’s a good next step for stair stepping from here?”
“I feel there are four options. First thing, of course, is to build the email list and then we could, number one, try to ramp up ads sponsorships. Number two, build affiliate websites and get commissions or do affiliates stuff in the podcast itself. Number three, create digital products like ebooks, video courses, and sell those. Number four, coaching developers on their careers. How would you evaluate the above? We’ve been leaning towards products, put together individually. Given the constraints above, if you were me, how would you proceed over the next six months? Thanks.”
This is a big one. A lot of aspects to it. A lot of ways to think about it.
Mike: Yeah and I think that the fact that he’s tried a bunch of different things gives a little bit more information to work off of.
Rob: Super helpful.
Mike: Yeah. The four options there, the first one was try to ramp up on ad sponsorships. He’s already said that that’s difficult, and then Patreon has been even less lucrative, and the email list is rather small. The thing about ad sponsorships is they’re going to scale linearly with your audience. If the money that your getting from them now is relatively small, let’s say it’s a hundredth of what you need, you would need to 100x your traffic based of the your audience in order to get that to the level that you need to. It doesn’t sound to me like that is probably going to work out.
I would say roughly the same thing with affiliates and giving commissions or selling affiliate stuff on the podcast. You’re going to get some revenue from it, but it’s probably only going to be—depending on the type of product—it can be anywhere from 15% to 50% of whatever the product is. But it doesn’t seem to me like that is going to pay the bills either.
The third option was creating digital products such as books, video courses, etc, and then the fourth option was coaching developers. I think if you’re going to coach developers, you need to have something very specific that you are coaching them on. I would question how many of them would be able to pay a rate that is going to get you out of a situation that you’re in. Individually, they’re probably not going to be able to pay more than $100 an hour or $150.
You could use something like a group coaching session. I have seen that work out. My wife joined up with a business coach who basically went that route and instead of coaching people one-on-one, we’re coaching them in a group. That’s sort of like a course, but not really. You really want to have everybody starting at the same time. You’re going to have to find the right people and catch them at the right time in order to coach them on that. You’re also going to want to say like, “This is what we are coaching on.” Whether it’s how to get higher salaries or how to program in this particular language or how to deal with these types of situations, you’re going to have to think really, really hard about that.
The third option he just said is digital products. Seems to me like the better bet. I think that there’s a lot of opportunities there for books and video courses tiered info product format. That provides a significant advantage over doing affiliate stuff where your only getting a small fraction of it which is split because there’s two people in the business versus creating your own digital products and then you guys get to keep 100%.
Rob: When I initially read this question, the feeling is 2000 downloads per episode, it’s obviously a great milestone to reach, but it really isn’t enough to monetize directly. If he had written in and said they hadn’t tried Patreon or ads, I would have said, “Don’t try them.” I don’t think they’re going to work. The money is really going to be in the email list and if you don’t have much of a list, I don’t know that there is a direct way to monetize this podcast.
I mean, you and I have never directly monetized this podcast. We’ve talked recently about doing sponsorships, but we’re essentially more than 10 times the size of their podcast. One of the reasons we haven’t wanted to do it today is because we’ve gone down other roads and monetize it with mostly MicroConf and FounderCafe. That’s really what pays our time and editing and all that to put the podcast together.
You and I also sold books and stuff independently, but at that size of an audience, I’m thinking back to Sherry. Sherry started ZenFounder. She and I started ZenFounder podcast. As it’s grown, she did small info product. She did her retreat ebook, The Zen Founder Guide To Founder Retreats, and I don’t know how many copies exactly, but it’s a $20 book and she sold a few hundred copies.
It took time to write, as Will said, took him a couple of weeks to write, but that’s not a bad way to go. What’s nice is that if you release it, you make a few hundred bucks from it, you learn a lot about launching, then you have this thing that’s valuable, and you can give that away as a lead magnet in the future, you can discount it on Black Friday, and you start building up this portfolio of products. Now still, with 2000 downloads, if you don’t grow that email list, it’s never going to be something huge. It’s not going to be a full-time living unless you can grow all of that.
I think that’s the thing to think about. Is this space big enough? We know John Sonmez who comes to MicroConf and runs Simple Programmer or used to run simpleprogrammer.com. I know he’s doing a much different stuff now but he built a big audience. If I recall, it was through blogging and videos, it wasn’t through podcasting. That either says it the audience isn’t there in podcasting or maybe it’s still untapped and you haven’t hit directly on that value proposition yet.
I’d be curious if how much you’ve promoted your podcast, like have you gone on every other podcast in the space? To be interviewed not just about your podcast but just about things and then talk about your podcast and how it helps people? What are the other avenues to grow that podcast listener base and then have more calls to action to your emails list. If you want to go full-time on this, I would not do that without an email list that could support this, which is let’s say 10,000 or tens of thousands of subscribers, depending on how much they buy from you and how much content you can put out.
While coaching is a short-term thing, I think at this size, it’s just so hard to monetize. It’s so hard to get a lot of value out of a couple of thousand listeners. Those are my thoughts. Do you have any other thoughts, Mike?
Mike: No. I mean, I agree with you like the idea of putting together a small portfolio of digital products that you can offer. Some of you may relegate to using this as a lead magnet later on. That’s probably a way to go. As an example, you said that there’s was one that took him about two weeks or so to put together and then plus there is editing time after that. Call it 6-8 weeks total. If each work on one, you can probably put out five, ten of them per year? That’s pretty good. That seems that would give you a fairly significant base to work from and you can have them about very specific topics and then if you promote the podcast more and then you maybe talk about them or get them on your email list. But again, you have to grow everything and you have to have products to offer.
Rob: Right and the nice part is once you’ve written that, well, you can then put it on Amazon as a Kindle ebook and you can even buy ads for that on Amazon now. There are other ways to promote it from there and then you could use that as a way to generate leads and just generate listeners or generate email subscribers. You now have multiple things out there. It’s a tough problem to have. It’s hard to work this much and not having enough of an audience to basically make a full-time living, but it’s a problem all of us have had at one point or another. So, totally get it.
I think the last thing I want to touch on is the 16-24 person-hours a week that you’re spending on a podcast. In contrast, what do we spend, Mike? Between the two of us, it’s four person-hours every two weeks? You think? Five?
Mike: There’s the obvious time spent actually recording. But then beyond that, we’ve outsourced pretty much everything else.
Rob: That’s what I’m saying is it’s not that expensive to outsource everything else. If you get even one of these ebooks that’s selling reasonably well, you could pay for an editor, our editor posts to WordPress and does all the stuff. Given that, again, you and I, let’s say 2 ½ hours a week total person hours versus the 16-24 they’re spending. If they could get all that time back, it would be a big deal. They could put that towards doing other things whether it’s towards growing a list, towards growing another podcast, towards building these products out, I think that’s something to think about.
No, I don’t know the format of their podcast. Maybe it’s just a lot more labor-intensive than ours is. Maybe it’s scheduling guests and it’s doing a bunch of things. But I would guess that a lot of that could still be outsourceable. Chicken and egg, right?
Mike: Yeah, it is. I wonder if there’s other options as well. If you could reclaim eight hours per week, that’s a full day. If you’re doing consulting or other stuff that is able to generate even remotely enough money to cover time or cost or something else, you could definitely outsource that. Let’s sa, you did four hours of consulting work per week. Finding that is a completely different topic, but you get paid $100 an hour for each of those. If you’re each doing that, that’s an extra $800 a week, $1600 between the two of you. It costs a lot less than $6400 a month to edit a podcast. Now, you’re cutting your time in half and you’re adding that money in.
I’m not saying consulting is the answer, but there are other ways to get that done. I would think more consciously about that 8-12 hours that your spending and how much value you’re actually providing. Are there other ways to pay for that, is what really comes down to and then to reclaim that time and use that time to generate revenue as opposed to do stuff that’s essentially a cost sink.
Rob: Thanks for the question. I hope that was helpful. Our next question is about derisking product founder fit and it’s from Heather. She says, “My day job is all about finding product market fit. I can usually figure out a way to test my side project ideas but I struggle to commit to any because I’m not sure if I’ll end up hating the everyday tasks. Do you have any idea for a lean approach for finding product finder fit or to de-risk that side of the equation?” It’s a good question. We’ve never had this before.
Mike: This is a good question and I actually addressed this to some extent in my book, The Single Founder Handbook, and it’s in Chapter 12. It’s on Idea Filtering. I did not call it this at the time because I don’t think I was either well aware of the term but it basically talks about that to some extent in terms of filtering out ideas that you’re brainstorming and trying to figure out if you should go after one idea or another based on your personality and interest.
I laid it out in terms of, there’s pros and then there’s cons, and then there’s also disqualifiers. In terms of the disqualifiers, I put things in there like two-sided markets or difficult customers or indirect revenue streams because it’s just difficult to get those businesses off the ground.
But there’s also the idea that some of your ideas are things that are going to require things of you that you are simply not going to want to do. For example, when it comes to enterprise sales, I’m good at it but I’m not good at finding the enterprise deals to actually then go in and do the sales stuff. I can do the sales stuff but I’m not good at all the prospecting stuff and I hate that stuff. There’s a difference in being good at it versus not enjoying it. Could I find somebody else and hire to do that stuff? Sure, I could. Could I do it temporarily? Yeah, I could. But at the same time, I know that I wouldn’t want to do that long term or manage that entire process.
I think I would come up with a short list of things that you absolutely, under no circumstances, ever want to have to do, and those become your list of disqualifiers. Every idea that you come up with, fit them up against that list and your can throw it into a spreadsheet, see if it’s going to work for you. If it’s not, then don’t do it. You can also test things to some extent and do it a little bit to see if you would be able to do them long term. For everyday tasks that you have to do, a lot of them you can outsource but there’s certain ones that you simply can’t. Again, for enterprise sales like that prospecting, you have to be the one to do it initially and if you hate it that much, the business is never going to work.
Rob: I like the way you framed that. I think that’s super helpful. I think that’s one reason why I never launched a super sales-intensive application is I’ve just known that I want to be low touch or mid touch. Later into the lifecycle, Drip became of higher touch app once we started getting these big contracts to get $20,000, $30,000, $40,000 a year and up. You’re going to talk face-to-face with people, but I always aim for lower touch and that’s because that’s one of my deal breakers is I don’t want to be doing sales in the early days. Later, I can hire people to do that once we grew to a team, it was fine. But if that’s the main driver of sales, you have to do that in the early days. Typically, you want the founder doing that.
Maybe it’s a good framework. What are your deal breakers? What do you like and dislike? This is hard to answer if it’s your first project because it’s hard to know what you like and dislike. You can take a guess but the more experience you have, the more you learn about yourself. I would totally go and take StrengthsFinder and maybe even the Enneagram. These are just personality test that give you more insight into who you are and I think those can help you determine some more things about what you like and dislike, but then it’s also, like you said, singlefounderhandbook.com, if you want to read that section on de-risking it from a product founder fit perspective.
I like this question. I actually want to think on it more. I would bet in a future episode it will come back around and we’ll have more thought. This is one of those that, one the spot, I don’t have the entire framework mapped out, but I know that I’m going to mull on it while doing dishes and kind of come back to it. Thanks for the question, Heather.
Our next question is a voicemail and you know what, Mike? This should have been top of the show. I messed up because voicemails typically go to the top of the queue but I kind of forgot. This is from Tim Burgen. He called in a couple of episodes ago from Brisbane, Australia and we could hear the audio. I did a call out and he basically emailed us a very high quality WAV file. Let’s listen to that now.
“Hi, Mike and Rob. It’s Tim Burgen from Brisbane, Australia. My question is around offering a free trial. Is offering a free trial the only recommended next step to bring prospects into the fold? Or are there alternatives that you’ve also seen work? Most discussions that I’ve read just seem to assume that offering a free trial is given. The only exception that I’ve ever heard was Jason Cohen talking about the early days of the WPEngine where he removed trial for a money-back guarantee. What’s your impression of that approach and are there other options that you’ve seen too? I look forward to hearing your thoughts.”
Mike: I’ve tried the money-back guarantee instead of a free trial and it does work but the problem that you do run into is that if you’re selling—and this is specifically with Bluetick I saw this, where somebody wanted to sign up and they decided against it because it was going to require a credit card, and they didn’t want to use their personal credit card even though there is a money-back guarantee because then afterwards they would have to go to their boss and if they liked it, they said, “Oh, I need to be reimbursed for this.” it was extra paperwork they didn’t want to have to do.
Going with the trial route was a better option than the money-back guarantee. Again, who you’re selling to is going to make a difference there. If you’re selling more to consumers then a money-back guarantee is probably going to work better, but if you’re selling to somebody who’s on a team, then they don’t want to expend their own social capital in front of the eyes of their boss by signing up with the company credit card when it’s something that they don’t know if it’s going to work. There’s pluses and minuses of both approaches.
I was actually just talking to my wife about this the other day. There was a time where money-back guarantee was a fantastic option because you could also just refund somebody’s money, and it didn’t cost you anything. Stripe used to eat those costs, for example, and then they stopped doing that because it just got to be too costly because there were info marketers out there that were selling $1000-$2000 products, and then they’d have to issue refunds for 50% of them, so Stripe basically, just killed that. Depending on how many of those refunds you have to do, it may or may not work. You may just want to eat those costs, but it may not be viable for you to do.
Another option I’ve seen people try is having an onboarding fee. Instead of just saying, “Hey, here’s a free trial,” or whatever, say that there’s also an onboarding fee of $300 or $500 or something like that, which sounds outrageous like, “Why would you ask somebody to pay more when you’re just trying to get them in the door.” But it’s a prequalification process. You’re saying, “Hey, if somebody’s willing to sign-up and they’re willing to pay this extra $750 just to get on-boarded, that’s a great way to do it,” just because you’re going to filter out the people who aren’t necessarily serious about the product.
Rob: I know that you get a chargeback fee if you’re charged back, if it’s a dispute, but I don’t believe there’s any expense for refunds unless you have an unusually high refund rate.
Mike: I have seen that there were. I could be wrong. I could be misremembering this.
Rob: Maybe someone can write in and let us know. I’m on their pricing page, and it’s talking about chargebacks, but if the chargeback dispute is in your favor, you don’t have a fee. If it’s a chargeback and you lose it, then it’s $15. I’ve been on services every 25 or 30 for chargebacks. The only articles that mentions that I can find on Stripe refunds talk about how the entire fee, and it says right here in the docs, “There’s no fee to refund a charge.” Someone write in if you know because Mike and I have different memory. There’s always a chance that this stuff is out-of-date. I’m looking at a page that hasn’t been updated, and they just changed that.
That’s one thing. It’s kind of beside the point if it’s a couple percent. It’s not a big deal. Your refund rat will be higher if you do a money-back guarantee upfront, but it’s not going to bankrupt you as a SaaS app. Your margins are high enough that they can handle it even if there is a a cost.
I think there are a handful of apps that I’ve seen do the money-back guarantee. WP Engine was one, I remember. Pluggio, Justin Vincent did that. I believe, ConvertKit used to do that. I’m not sure. I think they still do. They charge you right up front, there’s no trial, and then they have a money-back guarantee there. There are certainly other apps that do it.
I think the default and normal assumption is to have a free trial rather than money-back guarantee for exactly the reason that you mentioned. If you’re at a company, and you put your own credit card on, and then it gets charged, you need to go reimbursed. It’s kind of a hassle. It’s just one more piece of friction.
Like I said, it really depends on who you’re selling to because if you’re selling to individuals or nascent entrepreneurs or people who it’s like, “Hey, they’re pulling up their personal credit card to buy this and they are convinced that it’s the tool. It’s being recommended by some expert they know and they think it’s going to help them start their business,” then yeah, maybe this isn’t an issue.
But if you’re selling B2B, money-back guarantee will be a blocker. I’ll tell you that right now. Even just asking for credit card upfront for a free trial can be a blocker and you will get a lot of people who won’t go through with the sign-up because of that. You have to look around. There’s a couple of things. Figure out who you’re selling to and if it’s truly your business says, I would shy away from a money-back guarantee, not saying I won’t do it, but the added friction will eliminate actual prospects who probably would buy from you because it can just become a deal breaker of some.
I would also look around at competition and actually in Tim’s email, he mentions that some of his competitors offer a one-year money-back guarantee and a discount for the first year because the churn is very low and because the switching cost are high. That right there tells me, “Oh, that’s interesting.” Could there even be a really limited free plan much like MailChimp, kind of one that ESP space early on because they were the only one that can get a free plan to work.
It’s risky as a bootstrapper, but if the switching cost are high, you can just get this massive funnel coming in. There can be value there. But even if you don’t do free plan, I would say I would lean towards as little friction as possible to get someone into that trial because the more people you get in if the switching cost are high, that’s how you’re going to build value in your SaaS app.
He says another competitor is actually seen to be free but then they have back-end per-transaction charges. What these competitors have figured out is since churn is low and you’re all fighting for new customers, that the least amount of friction upfront is the way to go. That’s where again, I would personally—as a rule of thumb that could be broken—I would lean away from money-back guarantees and I would look much more at a trial.
Then you have to ask yourself, “Do I have to do credit card upfront or not?” If you don’t do credit card upfront, you’re going to get a lot more people in that trial. Can you convert them? Are they still qualified? This is an experiment I would run. I may start with lower friction, given the load churn and the fact that people don’t switch out after they become customers.
Mike: Just a confirmation on that last piece where, in terms of Stripe, right on their refunds page they say, “There are no fees to refund a charge but the fees from the original charge are not returned,” so whatever the percentage is. That changed I think in 2017 because they couldn’t afford to do that.
Rob: Which is 3% plus 29 cents or something?
Mike: Yeah.
Rob: Okay. If it’s $100, you’re to pay him $3, essentially you’re eating $3.30 per refund and with the SaaS app, with the margins you have, that’s probably trivial. That wouldn’t be the reason I wouldn’t do it. If would be the other reasons I think I talked about.
Awesome. That’s a good question. Thanks for the question, Tim.
Mike: I think that about wraps us up for the day. If you have a question for us, you can call into our voicemail number at 1-888-801-9690 and Rob will put it to the top of the queue or be fired.
Rob: Next time, yeah.
Mike: Or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 414 | Content Promotion Tactics
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about content promotion tactics. Breaking the tactics down in three categories (Social Media, SEO, and E-mail Marketing), the guys share thoughts and expand based on some previously written articles on the topic.
Items mentioned in this episode:
Episode Resources
Mike: In this episode of Startups For The Rest Of Us, Rob and I talk are going to be talking about content promotion tactics. This is Startups For The Rest Of Us 414.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob. You know, I’ve been thinking about my next act for a while.
Mike: Have you now?
Rob: I have.
Mike: Is this where people start cashing in on the pool?
Rob: Totally, yeah. What is Rob’s next startup going to be, right? This has been a question for a while.
Mike: I think it was my timing, actually. Not just what it was going to be.
Rob: Oh, was it?
Mike: Yeah.
Rob: Because Rob said I’m never going to do this again. Who put money on never? I think…
Mike: Probably nobody.
Rob: …no one. My wife definitely did not put money on never. Well, my next act is not a startup. It is an accelerator for bootstrappers. It’s actually a small fund and an accelerator for bootstrappers. It’s called TinySeed. You can check more info at tinyseedfund.com. But it’s really the first startup accelerator designed for bootstrappers, so startup accelerators is something like Y Combinator, TechStars, and as you and I have talked many times, those are geared around people who have these unicorn ideas, who are going to move to a location for three months, work the 80 hours for little pay and little sleep, and that doesn’t necessarily fit with the rest of us. I mean, the name of our podcast is Startups For The Rest of Us, right? You did this after Y Combinator came out.
Mike: Yup.
Rob: That’s what this accelerator is. It’s designed for folks like you, me, listeners of the podcast, attendees of MicroConf–kind of the people in our ecosystem and our community where building $1 million SaaS app, $5 million, $10 million annual SaaS app, is actually quite lucrative and there are so few funding sources for folks like us. The idea is, to put more money where my mouth has been for the past several years.
I’ve made a dozen angel investments, half of those have been in these businesses that only want to raise a single round of funding. Often $100,000, $250,000, maybe $400,000, whatever some small-ish amount, and then they want to get to profitability and never do that institutional money. The idea is, we know a lot of founders, I know a lot of founders, who are somewhere between idea and $10k a month MRR–is the sweet spot. Because most of these folks are unable to work full-time on their business and that’s kind of the value prop of TinySeed is it gives you runway for a year.
It basically provides you with a small amount of capital but it’s going to be enough capital to basically live on for a year and keep you from having the nights and weekends stuff, to be able to focus full-time, and you don’t have to relocate so it’s remote. It’s going to be in a cohort model […] maybe it’s 10 in the first cohort, and weekly Zoom calls, and I’m assuming like a Slack or chat group, and then weekly office hours. Basically, all the things you hear about in an accelerator except that it’s designed for us, by us; it is remote and it’s just another option.
I think the other thing is, it’s longer term. You and I both know, I don’t think we could’ve built and launched Drip or Bluetick in three months. It’s just not long enough. The idea is to get longer runway to get more traction and since people are remote, it winds up being easier. Because Y Combinator couldn’t be a one-year thing because you’re not going to relocate to a place for a year. There’re different elements to it but that’s the basic gist.
Mike: We’ll have to talk about it. I almost think that we might want to talk about it for either longer period of time and it’s part of a direct episode on funding. I think there’s different ways that it could work. Obviously, you guys have to talk internally about what you are going to publicly disclose now versus things that you’re just talking about or ruminated on for ideas. But I do think we should definitely revisit it as a part of a longer discussion topic as part of Startups For The Rest Of Us.
Rob: Yeah, that sounds like fun. I would say, at this point, we’re about probably 80% locked down on terms and ideas, and curriculum and thoughts, and all that. But definitely more than happy to talk about it. The wee of it is, myself and Einar Volsett, who has been at MicroConf many times, he’s a YC Y Combinator alum, he’s had a couple of exits, and right now, he’s a Micro-Cap M&A advisor, which I think, he’s like a scout for private equities; he works with private equity companies. But you know him. I think you’ve talked a bunch of times.
Mike: Yeah. I’ve had dinner with him a couple of times at MicroConf. He’s a super sharp guy. He used to teach at Cornell, I think.
Rob: Yeah, he was a CS Professor at Cornell for a couple of years.
Mike: Right. He’s got a Ph.D. in computer science but he also knows a lot about the business side of things. What was the startup that he ran? It was inbox spelled backwards, it’s xobni, something like that?
Rob: It wasn’t xobni, it was something else. There was one called AppAftercare which he exited in 2016.
Mike: Oh, ReMail
Rob: Yep, ReMail, that was it. Y Combinator and it was acquired by Google in 2010. He has some experience and that’s where he has more of the fundraising and the private equity venture capital, more knowledge of that and the terms, so he’s good at figuring out models and running IRR calculations. If you don’t know what those are, you don’t need to unless you’re going to run a fund but that’s one of the reasons that I’ve never wanted to get into this is I didn’t want to do all that side of things.
Mike: Well, like I said, it will definitely be interesting to see how this plays out. I think that you guys are the first ones that are doing this in this particular space. We used to talk about why Y Combinator was aimed at people who are just going straight for funding versus like, “Hey, let me build a product. Let me get a little bit of traction for it and then go out for some funding, but I still want to not have to grow it into his giant thing.”
Rob: That’s right. I, of course, did a bunch of market research on accelerators and incubators and remote accelerators, they’re really–you can find a list of remote accelerators, but almost of them, they’re rather defunct now or it’s like a remote accelerator tied to like a city government launch or a university and it just kind of feels like a ghost town. No one has nailed this model. That of course could be a risk if you have no competition. Are you first or is it not going to work? Are you going down a wrong path? That’s always the question but I personally believe I wouldn’t be doing it if I didn’t think that it was going to work.
Mike: I think every single entrepreneur […] of doing business. If I’m first, it’s like I’m seeing things that other people aren’t seeing. But it’s one of those things that you have to let it play out to find out whether history will remember you for being right or wrong.
Rob: Absolutely. That’s the game of being a founder, I think. If you’re listening to this and you’re just interested in hearing more whether it’s from the founder side, whether you are experienced, interested in being a mentor, somehow being involved, or just wanting to hear more about it, tinyseedfund.com. There, of course, is an email opt-in form in there. We’ll be communicating with that list as more details come out.
Mike: Awesome. On my end, I’ve come to the conclusion that I need to schedule a personal retreat in the very near future just to straighten out where my marketing efforts are going to go for Bluetick. Because I’ve had things all over the place for several months now and I haven’t really had a solid thought on what the direction should be and where, strategically, I should be going with the marketing efforts.
Unfortunately, it’s hard to take that time right now just because my wife teaches on Saturdays, and my son has soccer games on Saturdays. For the next three or four weeks, he’s got those games. It’s just like she can’t be in both places at the same time, so I kind of have to wait, push off on that a little bit, but that is on my short-term road map, I’ll say.
Rob: That’s always a good idea. Frankly, since I started doing retreats, there always comes this time where you just don’t know what to do next, you don’t know what to try next, and you need some distance in order to do that. Because if you sit around at your laptop, at your home office, you’re just going to write code, you’re going to respond to fires and support requests and all that stuff and getting away for a couple of days–super valuable.
Do you have Sherry’s retreat guide, The Zen Founder Guide to Founder Retreats?
Mike: I’m not sure. I think I might. I’m not sure if I have it or not.
Rob: It’s just a very good guide to revisit. Every time I go on a retreat, I’d pull it up. If you’re listening to this, haven’t heard of it, go to zenfounder.com. I think there’s a products link in there. It’s $19 or something and it’s 30, 40-page e-book, in essence, but it’s kind of everything. Because Sherry introduced me to Founder Retreats and I talked about it on this podcast and it’s kind of spread from there which I think is a great thing. I’ve always found them so valuable. Sherry put together the guide and had me add as much as fill-in-the-gaps basically on it, and so it’s really, in my opinion, kind of the definitive guide for things you should think about as you go into your retreat.
I hope you’re able to do that soon. It’s a bummer to have schedule be the issue. Is there a way—just to throw out ideas—like he has soccer game on Saturday, could you leave Saturday evening and come back, basically 48 hours, come back Monday evening or Monday afternoon before the kids get home from school?
Mike: Probably. Last week was a holiday so I could not have done it that week. Then this coming week, I can’t leave on Saturday night because we’re basically going out to dinner for our wedding anniversary to celebrate that. Then the following week I leave for MicroConf.
Rob: You just cancel.
Mike: Oh, yeah. Sure. I’ll just cancel that.
Rob: Oh, for Pete’s sake.
Mike: I’ll cancel either our anniversary dinner or MicroConf. One or the other. It’s going to be several weeks no matter what at this point. There’s no way around it, I think.
Rob: I have a great idea. Do your retreat in Croatia. Just extend your trip a couple of extra days. Be like, “Hey, Ally, I’ll be back. Peace out. Have fun with the kids. I’ll be back.”
Mike: If I were leaving early, I can’t though. Just because she teaches during the week […] like Sundays.
Rob: I’m joking.
Mike: I know.
Rob: Yeah, man. It’s hard. I totally get it.
Mike: Oh, well, moving on. I guess we’re going to move on to our actual topic for today. We’re going to talk about content promotion tactics.
Rob: I am digging it. We’re revisiting a topic that we covered in 2010.
Mike: Yes. This is a little bit from episode six. In episode six, it was all about how to get traffic to your website. I went back, and I took a look at that, some of the links that we had in there like seobuilding.com just totally defunct at this point. You can buy that domain if you’re really interested for like $3500. If anyone’s interested…
Rob: You’ll at least be getting graphic from us at this point. No, not some of the links, Mike. I think, 40% of the links that we listed, and the approaches are just completely, they either don’t work anymore, they’re just gone, but this was eight years ago. It’s an eternity.
Mike: Yes. But I went back, and I looked at it. I was kind of inspired by, I was reading the SaaS mag article that’s put out by FE International. They launched it at MicroConf. You can go to saasmag.com, we’ll link that up in the show notes, and sign-up, and start getting issues of that. It’s aimed at SaaS founders. It talks about various things that are related to the industry and they interview experts from different fields on what they’re doing and kind of what the future looks like, and how they got to where they are, etc.
Most recent one I saw has interviews from Patrick Campbell from Price Intelligently, Brennan Dunn from Double Your Freelancing and RightMessage, also David Cancel from Drip. There’s a bunch of different people they’ve interviewed. But on one of the pages they had, it was kind of a poll that they have taken inside of a Facebook group called SaaS Growth Hacks. They asked the question, “What are the best marketing channels for SaaS companies?” and people voted on different things. Content, by far, was the highest voted thing. Below that you have forums, and Quora posts–answering questions there, and then cold email, and paid ads ranks about the same. Then below that was partnerships, word-of-mouth. Below that, free tools, and then the last couple of ones on the list were Twitter, conferences, and LinkedIn messaging.
The way that that shook out does not necessarily surprise me, but the fact the content was still so far up above, I felt like that was a little surprising.
Rob: I find that really interesting too, actually. I think, as you mentioned, it’s from basically marketers, so whether it’s founders or growth marketers or whatever, it’s what they are doing these days. I wonder if they’re doing these because they’re measuring, and it works or they’re doing it because this is kind of the current wave. The current mindset is, content is king, and it’s the thing that you should start with.
I don’t know that that’s worth even diving into, going down that rabbit trail. But it is something that comes to mind is, is there a group thing going on and zigging when everyone else is zagging, is the best way to go or is this really right now with social and the fact email marketing is so powerful in with the SEO benefits of content that content really is where it’s at and that’s why everyone’s there.
Mike: I think it’s partially because of the fact that with content, you can create an article through your website and it’s going to continue drawing traffic in versus if you do cold calling or a joint venture with somebody, I call them one-off activities even though you can do them repeatedly, but you don’t continue to reap rewards if you’re not picking-up the phone and cold calling, for example. You have to keep doing it versus if you go through the effort to creating an article, put it on your site, and you do well enough with the SEO, you will continue to get traffic much further down the road. You can also promote that piece of content multiple times.
It’s not about that content is king so much as this that content is reusable and it allows you to put it in front of people, not just multiple times, but put it in front of new people because you’re creating this asset of some kind that other people could find useful. You can’t really point somebody to an empty page on your website and expect that it’s going to continue to drive clicks.
Rob: Right. That’s the thing. We’ve talked in the past about how if you’re in super early stage, you’ve pre-product market fit or pre-product then content’s probably not the right play for you because content is a long game. But once you’ve found your audience, your product is something people want, and you’re scaling, that’s when I think, in general, content is going to be a really good play for you to get you that 5K or 10K MRR that you’ve just scratched and clawed and manually done maybe cold email, whatever it is to get your first 100 customers. But once you want to go from there, I think you need more scalable things and content is one of those avenues, and that’s why we’re talking about it today.
Mike: I think what we’re going to focus on is, we have a couple of resources that we’ll link to in the show notes. One if from orbitmedia.com and the other one is from neilpattel.com. one of the things that this really points to is the fact that when you are promoting content there are three essential pieces or channels you can look at. There’s SEO, then there’s sending out emails to drive people on your mailing list back to your site, and there’s social sharing. Where those intersect is you can promote your content into each of those places but depending on what your needs are, you’re going to put more effort into one versus the other.
The whole idea of this is, if you do it through social media, you’re going to try and get additional shares or followers. If you’re trying to get additional subscriptions to your mailing list, it’s going to help you grow your list for email marketing. If a visitor comes in and they link to your content from someplace else, you’re going to rank higher in search engines. The idea is to create this feedback loop, of you doing all of those three things in order to amplify your traffic and from that, you essentially end up with leads on the other side of it. It’s really just an engine that you’re creating.
If you have a ton of people on your mailing list, you can start asking them in trying to help promote on other things. You can say, “Hey, can you promote this on social media?” You can leverage them back and forth between each other to amplify the entire system.
Rob: Content does have this unique advantage which is one of the reasons that marketers like it so much is, it really has this trifecta of value that it brings, these three uses. I’ll step to another example; let’s say I’m running Facebook ads and I’m getting that to work. Facebook ads send typically cold traffic to a page, you might get trial sign-ups, you might have to retarget them, you might have to get them on an email list, but those ads you’re paying for—and they really have one purpose—and it’s to drive some traffic one time.
Content on the other hand has three uses, maybe it has more, but the three main ones that I’ve seen, and I’ve used, and it worked really well. The first one is social media. It’s getting that buzz because you put out a new article or essay or e-book or video or whatever, but you get people to talk about you on Twitter and LinkedIn, Facebook or wherever else your folks reside, and you can get that quick social media bump of, “Hey, everyone’s talking about this cool new thing that came out.” Then it dies down and that would be one use.
But another use for this exact same content is you email your whole list. That can help with the social media aspect. It helps if more people know about it then more people talk about. But it gives you an excuse to contact your email list. Every time you contact your email list, you’re probably going to get more trials, more interests in your product.
The third use is this long play of SEO. If you put out good content and it hits the right keywords, and you do have links back or you have social shares that are pointing back, it rises in the ranks. Long-term, people searching for these terms in Google, come back to it.
I haven’t given it a ton of thought, but I don’t know, off hand, of another marketing approach that has that many solid benefits, this super short-term bump, the email list bump, and then the long-term paly of SEO. I believe it’s pretty unique in that respect.
Mike: Let’s dive into the first section which is social media. What we’re going to do is we’re going to throw in, just very briefly, highlight some of the different tactics that are listed on a couple of these reference articles that we pointed to earlier.
The first one is to mention people who are going to like your article, they liked the content of it or directly reference people who are quoted in the article. One example of how well this would work is if you’ve interviewed somebody and they are relatively high-profile in the industry that you serve, for example. If you’ve mentioned them in the social media posts, they are more likely to share it than if you were to email them directly and then say, “Hey, can you tweet this out for me?” Because then you’re asking them, “Hey, can you create a tweet and then post this?” versus they see it in their social media feed and they can just literally hit retweet and they don’t have to do any work. It’s just a matter of what your ask is of them.
If I see something where it has referenced me for example and I’ve commented on an article or was on a podcast, I’m almost certain to retweet that and like it just to give it more of a visibility.
Rob: That’s a nice tactic. I’ve definitely seen that. At a minimum, I’m going to like something if I click through and it’s like, “Oh, yeah. That was that quote I gave you two months ago.” Then like you said, if it’s a legit post, because sometimes you’ll get asked for a quote or a comment on, what’s the hardest thing about validating product or what are the market approaches that are working today or whatever, and they’re doing an expert roundup and I’m just cool to participate in those. Some of them are really, really good and really well put together and others are kind of someone doing a halfway job or maybe they’re new or whatever. But the best ones, when I get a mention like that, it’s pretty certain I’m going to click through and then based on the quality of it, decent likelihood that I will retweet that.
Mike: Another one is to tweet quotes from the content. The nice things about this is you can create multiple tweets and schedule them using Buffer, a variety of other tools, and get them out there in such a way that you’re not repeating yourself. Different quotes are going to attract different types of people. There’s a quote about, I don’t know, a search engine marketing for example, you could put that in there, and then there could be something else which is optimizing search engine marketing. One is very broad and then the other one is a little bit more specific, depending on the person who sees it, if they’re more interested in one or the other, they’re going to click on it.
Rob: Another approach is you’re not just going to tweet this once especially if it’s a big piece of content because the longer form, frankly, more expensive, whether it’s time-expense or actual cost in paying someone to build it. The longer form more expensive pieces of content are the ones that are winning today and the ones that are getting the tweets. You’re not just going to tweet this once and be done. A good strategy is to tweet it once and then schedule some near future and distant future tweets because, if you think about it, in three months, the buzz from this e-book or audio piece or whatever, blog post, will have died off but it’s probably still relevant and valuable. It’s something not to bother people with but to bring back up and remind them, “Hey, this is still is valuable and legitimate.” Obviously, even within the first week, I forgot what the number is, but isn’t it like 5% of your followers see any of your individual tweets?
Mike: That’s not a per day basis, I think.
Rob: Yeah. One approach is to, as we’ve said in the past, kind of have a once a day tweet this out for the first three, four, five days, so that people more people see it especially if it’s a really big piece of content. It can be worth it. You can also irritate people and they’ll unfollow you if you’re just spamming them with the same links over and over. You have to use your head here, like any other strategy, but this is definitely something I’ve seen marketers are doing.
Mike: It’s offshoot is that is to share a short video on Twitter, Facebook, whether it’s Facebook groups or one of your Facebook page or inside of LinkedIn. The idea of the short video is to more or less give a very quick overview or summary of what the piece of content you have is not to talk about the entire content. It’s not that you’re trying to drive people to watch the video. What you’re really just trying to do is help get those people who prefer a different medium. Some people like to skim things and read it, and then there’s people out there who like to watch a video. But you also don’t want to overwhelm them with, “Oh, I just popped on to Twitter and I’m expecting to be here for a couple of minutes.” They’re not going to have time for a 30-minute video. But they may sit down and watch a 30-second video or a 15-second video that just talks about like, “Hey, if you’re interested in this, come over and check it out.” You just want to be sensitive to the fact that some people like to consume that information in different formats. The other nice benefit of sharing it like that is that you tend to get the videos will be shared on Twitter, on Facebook, and LinkedIn as your face and there’s a very different type of algorithms that those companies use in order to highlight those types of posts.
Rob: Another approach is to syndicate your content on LinkedIn, Medium, and other avenues. Syndication is just a fancy word for either reposted there or taking excerpt from it and repost there. You can imagine if you’ve written this 100-page e-book, the definitive guide to social media marketing or email marketing or whatever, you don’t post that whole thing on LinkedIn. But maybe you take, because you can put LinkedIn kind of blog post-ish, you take a really great 1000-words from that, and you post it on LinkedIn and then you link out the book.
You can do same with Medium although you can go longer form there. You can post an entire chapter from that book, so maybe you do 5000, 3000, 5000-words on Medium. Again, say, “This is an excerpt from this book.” Or if it’s a video, maybe you’d do a transcript part of.
These are ways that if you have built a following, or if you think that those networks with be intrigued by the title and the content and stuff, then reusing this content is a nice way to reuse that effort because if you spent a month or two writing this e-book or making this amazing tutorial video or whatever, you want to get it out in as many forms as possible. That’s what syndication is.
Mike: The next section we’re going to talk about is email marketing. Many of these, I think, are probably going to be pretty familiar to most people listening to this, but we’re going to go through them anyway because this is kind of a major section of the, as Rob talked about the trifecta here of content marketing.
The first one is sending out the links to it through your email list. One thing you definitely want to make sure that you’re doing here is you’re putting calls to action in there. I have mixed feeling on whether or not you should post the entire piece of content in the email versus having it on your website. Because there’s advantages and disadvantages to both. I think you just need to make a judgement call about whether you want it on your website where people can go to it versus, you’re just trying to make sure that you get it in front of people on your email list. If it’s something that you want exclusively for people on your mailing list, obviously, you’d put it in there. But people also have a somewhat limited attention span if it comes to something in their email. I do think it’s worth being cautious and making some measurements around, “Are people actually reading that and then taking action on it?” But again, that’s a judgement call.
Rob: Yeah. My default rule of thumb for this is if you’re doing personal brand stuff, if it’s Patrick Mackenzie or Brennan Dunn or Rob Walling blogging, and then sending it to their list, it’s probably fine if you post the entire article in the email. Because people are engaged with you and the content is really gripping and they tend to want to—or hopefully, it’s really gripping—and they tend to want to read the whole thing and they could read it on their phone or whatever. That’s my general rule.
If you’re doing it as a business, when Dripping was sending it out or if Bluetick were sending out a post, I would probably do a teaser and a really snazzy excerpt with an image, and then say, “Click through to read the full thing.” Some people will click, and some people won’t, but it will get you traffic. The end goal there is to get traffic to your site. Hopefully, get people to share it from there, and sign-up for a trial or whatever.
Again, that’s my general rule, how I link. But I think you can certainly break those rules if you know your audience better or as you said, if you look at the numbers, it’s telling you that that’s not the best way to do it.
Mike: If you had an email course for example, a lot of times you’re going to put the course directly in the email, and you may not want that course directly on your website. You may want to reserve it just for people on your mailing list, and maybe that’s because they don’t get to the mailing list until there’s certain amount of trust gained, or maybe the purpose of that email sequence is to establish trust, and then you send them shorter emails later on with the links back to the articles. But again, as you said, there’s lots of different ways to do it.
Rob: Right. This particular point, of whether to include all the content in an email, is really only relevant for probably blog posts because if you’re putting out an e-book it’s going to be too long. If you’re putting out a video course or one video, you can’t embed that in email, you can certainly embed an image that links out somewhere. If you create any kind of downloadable content, you’re not going to be able to put that in email anyways. It’s only if you’re doing kind of the blog content engine or short essays.
Mike: As kind of an addendum to this, you can send out, “In case you missed it,” follow-up emails. Obviously, you can put those directly into the email campaigns and it works really well because I’ve seen Drip actually put this in their directive and specifically for that reason. But you get anywhere from 20%-40% lift in opens just by resending an email with a different subject line for the exact same emails. If somebody didn’t open it, you basically resend them that email.
Rob: We did that. It’s quite successful. Another tactic you can do is, let’s say you’ve put out three blog posts a week, you can recap either at the end of the week or at the end of the month, and just have a separate email that you pull up, “Hey, in case you missed it, here are all the posts from the past week or the month,” or, “Here are our top picks or the most popular five from the past month.” and it’s just one more way to reach out to the audience, provide them with additional content, and you didn’t have to produce that content. It’s just linking back to stuff that they’ve probably missed because they probably didn’t read every article.
Mike: Next on the list is you can also send those notifications directly to some of your high-value contacts. You can either do this as personal emails instead of broadcast emails or you can find people that are on your list, who may not necessarily be subscribed to a particular campaign or they’re tagged in a certain way or segmented somehow and you say, “Hey, I think that these people would be really great candidate to receive this particular piece of content.” Maybe it they opted-in to a particular lead magnet, then you would send the content to them. But it’s really about being a lot more targeted about who you’re sending it to.
Again, this is where personal emails to people can really shine just because if they do see an email coming in and it’s from your company versus from you personally, they’re probably a little less likely to treat it as, “Hey, this person took the time to really reach out to me, so I’m going to pay a little bit more attention to it.” But sometimes the emails that are coming in from a general newsletter email address, sometimes people have rules or filters set-up so that they go into a certain place. By sending it directly, a lot of times, it will bypass those defaults because they just didn’t think to set them up.
Rob: There are 50 content promotion ideas in the Orbit Media post alone, but another one that you pulled out is to notify your source of a new post. I think this is similar to doing it on social media but emailing people directly, “Hey, do you remember the article where I interviewed you for? That’s live. If you’d like to share it, it’d be great. Here’s a link.” Or, if there’s 10 people because it’s a roundup, you do the same thing. You notify them all and certainly a few people will likely help promote that for you.
Mike: If you give them a short snippet or a summary, you can also ask them to promote it to their own email list, and then you’re essentially amplifying the efforts there.
Rob: Let’s dive into SEO.
Mike: When you’re looking at SEO, obviously, what you want to do is you want to align the content of those posts with key phrases that you have pulled out after doing some keyword research. There’s a lot of different tools that you can use for that. We’ve talked about them in the past. But the other thing that you can do is when you take that phrase and you plug it into Google, scroll all the way to the bottom, and there’s a place where it says, “Related phrases.” Those are things that Google also recognizes that people are searching for. It doesn’t tell you numbers or how many people are searching for them but there’s a good chance that if you were to take those and put them into the article and sprinkle them around, you’re also going to pick up additional SEO benefit and additional traffic by using those phrases and it’s going to end up in front of more people.
Rob: SEO is such a–it’s a large and ever more complex subject than eight years ago, we could probably give you the five things you have to do to rank. These days, the list is just longer and longer and it’s more complicated. I don’t think we can do a full treatment of, “How to SEO your blog post or your e-books.” It’s probably, not only an entire podcast, but at this point, probably an entire e-book or book. You need a way to get it down.
But another tactic is to crosslink from other posts you have or other resources or other websites you have because obviously, while links are slightly less valuable than they used to be, you could just build links in the old days and rank for everything, links are still very valuable especially from authority sites. If you have control of an authority site or authority sites, you can crosslink from relevant posts or relevant sites and help that new content rank higher in Google.
Mike: Previously, you had mentioned that you can create a short video and post it on various social media sites, you can also use the video there to embed into the website itself just to give people the top of a brief intro to what they’re going to be reading about. The nice benefit is that when people are doing searches inside of Google, they have a tendency to show videos very, very high up in the list because most people aren’t creating videos that they’re using directly for content. They’re really trying to push people in that direction. I do see a lot of videos get posted or show up in the search results even though I’m not personally looking specifically for videos, but there is a significant benefit that I’ve seen for posts that included video in them.
Rob: Of course, they’re submitting to the–there are social platforms, there is Reddit, Hacker News, Product Hunt, even Digg, although I’m not sure that’s worth doing at this point. You and I were just looking at it before this episode, but those are the things and that whole list shifts based on what your content is and who your content is. You can also do paid promotion on StumbleUpon, Outbrain, LinkWithin, Tabula, they’re often lower quality and they’re more consumer-oriented and its people just kind of skipping from one thing to the next, so if you’re a true B2B enterprise SaaS, it’s probably not worth doing any of these. I would look more at LinkedIn paid promotion or something like that. But there’s this whole world of both these social new platform, social discovery platforms, and these kinds of paid ways to get in front of them. Getting on those, if you can get a backlink, if you can get voted up, it will help in the short-term with the social media bump because more people know about it, but then in the longer term, it’s going to link back to you.
With that, I think we’re wrapped up for the day.
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Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob. You know, I’ve been thinking about my next act for a while.
Mike: Have you now?
Rob: I have.
Mike: Is this where people start cashing in on the pool?
Rob: Totally, yeah. What is Rob’s next startup going to be, right? This has been a question for a while.
Mike: I think it was my timing, actually. Not just what it was going to be.
Rob: Oh, was it?
Mike: Yeah.
Rob: Because Rob said I’m never going to do this again. Who put money on never? I think…
Mike: Probably nobody.
Rob: …no one. My wife definitely did not put money on never. Well, my next act is not a startup. It is an accelerator for bootstrappers. It’s actually a small fund and an accelerator for bootstrappers. It’s called TinySeed. You can check more info at tinyseedfund.com. But it’s really the first startup accelerator designed for bootstrappers, so startup accelerators is something like Y Combinator, TechStars, and as you and I have talked many times, those are geared around people who have these unicorn ideas, who are going to move to a location for three months, work the 80 hours for little pay and little sleep, and that doesn’t necessarily fit with the rest of us. I mean, the name of our podcast is Startups For The Rest of Us, right? You did this after Y Combinator came out.
Mike: Yup.
Rob: That’s what this accelerator is. It’s designed for folks like you, me, listeners of the podcast, attendees of MicroConf–kind of the people in our ecosystem and our community where building $1 million SaaS app, $5 million, $10 million annual SaaS app, is actually quite lucrative and there are so few funding sources for folks like us. The idea is, to put more money where my mouth has been for the past several years.
I’ve made a dozen angel investments, half of those have been in these businesses that only want to raise a single round of funding. Often $100,000, $250,000, maybe $400,000, whatever some small-ish amount, and then they want to get to profitability and never do that institutional money. The idea is, we know a lot of founders, I know a lot of founders, who are somewhere between idea and $10k a month MRR–is the sweet spot. Because most of these folks are unable to work full-time on their business and that’s kind of the value prop of TinySeed is it gives you runway for a year.
It basically provides you with a small amount of capital but it’s going to be enough capital to basically live on for a year and keep you from having the nights and weekends stuff, to be able to focus full-time, and you don’t have to relocate so it’s remote. It’s going to be in a cohort model […] maybe it’s 10 in the first cohort, and weekly Zoom calls, and I’m assuming like a Slack or chat group, and then weekly office hours. Basically, all the things you hear about in an accelerator except that it’s designed for us, by us; it is remote and it’s just another option.
I think the other thing is, it’s longer term. You and I both know, I don’t think we could’ve built and launched Drip or Bluetick in three months. It’s just not long enough. The idea is to get longer runway to get more traction and since people are remote, it winds up being easier. Because Y Combinator couldn’t be a one-year thing because you’re not going to relocate to a place for a year. There’re different elements to it but that’s the basic gist.
Mike: We’ll have to talk about it. I almost think that we might want to talk about it for either longer period of time and it’s part of a direct episode on funding. I think there’s different ways that it could work. Obviously, you guys have to talk internally about what you are going to publicly disclose now versus things that you’re just talking about or ruminated on for ideas. But I do think we should definitely revisit it as a part of a longer discussion topic as part of Startups For The Rest Of Us.
Rob: Yeah, that sounds like fun. I would say, at this point, we’re about probably 80% locked down on terms and ideas, and curriculum and thoughts, and all that. But definitely more than happy to talk about it. The wee of it is, myself and Einar Volsett, who has been at MicroConf many times, he’s a YC Y Combinator alum, he’s had a couple of exits, and right now, he’s a Micro-Cap M&A advisor, which I think, he’s like a scout for private equities; he works with private equity companies. But you know him. I think you’ve talked a bunch of times.
Mike: Yeah. I’ve had dinner with him a couple of times at MicroConf. He’s a super sharp guy. He used to teach at Cornell, I think.
Rob: Yeah, he was a CS Professor at Cornell for a couple of years.
Mike: Right. He’s got a Ph.D. in computer science but he also knows a lot about the business side of things. What was the startup that he ran? It was inbox spelled backwards, it’s xobni, something like that?
Rob: It wasn’t xobni, it was something else. There was one called AppAftercare which he exited in 2016.
Mike: Oh, ReMail
Rob: Yep, ReMail, that was it. Y Combinator and it was acquired by Google in 2010. He has some experience and that’s where he has more of the fundraising and the private equity venture capital, more knowledge of that and the terms, so he’s good at figuring out models and running IRR calculations. If you don’t know what those are, you don’t need to unless you’re going to run a fund but that’s one of the reasons that I’ve never wanted to get into this is I didn’t want to do all that side of things.
Mike: Well, like I said, it will definitely be interesting to see how this plays out. I think that you guys are the first ones that are doing this in this particular space. We used to talk about why Y Combinator was aimed at people who are just going straight for funding versus like, “Hey, let me build a product. Let me get a little bit of traction for it and then go out for some funding, but I still want to not have to grow it into his giant thing.”
Rob: That’s right. I, of course, did a bunch of market research on accelerators and incubators and remote accelerators, they’re really–you can find a list of remote accelerators, but almost of them, they’re rather defunct now or it’s like a remote accelerator tied to like a city government launch or a university and it just kind of feels like a ghost town. No one has nailed this model. That of course could be a risk if you have no competition. Are you first or is it not going to work? Are you going down a wrong path? That’s always the question but I personally believe I wouldn’t be doing it if I didn’t think that it was going to work.
Mike: I think every single entrepreneur […] of doing business. If I’m first, it’s like I’m seeing things that other people aren’t seeing. But it’s one of those things that you have to let it play out to find out whether history will remember you for being right or wrong.
Rob: Absolutely. That’s the game of being a founder, I think. If you’re listening to this and you’re just interested in hearing more whether it’s from the founder side, whether you are experienced, interested in being a mentor, somehow being involved, or just wanting to hear more about it, tinyseedfund.com. There, of course, is an email opt-in form in there. We’ll be communicating with that list as more details come out.
Mike: Awesome. On my end, I’ve come to the conclusion that I need to schedule a personal retreat in the very near future just to straighten out where my marketing efforts are going to go for Bluetick. Because I’ve had things all over the place for several months now and I haven’t really had a solid thought on what the direction should be and where, strategically, I should be going with the marketing efforts.
Unfortunately, it’s hard to take that time right now just because my wife teaches on Saturdays, and my son has soccer games on Saturdays. For the next three or four weeks, he’s got those games. It’s just like she can’t be in both places at the same time, so I kind of have to wait, push off on that a little bit, but that is on my short-term road map, I’ll say.
Rob: That’s always a good idea. Frankly, since I started doing retreats, there always comes this time where you just don’t know what to do next, you don’t know what to try next, and you need some distance in order to do that. Because if you sit around at your laptop, at your home office, you’re just going to write code, you’re going to respond to fires and support requests and all that stuff and getting away for a couple of days–super valuable.
Do you have Sherry’s retreat guide, The Zen Founder Guide to Founder Retreats?
Mike: I’m not sure. I think I might. I’m not sure if I have it or not.
Rob: It’s just a very good guide to revisit. Every time I go on a retreat, I’d pull it up. If you’re listening to this, haven’t heard of it, go to zenfounder.com. I think there’s a products link in there. It’s $19 or something and it’s 30, 40-page e-book, in essence, but it’s kind of everything. Because Sherry introduced me to Founder Retreats and I talked about it on this podcast and it’s kind of spread from there which I think is a great thing. I’ve always found them so valuable. Sherry put together the guide and had me add as much as fill-in-the-gaps basically on it, and so it’s really, in my opinion, kind of the definitive guide for things you should think about as you go into your retreat.
I hope you’re able to do that soon. It’s a bummer to have schedule be the issue. Is there a way—just to throw out ideas—like he has soccer game on Saturday, could you leave Saturday evening and come back, basically 48 hours, come back Monday evening or Monday afternoon before the kids get home from school?
Mike: Probably. Last week was a holiday so I could not have done it that week. Then this coming week, I can’t leave on Saturday night because we’re basically going out to dinner for our wedding anniversary to celebrate that. Then the following week I leave for MicroConf.
Rob: You just cancel.
Mike: Oh, yeah. Sure. I’ll just cancel that.
Rob: Oh, for Pete’s sake.
Mike: I’ll cancel either our anniversary dinner or MicroConf. One or the other. It’s going to be several weeks no matter what at this point. There’s no way around it, I think.
Rob: I have a great idea. Do your retreat in Croatia. Just extend your trip a couple of extra days. Be like, “Hey, Ally, I’ll be back. Peace out. Have fun with the kids. I’ll be back.”
Mike: If I were leaving early, I can’t though. Just because she teaches during the week […] like Sundays.
Rob: I’m joking.
Mike: I know.
Rob: Yeah, man. It’s hard. I totally get it.
Mike: Oh, well, moving on. I guess we’re going to move on to our actual topic for today. We’re going to talk about content promotion tactics.
Rob: I am digging it. We’re revisiting a topic that we covered in 2010.
Mike: Yes. This is a little bit from episode six. In episode six, it was all about how to get traffic to your website. I went back, and I took a look at that, some of the links that we had in there like seobuilding.com just totally defunct at this point. You can buy that domain if you’re really interested for like $3500. If anyone’s interested…
Rob: You’ll at least be getting graphic from us at this point. No, not some of the links, Mike. I think, 40% of the links that we listed, and the approaches are just completely, they either don’t work anymore, they’re just gone, but this was eight years ago. It’s an eternity.
Mike: Yes. But I went back, and I looked at it. I was kind of inspired by, I was reading the SaaS mag article that’s put out by FE International. They launched it at MicroConf. You can go to saasmag.com, we’ll link that up in the show notes, and sign-up, and start getting issues of that. It’s aimed at SaaS founders. It talks about various things that are related to the industry and they interview experts from different fields on what they’re doing and kind of what the future looks like, and how they got to where they are, etc.
Most recent one I saw has interviews from Patrick Campbell from Price Intelligently, Brennan Dunn from Double Your Freelancing and RightMessage, also David Cancel from Drip. There’s a bunch of different people they’ve interviewed. But on one of the pages they had, it was kind of a poll that they have taken inside of a Facebook group called SaaS Growth Hacks. They asked the question, “What are the best marketing channels for SaaS companies?” and people voted on different things. Content, by far, was the highest voted thing. Below that you have forums, and Quora posts–answering questions there, and then cold email, and paid ads ranks about the same. Then below that was partnerships, word-of-mouth. Below that, free tools, and then the last couple of ones on the list were Twitter, conferences, and LinkedIn messaging.
The way that that shook out does not necessarily surprise me, but the fact the content was still so far up above, I felt like that was a little surprising.
Rob: I find that really interesting too, actually. I think, as you mentioned, it’s from basically marketers, so whether it’s founders or growth marketers or whatever, it’s what they are doing these days. I wonder if they’re doing these because they’re measuring, and it works or they’re doing it because this is kind of the current wave. The current mindset is, content is king, and it’s the thing that you should start with.
I don’t know that that’s worth even diving into, going down that rabbit trail. But it is something that comes to mind is, is there a group thing going on and zigging when everyone else is zagging, is the best way to go or is this really right now with social and the fact email marketing is so powerful in with the SEO benefits of content that content really is where it’s at and that’s why everyone’s there.
Mike: I think it’s partially because of the fact that with content, you can create an article through your website and it’s going to continue drawing traffic in versus if you do cold calling or a joint venture with somebody, I call them one-off activities even though you can do them repeatedly, but you don’t continue to reap rewards if you’re not picking-up the phone and cold calling, for example. You have to keep doing it versus if you go through the effort to creating an article, put it on your site, and you do well enough with the SEO, you will continue to get traffic much further down the road. You can also promote that piece of content multiple times.
It’s not about that content is king so much as this that content is reusable and it allows you to put it in front of people, not just multiple times, but put it in front of new people because you’re creating this asset of some kind that other people could find useful. You can’t really point somebody to an empty page on your website and expect that it’s going to continue to drive clicks.
Rob: Right. That’s the thing. We’ve talked in the past about how if you’re in super early stage, you’ve pre-product market fit or pre-product then content’s probably not the right play for you because content is a long game. But once you’ve found your audience, your product is something people want, and you’re scaling, that’s when I think, in general, content is going to be a really good play for you to get you that 5K or 10K MRR that you’ve just scratched and clawed and manually done maybe cold email, whatever it is to get your first 100 customers. But once you want to go from there, I think you need more scalable things and content is one of those avenues, and that’s why we’re talking about it today.
Mike: I think what we’re going to focus on is, we have a couple of resources that we’ll link to in the show notes. One if from orbitmedia.com and the other one is from neilpattel.com. one of the things that this really points to is the fact that when you are promoting content there are three essential pieces or channels you can look at. There’s SEO, then there’s sending out emails to drive people on your mailing list back to your site, and there’s social sharing. Where those intersect is you can promote your content into each of those places but depending on what your needs are, you’re going to put more effort into one versus the other.
The whole idea of this is, if you do it through social media, you’re going to try and get additional shares or followers. If you’re trying to get additional subscriptions to your mailing list, it’s going to help you grow your list for email marketing. If a visitor comes in and they link to your content from someplace else, you’re going to rank higher in search engines. The idea is to create this feedback loop, of you doing all of those three things in order to amplify your traffic and from that, you essentially end up with leads on the other side of it. It’s really just an engine that you’re creating.
If you have a ton of people on your mailing list, you can start asking them in trying to help promote on other things. You can say, “Hey, can you promote this on social media?” You can leverage them back and forth between each other to amplify the entire system.
Rob: Content does have this unique advantage which is one of the reasons that marketers like it so much is, it really has this trifecta of value that it brings, these three uses. I’ll step to another example; let’s say I’m running Facebook ads and I’m getting that to work. Facebook ads send typically cold traffic to a page, you might get trial sign-ups, you might have to retarget them, you might have to get them on an email list, but those ads you’re paying for—and they really have one purpose—and it’s to drive some traffic one time.
Content on the other hand has three uses, maybe it has more, but the three main ones that I’ve seen, and I’ve used, and it worked really well. The first one is social media. It’s getting that buzz because you put out a new article or essay or e-book or video or whatever, but you get people to talk about you on Twitter and LinkedIn, Facebook or wherever else your folks reside, and you can get that quick social media bump of, “Hey, everyone’s talking about this cool new thing that came out.” Then it dies down and that would be one use.
But another use for this exact same content is you email your whole list. That can help with the social media aspect. It helps if more people know about it then more people talk about. But it gives you an excuse to contact your email list. Every time you contact your email list, you’re probably going to get more trials, more interests in your product.
The third use is this long play of SEO. If you put out good content and it hits the right keywords, and you do have links back or you have social shares that are pointing back, it rises in the ranks. Long-term, people searching for these terms in Google, come back to it.
I haven’t given it a ton of thought, but I don’t know, off hand, of another marketing approach that has that many solid benefits, this super short-term bump, the email list bump, and then the long-term paly of SEO. I believe it’s pretty unique in that respect.
Mike: Let’s dive into the first section which is social media. What we’re going to do is we’re going to throw in, just very briefly, highlight some of the different tactics that are listed on a couple of these reference articles that we pointed to earlier.
The first one is to mention people who are going to like your article, they liked the content of it or directly reference people who are quoted in the article. One example of how well this would work is if you’ve interviewed somebody and they are relatively high-profile in the industry that you serve, for example. If you’ve mentioned them in the social media posts, they are more likely to share it than if you were to email them directly and then say, “Hey, can you tweet this out for me?” Because then you’re asking them, “Hey, can you create a tweet and then post this?” versus they see it in their social media feed and they can just literally hit retweet and they don’t have to do any work. It’s just a matter of what your ask is of them.
If I see something where it has referenced me for example and I’ve commented on an article or was on a podcast, I’m almost certain to retweet that and like it just to give it more of a visibility.
Rob: That’s a nice tactic. I’ve definitely seen that. At a minimum, I’m going to like something if I click through and it’s like, “Oh, yeah. That was that quote I gave you two months ago.” Then like you said, if it’s a legit post, because sometimes you’ll get asked for a quote or a comment on, what’s the hardest thing about validating product or what are the market approaches that are working today or whatever, and they’re doing an expert roundup and I’m just cool to participate in those. Some of them are really, really good and really well put together and others are kind of someone doing a halfway job or maybe they’re new or whatever. But the best ones, when I get a mention like that, it’s pretty certain I’m going to click through and then based on the quality of it, decent likelihood that I will retweet that.
Mike: Another one is to tweet quotes from the content. The nice things about this is you can create multiple tweets and schedule them using Buffer, a variety of other tools, and get them out there in such a way that you’re not repeating yourself. Different quotes are going to attract different types of people. There’s a quote about, I don’t know, a search engine marketing for example, you could put that in there, and then there could be something else which is optimizing search engine marketing. One is very broad and then the other one is a little bit more specific, depending on the person who sees it, if they’re more interested in one or the other, they’re going to click on it.
Rob: Another approach is you’re not just going to tweet this once especially if it’s a big piece of content because the longer form, frankly, more expensive, whether it’s time-expense or actual cost in paying someone to build it. The longer form more expensive pieces of content are the ones that are winning today and the ones that are getting the tweets. You’re not just going to tweet this once and be done. A good strategy is to tweet it once and then schedule some near future and distant future tweets because, if you think about it, in three months, the buzz from this e-book or audio piece or whatever, blog post, will have died off but it’s probably still relevant and valuable. It’s something not to bother people with but to bring back up and remind them, “Hey, this is still is valuable and legitimate.” Obviously, even within the first week, I forgot what the number is, but isn’t it like 5% of your followers see any of your individual tweets?
Mike: That’s not a per day basis, I think.
Rob: Yeah. One approach is to, as we’ve said in the past, kind of have a once a day tweet this out for the first three, four, five days, so that people more people see it especially if it’s a really big piece of content. It can be worth it. You can also irritate people and they’ll unfollow you if you’re just spamming them with the same links over and over. You have to use your head here, like any other strategy, but this is definitely something I’ve seen marketers are doing.
Mike: It’s offshoot is that is to share a short video on Twitter, Facebook, whether it’s Facebook groups or one of your Facebook page or inside of LinkedIn. The idea of the short video is to more or less give a very quick overview or summary of what the piece of content you have is not to talk about the entire content. It’s not that you’re trying to drive people to watch the video. What you’re really just trying to do is help get those people who prefer a different medium. Some people like to skim things and read it, and then there’s people out there who like to watch a video. But you also don’t want to overwhelm them with, “Oh, I just popped on to Twitter and I’m expecting to be here for a couple of minutes.” They’re not going to have time for a 30-minute video. But they may sit down and watch a 30-second video or a 15-second video that just talks about like, “Hey, if you’re interested in this, come over and check it out.” You just want to be sensitive to the fact that some people like to consume that information in different formats. The other nice benefit of sharing it like that is that you tend to get the videos will be shared on Twitter, on Facebook, and LinkedIn as your face and there’s a very different type of algorithms that those companies use in order to highlight those types of posts.
Rob: Another approach is to syndicate your content on LinkedIn, Medium, and other avenues. Syndication is just a fancy word for either reposted there or taking excerpt from it and repost there. You can imagine if you’ve written this 100-page e-book, the definitive guide to social media marketing or email marketing or whatever, you don’t post that whole thing on LinkedIn. But maybe you take, because you can put LinkedIn kind of blog post-ish, you take a really great 1000-words from that, and you post it on LinkedIn and then you link out the book.
You can do same with Medium although you can go longer form there. You can post an entire chapter from that book, so maybe you do 5000, 3000, 5000-words on Medium. Again, say, “This is an excerpt from this book.” Or if it’s a video, maybe you’d do a transcript part of.
These are ways that if you have built a following, or if you think that those networks with be intrigued by the title and the content and stuff, then reusing this content is a nice way to reuse that effort because if you spent a month or two writing this e-book or making this amazing tutorial video or whatever, you want to get it out in as many forms as possible. That’s what syndication is.
Mike: The next section we’re going to talk about is email marketing. Many of these, I think, are probably going to be pretty familiar to most people listening to this, but we’re going to go through them anyway because this is kind of a major section of the, as Rob talked about the trifecta here of content marketing.
The first one is sending out the links to it through your email list. One thing you definitely want to make sure that you’re doing here is you’re putting calls to action in there. I have mixed feeling on whether or not you should post the entire piece of content in the email versus having it on your website. Because there’s advantages and disadvantages to both. I think you just need to make a judgement call about whether you want it on your website where people can go to it versus, you’re just trying to make sure that you get it in front of people on your email list. If it’s something that you want exclusively for people on your mailing list, obviously, you’d put it in there. But people also have a somewhat limited attention span if it comes to something in their email. I do think it’s worth being cautious and making some measurements around, “Are people actually reading that and then taking action on it?” But again, that’s a judgement call.
Rob: Yeah. My default rule of thumb for this is if you’re doing personal brand stuff, if it’s Patrick Mackenzie or Brennan Dunn or Rob Walling blogging, and then sending it to their list, it’s probably fine if you post the entire article in the email. Because people are engaged with you and the content is really gripping and they tend to want to—or hopefully, it’s really gripping—and they tend to want to read the whole thing and they could read it on their phone or whatever. That’s my general rule.
If you’re doing it as a business, when Dripping was sending it out or if Bluetick were sending out a post, I would probably do a teaser and a really snazzy excerpt with an image, and then say, “Click through to read the full thing.” Some people will click, and some people won’t, but it will get you traffic. The end goal there is to get traffic to your site. Hopefully, get people to share it from there, and sign-up for a trial or whatever.
Again, that’s my general rule, how I link. But I think you can certainly break those rules if you know your audience better or as you said, if you look at the numbers, it’s telling you that that’s not the best way to do it.
Mike: If you had an email course for example, a lot of times you’re going to put the course directly in the email, and you may not want that course directly on your website. You may want to reserve it just for people on your mailing list, and maybe that’s because they don’t get to the mailing list until there’s certain amount of trust gained, or maybe the purpose of that email sequence is to establish trust, and then you send them shorter emails later on with the links back to the articles. But again, as you said, there’s lots of different ways to do it.
Rob: Right. This particular point, of whether to include all the content in an email, is really only relevant for probably blog posts because if you’re putting out an e-book it’s going to be too long. If you’re putting out a video course or one video, you can’t embed that in email, you can certainly embed an image that links out somewhere. If you create any kind of downloadable content, you’re not going to be able to put that in email anyways. It’s only if you’re doing kind of the blog content engine or short essays.
Mike: As kind of an addendum to this, you can send out, “In case you missed it,” follow-up emails. Obviously, you can put those directly into the email campaigns and it works really well because I’ve seen Drip actually put this in their directive and specifically for that reason. But you get anywhere from 20%-40% lift in opens just by resending an email with a different subject line for the exact same emails. If somebody didn’t open it, you basically resend them that email.
Rob: We did that. It’s quite successful. Another tactic you can do is, let’s say you’ve put out three blog posts a week, you can recap either at the end of the week or at the end of the month, and just have a separate email that you pull up, “Hey, in case you missed it, here are all the posts from the past week or the month,” or, “Here are our top picks or the most popular five from the past month.” and it’s just one more way to reach out to the audience, provide them with additional content, and you didn’t have to produce that content. It’s just linking back to stuff that they’ve probably missed because they probably didn’t read every article.
Mike: Next on the list is you can also send those notifications directly to some of your high-value contacts. You can either do this as personal emails instead of broadcast emails or you can find people that are on your list, who may not necessarily be subscribed to a particular campaign or they’re tagged in a certain way or segmented somehow and you say, “Hey, I think that these people would be really great candidate to receive this particular piece of content.” Maybe it they opted-in to a particular lead magnet, then you would send the content to them. But it’s really about being a lot more targeted about who you’re sending it to.
Again, this is where personal emails to people can really shine just because if they do see an email coming in and it’s from your company versus from you personally, they’re probably a little less likely to treat it as, “Hey, this person took the time to really reach out to me, so I’m going to pay a little bit more attention to it.” But sometimes the emails that are coming in from a general newsletter email address, sometimes people have rules or filters set-up so that they go into a certain place. By sending it directly, a lot of times, it will bypass those defaults because they just didn’t think to set them up.
Rob: There are 50 content promotion ideas in the Orbit Media post alone, but another one that you pulled out is to notify your source of a new post. I think this is similar to doing it on social media but emailing people directly, “Hey, do you remember the article where I interviewed you for? That’s live. If you’d like to share it, it’d be great. Here’s a link.” Or, if there’s 10 people because it’s a roundup, you do the same thing. You notify them all and certainly a few people will likely help promote that for you.
Mike: If you give them a short snippet or a summary, you can also ask them to promote it to their own email list, and then you’re essentially amplifying the efforts there.
Rob: Let’s dive into SEO.
Mike: When you’re looking at SEO, obviously, what you want to do is you want to align the content of those posts with key phrases that you have pulled out after doing some keyword research. There’s a lot of different tools that you can use for that. We’ve talked about them in the past. But the other thing that you can do is when you take that phrase and you plug it into Google, scroll all the way to the bottom, and there’s a place where it says, “Related phrases.” Those are things that Google also recognizes that people are searching for. It doesn’t tell you numbers or how many people are searching for them but there’s a good chance that if you were to take those and put them into the article and sprinkle them around, you’re also going to pick up additional SEO benefit and additional traffic by using those phrases and it’s going to end up in front of more people.
Rob: SEO is such a–it’s a large and ever more complex subject than eight years ago, we could probably give you the five things you have to do to rank. These days, the list is just longer and longer and it’s more complicated. I don’t think we can do a full treatment of, “How to SEO your blog post or your e-books.” It’s probably, not only an entire podcast, but at this point, probably an entire e-book or book. You need a way to get it down.
But another tactic is to crosslink from other posts you have or other resources or other websites you have because obviously, while links are slightly less valuable than they used to be, you could just build links in the old days and rank for everything, links are still very valuable especially from authority sites. If you have control of an authority site or authority sites, you can crosslink from relevant posts or relevant sites and help that new content rank higher in Google.
Mike: Previously, you had mentioned that you can create a short video and post it on various social media sites, you can also use the video there to embed into the website itself just to give people the top of a brief intro to what they’re going to be reading about. The nice benefit is that when people are doing searches inside of Google, they have a tendency to show videos very, very high up in the list because most people aren’t creating videos that they’re using directly for content. They’re really trying to push people in that direction. I do see a lot of videos get posted or show up in the search results even though I’m not personally looking specifically for videos, but there is a significant benefit that I’ve seen for posts that included video in them.
Rob: Of course, they’re submitting to the–there are social platforms, there is Reddit, Hacker News, Product Hunt, even Digg, although I’m not sure that’s worth doing at this point. You and I were just looking at it before this episode, but those are the things and that whole list shifts based on what your content is and who your content is. You can also do paid promotion on StumbleUpon, Outbrain, LinkWithin, Tabula, they’re often lower quality and they’re more consumer-oriented and its people just kind of skipping from one thing to the next, so if you’re a true B2B enterprise SaaS, it’s probably not worth doing any of these. I would look more at LinkedIn paid promotion or something like that. But there’s this whole world of both these social new platform, social discovery platforms, and these kinds of paid ways to get in front of them. Getting on those, if you can get a backlink, if you can get voted up, it will help in the short-term with the social media bump because more people know about it, but then in the longer term, it’s going to link back to you.
With that, I think we’re wrapped up for the day.
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Episode 413 | How Lucidchart Grew to 13 Million Users with Freemium
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how Lucidchart grew to 13 million users with freemium. They point out effective ways to use freemium, viral loops, horizontal markets, and how you could incorporate some of these things in your bootstrapped startup.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about how Lucidchart grew to 13 million users using the freemium model. This is Startups For The Rest Of Us 413.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Did you happen to see the announcement that FogBugz/Manuscript was being acquired by DevFactory?
Rob: I got an email out of the blue and was completely shocked by that. I shouldn’t be, right? Fog Creek, for those who don’t know, was founded by Joel Spolsky and Mike Pryor back in, I believe, it was 2000 or 2001. Joel was probably the first blogger I ever read. He had so many insights about how to start software company and how to project-manage and all that stuff that I was really enthralled by him. And then he launched FogBugz but then they went into Stack Overflow and Trello and all this other stuff. I was always like, “This is crazy. They’ve had a lot of successes.”
Mike: They also had a CityDesk which was their blogging tool, I don’t think that it ever really went anywhere. I think they got it to version 2.
Rob: Content management. It was a website content management territory, but it was desktop, right as the switch to SaaS was happening.
Mike: I think it was before WordPress came out or just about the same time. But it was published through the website, so everything was all straight HTML. I think they had an internal beta version that Joel was still using for a while, it was like version 3-A or something like that that just never got out there publicly. I find it interesting that they decided to sell that business to an outside company just because the way that they’ve kind of run the business, it’s odd.
Rob: Yeah, it’s definitely unexpected. I don’t know what else I expected though. I mean, it’s freaking 17 years later–these things don’t last forever. I remember when Joel stepped down as CEO of Fog Creek, I was like, “Oh my gosh!” but it’s like, “Well, of course, he’s going to do Stack Overflow.” I believe Mike Pryor stepped up at that point and then Mike Pryor went up to be CEO of Trello once that took off. They really used it as an incubator–Fog Creek itself. It’s no surprise that they had the third CEO and it’s running Fog Creek. I don’t even know who’s running FogBugz.
I don’t even know if Fog Creek still owns anything else. Do they or is the company just going to shut down? Because they sold Trello, Stack Overflow is its own entity at this point, they haven’t used Fog Creek developers for years. Probably 10 years at this point. Manuscript is the only thing I know that they still had.
Mike: No, they still have Glitch.
Rob: What is that?
Mike: I don’t even know because they’ve been working on it for three, four years at this point, and I still don’t understand what it actually is, which it seems like it’s some sort of a programming framework without the programming. I don’t really understand it, to be perfectly honest. It doesn’t make a lot of sense to me. I don’t know, I don’t know what to tell you about that.
Rob: I just googled Fog Creek Glitch and it says, “Fog Creek is renaming itself to Glitch. We’ve been thrilled to see the community embrace Glitch as the home for creating and discovering the coolest stuff on the web.” It sounds like Reddit. I’m confused at this point. I just haven’t followed this story. Fog Creek has been basically, a B2B software company–or at least Manuscript, Trello was, and then Stack Overflow was obviously VC-funded. Stack Overflow, I was going to say social network, but it’s more like a question and answer platform.
Yeah, it’s a trip man. I have mad respect for what Mike Pryor and Joel have built. You and I have both met them in person at BOS. I’ve had multiple conversations with them. These are smart, ethical-driven software developers who have done a lot I think for both the people that they’ve hired, but also in sharing their knowledge and building the tools. I have nothing but respect for these guys. The amount of success they’ve had, when you say, “Yeah, the same people that started Stack Overflow also started Trello and started this other seven or eight-figure company called FogBugz.” that’s a lot to do in a career.
Mike: I wonder if part of the reason they spun that off was because of the way that they want to run the business and the way that they want to treat the developers because I think early on, they had talked a lot about how they wanted to treat everybody—who’s working within the company—with respect and make sure that they participated in the successes of the business.
I remember some blog articles or some discussions on one of the podcasts that they had at one point talk about Stack Overflow, but because Stack Overflow and Trello were both born out of Fog Creek, at some point, they had to split the business. How do you compensate the people who were originally in Fog Creek and were excited and maybe helped out a little bit, but didn’t necessarily go with that team? There was also a question of like somebody had an idea for, I think it was co-pilot at the time, and it ended-up come in like a $1 million line of business for them, ARR. It’s just like, how do you compensate that person for the ideas and stuff that they’ve brought in?
At this point, FogBugz has been running for years, and there’s probably not a huge number of things that they’re going to add to it, I mean they could integrate it with other business processes and things like that, but there’s not a lot of other stuff they could do with it. It’s really just kind of the cash cow for them, but how do you translate that into a financial or monetary success for the people who are currently in the business and may have been there for anywhere up to 10 or 15 years at this point? It’s a private company, so I don’t think they hand out equity. I don’t know.
Rob: I think they did profit sharing, was my recollection. They did hand out dividends because like you just said, it was a pretty profitable company.
Mike: Got it.
Rob: On my end, I just got an email this morning that said, “Stripe is now valued at $20 billion.”
Mike: Oh, is that all?
Rob: Oh, man. Their last round was at $9 billion. I don’t normally follow these funding and valuation stories, but since we basically have had dinner with both the Collison brothers and been on stage with them at MicroConf, I kind of have a vested interest in keeping up with what they’re doing. Bravo to them. I have nothing but respect for those guys.
Mike: That’s an insane number but both of them are super, super smart guys. You stand near them and you just feel dumber.
Rob: Totally. When I’m around them, yeah, I feel dumber, but I feel my IQ points, I gain maybe 5 or 10 just in speaking to them. “Oh, you taught me a new word and a new concept today.”
Mike: “…that I thought I knew for 10 years, but you clearly know it better than me.”
Rob: Yeah, exactly.
Mike: Good for them. I think a lot of our audience probably still uses Stripe.
Rob: Still, what do you mean? Still uses. I wouldn’t go anywhere else, it’s insane to think of going back to the days of Authorize.net and PayPal web payments pro. I guess there’s Braintree now, right?
Mike: That’s what I was going to say. I hear that on a “higher-end” people are migrating to Braintree and, I don’t know if any other options actually other than Stripe and Braintree. But I don’t know anything about Braintree. It’s just interesting to see the ark that they’ve taken over the past, what, eight years or so? It’s just crazy how much they’ve grown and the things that they do are quite honestly, for the entrepreneurial community, they have enabled the vast majority of us to be able to do what we do. Without Stripe, most of the businesses that are out there just would not exist.
Rob: Or it’d be lot harder to get them off the ground. I remember trying to get an Authorize.net account and it just took weeks of literally sending stuff on paper and faxing it back and forth. This was only maybe six years ago, seven years–it wasn’t that long, and I’m not talking 2005. It was just insane to me that a) how are we not doing this online or at least e-signing things? But I literally was just printing out this 30-page document. It was such a nightmare. I’m glad Stripe came on the scene.
Mike: I’ve spent a fair amount of time over the past couple of weeks rebuilding and migrating some of my infrastructure in order to cut costs. I’ve doubled the number of servers. I’ve gone from two servers to four and I’ve reduced the costs of them by out 75% which is odd. I have everything hosted on Azure and they have these things called burstable virtual machines. Basically, if they are running below a certain threshold in terms of process or usage, then you pay basically, a discounted rate for it and you are gaining credits at that point. If you are using more than that percentage then you’re basically burning into your credits
I think they had maxed out the CPU with that but basically, I just paid less for this machine or these machines because I’m not using them all day every day. It’s like there are certain times a day where I need more processing power and rest of the time I just don’t need it. It’s nice to be able to have moved over to those types of servers and save a fair chunk of change. But I needed to split up my infrastructure anyway because I didn’t like having everything on just two servers.
Rob: That makes sense. It’s nice to put a few more bucks in your pocket.
Mike: Yeah. I pushed off on that division for probably about a year or so. It was kind of time to do it.
Rob: Anything else?
Mike: The last thing is, this is totally random but there’s a website that I stumbled across when I was trying to do calculations for my Dungeons and Dragons game, to kind of optimize my character. If you’re into figuring out probabilities on different dice rolls, you can head over to anydice.com. It will basically allow you to write functions that will essentially simulate what the dice rolls are, and then it will show you the percentages and distributions, and you can see crafts and stuff like that of exactly what those distributions look like.
You can say how many attacks or if you have advantage or disadvantage on different attacks or damage rolls or things like that then it will show you what those numbers look like and what’s your average rolls would be.
It’s pretty cool. You can probably spend a whole ton of time on it, but they do have some documentation there and some ready-built functions you just pull, and copy paste into the editor.
Rob: I see what you did there, Mike. Do you realize you started that segment off, you said, “This is totally random.” But any dice stuck. You can’t […] by me, man. Really bad puns. Alright. Cool.
Let’s dive into what we’re talking about today. It’s an article on a blog of freshworks.com. They have a sales CRM , it’s that section or that category of the blog, but the article is titled, “How Lucidchart Grew to 13 million Users on a land-and-expand Strategy.” I want to talk a little bit about the virality and the freemium part of it. It’s an interesting interview with, I believe, is the SVP of Sales and Customer Success of Lucidchart.
If you haven’t heard of Lucidchart, it is a Software as a Service with a freemium model, they have 13 million users and it is like Visio–it is how I think of it. It’s a diagram solution where you can create diagrams and share them and then collaborate on them. Is that an accurate description, Mike? You said you’ve used it.
Mike: Yeah. That’s probably pretty accurate. I think Visio seems like they started out much more for data modelling within a programming environment. But Vision also has a lot of different icons and stuff that you can put in there for like network map layouts and office maps layouts and stuff like that. You can use it for other things like org charts and stuff like that, but I think originally, it seemed like it started out as part of the MSDN suite, you get a few sign-ups for that, and it was primarily a programming tool.
Rob: Right. And it expanded into other things. Lucidchart, looks like it was started around 2010, 2011 and they raised $1 million in funding which you would need if you’re going to do freemium model, and then three years later they raised $5 million, and then two years after that—in 2016—they raised $36 million. I can imagine they probably hit a hockey stick moment where the user growth justified raising–because you raise that much money, you want to have really high valuation, so you don’t give away most of your company.
They said that 96% of Fortune 500 companies use it. They have customers at Google, Amazon, Cisco, and Intel, and they receive around 500,000 sign-ups every month. It’s a free tool, right? It’s free, no credit card, if I recall. That’s still a big number though. A nice horizontal market that these guys are in. They’ve obviously achieved success–13 million users is a ton of people; it’s a ton of people to support, it’s a ton of people just to have your software running.
I wish that they’d told us how many paying users or how many paying accounts because that’s really what I’m interested in. I’m interested to know if they are even profitable on revenue, above the amount of just sheer volume because they must have hundreds of employees, and I would like to know that. But all that said, what I want to talk about today is really the freemium and the viral one and they have some stuff about sales as well.
Mike: I’m sure their competitors would love to know how much money they’re making too.
Rob: Yeah, totally. I know. It’ll come out at some point. They’ll wind up talking about it.
Mike: Alright. Why don’t we dive right in then?
Rob: Sure. The first question for Dan Cook, which is the SVP of Sales, the interviewer asks him, “It runs on a freemium model, how do you pitch the product, and how do you scale it to an enterprise model?” His response is, “The freemium gives them an advantage because they have this—this is where the land-and-expand comes in within a company—they get employees within a company using the product and then they share it with other people in the company to collaborate and then they set-up accounts, so there’s a freemium plus virality there. The reason they sign-up for it is a) it’s free and b) because it’s a good tool.
In the early days it was good enough. It was not a great tool but as it developed, I bet these days, it is best in class or is becoming then. He said that, basically, they can have 15 or 20 paid or free users of Lucidchart within a company. Then they leverage that fact to say, “Alright, IT department, here’s a value proposition for you.” This is a similar model to other tools. Slack, I’ve heard them talk about this a lot. That one small development team within a huge org would start using it and of course, you have to invite other people for it to have any value. Once you have 10, 20, 30 users, IT Departments and frankly, CTOs and CIOs want to have control of that kind of stuff. It’s an interesting dual use of that freemium plus virality.
Mike: Yeah, I’ve seen that at a much, much smaller scale in Bluetick where somebody will sign-up for Bluetick and one of the earlier objections I’ve heard from somebody was like, “Oh, well. I wanted to sign-up for it but then I would have had to go to my boss and get his credit card.” That freemium model, even just the 14-day trial that I had or that I added in after talking to that customer, it allows them to sign-up for it without having to go to their boss and justify like, “Hey, I need the corporate credit card and it’s going to cost this much money.” Because in the enterprise environment, they’re probably going to not only have to go to their boss, but then their boss is going to have to justify it to somebody else.
Nobody really knows if it’s going to work. If they just start using it, in a freemium model, they can just use it and if it doesn’t work out for them, they just shut it down or just abandon it. If it does then as more people start using it then it becomes more visible. As a result of its success, then Lucidchart can go in and ask them for money for an enterprise license or a small group license within a department or something like that. But it is interesting to see that they seem to have intentionally done that or chosen that strategy.
Rob: Right. I want to point out some things that Lucidchart has or had that listeners to this podcast may not have, and if you don’t have all these things in place, it’s going to be difficult, if not impossible to pull off this strategy that they did–this freemium strategy.
Mike: Do you want to start with the $36 million or…?
Rob: That’s what I was going to say. Funding–that’s the first one. It wasn’t $36 million originally. For the first three years it was $1 million. That’s actually not that much money for three years. You can hire a few people but it’s not like you’re going to hire 20 employees and not bleed that out. But yes, funding was one advantage they had; $1 million in funding. Another $5 million three years later. The fact that they are a very horizontal market much like Trello and Dropbox and Slack, those are three other tools that have used the same approach–this freemium plus viral component.
If you’re in a horizontal market and you can raise enough funding or self-fund this thing to the point where you can provide the service to all the free users, it really can be this fascinating approach. The other thing is they have virality, not every tool has that. I think of a tool like Drip or even a proposal software, invoicing software, there’s a little bit of virality and that you can have a Powered By or a Sent From or a Sent With. But true, deep virality like Trello where–I mean, I use some Trello boards for that other people but there’s a lot of collaboration that goes on there. Slack is all about being viral. You have to invite other people to get any value.
Lucidchart does not need, need, need. You’d have another person to get value, but I would say, that’s probably a big reason that people would use it because it’s so easy to get you charts and collaborate. Of course, Dropbox has it’s all other things. Having virality plus that freemium I think is a big thing that people overlook. Because having freemium on its own without funding, being horizontal, and virality is not all it’s cracked up to be.
Mike: I think this is also a tool that because of what you’re using it for, you’re using it to help communicate, that helps it too. That kind of sets it apart from a lot of other tools. Trello, to some extent, just by inviting people, you get to have them take a look at what it is that you’re working on. But with Lucidchart, you can print those things out, you can embed them into Word document, or even just take screenshots, but by being able to invite people and say, “Hey, this is the process, or this is the workflow that I’m looking at. What do you think? Is this going to work for our team?” That right there—because it’s embedded in the communications—that just inherently makes it even more viral.
Because if people look at the tool and they like it and they want to use it because it’s a lot easier to use than something like Visio, it gives it those additional advantages. It gives people the “aha” moment that they need in order to say, “Yeah. I want to use this too.”
Rob: Another question that he asks this VP of Sales, which I thought was kind of cool, I don’t know, I hadn’t thought that much about it, but he says, “Let’s talk about your value proposition. How does it work when you’re convincing a company to buy the enterprise version? What to the teams and what does the enterprise get out of it? Why don’t they just keep using their individual accounts?” I like that because a) you’re asking why should they upgrade or why should they consolidate? He says, basically, the value to the end-user is that it’s all consolidated and it’s much easier to share among their co-workers. You don’t have to convert diagrams into other formats to be compatible. If everybody starts using it in your company then you don’t have to be like, “Oh, you’re using Visio? I’m using Lucidchart. Let’s convert to this format.” and blah blah blah.
Then to the IT department, the first one is consolidated billing, so there’s only one bill and you know you can negotiate that and manage it. It’s just easier to do it. Also, for training, a lot of big companies especially provide training for their tools. If you have just everybody using one tool, it’s easier. Then secure logins which is fine but the one that really gets them is document retention which is where someone leaves the company, as someone is running that company or running that IT department, you want to have access to everything they did while they were there because you might need to reference that later. If they take individual accounts away with them then you’ll never get that stuff back. It’s not even someone stealing it or taking it away, it kind of goes away. They forget about it or you just don’t have access to it.
That was a big one working at Leadpages and Drip is seeing people leave and being like, “Oh, yeah. There was that one thing that he shared with me and now I don’t have access to it.” It could be kind of a pain. It’s interesting to think—if you’re going to try to pull this off—about what the value prop is that you have to offer for people to upgrade.
Mike: The other interesting piece there that’s in that enterprise group subscription there is the idea that, it’s not just if somebody leaves the company, but what happens if you have to fire somebody. You want to be able to have like this master key that says, “Okay, we’re going to lock you out of everything before we follow through with letting this person go.” and then still have access to all that stuff. There’s that side of it to consider too. I think one and two-person businesses don’t tend to think about that because they just don’t experience it. But the larger companies that they are advertising to or agencies or other small businesses 50-100 people, those companies do think about that and it is important to them.
It’s good to understand that that is a value proposition that you can leverage as a marketing point to those larger companies and say, “Look, this is why you should upgrade or this is why you should buy higher-priced tier because we are including this for your account versus a freelancer account which doesn’t really have any of that stuff and oh, we have a 25 people have 25 different freelancer accounts.” Yeah, it’s not ideal because they get 25 different bills but at the same time, that master key is kind of what people are looking for.
Rob: And then he asked him a question about their outbound sales process. He says, “Yeah, we have 80 sales people and their core play is they basically target companies that already have some form of adoption.” You likely would, I’m guessing, you’re going to use some type of data augmentation tool, like a full contact, to augment you customer data to know who they work for or just look at the email address, look at the domain, the .com on the end of their email, and do a Group By and see how many people are using it. As simple as that.
If you get 20 people inside Disney or Target or BestBuy or something, it’s like they reach out and say, “Hey, you have 20 people that have signed-up for accounts. Do you want to aggregate that?” It’s an interesting thing. I’ve heard, I believe, it was either Slack or Trello also talk about this as an approach. It’s like warm outbound. It’s an interesting approach.
Mike: You just hope that their CEO or their CTO isn’t so totally paranoid that he says no outside tools that are based in the cloud and shuts them all down.
Rob: Yeah, it could happen, I supposed.
Mike: I think that’s a lot less common today than I think it was 5 or 10 years ago. But I have run into those people who say that kind of stuff and there’s usually exceptions for that. They can’t possibly have everything self-hosted. It is just not realistic.
Rob: Yup. There’s a couple more questions that I think are relevant. One is, he asks him, “Lucidchart is the popular alternative to Microsoft Visio, how do you differentiate yourself?” He basically gracefully says, “We’re grateful to Vision, but it’s outdated. It’s a classic Microsoft style product, and it has a lot of innovation on it since they acquired it in 2000.” That’s that whole thing where, yeah, you can have a better funded competitor but as a startup, your secret super power is you can move fast, and you can be closer to the customer. Because I’m guessing, a lot of the developers working on Visio—assuming there are some still—they’re not nearly in close contact as someone at Lucidchart is when they’re in their customer success department having one-on-one conversations with their clients.
Mike: I think that’s partly a difference in how the product was originally engineered. There is a cloud version of Visio, I believe, so it’s enabled for people to collaborate and stuff which has always been the biggest problem with Visio documents, is that it’s like a Word document that you have to basically send it back and forth. Even if you’re using something like Dropbox, you still have the problem of having multiple people trying to work on the same thing at the same time and it just doesn’t work very well.
That’s why Google docs has kind of come around and been such a massive upstart in the past, what was it, like 10, 15 years ago when that came out. But Word had been out in the mid-90s or the early 90s. Something like Lucidchart just has a fundamentally different delivery mechanism than Visio. Visio has to make that backward compatibility so they’re not able to do the same types of things versus Lucidchart, they’re like, “We don’t care about actually running locally on the desktop.” It just doesn’t matter to them which gives them some advantages right there.
Rob: Right. It’s interesting to think like if Microsoft really cared about the market—I just don’t think it’s big enough for them to care about probably—but they should have, would have built a web-based version back in 2008 because it was totally doable. But they didn’t and so, somebody decided at some point not to do that. I know they have collaboration features now built into the Office tools. I don’t use many of the Office tools anymore, only when absolutely need to. I’m just in Google docs all the time.
Mike: I bet they sunk all the resources into the Windows Vista.
Rob: Windows Vista, yeah. That must have been it.
Mike: It must have been it.
Rob: To round it out, he ask him, “What do you think are the top three reasons for Lucidchart’s success?” He says, “Well, people need visual communication tools and there wasn’t really anything that was that great. Second is, we made it enterprise ready, so selling into that enterprise, it was not hard. They have collaborations and integrations and all that stuff and freemium–those are the three things he says. I think he leaves out the virality. I actually believe the fact that a) the market is big, I think is a good thing. They chose a large market. I have a Lucidchart account. The reason I have it is because I got invited by two separate people on two separate diagrams. I would count as one of the 30 million users.
Now, I don’t go in, I never created a Lucidchart diagram myself, but I have collaborated with other people. I think that’s an element, a fourth thing that he didn’t mention that I do think is probably a decent driver of their trial sign-ups.
Mike: I do think the other thing that really helps them is the fact that it’s surprisingly easy to be able to get in and get started with Lucidchart, create some things that are generically applicable across the business without being locked into , “Oh, I have to use this for data modelling.” It sort of does these other things well but not really. That’s the way I would describe the difference between Visio and Lucidchart.
Whereas Lucidchart doesn’t necessarily have the data tie ins to be able to, let’s say for example, a database design, but there’s lots of other ways to do that these days. That makes Vision, I’ll say, that less powerful in that respect. But you don’t need that with Lucidchart. You can just create a generic process. Instead of sketching it out on paper and saying, “Oh well, I’ve got this customer support process that’s got to do this.” Or, “I’ve got this marketing process where I’ve got this email Drip campaign over here and the sales page over there.” You can wire them up in Lucidchart and use that to document your marketing sales funnel, for example. It works really, really well for that.
The downside is, you do have to keep it up-to-date because nothing is automatic but as long as you need to document it anyway, you may as well use something like Lucidchart where you can create good documentation that shows you how everything ties together.
Rob: 500,000 sign-ups every month, Mike. What would you do with that?
Mike: I don’t know. Take it to the bank, retire?
Rob: Yeah, that’s crazy. You can just imagine the processes they must have in place in order to even be able to support that many users.
Mike: You know, I’d be interested to see what they have for a backend infrastructure because I’m just like an engineering nerd like that. Like, “How the heck do you handle that much? How many is that per minute?”
Rob: I know. One point of data is I went to Crunchbase and it says, “According to owler.com that they have 7.1 million in annual revenue.” You don’t know how accurate that is but it’s an estimate by an outside company.
Mike: And at 500,000 sign-ups a month, that’s about one every five seconds which is insane.
Rob: Yup. I know, it’s crazy. They say, let’s see, employee count is between 101 and 250–it’s about what I expect. It says, “A team of 150 plus employees.” You don’t know when that was written but I would guess, if it was even a year ago, I bet they’re at probably over 200 by now. That gives you an idea of their size. That’s the thing, they’ve raised $42 million, if they are at $7 million or $10 million in recurring revenue, that’s not a home run. They need to get bigger than that in order to return that kind of funding because the valuation was definitely north of $100 million. I mean, $120 million, $180 million, somewhere in that range, if I were to guess. At that point, you need to sell for half a billion or a billion dollars to return venture returns. To get there, you need to have $100 million in ARR. They have a long way to go to get there.
I don’t want folks to take this entire episode the wrong way, I’m not saying that we should model ourselves after Lucidchart or anything like that, I was pointing out that the way to use freemium, viral loops, thinking about horizontal markets, thinking about other way to approach problems, how could you, in your little maybe B2B bootstrap niche try and corporate some of these things?
Mike: I think the other takeaway you could have for our audience of listeners is that, even with 500,000 sign-ups a month, as you said, financially, this is probably still not a home run.
Rob: Right. If they haven’t raised $40 million, it could be alright if they’d only raise up to $6 million and could have done it, then that’s a totally different story but that’s where I like raising a lot of funding and having this big valuation. It means you have much higher expectations at that point.
Mike: Right. All it does is dilute the founder and some of the investors, earlier investors maybe, but it makes it hard to have a spectacular exit if you’ve, I’ll say, weighed down by too much investment.
Well, on that note, I think that about wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Did you happen to see the announcement that FogBugz/Manuscript was being acquired by DevFactory?
Rob: I got an email out of the blue and was completely shocked by that. I shouldn’t be, right? Fog Creek, for those who don’t know, was founded by Joel Spolsky and Mike Pryor back in, I believe, it was 2000 or 2001. Joel was probably the first blogger I ever read. He had so many insights about how to start software company and how to project-manage and all that stuff that I was really enthralled by him. And then he launched FogBugz but then they went into Stack Overflow and Trello and all this other stuff. I was always like, “This is crazy. They’ve had a lot of successes.”
Mike: They also had a CityDesk which was their blogging tool, I don’t think that it ever really went anywhere. I think they got it to version 2.
Rob: Content management. It was a website content management territory, but it was desktop, right as the switch to SaaS was happening.
Mike: I think it was before WordPress came out or just about the same time. But it was published through the website, so everything was all straight HTML. I think they had an internal beta version that Joel was still using for a while, it was like version 3-A or something like that that just never got out there publicly. I find it interesting that they decided to sell that business to an outside company just because the way that they’ve kind of run the business, it’s odd.
Rob: Yeah, it’s definitely unexpected. I don’t know what else I expected though. I mean, it’s freaking 17 years later–these things don’t last forever. I remember when Joel stepped down as CEO of Fog Creek, I was like, “Oh my gosh!” but it’s like, “Well, of course, he’s going to do Stack Overflow.” I believe Mike Pryor stepped up at that point and then Mike Pryor went up to be CEO of Trello once that took off. They really used it as an incubator–Fog Creek itself. It’s no surprise that they had the third CEO and it’s running Fog Creek. I don’t even know who’s running FogBugz.
I don’t even know if Fog Creek still owns anything else. Do they or is the company just going to shut down? Because they sold Trello, Stack Overflow is its own entity at this point, they haven’t used Fog Creek developers for years. Probably 10 years at this point. Manuscript is the only thing I know that they still had.
Mike: No, they still have Glitch.
Rob: What is that?
Mike: I don’t even know because they’ve been working on it for three, four years at this point, and I still don’t understand what it actually is, which it seems like it’s some sort of a programming framework without the programming. I don’t really understand it, to be perfectly honest. It doesn’t make a lot of sense to me. I don’t know, I don’t know what to tell you about that.
Rob: I just googled Fog Creek Glitch and it says, “Fog Creek is renaming itself to Glitch. We’ve been thrilled to see the community embrace Glitch as the home for creating and discovering the coolest stuff on the web.” It sounds like Reddit. I’m confused at this point. I just haven’t followed this story. Fog Creek has been basically, a B2B software company–or at least Manuscript, Trello was, and then Stack Overflow was obviously VC-funded. Stack Overflow, I was going to say social network, but it’s more like a question and answer platform.
Yeah, it’s a trip man. I have mad respect for what Mike Pryor and Joel have built. You and I have both met them in person at BOS. I’ve had multiple conversations with them. These are smart, ethical-driven software developers who have done a lot I think for both the people that they’ve hired, but also in sharing their knowledge and building the tools. I have nothing but respect for these guys. The amount of success they’ve had, when you say, “Yeah, the same people that started Stack Overflow also started Trello and started this other seven or eight-figure company called FogBugz.” that’s a lot to do in a career.
Mike: I wonder if part of the reason they spun that off was because of the way that they want to run the business and the way that they want to treat the developers because I think early on, they had talked a lot about how they wanted to treat everybody—who’s working within the company—with respect and make sure that they participated in the successes of the business.
I remember some blog articles or some discussions on one of the podcasts that they had at one point talk about Stack Overflow, but because Stack Overflow and Trello were both born out of Fog Creek, at some point, they had to split the business. How do you compensate the people who were originally in Fog Creek and were excited and maybe helped out a little bit, but didn’t necessarily go with that team? There was also a question of like somebody had an idea for, I think it was co-pilot at the time, and it ended-up come in like a $1 million line of business for them, ARR. It’s just like, how do you compensate that person for the ideas and stuff that they’ve brought in?
At this point, FogBugz has been running for years, and there’s probably not a huge number of things that they’re going to add to it, I mean they could integrate it with other business processes and things like that, but there’s not a lot of other stuff they could do with it. It’s really just kind of the cash cow for them, but how do you translate that into a financial or monetary success for the people who are currently in the business and may have been there for anywhere up to 10 or 15 years at this point? It’s a private company, so I don’t think they hand out equity. I don’t know.
Rob: I think they did profit sharing, was my recollection. They did hand out dividends because like you just said, it was a pretty profitable company.
Mike: Got it.
Rob: On my end, I just got an email this morning that said, “Stripe is now valued at $20 billion.”
Mike: Oh, is that all?
Rob: Oh, man. Their last round was at $9 billion. I don’t normally follow these funding and valuation stories, but since we basically have had dinner with both the Collison brothers and been on stage with them at MicroConf, I kind of have a vested interest in keeping up with what they’re doing. Bravo to them. I have nothing but respect for those guys.
Mike: That’s an insane number but both of them are super, super smart guys. You stand near them and you just feel dumber.
Rob: Totally. When I’m around them, yeah, I feel dumber, but I feel my IQ points, I gain maybe 5 or 10 just in speaking to them. “Oh, you taught me a new word and a new concept today.”
Mike: “…that I thought I knew for 10 years, but you clearly know it better than me.”
Rob: Yeah, exactly.
Mike: Good for them. I think a lot of our audience probably still uses Stripe.
Rob: Still, what do you mean? Still uses. I wouldn’t go anywhere else, it’s insane to think of going back to the days of Authorize.net and PayPal web payments pro. I guess there’s Braintree now, right?
Mike: That’s what I was going to say. I hear that on a “higher-end” people are migrating to Braintree and, I don’t know if any other options actually other than Stripe and Braintree. But I don’t know anything about Braintree. It’s just interesting to see the ark that they’ve taken over the past, what, eight years or so? It’s just crazy how much they’ve grown and the things that they do are quite honestly, for the entrepreneurial community, they have enabled the vast majority of us to be able to do what we do. Without Stripe, most of the businesses that are out there just would not exist.
Rob: Or it’d be lot harder to get them off the ground. I remember trying to get an Authorize.net account and it just took weeks of literally sending stuff on paper and faxing it back and forth. This was only maybe six years ago, seven years–it wasn’t that long, and I’m not talking 2005. It was just insane to me that a) how are we not doing this online or at least e-signing things? But I literally was just printing out this 30-page document. It was such a nightmare. I’m glad Stripe came on the scene.
Mike: I’ve spent a fair amount of time over the past couple of weeks rebuilding and migrating some of my infrastructure in order to cut costs. I’ve doubled the number of servers. I’ve gone from two servers to four and I’ve reduced the costs of them by out 75% which is odd. I have everything hosted on Azure and they have these things called burstable virtual machines. Basically, if they are running below a certain threshold in terms of process or usage, then you pay basically, a discounted rate for it and you are gaining credits at that point. If you are using more than that percentage then you’re basically burning into your credits
I think they had maxed out the CPU with that but basically, I just paid less for this machine or these machines because I’m not using them all day every day. It’s like there are certain times a day where I need more processing power and rest of the time I just don’t need it. It’s nice to be able to have moved over to those types of servers and save a fair chunk of change. But I needed to split up my infrastructure anyway because I didn’t like having everything on just two servers.
Rob: That makes sense. It’s nice to put a few more bucks in your pocket.
Mike: Yeah. I pushed off on that division for probably about a year or so. It was kind of time to do it.
Rob: Anything else?
Mike: The last thing is, this is totally random but there’s a website that I stumbled across when I was trying to do calculations for my Dungeons and Dragons game, to kind of optimize my character. If you’re into figuring out probabilities on different dice rolls, you can head over to anydice.com. It will basically allow you to write functions that will essentially simulate what the dice rolls are, and then it will show you the percentages and distributions, and you can see crafts and stuff like that of exactly what those distributions look like.
You can say how many attacks or if you have advantage or disadvantage on different attacks or damage rolls or things like that then it will show you what those numbers look like and what’s your average rolls would be.
It’s pretty cool. You can probably spend a whole ton of time on it, but they do have some documentation there and some ready-built functions you just pull, and copy paste into the editor.
Rob: I see what you did there, Mike. Do you realize you started that segment off, you said, “This is totally random.” But any dice stuck. You can’t […] by me, man. Really bad puns. Alright. Cool.
Let’s dive into what we’re talking about today. It’s an article on a blog of freshworks.com. They have a sales CRM , it’s that section or that category of the blog, but the article is titled, “How Lucidchart Grew to 13 million Users on a land-and-expand Strategy.” I want to talk a little bit about the virality and the freemium part of it. It’s an interesting interview with, I believe, is the SVP of Sales and Customer Success of Lucidchart.
If you haven’t heard of Lucidchart, it is a Software as a Service with a freemium model, they have 13 million users and it is like Visio–it is how I think of it. It’s a diagram solution where you can create diagrams and share them and then collaborate on them. Is that an accurate description, Mike? You said you’ve used it.
Mike: Yeah. That’s probably pretty accurate. I think Visio seems like they started out much more for data modelling within a programming environment. But Vision also has a lot of different icons and stuff that you can put in there for like network map layouts and office maps layouts and stuff like that. You can use it for other things like org charts and stuff like that, but I think originally, it seemed like it started out as part of the MSDN suite, you get a few sign-ups for that, and it was primarily a programming tool.
Rob: Right. And it expanded into other things. Lucidchart, looks like it was started around 2010, 2011 and they raised $1 million in funding which you would need if you’re going to do freemium model, and then three years later they raised $5 million, and then two years after that—in 2016—they raised $36 million. I can imagine they probably hit a hockey stick moment where the user growth justified raising–because you raise that much money, you want to have really high valuation, so you don’t give away most of your company.
They said that 96% of Fortune 500 companies use it. They have customers at Google, Amazon, Cisco, and Intel, and they receive around 500,000 sign-ups every month. It’s a free tool, right? It’s free, no credit card, if I recall. That’s still a big number though. A nice horizontal market that these guys are in. They’ve obviously achieved success–13 million users is a ton of people; it’s a ton of people to support, it’s a ton of people just to have your software running.
I wish that they’d told us how many paying users or how many paying accounts because that’s really what I’m interested in. I’m interested to know if they are even profitable on revenue, above the amount of just sheer volume because they must have hundreds of employees, and I would like to know that. But all that said, what I want to talk about today is really the freemium and the viral one and they have some stuff about sales as well.
Mike: I’m sure their competitors would love to know how much money they’re making too.
Rob: Yeah, totally. I know. It’ll come out at some point. They’ll wind up talking about it.
Mike: Alright. Why don’t we dive right in then?
Rob: Sure. The first question for Dan Cook, which is the SVP of Sales, the interviewer asks him, “It runs on a freemium model, how do you pitch the product, and how do you scale it to an enterprise model?” His response is, “The freemium gives them an advantage because they have this—this is where the land-and-expand comes in within a company—they get employees within a company using the product and then they share it with other people in the company to collaborate and then they set-up accounts, so there’s a freemium plus virality there. The reason they sign-up for it is a) it’s free and b) because it’s a good tool.
In the early days it was good enough. It was not a great tool but as it developed, I bet these days, it is best in class or is becoming then. He said that, basically, they can have 15 or 20 paid or free users of Lucidchart within a company. Then they leverage that fact to say, “Alright, IT department, here’s a value proposition for you.” This is a similar model to other tools. Slack, I’ve heard them talk about this a lot. That one small development team within a huge org would start using it and of course, you have to invite other people for it to have any value. Once you have 10, 20, 30 users, IT Departments and frankly, CTOs and CIOs want to have control of that kind of stuff. It’s an interesting dual use of that freemium plus virality.
Mike: Yeah, I’ve seen that at a much, much smaller scale in Bluetick where somebody will sign-up for Bluetick and one of the earlier objections I’ve heard from somebody was like, “Oh, well. I wanted to sign-up for it but then I would have had to go to my boss and get his credit card.” That freemium model, even just the 14-day trial that I had or that I added in after talking to that customer, it allows them to sign-up for it without having to go to their boss and justify like, “Hey, I need the corporate credit card and it’s going to cost this much money.” Because in the enterprise environment, they’re probably going to not only have to go to their boss, but then their boss is going to have to justify it to somebody else.
Nobody really knows if it’s going to work. If they just start using it, in a freemium model, they can just use it and if it doesn’t work out for them, they just shut it down or just abandon it. If it does then as more people start using it then it becomes more visible. As a result of its success, then Lucidchart can go in and ask them for money for an enterprise license or a small group license within a department or something like that. But it is interesting to see that they seem to have intentionally done that or chosen that strategy.
Rob: Right. I want to point out some things that Lucidchart has or had that listeners to this podcast may not have, and if you don’t have all these things in place, it’s going to be difficult, if not impossible to pull off this strategy that they did–this freemium strategy.
Mike: Do you want to start with the $36 million or…?
Rob: That’s what I was going to say. Funding–that’s the first one. It wasn’t $36 million originally. For the first three years it was $1 million. That’s actually not that much money for three years. You can hire a few people but it’s not like you’re going to hire 20 employees and not bleed that out. But yes, funding was one advantage they had; $1 million in funding. Another $5 million three years later. The fact that they are a very horizontal market much like Trello and Dropbox and Slack, those are three other tools that have used the same approach–this freemium plus viral component.
If you’re in a horizontal market and you can raise enough funding or self-fund this thing to the point where you can provide the service to all the free users, it really can be this fascinating approach. The other thing is they have virality, not every tool has that. I think of a tool like Drip or even a proposal software, invoicing software, there’s a little bit of virality and that you can have a Powered By or a Sent From or a Sent With. But true, deep virality like Trello where–I mean, I use some Trello boards for that other people but there’s a lot of collaboration that goes on there. Slack is all about being viral. You have to invite other people to get any value.
Lucidchart does not need, need, need. You’d have another person to get value, but I would say, that’s probably a big reason that people would use it because it’s so easy to get you charts and collaborate. Of course, Dropbox has it’s all other things. Having virality plus that freemium I think is a big thing that people overlook. Because having freemium on its own without funding, being horizontal, and virality is not all it’s cracked up to be.
Mike: I think this is also a tool that because of what you’re using it for, you’re using it to help communicate, that helps it too. That kind of sets it apart from a lot of other tools. Trello, to some extent, just by inviting people, you get to have them take a look at what it is that you’re working on. But with Lucidchart, you can print those things out, you can embed them into Word document, or even just take screenshots, but by being able to invite people and say, “Hey, this is the process, or this is the workflow that I’m looking at. What do you think? Is this going to work for our team?” That right there—because it’s embedded in the communications—that just inherently makes it even more viral.
Because if people look at the tool and they like it and they want to use it because it’s a lot easier to use than something like Visio, it gives it those additional advantages. It gives people the “aha” moment that they need in order to say, “Yeah. I want to use this too.”
Rob: Another question that he asks this VP of Sales, which I thought was kind of cool, I don’t know, I hadn’t thought that much about it, but he says, “Let’s talk about your value proposition. How does it work when you’re convincing a company to buy the enterprise version? What to the teams and what does the enterprise get out of it? Why don’t they just keep using their individual accounts?” I like that because a) you’re asking why should they upgrade or why should they consolidate? He says, basically, the value to the end-user is that it’s all consolidated and it’s much easier to share among their co-workers. You don’t have to convert diagrams into other formats to be compatible. If everybody starts using it in your company then you don’t have to be like, “Oh, you’re using Visio? I’m using Lucidchart. Let’s convert to this format.” and blah blah blah.
Then to the IT department, the first one is consolidated billing, so there’s only one bill and you know you can negotiate that and manage it. It’s just easier to do it. Also, for training, a lot of big companies especially provide training for their tools. If you have just everybody using one tool, it’s easier. Then secure logins which is fine but the one that really gets them is document retention which is where someone leaves the company, as someone is running that company or running that IT department, you want to have access to everything they did while they were there because you might need to reference that later. If they take individual accounts away with them then you’ll never get that stuff back. It’s not even someone stealing it or taking it away, it kind of goes away. They forget about it or you just don’t have access to it.
That was a big one working at Leadpages and Drip is seeing people leave and being like, “Oh, yeah. There was that one thing that he shared with me and now I don’t have access to it.” It could be kind of a pain. It’s interesting to think—if you’re going to try to pull this off—about what the value prop is that you have to offer for people to upgrade.
Mike: The other interesting piece there that’s in that enterprise group subscription there is the idea that, it’s not just if somebody leaves the company, but what happens if you have to fire somebody. You want to be able to have like this master key that says, “Okay, we’re going to lock you out of everything before we follow through with letting this person go.” and then still have access to all that stuff. There’s that side of it to consider too. I think one and two-person businesses don’t tend to think about that because they just don’t experience it. But the larger companies that they are advertising to or agencies or other small businesses 50-100 people, those companies do think about that and it is important to them.
It’s good to understand that that is a value proposition that you can leverage as a marketing point to those larger companies and say, “Look, this is why you should upgrade or this is why you should buy higher-priced tier because we are including this for your account versus a freelancer account which doesn’t really have any of that stuff and oh, we have a 25 people have 25 different freelancer accounts.” Yeah, it’s not ideal because they get 25 different bills but at the same time, that master key is kind of what people are looking for.
Rob: And then he asked him a question about their outbound sales process. He says, “Yeah, we have 80 sales people and their core play is they basically target companies that already have some form of adoption.” You likely would, I’m guessing, you’re going to use some type of data augmentation tool, like a full contact, to augment you customer data to know who they work for or just look at the email address, look at the domain, the .com on the end of their email, and do a Group By and see how many people are using it. As simple as that.
If you get 20 people inside Disney or Target or BestBuy or something, it’s like they reach out and say, “Hey, you have 20 people that have signed-up for accounts. Do you want to aggregate that?” It’s an interesting thing. I’ve heard, I believe, it was either Slack or Trello also talk about this as an approach. It’s like warm outbound. It’s an interesting approach.
Mike: You just hope that their CEO or their CTO isn’t so totally paranoid that he says no outside tools that are based in the cloud and shuts them all down.
Rob: Yeah, it could happen, I supposed.
Mike: I think that’s a lot less common today than I think it was 5 or 10 years ago. But I have run into those people who say that kind of stuff and there’s usually exceptions for that. They can’t possibly have everything self-hosted. It is just not realistic.
Rob: Yup. There’s a couple more questions that I think are relevant. One is, he asks him, “Lucidchart is the popular alternative to Microsoft Visio, how do you differentiate yourself?” He basically gracefully says, “We’re grateful to Vision, but it’s outdated. It’s a classic Microsoft style product, and it has a lot of innovation on it since they acquired it in 2000.” That’s that whole thing where, yeah, you can have a better funded competitor but as a startup, your secret super power is you can move fast, and you can be closer to the customer. Because I’m guessing, a lot of the developers working on Visio—assuming there are some still—they’re not nearly in close contact as someone at Lucidchart is when they’re in their customer success department having one-on-one conversations with their clients.
Mike: I think that’s partly a difference in how the product was originally engineered. There is a cloud version of Visio, I believe, so it’s enabled for people to collaborate and stuff which has always been the biggest problem with Visio documents, is that it’s like a Word document that you have to basically send it back and forth. Even if you’re using something like Dropbox, you still have the problem of having multiple people trying to work on the same thing at the same time and it just doesn’t work very well.
That’s why Google docs has kind of come around and been such a massive upstart in the past, what was it, like 10, 15 years ago when that came out. But Word had been out in the mid-90s or the early 90s. Something like Lucidchart just has a fundamentally different delivery mechanism than Visio. Visio has to make that backward compatibility so they’re not able to do the same types of things versus Lucidchart, they’re like, “We don’t care about actually running locally on the desktop.” It just doesn’t matter to them which gives them some advantages right there.
Rob: Right. It’s interesting to think like if Microsoft really cared about the market—I just don’t think it’s big enough for them to care about probably—but they should have, would have built a web-based version back in 2008 because it was totally doable. But they didn’t and so, somebody decided at some point not to do that. I know they have collaboration features now built into the Office tools. I don’t use many of the Office tools anymore, only when absolutely need to. I’m just in Google docs all the time.
Mike: I bet they sunk all the resources into the Windows Vista.
Rob: Windows Vista, yeah. That must have been it.
Mike: It must have been it.
Rob: To round it out, he ask him, “What do you think are the top three reasons for Lucidchart’s success?” He says, “Well, people need visual communication tools and there wasn’t really anything that was that great. Second is, we made it enterprise ready, so selling into that enterprise, it was not hard. They have collaborations and integrations and all that stuff and freemium–those are the three things he says. I think he leaves out the virality. I actually believe the fact that a) the market is big, I think is a good thing. They chose a large market. I have a Lucidchart account. The reason I have it is because I got invited by two separate people on two separate diagrams. I would count as one of the 30 million users.
Now, I don’t go in, I never created a Lucidchart diagram myself, but I have collaborated with other people. I think that’s an element, a fourth thing that he didn’t mention that I do think is probably a decent driver of their trial sign-ups.
Mike: I do think the other thing that really helps them is the fact that it’s surprisingly easy to be able to get in and get started with Lucidchart, create some things that are generically applicable across the business without being locked into , “Oh, I have to use this for data modelling.” It sort of does these other things well but not really. That’s the way I would describe the difference between Visio and Lucidchart.
Whereas Lucidchart doesn’t necessarily have the data tie ins to be able to, let’s say for example, a database design, but there’s lots of other ways to do that these days. That makes Vision, I’ll say, that less powerful in that respect. But you don’t need that with Lucidchart. You can just create a generic process. Instead of sketching it out on paper and saying, “Oh well, I’ve got this customer support process that’s got to do this.” Or, “I’ve got this marketing process where I’ve got this email Drip campaign over here and the sales page over there.” You can wire them up in Lucidchart and use that to document your marketing sales funnel, for example. It works really, really well for that.
The downside is, you do have to keep it up-to-date because nothing is automatic but as long as you need to document it anyway, you may as well use something like Lucidchart where you can create good documentation that shows you how everything ties together.
Rob: 500,000 sign-ups every month, Mike. What would you do with that?
Mike: I don’t know. Take it to the bank, retire?
Rob: Yeah, that’s crazy. You can just imagine the processes they must have in place in order to even be able to support that many users.
Mike: You know, I’d be interested to see what they have for a backend infrastructure because I’m just like an engineering nerd like that. Like, “How the heck do you handle that much? How many is that per minute?”
Rob: I know. One point of data is I went to Crunchbase and it says, “According to owler.com that they have 7.1 million in annual revenue.” You don’t know how accurate that is but it’s an estimate by an outside company.
Mike: And at 500,000 sign-ups a month, that’s about one every five seconds which is insane.
Rob: Yup. I know, it’s crazy. They say, let’s see, employee count is between 101 and 250–it’s about what I expect. It says, “A team of 150 plus employees.” You don’t know when that was written but I would guess, if it was even a year ago, I bet they’re at probably over 200 by now. That gives you an idea of their size. That’s the thing, they’ve raised $42 million, if they are at $7 million or $10 million in recurring revenue, that’s not a home run. They need to get bigger than that in order to return that kind of funding because the valuation was definitely north of $100 million. I mean, $120 million, $180 million, somewhere in that range, if I were to guess. At that point, you need to sell for half a billion or a billion dollars to return venture returns. To get there, you need to have $100 million in ARR. They have a long way to go to get there.
I don’t want folks to take this entire episode the wrong way, I’m not saying that we should model ourselves after Lucidchart or anything like that, I was pointing out that the way to use freemium, viral loops, thinking about horizontal markets, thinking about other way to approach problems, how could you, in your little maybe B2B bootstrap niche try and corporate some of these things?
Mike: I think the other takeaway you could have for our audience of listeners is that, even with 500,000 sign-ups a month, as you said, financially, this is probably still not a home run.
Rob: Right. If they haven’t raised $40 million, it could be alright if they’d only raise up to $6 million and could have done it, then that’s a totally different story but that’s where I like raising a lot of funding and having this big valuation. It means you have much higher expectations at that point.
Mike: Right. All it does is dilute the founder and some of the investors, earlier investors maybe, but it makes it hard to have a spectacular exit if you’ve, I’ll say, weighed down by too much investment.
Well, on that note, I think that about wraps us up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 412 | The Pitfalls of Several Commonly Recommended Marketing Tactics
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the pitfalls of commonly recommended marketing tactics. This topic was inspired by a tweet from Scott Watermasysk from KickoffLabs. Some of the tactics discussed include split testing, affiliate programs, content marketing, and more.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about the pitfalls of several commonly recommended marketing tactics. This is Startups For The Rest Of Us episode 412.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you with the same mistakes we’ve made. What’s going on, Mr. Rob?
Rob: We received a voicemail from someone, I believe he was in Brisbane, Australia, but it was definitely an Australian accent and I could barely make out the audio. The audio quality was so bad that we don’t even know his name or the question he asked. If that is you, please call us back or better yet, just record an MP3 on your local machine and just attach it or send us a Dropbox link to questions@startupsfortherestofus.com. Because it sounded like a good question but couldn’t really make out what he’s saying during that. How about you? What are you up to?
Mike: I’m in the middle of testing a new road map process with one of my customers using Teamwork. The basic idea is that I set up a project in Teamwork, mainly because this customer’s been with me for a while and it’s not a really complicated stuff that they’re asking for what they need, but they need assurances or like timeline and implementation and everything else.
I’ve got a road map that I’ve been using in the background using Trello for a while, but I just haven’t kept up with it. I’ve never really gotten into Trello like most people have. What I did was I created a project in Teamwork and then I invited them to look at it. I took their […], threw them in there. Basically, I’m working through them and it gives me the opportunity to comment on those things directly and allow them to comment back on them as well. It creates this really nice feedback loop between those things.
I haven’t added any other customers into it yet, but I think that that might be something that I’ll look into the future. But I’ve looked at other road mapping tools in the past and I’ve never really quite found one that suited me.
Rob: Is this for communicating your road map to customers?
Mike: If a customer asks for something, how do I communicate it to the rest of the customers, like, “This is what is going to be going on and this is what the priority is.” It’s a little bit different than like a bug tracker, obviously, if there’s a bug or somebody needs support or something like that, it’s different, but I’m the only one who can add stuff in so that it’s visible, but anybody can comment on it, at least so it seems like.
Rob: I’m trying to think there’s a tool that we use at Drip and of course, I can’t remember the name of it and we always used it to announce what we had built. It’s like, “This is what we released in September.” It’s like a change log tool but it was user-friendly. It was not super techie. I’m trying to think if you could use that pretty easily to suggest like, “Here’s what we’re working on in order.” I think there was actually a little feature where you could just add a bulleted list, but it was super stripped down. It was a very simple tool. It was $10 a month or something. It’s probably someone’s side project, although it’s pretty well-designed. Is that all you need is just a list of things? Why not just have, maybe a public Google doc or even just a static page on your website that’s like /roadmap? It’s just five things in bold list like, “Here are the next major five efforts we’re doing.”
Mike: There’s two things. One is we’ve been going back and forth through email and I said, “Look, I understand you got all these different things that you want to see, but I need a list of them. Just going back and forth one at a time is really not working. Send me the whole list.” They sent me the entire list and broke it out into three different sets like, “These are things we need very, very soon, these are things that can wait a little while, and these are things we’d like to eventually see down the road.” I looked at them and they all mapped pretty well like my internal road map anyway, which I have in my bug tracker, but I’m not going to pay for other people outside of business to have an account there just because it’s going to get expensive.
I was trying to figure out how do I work back and forth with them because I had a bunch of questions on some of them and there were comments on other things. It was a question of, “How do I work with them to flesh out what each of these things is?” because if I got an email that’s, let’s say, two pages or something like that, like bullets that they email to me, it’s hard to go back and forth about one line item and five line items in an email. I really needed something that was going to break them out so that I can comment on things individually and separate them a little bit more. Does that makes sense?
Rob: It does, yeah. It’s not just for outbound communication, it’s kind of like you’re almost collaborating with a client. It’s not that they’re paying you for this and not that you’re going to build it exactly as you’re expecting, but they really are. It’s much more customer development process than it is, “Hey, we’ve got suggestions in here is what’s we’re going to build.”
Mike: Yeah, I’d say customer development is probably a better way to phrase it than I did. It is a lot of back-and-forth to figure out like, “Is this going to work for you or what exactly did you mean by that? How are you going to use this?” for example. Because some of the questions are like, “I hear what you’re saying and it makes sense but where you going to use this for? I want to know, is there a better way to do this or is there something else that we could do either short-term or manually that would get them there faster?”
Rob: Right. Cool, it sounds interesting. I think of it as less of a road map process and more of, I guess, it is impacting your road map, but it’s more like a customer collaboration or a customer development process that you’re doing using Teamwork. That makes sense?
Mike: Yeah, it is.
Rob: Cool.
Mike: But I went on Google and searched for road map software a while back and I came across all these other things, like there’s ProductBoard, aha.io, ProductPlan, ProdPad, and things like that. It’s just none of them really seem to fit what I was looking for in terms of this back-and-forth communication with either individual customers or with small groups of them. I really think I just want to identify a couple of more customers to maybe work on this with, but it’s really a matter of, does it make sense in that particular context for that customer?
Rob: That makes sense. Have you seen MailChimp’s new branding?
Mike: I got an email about it, but I haven’t looked at it yet.
Rob: It’s a trip. I think I saw a news article. I think I was on SparkToro Trending. SparkToro is Rand Fishkin’s new startup and there’s a trending page and they talked–there was an article written about MailChimp’s new branding. Obviously, I think of MailChimp as the ESP. There are other email service providers but they are the biggest one. They are the ones that send a billion emails a day. Like the title tag on their homepage, which is what will appear on Google now, is marketing platform for small business.
I don’t know if it’s a pivot as much of just a rebrand. But like their homepage used to say, “We help you sell more stuff at MailChimp,” or something like that, it’s very much commerce-focused, but their headline is now, “Your business was born for this. Become the brand you want to be with smarter marketing built for big things.” It’s very, very interesting. It’s a gutsy move. The colors are different. I actually like the design of the site. It’s definitely jarring.
Remember when the Drip rebrand happened and there was the magenta and the other colors, I feel this is similar but different, but the headline and the value prop on it feels not nearly as focused as what I’ve always thought of as MailChimp. The fact that the sub-headline is “Become the brand you want to be with smarter marketing built for big things,” that doesn’t resonate with me as a customer and never would have at any point in my entrepreneurial career. I’m concerned. These guys are smart, let’s not fault MailChimp, but I feel like maybe they’ve made a misstep here.
Mike: I don’t know. I think it’s easy to think that if a company changes their brand name, that, “Oh, this company isn’t for me any more. This tool isn’t for me,” but at the same time, the tool itself hasn’t change. It’s really just a marketing message. I forget who said this, but the line is something along the lines of, “What got you here won’t get your there.” Like you said, they’re sending a billion emails a day but that doesn’t necessarily acquire them more customers faster, they need a marketing message that resonates with a larger group of people than they currently have or they’re currently after because they probably saturated the market. The ESP market is really highly saturated. There’s tons of players there so they need to differentiate themselves an go after people who are either just not using something or are using something else and want to find something that is going to fit them better.
Rob: Yeah. That makes sense and that’s thing. When you’re not inside an privy to the conversations that they’re having and who they’re competing against when they’re going for big deals, you don’t know. That’s where I’m like, “Who am I to say?” but this is my opinion on the outside. Again, with the Drip stuff when there was that rebrand, it was right before I was leaving the company. It was happening and rolling out. There were so many naysayers and haters on social media and all the stuff, but they were privy to the information that is actually going on inside the company.
I guess what I’m saying is, it could be so easy for me to sit here and just rail on this MailChimp rebrand because it’s “different,” but I trust that MailChimp is pretty damn smart and pretty good at what they do, and that they took the information. It’s either going to work or they’ll change. If that headline doesn’t resonate with people, they’ll change it. I think that’s the thing. When you make these big gutsy moves and you’re trying to land and expand or pivot into a larger space or whatever it is that they’re doing, apply to more people, as you said, you have to do risky stuff at some point.
What’s interesting is in the early days of a startup, you take a lot of risks but no one’s there to notice and no one cares. But when you have 1000, 10,000, 50,000 customers and you take these risks, a lot of people get up in arms over it, but really it’s the same risk that you’ve been taking all along.
Mike: I think for large companies like that, it doesn’t matter nearly as much as we might sit here in armchair quarterback it, you know Monday morning quarterback. Just because their existing customers are still going to be paying them money, it’s about them acquiring new customers, not appealing to the ones that they already have. That’s the way I see it.
Rob: That’s the thing. As long as you don’t do such a pivot that you completely turn your existing customers off and have a bunch of churn and stuff, man, that would be really hard to do, especially with ESPs where there is some lock-in in the space.
Mike: Yeah, it is hard to move from one to another. I’ve done that before. It sucks.
Rob: Yup. So what are we talking about today?
Mike: Today, we’re going to be talking about a couple of pitfalls of some commonly recommended marketing tactics. This topic was inspired by a tweet from Scott over at KickoffLabs and we’ll link that into the show notes. But he said, “One of the worst startup diseases is AB testing. Such a colossal waste of time when you don’t have significant traffic,” and it got me to thinking, what other things are there that are commonly recommended marketing tactics that I see and hear about or you’ve see and hear about, that are either colossal waste of time or there’s pitfalls or things that you don’t necessarily know about until you get into it, and only to realize that you’re walking into a hornet’s nest and there’s more trouble than it’s worth or it’s just not going to work for you or it’s something that you can do short term, but it’s not going to be sustainable for you.
Rob: Cool. Let’s dig in. I was pretty excited when you talked about doing this topic today because I think there are a lot of, I won’t say misinformation but it’s more like myths or people making things look easier than it actually is in order to sell things, in order to sell their software or sell their infoproducts.
Mike: I think that’s the big piece of it is that they think it look easier or sound easier than it actually is. For split testing, we’ll start off there because of the tweet from Scott but you need substantial traffic and most early entrepreneurs don’t have it. It’s not just that you need substantial traffic, you need substantial traffic and a short enough time window where your test is going to be able to give you at least some sort of significant results.
The other thing that I think is a little bit misleading is about whether or not the split testing that you actually could do, if you were to get 1% results or an increase every month for 12 months, would you actually be that much better off? I have seen some odd anecdotes where people will say, “Hey, we did all these split test or we split tested something against itself and one was significantly different than the other.” It does make me wonder a little bit as to whether or not with the resources that we as small business owners have available, can we actually even effectively execute on that stuff in a way that is going to move the needle for our business?
Rob: If you’re thinking about the early days of your startup and you’re trying to build something people want, you’re in customer development, you have a website, a little bit of traffic, split testing is the furthest thing from your mind or should be the furthest thing from your mind. You need to be talking to customers in those early days, to figure out what is that I can build that people are willing to pay for, that’s different enough from the competition that I can communicate that and people will sign up.
Typically, you’re going to split test your home page or your pricing page or your sign-up funnel, and I would not even consider it before I had, let’s say 5000 or 10,000 uniques a month. Really, at that point, it depends on what revenue is and if I have the time to test the headline here or there. But if I were to do split testing at that point, let’s say I had 10,000 uniques a month coming to their home page, I would probably just set up one or two alternate headlines and just let it run and see what happens. But it wouldn’t be some massive effort where I would be redesigning the entire page to spending a bunch of time to try to get some major difference in conversions, because there are other levers you should be pulling at that point. When you have 5000 or 10,000 uniques, you should be worrying about more traffic, or you should be worrying about, frankly, converting more of the existing trials you have to pay the customer. It’s going to tend to move the needle more than spending a lot of time on split testing.
Mike: The next marketing tactic is using affiliate programs. I see a lot of startups from Product Hunt, BetaList, and a couple of other places that startup it up where they’re pitching this affiliate program and saying, “Hey you can manage your affiliate program through our SaaS and you’ll be able to get more customers for your business.” But the reality is that the attribution itself is fine within those pieces of software, but finding the affiliates who are able to bring in enough leads to make it worth your time is actually pretty hard.
I’ve done this a couple of times. It seems to me the software itself is reasonably straightforward in most cases to implement, but finding the people who are actually going to bring leads that are qualified to you is a lot more challenging. It’s just, you have to do a lot of education to those people, you have to make it worth their time, and you have to be finding affiliates who have a substantial traffic source already or existing list where you can point them back to your website, give them an affiliate code or something like that, and give them an offer that’s actually going to get them to convert. If you don’t have all of those things, then it’s just not going to work. It doesn’t matter how many people you sign up for your affiliate program. You need the qualified leads to be coming in.
Rob: Yeah. Finding affiliates is way harder than most people think unless this is a primary strategy for you and you have a network. The people who I’ve seen make it work—let’s talk about Clay Collins of LeadPages—it was built mostly on the affiliate model. He did that because he knew all the people in the internet marketing space. He had the clout to get them to do webinars with him. It wasn’t just, “Hey, send me some traffic.” It was, “Let’s do a webinar,” and then he pitch an annual deal and it was 50% off, there was time pressure and there were bonuses, I should say, that you got if you sold there. That’s how he grew it that fast.
ConvertKit did the same thing. It was the same playbook. If you’re going to do that, then do that and go all in on it. I recall, at one point, Clay was doing 20 webinars a month or something in the early days, 15 or 20. It was crazy. He’s just a machine. In that case, you’re an exception. You’re not going to start from a cold network where you don’t know other people who have big audiences and make affiliate programs work from the start. It’s going to be a ton of work. In addition, the process side I just talked about, I’ve only seen it work in one niche and it’s in this aspirational business niche. It’s in the people who want to be bloggers or be info marketers and they’re being sold info on how to start your own biz from home.
You look at LeadPages and ConvertKit and they both serve that same path Flynn-ish niche. You can’t just go to enterprise software and think you’re going to do this big affiliate model, sell to Fortune 500 companies or Fortune 1000 companies using that. Or even freelancers would be possible because there are people with those audiences, but it wouldn’t work to the same extent that it does because the audience is just aren’t as big and they aren’t as prone to buy. I’d say there is one or two other spaces that I know of that are similar to that, that aspirational thing where you can sell them the idea or the promise of, “Hey, you’re going to have a landing page provider or here’s an ESP and here’s how to start your blog and make money.” But beyond those, it is really hard to get an affiliate program profitable one off the ground.
I had affiliate program with HitTail and Drip, and they made money, they were profitable, but they were not major driving factors. Even when we did joint ventures and we did joint venture webinars, we’d do JV mailings, it made money and it was fine, but these were not the major drivers of growth that I’ve seen in most of my startups. Again, not saying it can’t work but it’s definitely different than it appears.
Mike: Yeah, it’s definitely a lot harder than it appears. You have mentioned enterprise software sales where affiliate models wouldn’t really work and I agree with that, but there’s a slightly different model for those enterprise deals where it’s basically a reseller arrangement. You don’t have direct contact with the enterprise companies, you resell to other companies, you sign them on as resellers which is a slightly different take on an affiliate program, but it’s not substantially that much different. It’s the same basic idea–somebody else is bring in the lead in. The difference with a reseller is that the reseller is basically managing the customer relationship versus with the affiliate, they’re bringing them in and then they’re hands-off at that point.
The next one is content marketing. I think that the content marketing has been all the rage for the past several years and I don’t see it necessarily ending anytime soon, but I think the bottom line for content marketing is that it is time and resource intensive to general content on a repeated basis. If you’re trying to blog once a week or put out a few articles each week or each month, that’s fine, but it’s not just the generation of those which is time and resource intensive, it’s also the marketing and distribution of those. If you’re trying to post it to Quora and various startup list and out your email newsletter and social media, that gets to be time and resource intensive, especially if you’re trying to cross-promote between different channels and schedule everything–it just gets complicated.
There’s also very long lead time to getting results and getting measurable results from them. It could be anywhere from three to six months, it could be as much as a year or 18 months. Regardless if that, it’s a lot of time and effort to get that engine running. But once it’s running, you’ll do really well with it but it just takes a long to get there and there’s probably better places for you to spend your time if you’re early on.
Rob: Yeah, this one is tough because content marketing can and does work. You just got to remember content marketing is more about SEO and it is a long-term play. That’s why when we get the questions from someone like, “Hey, I’m at $2000 MRR. Should I start my content marketing?” It depends. Probably not, but it really depends what niche are you in? Are there distribution networks? Not even networks but like growthhackers.com and YCombinator are distribution avenues for you to get the content out and are there people daily reading stuff like this? Are you going to be able to drive it? Are you going to build your list? And then long term, are you targeting SEO terms? Organic terms that are going to bring traffic? That’s how the play has really been successful for these larger companies.
Of the three we’ve talked about so far, I think content marketing is the best and most viable, but your critiques are absolutely correct in that it often takes a long time to get results and it is very resource intensive to generate content at the quality, and these days at the length that’s required to make it dent because there’s so much noise, man. I have not been on the social news sites like inbound.org used to be one but it shut down. growthhackers.com is still there, Hacker News, even SparkToro Trending, I had not been on any of those. I just don’t go on them regularly.
I’ve looked at a few of them this morning and the volume of content is crazy. It’s so much more and so much of it is highly targeted and you can tell it’s targeted to try to just get clicks to it. It’s a startup that is trying to get people to come through from Hacker News or from Product Time or from whatever to generate traffic to then funnel into the leads. We’ve all been there. I totally know that playbook. I was doing it back in 2012-2013 or even before that from my blog in 2010, but there is just a lot of noise out there. To rise above that, it’s a lot of time and money to create content that is good enough to warrant people’s attention.
Mike: The fourth item on our list is social media marketing and by this, I don’t mean paid ads like if you’re going on Twitter or Facebook or Instagram, whatever you like. You can pay for advertising, but that’s not what I’m talking about. I’m talking about building an audience and then trying to market content to them. I think the reason that this can be a substantial pitfall for people is that it seems like it should be easy but it’s time-intensive to gain followers. When you post things, a lot of times only a fraction of your followers are going to see a particular piece of content.
For example, I think on Twitter, the stuff that I’ve heard is about 5% of your followers are going to see any given tweet that you put out. So even if you have 100,000 followers, only about 5000 of them are going to see that. So the strategy to overcome that is you tweet multiple times a day and use something like Buffer to put those tweets out at different times a day to try and catch people on different time zones.
At that point, I feel like you’re also oversaturated in the people who are on Twitter a lot and it could very well be a turn-off to those people, but again, it’s a matter of, “What type of product are you promoting to people and is it going to be relevant to the people who are on Twitter?” I tried Twitter advertising for AuditShark, for example, and it just absolutely did not work because the people who are in the enterprise are just not the type of people who are looking for security software on Twitter.
Rob: Yeah and that’s not to say that Twitter advertising won’t work for anyone. I also think LinkedIn could be better for you, but I tried LinkedIn many times with multiple products and never got LinkedIn advertising to pay itself back. Again, not saying it won’t work, it’s just going to take trial and error if you can get it to work at all.
Mike: On that note, James Kennedy is going to be speaking at MicroConf Europe on a LinkedIn strategy for acquiring leads, so that might be interesting to you.
Rob: Awesome. That would be a cool one. I agree, man, social media marketing is great for B2C and it can be great for prosumer stuff, aspirational entrepreneurship, or even photographers–they tend to be aspirational. But when you’re talking about real sales tools, or real email marketing tools, or real tools that you want people to buy and use for years, and you need businesses that are making decisions, comparing you to competitors and all that, social media is a nice to have. It is not something in general that’s going to drive your bottom line if you are a B2B SaaS app. I’m sure there’s one exception to this, maybe two, I’m sure there are a couple, but overall as a bootstrapper or as someone who is really just trying to block and tackle, there are so many more things that you could be doing than to tooling around on Facebook and Twitter.
Mike: I think the real challenge here is just the fact that entrepreneurs tend to be on the internet a lot, we see Twitter a lot and we see Facebook a lot, so it’s natural to assume, “Hey, I should test that out or use that as a marketing strategy.” But again, it’s time-intensive to gain the followers. The reality is that what you want and most of those cases is actually just send them over to an email list anyway so you […] email address. Assuming you can get an engine up and running that can do that for you then that’s fine, but you still need a way to make it work and it can be very time-intensive to gain those followers and it’s not obvious always how you’re going to be able to do that.
The last one we have on our list today is offline advertising. By this, you can take it a bunch of different directions. It could be billboard advertising, […] response in a conference or podcast or anything where the direct attribution is a little bit more challenging. That also include things like sending postcards or physical mailers to people. I think, is it GRC marketing that does that? They advocate that a lot for sending out the bulky mail to people just to get their attention. That works great for those situations where you have a higher price point product or it’s a service, and there’s going to be a relationship that you’re trying to establish with them or the dollar amount is high enough that it’s worth it to send those.
The biggest downside of those is that it’s extremely hard to do the attribution in most cases and then there’s also a much longer iteration cycle. Instead of looking at couple of weeks for paid ads on Facebook or Twitter, you’re looking at a month, two months, maybe three months for an iteration cycle to send out a mailer and then figure out whether or not you got results from it, track those back, then make some adjustments or tweaks, and then move on to the next group. It can get very complicated to juggle all of those things at once because even if you’re just doing it repeatedly over the course of a month or two, it’s just going to suck up all of your time and attention. You’re not really going to be able to do very much else.
Rob: Yeah, it is expensive, too. It’s a long turn-around time and the iteration cycles are just, I would say, too long for a startup. Now, once you’re down the line, you have product market fit and it you’re in a space where offline is a really good option, obviously you could experiment with it. But it’s not something I would be messing with in the early days. And as you said, attribution is rough. I did some trade publication magazine advertising for one of my products once or twice and it didn’t work. Again, it’s not saying it wouldn’t work for you, but I quickly realized how expensive it was and just how you can’t tell if it’s working.
There’s a little adage, “50% of advertising doesn’t work.” You just can’t tell which 50% and that’s when people are talking about magazine and TV and radio and that kind of stuff. Obviously, you can tell which 50% works when you’re online and we are spoiled by that, in all honesty. I think that’s a real boon to the online marketer today. Offline is not something that I think you should get into lightly unless you really know what you’re doing.
Mike: I do know people who make offline advertising work. The problem is just that the iteration cycles are anywhere from 8-12 weeks just to find out whether or not a particular mailer got through to the right people and whether they got those people into their sales funnel. It does work especially in his particular business, but again, it’s just the lead time for you to go from one iteration cycle to the next and get the information back. It’s just hard if you’re still trying to make ends meet.
I think generally speaking, when you are trying to evaluate a marketing tactic is to whether or not it’s going to work for you or decide whether it’s going to be something that you want to try, there’s a couple of things to keep in mind. The first one is, is there a complicated setup that needs to be done first? Are you going to need to go create a bunch of accounts or are you going to need to integrate a bunch of different tools together? Is there ongoing effort that needs to be done? Are you going to have to constantly be creating or doing things? Any of those things where it takes your involvement on a very repeated basis is going to eat into the feasibility of using that strategy in the long term.
For blogging, for example, or content marketing, if you have to do that every single week, it can be difficult. It’s not saying you can’t outsource it. If you have money, you can obviously substitute that in for your time, but again, that’s a resource trade-off that you’re going to need to make down the road. You can start off doing it yourself or you can outsource it to somebody else. But those are the type of things you need to think about when you’re trying to figure out, “Is this something that I’m going to try and do long-term?” or are there better places that you could be spending your time?
Rob: Right because it’s one thing to intentionally try something and know that it’s not going to scale, but to do it as an experiment. It’s another thing to try a bunch of different tactics that really you don’t have much hope of sustaining without really doubling down on them. If you shotgun it and you try five different things but all of them need a tremendous amount of resources and effort, and you only go 10% of the way with each of them, you’re throwing an article here and you set up an affiliate plan here, and you do a Twitter and Facebook post a week, it’s like you’re not doing anything well.
But if you dive into one and experiment, figure out is there any way to make this possible, you dig in for a month or six weeks or whatever it takes, and you do these sprints where you dig in, learn everything you can about it and execute on it or you hire someone to do that if you have the budget. Determine, “Is this going to work right now given my business, yes or no?” Answer that question and then move on to the next thing–that is much more of the approach that I would recommend and the approach that I’ve taken in the past. You don’t need many of those to work in order to scale your business. If you find one or two pretty substantial marketing practices and you figure out the angle and you figure out how to get in there, that can grow your business to well under seven figures. It doesn’t take 10 different marketing tactics to get there.
With that, we’ll wrap up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you with the same mistakes we’ve made. What’s going on, Mr. Rob?
Rob: We received a voicemail from someone, I believe he was in Brisbane, Australia, but it was definitely an Australian accent and I could barely make out the audio. The audio quality was so bad that we don’t even know his name or the question he asked. If that is you, please call us back or better yet, just record an MP3 on your local machine and just attach it or send us a Dropbox link to questions@startupsfortherestofus.com. Because it sounded like a good question but couldn’t really make out what he’s saying during that. How about you? What are you up to?
Mike: I’m in the middle of testing a new road map process with one of my customers using Teamwork. The basic idea is that I set up a project in Teamwork, mainly because this customer’s been with me for a while and it’s not a really complicated stuff that they’re asking for what they need, but they need assurances or like timeline and implementation and everything else.
I’ve got a road map that I’ve been using in the background using Trello for a while, but I just haven’t kept up with it. I’ve never really gotten into Trello like most people have. What I did was I created a project in Teamwork and then I invited them to look at it. I took their […], threw them in there. Basically, I’m working through them and it gives me the opportunity to comment on those things directly and allow them to comment back on them as well. It creates this really nice feedback loop between those things.
I haven’t added any other customers into it yet, but I think that that might be something that I’ll look into the future. But I’ve looked at other road mapping tools in the past and I’ve never really quite found one that suited me.
Rob: Is this for communicating your road map to customers?
Mike: If a customer asks for something, how do I communicate it to the rest of the customers, like, “This is what is going to be going on and this is what the priority is.” It’s a little bit different than like a bug tracker, obviously, if there’s a bug or somebody needs support or something like that, it’s different, but I’m the only one who can add stuff in so that it’s visible, but anybody can comment on it, at least so it seems like.
Rob: I’m trying to think there’s a tool that we use at Drip and of course, I can’t remember the name of it and we always used it to announce what we had built. It’s like, “This is what we released in September.” It’s like a change log tool but it was user-friendly. It was not super techie. I’m trying to think if you could use that pretty easily to suggest like, “Here’s what we’re working on in order.” I think there was actually a little feature where you could just add a bulleted list, but it was super stripped down. It was a very simple tool. It was $10 a month or something. It’s probably someone’s side project, although it’s pretty well-designed. Is that all you need is just a list of things? Why not just have, maybe a public Google doc or even just a static page on your website that’s like /roadmap? It’s just five things in bold list like, “Here are the next major five efforts we’re doing.”
Mike: There’s two things. One is we’ve been going back and forth through email and I said, “Look, I understand you got all these different things that you want to see, but I need a list of them. Just going back and forth one at a time is really not working. Send me the whole list.” They sent me the entire list and broke it out into three different sets like, “These are things we need very, very soon, these are things that can wait a little while, and these are things we’d like to eventually see down the road.” I looked at them and they all mapped pretty well like my internal road map anyway, which I have in my bug tracker, but I’m not going to pay for other people outside of business to have an account there just because it’s going to get expensive.
I was trying to figure out how do I work back and forth with them because I had a bunch of questions on some of them and there were comments on other things. It was a question of, “How do I work with them to flesh out what each of these things is?” because if I got an email that’s, let’s say, two pages or something like that, like bullets that they email to me, it’s hard to go back and forth about one line item and five line items in an email. I really needed something that was going to break them out so that I can comment on things individually and separate them a little bit more. Does that makes sense?
Rob: It does, yeah. It’s not just for outbound communication, it’s kind of like you’re almost collaborating with a client. It’s not that they’re paying you for this and not that you’re going to build it exactly as you’re expecting, but they really are. It’s much more customer development process than it is, “Hey, we’ve got suggestions in here is what’s we’re going to build.”
Mike: Yeah, I’d say customer development is probably a better way to phrase it than I did. It is a lot of back-and-forth to figure out like, “Is this going to work for you or what exactly did you mean by that? How are you going to use this?” for example. Because some of the questions are like, “I hear what you’re saying and it makes sense but where you going to use this for? I want to know, is there a better way to do this or is there something else that we could do either short-term or manually that would get them there faster?”
Rob: Right. Cool, it sounds interesting. I think of it as less of a road map process and more of, I guess, it is impacting your road map, but it’s more like a customer collaboration or a customer development process that you’re doing using Teamwork. That makes sense?
Mike: Yeah, it is.
Rob: Cool.
Mike: But I went on Google and searched for road map software a while back and I came across all these other things, like there’s ProductBoard, aha.io, ProductPlan, ProdPad, and things like that. It’s just none of them really seem to fit what I was looking for in terms of this back-and-forth communication with either individual customers or with small groups of them. I really think I just want to identify a couple of more customers to maybe work on this with, but it’s really a matter of, does it make sense in that particular context for that customer?
Rob: That makes sense. Have you seen MailChimp’s new branding?
Mike: I got an email about it, but I haven’t looked at it yet.
Rob: It’s a trip. I think I saw a news article. I think I was on SparkToro Trending. SparkToro is Rand Fishkin’s new startup and there’s a trending page and they talked–there was an article written about MailChimp’s new branding. Obviously, I think of MailChimp as the ESP. There are other email service providers but they are the biggest one. They are the ones that send a billion emails a day. Like the title tag on their homepage, which is what will appear on Google now, is marketing platform for small business.
I don’t know if it’s a pivot as much of just a rebrand. But like their homepage used to say, “We help you sell more stuff at MailChimp,” or something like that, it’s very much commerce-focused, but their headline is now, “Your business was born for this. Become the brand you want to be with smarter marketing built for big things.” It’s very, very interesting. It’s a gutsy move. The colors are different. I actually like the design of the site. It’s definitely jarring.
Remember when the Drip rebrand happened and there was the magenta and the other colors, I feel this is similar but different, but the headline and the value prop on it feels not nearly as focused as what I’ve always thought of as MailChimp. The fact that the sub-headline is “Become the brand you want to be with smarter marketing built for big things,” that doesn’t resonate with me as a customer and never would have at any point in my entrepreneurial career. I’m concerned. These guys are smart, let’s not fault MailChimp, but I feel like maybe they’ve made a misstep here.
Mike: I don’t know. I think it’s easy to think that if a company changes their brand name, that, “Oh, this company isn’t for me any more. This tool isn’t for me,” but at the same time, the tool itself hasn’t change. It’s really just a marketing message. I forget who said this, but the line is something along the lines of, “What got you here won’t get your there.” Like you said, they’re sending a billion emails a day but that doesn’t necessarily acquire them more customers faster, they need a marketing message that resonates with a larger group of people than they currently have or they’re currently after because they probably saturated the market. The ESP market is really highly saturated. There’s tons of players there so they need to differentiate themselves an go after people who are either just not using something or are using something else and want to find something that is going to fit them better.
Rob: Yeah. That makes sense and that’s thing. When you’re not inside an privy to the conversations that they’re having and who they’re competing against when they’re going for big deals, you don’t know. That’s where I’m like, “Who am I to say?” but this is my opinion on the outside. Again, with the Drip stuff when there was that rebrand, it was right before I was leaving the company. It was happening and rolling out. There were so many naysayers and haters on social media and all the stuff, but they were privy to the information that is actually going on inside the company.
I guess what I’m saying is, it could be so easy for me to sit here and just rail on this MailChimp rebrand because it’s “different,” but I trust that MailChimp is pretty damn smart and pretty good at what they do, and that they took the information. It’s either going to work or they’ll change. If that headline doesn’t resonate with people, they’ll change it. I think that’s the thing. When you make these big gutsy moves and you’re trying to land and expand or pivot into a larger space or whatever it is that they’re doing, apply to more people, as you said, you have to do risky stuff at some point.
What’s interesting is in the early days of a startup, you take a lot of risks but no one’s there to notice and no one cares. But when you have 1000, 10,000, 50,000 customers and you take these risks, a lot of people get up in arms over it, but really it’s the same risk that you’ve been taking all along.
Mike: I think for large companies like that, it doesn’t matter nearly as much as we might sit here in armchair quarterback it, you know Monday morning quarterback. Just because their existing customers are still going to be paying them money, it’s about them acquiring new customers, not appealing to the ones that they already have. That’s the way I see it.
Rob: That’s the thing. As long as you don’t do such a pivot that you completely turn your existing customers off and have a bunch of churn and stuff, man, that would be really hard to do, especially with ESPs where there is some lock-in in the space.
Mike: Yeah, it is hard to move from one to another. I’ve done that before. It sucks.
Rob: Yup. So what are we talking about today?
Mike: Today, we’re going to be talking about a couple of pitfalls of some commonly recommended marketing tactics. This topic was inspired by a tweet from Scott over at KickoffLabs and we’ll link that into the show notes. But he said, “One of the worst startup diseases is AB testing. Such a colossal waste of time when you don’t have significant traffic,” and it got me to thinking, what other things are there that are commonly recommended marketing tactics that I see and hear about or you’ve see and hear about, that are either colossal waste of time or there’s pitfalls or things that you don’t necessarily know about until you get into it, and only to realize that you’re walking into a hornet’s nest and there’s more trouble than it’s worth or it’s just not going to work for you or it’s something that you can do short term, but it’s not going to be sustainable for you.
Rob: Cool. Let’s dig in. I was pretty excited when you talked about doing this topic today because I think there are a lot of, I won’t say misinformation but it’s more like myths or people making things look easier than it actually is in order to sell things, in order to sell their software or sell their infoproducts.
Mike: I think that’s the big piece of it is that they think it look easier or sound easier than it actually is. For split testing, we’ll start off there because of the tweet from Scott but you need substantial traffic and most early entrepreneurs don’t have it. It’s not just that you need substantial traffic, you need substantial traffic and a short enough time window where your test is going to be able to give you at least some sort of significant results.
The other thing that I think is a little bit misleading is about whether or not the split testing that you actually could do, if you were to get 1% results or an increase every month for 12 months, would you actually be that much better off? I have seen some odd anecdotes where people will say, “Hey, we did all these split test or we split tested something against itself and one was significantly different than the other.” It does make me wonder a little bit as to whether or not with the resources that we as small business owners have available, can we actually even effectively execute on that stuff in a way that is going to move the needle for our business?
Rob: If you’re thinking about the early days of your startup and you’re trying to build something people want, you’re in customer development, you have a website, a little bit of traffic, split testing is the furthest thing from your mind or should be the furthest thing from your mind. You need to be talking to customers in those early days, to figure out what is that I can build that people are willing to pay for, that’s different enough from the competition that I can communicate that and people will sign up.
Typically, you’re going to split test your home page or your pricing page or your sign-up funnel, and I would not even consider it before I had, let’s say 5000 or 10,000 uniques a month. Really, at that point, it depends on what revenue is and if I have the time to test the headline here or there. But if I were to do split testing at that point, let’s say I had 10,000 uniques a month coming to their home page, I would probably just set up one or two alternate headlines and just let it run and see what happens. But it wouldn’t be some massive effort where I would be redesigning the entire page to spending a bunch of time to try to get some major difference in conversions, because there are other levers you should be pulling at that point. When you have 5000 or 10,000 uniques, you should be worrying about more traffic, or you should be worrying about, frankly, converting more of the existing trials you have to pay the customer. It’s going to tend to move the needle more than spending a lot of time on split testing.
Mike: The next marketing tactic is using affiliate programs. I see a lot of startups from Product Hunt, BetaList, and a couple of other places that startup it up where they’re pitching this affiliate program and saying, “Hey you can manage your affiliate program through our SaaS and you’ll be able to get more customers for your business.” But the reality is that the attribution itself is fine within those pieces of software, but finding the affiliates who are able to bring in enough leads to make it worth your time is actually pretty hard.
I’ve done this a couple of times. It seems to me the software itself is reasonably straightforward in most cases to implement, but finding the people who are actually going to bring leads that are qualified to you is a lot more challenging. It’s just, you have to do a lot of education to those people, you have to make it worth their time, and you have to be finding affiliates who have a substantial traffic source already or existing list where you can point them back to your website, give them an affiliate code or something like that, and give them an offer that’s actually going to get them to convert. If you don’t have all of those things, then it’s just not going to work. It doesn’t matter how many people you sign up for your affiliate program. You need the qualified leads to be coming in.
Rob: Yeah. Finding affiliates is way harder than most people think unless this is a primary strategy for you and you have a network. The people who I’ve seen make it work—let’s talk about Clay Collins of LeadPages—it was built mostly on the affiliate model. He did that because he knew all the people in the internet marketing space. He had the clout to get them to do webinars with him. It wasn’t just, “Hey, send me some traffic.” It was, “Let’s do a webinar,” and then he pitch an annual deal and it was 50% off, there was time pressure and there were bonuses, I should say, that you got if you sold there. That’s how he grew it that fast.
ConvertKit did the same thing. It was the same playbook. If you’re going to do that, then do that and go all in on it. I recall, at one point, Clay was doing 20 webinars a month or something in the early days, 15 or 20. It was crazy. He’s just a machine. In that case, you’re an exception. You’re not going to start from a cold network where you don’t know other people who have big audiences and make affiliate programs work from the start. It’s going to be a ton of work. In addition, the process side I just talked about, I’ve only seen it work in one niche and it’s in this aspirational business niche. It’s in the people who want to be bloggers or be info marketers and they’re being sold info on how to start your own biz from home.
You look at LeadPages and ConvertKit and they both serve that same path Flynn-ish niche. You can’t just go to enterprise software and think you’re going to do this big affiliate model, sell to Fortune 500 companies or Fortune 1000 companies using that. Or even freelancers would be possible because there are people with those audiences, but it wouldn’t work to the same extent that it does because the audience is just aren’t as big and they aren’t as prone to buy. I’d say there is one or two other spaces that I know of that are similar to that, that aspirational thing where you can sell them the idea or the promise of, “Hey, you’re going to have a landing page provider or here’s an ESP and here’s how to start your blog and make money.” But beyond those, it is really hard to get an affiliate program profitable one off the ground.
I had affiliate program with HitTail and Drip, and they made money, they were profitable, but they were not major driving factors. Even when we did joint ventures and we did joint venture webinars, we’d do JV mailings, it made money and it was fine, but these were not the major drivers of growth that I’ve seen in most of my startups. Again, not saying it can’t work but it’s definitely different than it appears.
Mike: Yeah, it’s definitely a lot harder than it appears. You have mentioned enterprise software sales where affiliate models wouldn’t really work and I agree with that, but there’s a slightly different model for those enterprise deals where it’s basically a reseller arrangement. You don’t have direct contact with the enterprise companies, you resell to other companies, you sign them on as resellers which is a slightly different take on an affiliate program, but it’s not substantially that much different. It’s the same basic idea–somebody else is bring in the lead in. The difference with a reseller is that the reseller is basically managing the customer relationship versus with the affiliate, they’re bringing them in and then they’re hands-off at that point.
The next one is content marketing. I think that the content marketing has been all the rage for the past several years and I don’t see it necessarily ending anytime soon, but I think the bottom line for content marketing is that it is time and resource intensive to general content on a repeated basis. If you’re trying to blog once a week or put out a few articles each week or each month, that’s fine, but it’s not just the generation of those which is time and resource intensive, it’s also the marketing and distribution of those. If you’re trying to post it to Quora and various startup list and out your email newsletter and social media, that gets to be time and resource intensive, especially if you’re trying to cross-promote between different channels and schedule everything–it just gets complicated.
There’s also very long lead time to getting results and getting measurable results from them. It could be anywhere from three to six months, it could be as much as a year or 18 months. Regardless if that, it’s a lot of time and effort to get that engine running. But once it’s running, you’ll do really well with it but it just takes a long to get there and there’s probably better places for you to spend your time if you’re early on.
Rob: Yeah, this one is tough because content marketing can and does work. You just got to remember content marketing is more about SEO and it is a long-term play. That’s why when we get the questions from someone like, “Hey, I’m at $2000 MRR. Should I start my content marketing?” It depends. Probably not, but it really depends what niche are you in? Are there distribution networks? Not even networks but like growthhackers.com and YCombinator are distribution avenues for you to get the content out and are there people daily reading stuff like this? Are you going to be able to drive it? Are you going to build your list? And then long term, are you targeting SEO terms? Organic terms that are going to bring traffic? That’s how the play has really been successful for these larger companies.
Of the three we’ve talked about so far, I think content marketing is the best and most viable, but your critiques are absolutely correct in that it often takes a long time to get results and it is very resource intensive to generate content at the quality, and these days at the length that’s required to make it dent because there’s so much noise, man. I have not been on the social news sites like inbound.org used to be one but it shut down. growthhackers.com is still there, Hacker News, even SparkToro Trending, I had not been on any of those. I just don’t go on them regularly.
I’ve looked at a few of them this morning and the volume of content is crazy. It’s so much more and so much of it is highly targeted and you can tell it’s targeted to try to just get clicks to it. It’s a startup that is trying to get people to come through from Hacker News or from Product Time or from whatever to generate traffic to then funnel into the leads. We’ve all been there. I totally know that playbook. I was doing it back in 2012-2013 or even before that from my blog in 2010, but there is just a lot of noise out there. To rise above that, it’s a lot of time and money to create content that is good enough to warrant people’s attention.
Mike: The fourth item on our list is social media marketing and by this, I don’t mean paid ads like if you’re going on Twitter or Facebook or Instagram, whatever you like. You can pay for advertising, but that’s not what I’m talking about. I’m talking about building an audience and then trying to market content to them. I think the reason that this can be a substantial pitfall for people is that it seems like it should be easy but it’s time-intensive to gain followers. When you post things, a lot of times only a fraction of your followers are going to see a particular piece of content.
For example, I think on Twitter, the stuff that I’ve heard is about 5% of your followers are going to see any given tweet that you put out. So even if you have 100,000 followers, only about 5000 of them are going to see that. So the strategy to overcome that is you tweet multiple times a day and use something like Buffer to put those tweets out at different times a day to try and catch people on different time zones.
At that point, I feel like you’re also oversaturated in the people who are on Twitter a lot and it could very well be a turn-off to those people, but again, it’s a matter of, “What type of product are you promoting to people and is it going to be relevant to the people who are on Twitter?” I tried Twitter advertising for AuditShark, for example, and it just absolutely did not work because the people who are in the enterprise are just not the type of people who are looking for security software on Twitter.
Rob: Yeah and that’s not to say that Twitter advertising won’t work for anyone. I also think LinkedIn could be better for you, but I tried LinkedIn many times with multiple products and never got LinkedIn advertising to pay itself back. Again, not saying it won’t work, it’s just going to take trial and error if you can get it to work at all.
Mike: On that note, James Kennedy is going to be speaking at MicroConf Europe on a LinkedIn strategy for acquiring leads, so that might be interesting to you.
Rob: Awesome. That would be a cool one. I agree, man, social media marketing is great for B2C and it can be great for prosumer stuff, aspirational entrepreneurship, or even photographers–they tend to be aspirational. But when you’re talking about real sales tools, or real email marketing tools, or real tools that you want people to buy and use for years, and you need businesses that are making decisions, comparing you to competitors and all that, social media is a nice to have. It is not something in general that’s going to drive your bottom line if you are a B2B SaaS app. I’m sure there’s one exception to this, maybe two, I’m sure there are a couple, but overall as a bootstrapper or as someone who is really just trying to block and tackle, there are so many more things that you could be doing than to tooling around on Facebook and Twitter.
Mike: I think the real challenge here is just the fact that entrepreneurs tend to be on the internet a lot, we see Twitter a lot and we see Facebook a lot, so it’s natural to assume, “Hey, I should test that out or use that as a marketing strategy.” But again, it’s time-intensive to gain the followers. The reality is that what you want and most of those cases is actually just send them over to an email list anyway so you […] email address. Assuming you can get an engine up and running that can do that for you then that’s fine, but you still need a way to make it work and it can be very time-intensive to gain those followers and it’s not obvious always how you’re going to be able to do that.
The last one we have on our list today is offline advertising. By this, you can take it a bunch of different directions. It could be billboard advertising, […] response in a conference or podcast or anything where the direct attribution is a little bit more challenging. That also include things like sending postcards or physical mailers to people. I think, is it GRC marketing that does that? They advocate that a lot for sending out the bulky mail to people just to get their attention. That works great for those situations where you have a higher price point product or it’s a service, and there’s going to be a relationship that you’re trying to establish with them or the dollar amount is high enough that it’s worth it to send those.
The biggest downside of those is that it’s extremely hard to do the attribution in most cases and then there’s also a much longer iteration cycle. Instead of looking at couple of weeks for paid ads on Facebook or Twitter, you’re looking at a month, two months, maybe three months for an iteration cycle to send out a mailer and then figure out whether or not you got results from it, track those back, then make some adjustments or tweaks, and then move on to the next group. It can get very complicated to juggle all of those things at once because even if you’re just doing it repeatedly over the course of a month or two, it’s just going to suck up all of your time and attention. You’re not really going to be able to do very much else.
Rob: Yeah, it is expensive, too. It’s a long turn-around time and the iteration cycles are just, I would say, too long for a startup. Now, once you’re down the line, you have product market fit and it you’re in a space where offline is a really good option, obviously you could experiment with it. But it’s not something I would be messing with in the early days. And as you said, attribution is rough. I did some trade publication magazine advertising for one of my products once or twice and it didn’t work. Again, it’s not saying it wouldn’t work for you, but I quickly realized how expensive it was and just how you can’t tell if it’s working.
There’s a little adage, “50% of advertising doesn’t work.” You just can’t tell which 50% and that’s when people are talking about magazine and TV and radio and that kind of stuff. Obviously, you can tell which 50% works when you’re online and we are spoiled by that, in all honesty. I think that’s a real boon to the online marketer today. Offline is not something that I think you should get into lightly unless you really know what you’re doing.
Mike: I do know people who make offline advertising work. The problem is just that the iteration cycles are anywhere from 8-12 weeks just to find out whether or not a particular mailer got through to the right people and whether they got those people into their sales funnel. It does work especially in his particular business, but again, it’s just the lead time for you to go from one iteration cycle to the next and get the information back. It’s just hard if you’re still trying to make ends meet.
I think generally speaking, when you are trying to evaluate a marketing tactic is to whether or not it’s going to work for you or decide whether it’s going to be something that you want to try, there’s a couple of things to keep in mind. The first one is, is there a complicated setup that needs to be done first? Are you going to need to go create a bunch of accounts or are you going to need to integrate a bunch of different tools together? Is there ongoing effort that needs to be done? Are you going to have to constantly be creating or doing things? Any of those things where it takes your involvement on a very repeated basis is going to eat into the feasibility of using that strategy in the long term.
For blogging, for example, or content marketing, if you have to do that every single week, it can be difficult. It’s not saying you can’t outsource it. If you have money, you can obviously substitute that in for your time, but again, that’s a resource trade-off that you’re going to need to make down the road. You can start off doing it yourself or you can outsource it to somebody else. But those are the type of things you need to think about when you’re trying to figure out, “Is this something that I’m going to try and do long-term?” or are there better places that you could be spending your time?
Rob: Right because it’s one thing to intentionally try something and know that it’s not going to scale, but to do it as an experiment. It’s another thing to try a bunch of different tactics that really you don’t have much hope of sustaining without really doubling down on them. If you shotgun it and you try five different things but all of them need a tremendous amount of resources and effort, and you only go 10% of the way with each of them, you’re throwing an article here and you set up an affiliate plan here, and you do a Twitter and Facebook post a week, it’s like you’re not doing anything well.
But if you dive into one and experiment, figure out is there any way to make this possible, you dig in for a month or six weeks or whatever it takes, and you do these sprints where you dig in, learn everything you can about it and execute on it or you hire someone to do that if you have the budget. Determine, “Is this going to work right now given my business, yes or no?” Answer that question and then move on to the next thing–that is much more of the approach that I would recommend and the approach that I’ve taken in the past. You don’t need many of those to work in order to scale your business. If you find one or two pretty substantial marketing practices and you figure out the angle and you figure out how to get in there, that can grow your business to well under seven figures. It doesn’t take 10 different marketing tactics to get there.
With that, we’ll wrap up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 411 | Bootstrapping vs. Funding: 19 Questions To Ask
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about bootstrapping versus funding. It is a common question new entrepreneurs ask themselves and based on an article on the subject, the guys comment and elaborate on some of these questions.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about 19 questions to ask when considering bootstrapping versus raising funding. This is Startups For The Rest Of Us episode 411.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Well, there is a book recommendation that you’ve given awhile ago called, The Hard Thing About Hard Things. I’ve commented it, I’ve bought the book, but I haven’t read it yet. I’ve been kind of diving into that a little bit. I find it fascinating probably more so from a historical perspective because Ben Horowitz, who’s the author, he’s talking about his journey through the startup after he had left PayPal, and running this other company, and they basically only had one customer that was providing 90% of the revenue and basically spun that business off into its own separate entity and got rid of a bunch of assets with it, and talks about he built up the company from there.
What I find fascinating about it is that the new company is called Opsware. I remember back in those days when I was doing sales demos and presentations and stuff, I was actually in some cases, competing against Opsware.
Rob: That’s a trip. That book–it is brutal. Have you finished it?
Mike: I’ve not, no.
Rob: I was so stressed. It’s a good book but I don’t know if I could listen to it again because what he has to go through to grow and keep his company from basically going under and then he sells it for $1 billion or multiple billions of dollars and then he starts Andreessen Horowitz—that part is not in the book but he talks a little bit about it—but he is the Horowitz of Andreessen Horowitz. I remember listening to it and being like, “Yup, I could not have done this. I would have imploded.” It is, The Hard Thing About Hard Things is a good title for it.
Mike: Yeah, definitely. I do not think that I would have wanted to go through all the stuff that he’s gone through especially just the financial challenge of trying to go public at the time that he did, right after the economy kind of cratered. What did he say? Like there was 200 plus IPOs the year before and then there was 6 or 12 or something like that the year that he did it. Wow!
Rob: It’s crazy. He went public, he didn’t get acquired, I forgot what…
Mike: No, he went public first and it was in a bad environment. The reason they went public was because they couldn’t get anymore investment capital from investors. Then it was a bunch of years later, like 2007 or something like that where they ended up selling to HP for, I think, it was $1 or $2 billion.
Rob: Got it. That was my memory, but I have forgotten they went public. It’s agonizing. It really is the shoot for the $1 billion exit. You don’t need to be a several hundred-million-dollar revenue journey raising venture capital and all that stuff. A lot of it just did not sound like something I ever want to experience in my life, even for payout like that. I don’t it’d be worth it.
Mike: How about you? What’s going on this week?
Rob: Well, you and I just had a conversation before this episode started recording. We are evaluating potentially having sponsorships on Startups For The Rest Of Us. If you are a company, whether you’re a startup or if you think that you would be interested in reaching the Startups For The Rest Of Us audience—it’s a lot of bootstrappers but it’s also a lot of people running six and seven figure businesses, drop us a line at questionsforstartupsfortherestofus.com and just put “Sponsor” or “Sponsorship” in the subject line, and we’ll talk about it.
Obviously, as a listener, we’re been doing this for eight years, and we appreciate the trust that you put in Mike and I to produce high-quality content and to deliver value to you. We have no intention of “screwing up” the podcast by adding a bunch of sponsorship roles in the thing and interrupting your flow, but we are at a point where it does cost us money and it does cost us time away from our businesses to do this, so we’re just evaluating it. It’s a preliminary thing, we definitely have not made up our mind about it, but we do want to explore this as an option.
Mike: Again, that email address is questionsforstartupsfortherestofus.com and just put “Sponsorship” or “Sponsor” in the subject line, and we’ll take a look at it. Again, we’ll just kind of evaluate how things go. To reiterate what Rob had said, we appreciate you guys listening and we don’t want to screw up the whole thing. I think like a lot of things that we’ve done at MicroConf every year I think is just kind of a play it safe approach, but at the same time, look for ways to change things to make things better.
Rob: Yeah, we’ve experimented a lot with things at MicroConf over the years. Some have worked, some haven’t. But one thing that I think we’ve done a good job is recognizing when they work and don’t and basically changing it up when things don’t. Even if we try it, if it suddenly becomes a […] or something like that, I could imagine pivoting.
Today, we’re going to be running through an article by a listener and commenter name Don Gooding. The title of his article is Bootstrapping versus Venture Capital: 19 Questions to Ask. But what I find interesting about the article is it’s not just about venture capital, it is about angel investment as well. But before we get there, we have a comment from Adam on episode 406, and 406 was five episodes ago when you and I discussed, “Should bootstrappers raise money?” was the title of the episode. Adam said, “I’m so glad you jumped in, Mike, and said something about Rob hitting 21k MRR saying that it wasn’t a fair comparison.” Because I believe I was saying, “Drip hit 21k MRR quickly and if it took me four years to get there then I would’ve […] it down.” And you said, “Well, that’s not a fair comparison because you’re in a different place and if you’re building something on the side, maybe it is four years.”–to that point.
Back to Adam. He says, “I’m still trying to hit 21k MRR after four year, but I don’t think I’m failing at what I’m doing. Maybe an episode on what you think that growth is, that people should be aiming for, this was a good episode. A follow-up question to Mike would be, why have you or have you not fun strapped Bluetick?”
Mike: Oh, that’s a good question that I don’t have a good answer for.
Rob: It’s something evaluated, no?
Mike: Oh, yeah. I’ve looked at it a couple of times. I had a few conversations privately with people I know who have raised money, and just asked them what their take on it was, what their experiences was after going through it, what were the drawbacks, what would they have done differently. I got a sense that it was going to be rather complicated and time-consuming, and I didn’t have the time to spend on it. I continue to kind of look at it and continue to think about but it’s not something where I’ve said, “Yeah, I definitely want to do that. I’m all in. I’m going to dedicate the next X weeks or months whatever going out and raising funding.”
I’ve probably spent a lot more time working on getting Bluetick to a better place. I think I have been open about the fact that early on, I had hired a bunch of contractors to build a lot of the core infrastructure of Bluetick. Quite frankly, it was not done very well so there’s a lot of things that are generally screwed up and it makes it difficult to make changes. I would prefer to move fast if I can help it, but the problem is a lot of the architecture and the choices that were made at the time make that difficult. I have a hard time pulling away from those things and doing some of the clean-up work to basically make myself be able to move faster.
Because I feel like if I had like a pile of money, I would feel obligated to expand things a lot quicker and maybe even more than I’m possibly comfortable with, and I just know that there are certain parts of the app that if I were to dump 50 or 100 users on it all at once, it’s not going to scale very well. There are certain processes that need to run and it’s just not going to take a large influx of people very well. It can do it, I’d probably have to tweak a couple of settings to make it happen, but I’m not real comfortable doing that. I think it’s partly out of obligation, partly out of complexity and the time that I would have to spend on it.
Rob: You have technical debt already.
Mike: Yes. I think you have technical debt as soon as you write a single line of code.
Rob: Well, not if it’s fully unit tested, though. I think of […] there’s that, I don’t if it’s a joke or it if it’s truly the definition but it’s like, “Legacy code is code that is not highly unit tested.” Yeah, you have a little bit of technical debt but to hear that it’s hard to make changes, that’s a real bummer to hear given how early stage you are, and that you’re a technical founder. That’s the whole point of us being technical founders, that’s our skill set, we shouldn’t have that.
Mike: Maybe I should caveat that a little bit more. It’s not that it’s hard to make changes, it’s that I feel uncomfortable making changes to certain places because they’re not as well unit tested as I would like them to be. The software does a lot. There’s some changes I’ll just push out. It’s just like, “Hey, this is a frontend UI changes, it’s not that big of a deal.” But then when you get into things like, how mailboxes are stored and how the data is synchronized, I’m real hesitant to make changes to those because there is, in one particular case I can think off the top of my head, there was literally no way for me to unit test it whatsoever.
It’s hard to justify going in there and just making whole scale changes that would make things easier because I know that it’s working and if it breaks, it does a lot of work every second, and things could go seriously sideways very, very quickly. The new build server I put in place a couple of weeks ago would actually make rolling back pretty easy, but then I’d have to go through and figure out what in the code broke. Again, it’s not easy to unit tested that piece.
Rob: Yeah, I feel like, “Next time, should we just build, I don’t know, simple project management that just pulls things out of databases. It’s that no connections to any external sources and no queues. I don’t want any queues, I want everything synchronize.
Mike: Honestly, that’s part of it is the queues and stuff that I have to deal with. Queues processing, storing data, being able to filter certain things out and, “Oh, somebody deleted this piece of data.” It kind of sucks to have things moving while you’re also writing the code on it. I’m sure you went through this with Drip. There’s so much…
Rob: That’s SaaS though.
Mike: I know. It’s like open heart surgery–it feels like sometimes.
Rob: Yeah, every time we did anything meaningful to scheduling or, I mean there’s all kinds of stuff that’s so easy to screw up. If you can figure out a way to smoke earn—not smoke test—but to get you in a test on that stuff because the fact that you don’t feel comfortable making changes to a part of your app, that’s going to be a hindrance forever. It’s not going to get better, it’s only going to get worst especially if it grows, if you start hiring people, that’s a big red zone there that I think you need to think about remedying early.
Mike: Yeah. […] is there’s a component that I’m using where to get into the technical details of it, there’s a C# Class and I have to serialize it. In order to do that, in order to store the data. The problem is they’ve marked it as sealed which means I can’t inherit from it, which means I can’t really do anything with it. I’ve been working with them to try and figure out like, “Is there a way I can get an interface for this or something like that so that I can create it?” Because they don’t have a public constructor for it because it’s a sealed class, it’s encapsulated in the assembly, I can’t narrow from it either. I really don’t have any other options other than faking it which is what I’ve done so far. I basically have my own object that very, very closely mimics theirs, but it’s not perfect, and that’s the problem. I’ve found a few edge cases here and there, it’s kind of scary. I’m hoping it will come up with a solution sooner rather than later, but I’ve been working with them for probably six months on it.
Rob: One minute while I update my spreadsheet. Let’s see, apps to not start as an unfunded single founder, email marketing for writer, cold email outreach–the list is getting longer and longer. It’s like, these things don’t seem that complicated when you look at it from the outside. “I want to build an ESP. This is going to be a piece of cake.” said Derek and I before we wrote code.
Mike: I think anything where you have an outside dependency that you don’t completely control or have complete access to, that’s where it gets hard. Or you’re relying on events coming in to the system and you have to do data processing on.
Rob: Alright. Well, let’s keep moving on with this episode. Our second comment on episode 406 was from Don Gooding. He linked over to a few articles he’s written and one of them which we’re going to discuss today. His comment was, “I write a lot about bootstrapping versus venture capital or angel funding. They’re definitely a bunch of issues to consider both early and later. I hope you’ll consider the following posts helpful and not spammy.” and I do consider them helpful. He links to three different articles. His blog is fourcolorsofmoney.com. Don, if you’re listening, register the 4colorsofmoney and also, redirect that over because I tried that as well and it just goes nowhere.
He linked to the first article which is, Bootstrapping Versus Venture Capital: 19 Questions to Ask–we’re going to talk about that today. He also linked to another article called, The Bootstrap to Funding Pivot Playbook which is about bootstrapping first and then raising funding later. He talks about revenue financing in that one. Then his last article is, Revenue-Based Financing: Five Different Options and he walks thru them which is pretty interesting.
His site is called Four Colors of Money because he looks at bootstrapping, he looks at grants, he looks at grant and equity–those are the four colors. He’s obviously—having read through it—pretty knowledgeable about this stuff. Again, we will include those three links in the show notes. You can always go back on those comments on episode 406 if you wanted to see his full comment.
But today, we are going to talk through his article Bootstrapping Versus Venture Capital: 19 Questions to Ask. We won’t have time to go through all 19 question, but the idea here is to think about whether you can and should bootstrap or whether you need to raise funding.
His first question is, “How much of your own capital do you have. Do you have a way to self-fund it?” Self-funding and bootstrapping sound like they’re the same thing, but they’re different. Bootstrapping is truly having almost no money. A few hundred dollars, a thousand dollars, a couple thousand dollars, and then growing a business based purely on its revenue and profits.
Self-funding is if I have $1000 in the bank or $200,000 in the bank, or I had another business that was throwing off money or another income stream that was throwing off money that I could then take and start my next business from.
Self-funding is a lot of what I did. In the early, early days, I bootstrapped everything right out of consulting revenue but spent very little money. Then the more business revenue I had, I stayed consulting during the day full-time, and I took that business revenue and used it to self-fund the next thing, and the next thing, and the next thing, and each of them got bigger and bigger. It took me a long time to get from having .net invoice doing $300 a month, 10 years later, even longer, 11 years later, it’s Drip doing seven figures a year and having exit.
I didn’t have to raise during that time because I self-funded, but it took me a lot longer than if I had come up with an idea and just raised funding early on. That’s kind of how I think about the trade-offs is I believe it takes longer if you’re in a self-fund unless you do have a rich uncle or a trust fund. But his first question to think about is how much capital on your own do you have that you can invest in the business?
Mike: I feel like this is more of a runway question because the money itself, you either have to when the business itself is generating money, how much is left over for you to leave versus how much are you going to be able to put back into the business. If you’re running a business on the side or on nights and weekends and stuff like that, then you presumably have a full-time job, and that is keeping your self alive and your family fed while the business is getting the rest of the profits. But at some point, things are going to transition, and you have to make some choices about like what your future looks like, do you have enough money to be able to spend $1000 on ad words or something like that to test out a market? You may even need that money early on.
That comes down to the fundamental question that he’s got here is, how much of your own capital do you have? Can you afford to run experiments early on? Do you have more time on your hands or do you have more money? This is getting more at the money side of the equation. If you have plenty of time, if your timeline is five years, you can take as long as you want to do most things. Certain industries of course will move very quickly, and competitors will swoop in, not ideal if you’re trying to take five years to do it but certain ones you can do that.
I think Patrick McKenzie, with Bingo Card Creator, he slowly built that up. Nobody else wanted to get into market because there wasn’t a lot there. But he was still able to make a pretty good business out of it. He just took a really long time to do it.
Rob: His next few questions look at ways that if you don’t have the money to self-fund, ways to look around and see if you can essentially raise funds but not from venture capitalists or angels. His second question is, how likely it is you can raise funds from family or friends. Third question is, “Can your product support a Kickstarter style campaign?” which I believe a lot of people overlook. Info products and even some software, not B2B, but have to really be B2C in general can use Kickstarter as well as obviously physical products would be a great way to do it. His fourth one is, “Will customers pay you well in advance of you delivering your product or service?” Can you essentially pre-sell it? His fifth one actually is, “Does it qualify for a grant?” I don’t think that applies to most of our listeners nor any business I’ve ever started, but it is one of the colors of money that he talks about.
Mike: You know, I’ve thought about this kind of crowd funding. I’ve heard people gone down that path, not on Kickstarter, but someplace else, I can’t remember the name of it.
Rob: Like Indiegogo or something?
Mike: I think, yeah, it was Indiegogo. The general consensus was people are much more willing to fund individual ventures and things where there’s a physical product. But when it comes to software, people are not particularly interested. Maybe that’s just because it’s kind of self-selecting where the people who are building those generally are targeting them at businesses versus if you’re going to do something where it’s like, “Oh, this is a way to organize baseball cards,” or something like that, if it’s something that has a wider appeal and it’s a non-business use, you’ll find the hobbyist into that or the people who are prosumers, so to speak, they are going to be into it, and they would probably fund it. But if you’re going to try and create a CRM or something like that, who’s going to fund that? I can’t think of anyone who would want to willingly throw in money unless it was for their own business at which point, it’s not really for the greater good so to speak.
Rob: Totally. When I look back at the 173 Kickstarter projects that I’ve backed. Mike, did you hear what I just said?
Mike: Oh my god.
Rob: Oh, no. That’s the number of successful projects I’ve backed. I’ve 185 Kickstarter projects. Oh, the humanity, Mike. It’s so embarrassing. I just love Kickstarter. But I don’t think I’ve backed a single piece of software. My taste, it’s a lot of graphic novels, it’s a lot of table top games, it’s a lot of little tech gadgets. There was a Kano–the open source computer that I could teach my kids how to put computers together and do that stuff. A lot of it is some learning, some teaching, and some gadgetry and stuff. I think that my gist is that my taste are not uncommon. I do agree that in trying to launch a project in Kickstarter would be hard. But there are a lot of listeners who are not just trying to do B2B software as we’ve talked about.
I’m going to skip over a couple of these questions. But another couple of questions that I think are interesting to ask because they imply that you should probably raise some type of at least angel and potentially go after venture funding. One is, “Do you think it will take more than $100,000 and/or longer than one year to develop your product or service to the point that it is generating revenue?” Another question is, “Does your business have network effects where only one or two companies will end up with 80% or 90% of the market?” because that’s a super protectable. There’s a moat around that product or around that business. That is something that can very likely be fundable.
Another questions is, “Do you have large capital equipment or other fixed investment needs that aren’t debt financeable?” those three would obviously imply that you probably need to raise some kind of funding.
Mike: Well, I look at those things as potential disqualifiers as well because if it’s a network effects type of business where only a couple of companies are going to end up with a large percentage of the market, to me, that’s kind of a disqualifier unless you’re going to go raise money, and which I guess is kind of what he’s saying, but you have no idea if other people are going to answer in there who have a lot more clout than you. That’s why you should probably go raise funding if you’re going to go for something like that. But you’re also going to look at that particular thing and say, “This is a disqualifier for me. I’m not just going to go in that direction because I don’t want to raise money.”
Rob: Another good one I like that he asks is, “Do you have potential customers that will see your small sizes of risks? For example, a potential career–a limiting decision.” In other words, if you’re selling to banks, large institutions, they’re going to require that you have some kind of backing, right? I shouldn’t say require. They’re going to be unlikely to go with a single founder building software out of his/her garage.
I remember talking to someone at Gumroad actually, because Gumroad was kind of bootstrapped early on, and they raised a big round, I believe it was 7 million if my memory serves me right. I was saying, “Why did your raise the round?” He said, “Well, we wanted to become a credit card processor.” And to actually process credit cards, you need a bunch of money in the bank. They just won’t let a bootstrapper do that, or a self-funded company do it. I think that’s definitely a case if you’re trying to start a Stripe or even a Gumroad which seems it could be a bootstrappable company, there maybe a case where you need to pony up and raise a little bit of money.
Mike: That’s just a social proof of creditability factor. You’ve got people who have been willing to invest $7 million in you than it serves to the banks as like, “Oh, these people have convinced these other seemingly smart people to give them $7 million. Clearly, they’re onto something and they know what they’re doing.” Doesn’t mean that that’s true, it just means that that’s what their perception is. You’re really just playing off their perceptions.
I think there’s certainly situations where you can either skirt that or use it to your advantage for a relationship or something like that. If the […] that you’re getting after like you get an introduction into them. That way, you’re not going in completely cold. If you can get those introductions from somebody that they trust, then that’s going to help out a lot. That’s a place where if you go into different reseller channels, and there’s tens of thousands of resellers across the world, that their sole business is to go in and sell software to other businesses.
There’s a bunch of large value-added resellers like Dell and HP, in companies like that where they have entire channel programs set-up such that they’re going to and work with small businesses or they will escort small businesses into a deal in order to provide the credibility, and then everything goes down on their paperwork.
That’s how Dell and HP have, like massive services businesses, it’s because they have all the relationships already, they have sales fields reps, they walk in because they have a relationship or they can just make a phone call and say, “Hey, I’m your Dell rep and I’d like to come in and talk to you.” And then they talk to you and find out what your problems are, and they escort a small partner in the door.
If you can get some of those relationships, you can basically get escorted in. You don’t need to have that $7 million in the bank or you don’t have to hire 300 sales people or call center in order to do outbound cold calling in order to find your leads. You can leverage those partners to help walk you in.
Rob: His last few questions are really surrounding this topic of, “Are you a fit for angels and VCs?” One is, “Will your business support growing sales by 50-100% annually for 5-7 years? Will annual sales reach $15-$50 million with that timeframe?” high-growth, right?
Another question is, “Are you comfortable selling your business in order to provide your investors their return in five to seven years?” or maybe earlier for VCs. “Are you comfortable sharing control of and decision making for your company with investors? Is your team plan and pitched in the top 10 percent of companies seeking financing in your region?” All interesting things to think about.
Mike: I think that a lot of those are hard questions to answer too. I’ll say they’re very personal questions and depending on the time and day that somebody asked you, you might also change your mind. It could be hard to come up with a solid answer that you stick with.
Rob: Yup. I would agree. I think these are good things to think about. I think long time listeners of the podcast will have heard us discuss these types of thought processes before. Well, if you’re new to the podcast, you probably think, “Boy, these guys really talk about funding a lot for a bootstrapping podcast.” because in the past five episodes we’ve talked about it twice.
But I do think that it’s becoming more and more relevant. I don’t expect us to talk about it every five episodes by any stretch, but it does seem to be this emerging trend that is coming into the startups space. I think back to 2007 to 2009 or ’10, and I was using a lot of email marketing in my info products, and then I started bringing them into software products and kind of the startups space, it was definitely this emerging trend that I recognized. I talked about it at BOS.
Split testing was something I had seen in info and people in the startups were not doing that, that also became a trend that took off. There’s a bunch of things that have come from different angles. Even customer development and a lot of lean startups stuff was taken from the automotive. You see these trends coming in.
While startups and software have traditionally been VC funded and the trend that you can I have been a part of is this bootstrapping and self-funding kind of spearheading it, I would say, or I mean at least part of the folks who have really driven it over the past eight plus years. I think we look back and the first time I had said “fun strapping” on the podcast was in 2013 or 2014. It’s becoming just a little bit more common for folks to raise a round and not go institutional, which is another trend that I see, not infiltrating because that sounds like it’s a bad thing, it’s just another trend in the space. I think we’re just continuing the dialogue about it to keep abreast of what we see is happening.
Mike: Yeah. Things just change over time. As time goes on, the entire software space has become more and more competitive. I mean, eight years ago when we started podcasting, it was easier to launch products in terms of getting in front of customers. Now, there’s lots of competitions. You have to have a more polished product, it’s got to be further along, it’s got to solve more of the customer’s problems because they’ve got other things that they can pay attention to.
It just makes it, I’ll say a little bit more challenging to launch a product today than it is yesterday, than with the day before. As time goes on, I think that that trend is just going to continue. I say that the natural evolution is you have to have more resources in order to launch something. It’s kind of where the industry is headed. I’m not going to say that that’s where it will end up and that you’re always going to have to raise funding in the future because I don’t think that’s true. But I do think that there are certain types of businesses where it makes a lot more sense to raise some funds than it is to not, especially with certain life circumstances as well.
Rob: Yup. The good news is that it’s easier, I would say, than it has been in the past to get some type of small amount of funding with a lot fewer strings attached than say, 10 years ago. On the flipside, like you said, I believe there’s always going to be bootstrapping. That’s not going to go away. There’s always going to be folks who are hacking away, launching small software products, getting a lot of learning, getting some revenue. I think that’ll last forever and I think that’s a really great thing.
I’ve said this before, we live at an amazing time in history where even 30, 40 years ago, you couldn’t do any of this, and 100 years ago it’s even worst. But now, someone with some type of technical acumen can basically start a whole side business and really never leave their house and have this thing making money while you sleep. It’s always been the big draw I think for a lot of us. Part of it might eb the adventure and the active creating, I think that’s a big deal, but to be able to literally make money from nothing more than your skill and your computer is just mind-blowing. When I think back to being a kid, I was in junior high in high school and it was like, “Well, I don’t really want to work in a cubicle but were my options?” Right? In the mid to late ‘80s. This stuff was just coming about and I didn’t know much about it but the fact that we live at this age–consider ourselves lucky.
Mike: I think at the end of the day when you’re trying to evaluate whether or not to raise funds, it’s all about that trade-off of time versus money. Do you have money to burn? Burn is probably not the great way to put it, but do you have money to spend in order to learn quickly or are you okay taking a much longer time to do it, and doing things slow and steady based on what your financial situation is like, your personal life, and how much time you have available. That’s going to be different for everyone. That’s what generally governs these types of decisions for most people. I think that about wraps us up for today.
If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Well, there is a book recommendation that you’ve given awhile ago called, The Hard Thing About Hard Things. I’ve commented it, I’ve bought the book, but I haven’t read it yet. I’ve been kind of diving into that a little bit. I find it fascinating probably more so from a historical perspective because Ben Horowitz, who’s the author, he’s talking about his journey through the startup after he had left PayPal, and running this other company, and they basically only had one customer that was providing 90% of the revenue and basically spun that business off into its own separate entity and got rid of a bunch of assets with it, and talks about he built up the company from there.
What I find fascinating about it is that the new company is called Opsware. I remember back in those days when I was doing sales demos and presentations and stuff, I was actually in some cases, competing against Opsware.
Rob: That’s a trip. That book–it is brutal. Have you finished it?
Mike: I’ve not, no.
Rob: I was so stressed. It’s a good book but I don’t know if I could listen to it again because what he has to go through to grow and keep his company from basically going under and then he sells it for $1 billion or multiple billions of dollars and then he starts Andreessen Horowitz—that part is not in the book but he talks a little bit about it—but he is the Horowitz of Andreessen Horowitz. I remember listening to it and being like, “Yup, I could not have done this. I would have imploded.” It is, The Hard Thing About Hard Things is a good title for it.
Mike: Yeah, definitely. I do not think that I would have wanted to go through all the stuff that he’s gone through especially just the financial challenge of trying to go public at the time that he did, right after the economy kind of cratered. What did he say? Like there was 200 plus IPOs the year before and then there was 6 or 12 or something like that the year that he did it. Wow!
Rob: It’s crazy. He went public, he didn’t get acquired, I forgot what…
Mike: No, he went public first and it was in a bad environment. The reason they went public was because they couldn’t get anymore investment capital from investors. Then it was a bunch of years later, like 2007 or something like that where they ended up selling to HP for, I think, it was $1 or $2 billion.
Rob: Got it. That was my memory, but I have forgotten they went public. It’s agonizing. It really is the shoot for the $1 billion exit. You don’t need to be a several hundred-million-dollar revenue journey raising venture capital and all that stuff. A lot of it just did not sound like something I ever want to experience in my life, even for payout like that. I don’t it’d be worth it.
Mike: How about you? What’s going on this week?
Rob: Well, you and I just had a conversation before this episode started recording. We are evaluating potentially having sponsorships on Startups For The Rest Of Us. If you are a company, whether you’re a startup or if you think that you would be interested in reaching the Startups For The Rest Of Us audience—it’s a lot of bootstrappers but it’s also a lot of people running six and seven figure businesses, drop us a line at questionsforstartupsfortherestofus.com and just put “Sponsor” or “Sponsorship” in the subject line, and we’ll talk about it.
Obviously, as a listener, we’re been doing this for eight years, and we appreciate the trust that you put in Mike and I to produce high-quality content and to deliver value to you. We have no intention of “screwing up” the podcast by adding a bunch of sponsorship roles in the thing and interrupting your flow, but we are at a point where it does cost us money and it does cost us time away from our businesses to do this, so we’re just evaluating it. It’s a preliminary thing, we definitely have not made up our mind about it, but we do want to explore this as an option.
Mike: Again, that email address is questionsforstartupsfortherestofus.com and just put “Sponsorship” or “Sponsor” in the subject line, and we’ll take a look at it. Again, we’ll just kind of evaluate how things go. To reiterate what Rob had said, we appreciate you guys listening and we don’t want to screw up the whole thing. I think like a lot of things that we’ve done at MicroConf every year I think is just kind of a play it safe approach, but at the same time, look for ways to change things to make things better.
Rob: Yeah, we’ve experimented a lot with things at MicroConf over the years. Some have worked, some haven’t. But one thing that I think we’ve done a good job is recognizing when they work and don’t and basically changing it up when things don’t. Even if we try it, if it suddenly becomes a […] or something like that, I could imagine pivoting.
Today, we’re going to be running through an article by a listener and commenter name Don Gooding. The title of his article is Bootstrapping versus Venture Capital: 19 Questions to Ask. But what I find interesting about the article is it’s not just about venture capital, it is about angel investment as well. But before we get there, we have a comment from Adam on episode 406, and 406 was five episodes ago when you and I discussed, “Should bootstrappers raise money?” was the title of the episode. Adam said, “I’m so glad you jumped in, Mike, and said something about Rob hitting 21k MRR saying that it wasn’t a fair comparison.” Because I believe I was saying, “Drip hit 21k MRR quickly and if it took me four years to get there then I would’ve […] it down.” And you said, “Well, that’s not a fair comparison because you’re in a different place and if you’re building something on the side, maybe it is four years.”–to that point.
Back to Adam. He says, “I’m still trying to hit 21k MRR after four year, but I don’t think I’m failing at what I’m doing. Maybe an episode on what you think that growth is, that people should be aiming for, this was a good episode. A follow-up question to Mike would be, why have you or have you not fun strapped Bluetick?”
Mike: Oh, that’s a good question that I don’t have a good answer for.
Rob: It’s something evaluated, no?
Mike: Oh, yeah. I’ve looked at it a couple of times. I had a few conversations privately with people I know who have raised money, and just asked them what their take on it was, what their experiences was after going through it, what were the drawbacks, what would they have done differently. I got a sense that it was going to be rather complicated and time-consuming, and I didn’t have the time to spend on it. I continue to kind of look at it and continue to think about but it’s not something where I’ve said, “Yeah, I definitely want to do that. I’m all in. I’m going to dedicate the next X weeks or months whatever going out and raising funding.”
I’ve probably spent a lot more time working on getting Bluetick to a better place. I think I have been open about the fact that early on, I had hired a bunch of contractors to build a lot of the core infrastructure of Bluetick. Quite frankly, it was not done very well so there’s a lot of things that are generally screwed up and it makes it difficult to make changes. I would prefer to move fast if I can help it, but the problem is a lot of the architecture and the choices that were made at the time make that difficult. I have a hard time pulling away from those things and doing some of the clean-up work to basically make myself be able to move faster.
Because I feel like if I had like a pile of money, I would feel obligated to expand things a lot quicker and maybe even more than I’m possibly comfortable with, and I just know that there are certain parts of the app that if I were to dump 50 or 100 users on it all at once, it’s not going to scale very well. There are certain processes that need to run and it’s just not going to take a large influx of people very well. It can do it, I’d probably have to tweak a couple of settings to make it happen, but I’m not real comfortable doing that. I think it’s partly out of obligation, partly out of complexity and the time that I would have to spend on it.
Rob: You have technical debt already.
Mike: Yes. I think you have technical debt as soon as you write a single line of code.
Rob: Well, not if it’s fully unit tested, though. I think of […] there’s that, I don’t if it’s a joke or it if it’s truly the definition but it’s like, “Legacy code is code that is not highly unit tested.” Yeah, you have a little bit of technical debt but to hear that it’s hard to make changes, that’s a real bummer to hear given how early stage you are, and that you’re a technical founder. That’s the whole point of us being technical founders, that’s our skill set, we shouldn’t have that.
Mike: Maybe I should caveat that a little bit more. It’s not that it’s hard to make changes, it’s that I feel uncomfortable making changes to certain places because they’re not as well unit tested as I would like them to be. The software does a lot. There’s some changes I’ll just push out. It’s just like, “Hey, this is a frontend UI changes, it’s not that big of a deal.” But then when you get into things like, how mailboxes are stored and how the data is synchronized, I’m real hesitant to make changes to those because there is, in one particular case I can think off the top of my head, there was literally no way for me to unit test it whatsoever.
It’s hard to justify going in there and just making whole scale changes that would make things easier because I know that it’s working and if it breaks, it does a lot of work every second, and things could go seriously sideways very, very quickly. The new build server I put in place a couple of weeks ago would actually make rolling back pretty easy, but then I’d have to go through and figure out what in the code broke. Again, it’s not easy to unit tested that piece.
Rob: Yeah, I feel like, “Next time, should we just build, I don’t know, simple project management that just pulls things out of databases. It’s that no connections to any external sources and no queues. I don’t want any queues, I want everything synchronize.
Mike: Honestly, that’s part of it is the queues and stuff that I have to deal with. Queues processing, storing data, being able to filter certain things out and, “Oh, somebody deleted this piece of data.” It kind of sucks to have things moving while you’re also writing the code on it. I’m sure you went through this with Drip. There’s so much…
Rob: That’s SaaS though.
Mike: I know. It’s like open heart surgery–it feels like sometimes.
Rob: Yeah, every time we did anything meaningful to scheduling or, I mean there’s all kinds of stuff that’s so easy to screw up. If you can figure out a way to smoke earn—not smoke test—but to get you in a test on that stuff because the fact that you don’t feel comfortable making changes to a part of your app, that’s going to be a hindrance forever. It’s not going to get better, it’s only going to get worst especially if it grows, if you start hiring people, that’s a big red zone there that I think you need to think about remedying early.
Mike: Yeah. […] is there’s a component that I’m using where to get into the technical details of it, there’s a C# Class and I have to serialize it. In order to do that, in order to store the data. The problem is they’ve marked it as sealed which means I can’t inherit from it, which means I can’t really do anything with it. I’ve been working with them to try and figure out like, “Is there a way I can get an interface for this or something like that so that I can create it?” Because they don’t have a public constructor for it because it’s a sealed class, it’s encapsulated in the assembly, I can’t narrow from it either. I really don’t have any other options other than faking it which is what I’ve done so far. I basically have my own object that very, very closely mimics theirs, but it’s not perfect, and that’s the problem. I’ve found a few edge cases here and there, it’s kind of scary. I’m hoping it will come up with a solution sooner rather than later, but I’ve been working with them for probably six months on it.
Rob: One minute while I update my spreadsheet. Let’s see, apps to not start as an unfunded single founder, email marketing for writer, cold email outreach–the list is getting longer and longer. It’s like, these things don’t seem that complicated when you look at it from the outside. “I want to build an ESP. This is going to be a piece of cake.” said Derek and I before we wrote code.
Mike: I think anything where you have an outside dependency that you don’t completely control or have complete access to, that’s where it gets hard. Or you’re relying on events coming in to the system and you have to do data processing on.
Rob: Alright. Well, let’s keep moving on with this episode. Our second comment on episode 406 was from Don Gooding. He linked over to a few articles he’s written and one of them which we’re going to discuss today. His comment was, “I write a lot about bootstrapping versus venture capital or angel funding. They’re definitely a bunch of issues to consider both early and later. I hope you’ll consider the following posts helpful and not spammy.” and I do consider them helpful. He links to three different articles. His blog is fourcolorsofmoney.com. Don, if you’re listening, register the 4colorsofmoney and also, redirect that over because I tried that as well and it just goes nowhere.
He linked to the first article which is, Bootstrapping Versus Venture Capital: 19 Questions to Ask–we’re going to talk about that today. He also linked to another article called, The Bootstrap to Funding Pivot Playbook which is about bootstrapping first and then raising funding later. He talks about revenue financing in that one. Then his last article is, Revenue-Based Financing: Five Different Options and he walks thru them which is pretty interesting.
His site is called Four Colors of Money because he looks at bootstrapping, he looks at grants, he looks at grant and equity–those are the four colors. He’s obviously—having read through it—pretty knowledgeable about this stuff. Again, we will include those three links in the show notes. You can always go back on those comments on episode 406 if you wanted to see his full comment.
But today, we are going to talk through his article Bootstrapping Versus Venture Capital: 19 Questions to Ask. We won’t have time to go through all 19 question, but the idea here is to think about whether you can and should bootstrap or whether you need to raise funding.
His first question is, “How much of your own capital do you have. Do you have a way to self-fund it?” Self-funding and bootstrapping sound like they’re the same thing, but they’re different. Bootstrapping is truly having almost no money. A few hundred dollars, a thousand dollars, a couple thousand dollars, and then growing a business based purely on its revenue and profits.
Self-funding is if I have $1000 in the bank or $200,000 in the bank, or I had another business that was throwing off money or another income stream that was throwing off money that I could then take and start my next business from.
Self-funding is a lot of what I did. In the early, early days, I bootstrapped everything right out of consulting revenue but spent very little money. Then the more business revenue I had, I stayed consulting during the day full-time, and I took that business revenue and used it to self-fund the next thing, and the next thing, and the next thing, and each of them got bigger and bigger. It took me a long time to get from having .net invoice doing $300 a month, 10 years later, even longer, 11 years later, it’s Drip doing seven figures a year and having exit.
I didn’t have to raise during that time because I self-funded, but it took me a lot longer than if I had come up with an idea and just raised funding early on. That’s kind of how I think about the trade-offs is I believe it takes longer if you’re in a self-fund unless you do have a rich uncle or a trust fund. But his first question to think about is how much capital on your own do you have that you can invest in the business?
Mike: I feel like this is more of a runway question because the money itself, you either have to when the business itself is generating money, how much is left over for you to leave versus how much are you going to be able to put back into the business. If you’re running a business on the side or on nights and weekends and stuff like that, then you presumably have a full-time job, and that is keeping your self alive and your family fed while the business is getting the rest of the profits. But at some point, things are going to transition, and you have to make some choices about like what your future looks like, do you have enough money to be able to spend $1000 on ad words or something like that to test out a market? You may even need that money early on.
That comes down to the fundamental question that he’s got here is, how much of your own capital do you have? Can you afford to run experiments early on? Do you have more time on your hands or do you have more money? This is getting more at the money side of the equation. If you have plenty of time, if your timeline is five years, you can take as long as you want to do most things. Certain industries of course will move very quickly, and competitors will swoop in, not ideal if you’re trying to take five years to do it but certain ones you can do that.
I think Patrick McKenzie, with Bingo Card Creator, he slowly built that up. Nobody else wanted to get into market because there wasn’t a lot there. But he was still able to make a pretty good business out of it. He just took a really long time to do it.
Rob: His next few questions look at ways that if you don’t have the money to self-fund, ways to look around and see if you can essentially raise funds but not from venture capitalists or angels. His second question is, how likely it is you can raise funds from family or friends. Third question is, “Can your product support a Kickstarter style campaign?” which I believe a lot of people overlook. Info products and even some software, not B2B, but have to really be B2C in general can use Kickstarter as well as obviously physical products would be a great way to do it. His fourth one is, “Will customers pay you well in advance of you delivering your product or service?” Can you essentially pre-sell it? His fifth one actually is, “Does it qualify for a grant?” I don’t think that applies to most of our listeners nor any business I’ve ever started, but it is one of the colors of money that he talks about.
Mike: You know, I’ve thought about this kind of crowd funding. I’ve heard people gone down that path, not on Kickstarter, but someplace else, I can’t remember the name of it.
Rob: Like Indiegogo or something?
Mike: I think, yeah, it was Indiegogo. The general consensus was people are much more willing to fund individual ventures and things where there’s a physical product. But when it comes to software, people are not particularly interested. Maybe that’s just because it’s kind of self-selecting where the people who are building those generally are targeting them at businesses versus if you’re going to do something where it’s like, “Oh, this is a way to organize baseball cards,” or something like that, if it’s something that has a wider appeal and it’s a non-business use, you’ll find the hobbyist into that or the people who are prosumers, so to speak, they are going to be into it, and they would probably fund it. But if you’re going to try and create a CRM or something like that, who’s going to fund that? I can’t think of anyone who would want to willingly throw in money unless it was for their own business at which point, it’s not really for the greater good so to speak.
Rob: Totally. When I look back at the 173 Kickstarter projects that I’ve backed. Mike, did you hear what I just said?
Mike: Oh my god.
Rob: Oh, no. That’s the number of successful projects I’ve backed. I’ve 185 Kickstarter projects. Oh, the humanity, Mike. It’s so embarrassing. I just love Kickstarter. But I don’t think I’ve backed a single piece of software. My taste, it’s a lot of graphic novels, it’s a lot of table top games, it’s a lot of little tech gadgets. There was a Kano–the open source computer that I could teach my kids how to put computers together and do that stuff. A lot of it is some learning, some teaching, and some gadgetry and stuff. I think that my gist is that my taste are not uncommon. I do agree that in trying to launch a project in Kickstarter would be hard. But there are a lot of listeners who are not just trying to do B2B software as we’ve talked about.
I’m going to skip over a couple of these questions. But another couple of questions that I think are interesting to ask because they imply that you should probably raise some type of at least angel and potentially go after venture funding. One is, “Do you think it will take more than $100,000 and/or longer than one year to develop your product or service to the point that it is generating revenue?” Another question is, “Does your business have network effects where only one or two companies will end up with 80% or 90% of the market?” because that’s a super protectable. There’s a moat around that product or around that business. That is something that can very likely be fundable.
Another questions is, “Do you have large capital equipment or other fixed investment needs that aren’t debt financeable?” those three would obviously imply that you probably need to raise some kind of funding.
Mike: Well, I look at those things as potential disqualifiers as well because if it’s a network effects type of business where only a couple of companies are going to end up with a large percentage of the market, to me, that’s kind of a disqualifier unless you’re going to go raise money, and which I guess is kind of what he’s saying, but you have no idea if other people are going to answer in there who have a lot more clout than you. That’s why you should probably go raise funding if you’re going to go for something like that. But you’re also going to look at that particular thing and say, “This is a disqualifier for me. I’m not just going to go in that direction because I don’t want to raise money.”
Rob: Another good one I like that he asks is, “Do you have potential customers that will see your small sizes of risks? For example, a potential career–a limiting decision.” In other words, if you’re selling to banks, large institutions, they’re going to require that you have some kind of backing, right? I shouldn’t say require. They’re going to be unlikely to go with a single founder building software out of his/her garage.
I remember talking to someone at Gumroad actually, because Gumroad was kind of bootstrapped early on, and they raised a big round, I believe it was 7 million if my memory serves me right. I was saying, “Why did your raise the round?” He said, “Well, we wanted to become a credit card processor.” And to actually process credit cards, you need a bunch of money in the bank. They just won’t let a bootstrapper do that, or a self-funded company do it. I think that’s definitely a case if you’re trying to start a Stripe or even a Gumroad which seems it could be a bootstrappable company, there maybe a case where you need to pony up and raise a little bit of money.
Mike: That’s just a social proof of creditability factor. You’ve got people who have been willing to invest $7 million in you than it serves to the banks as like, “Oh, these people have convinced these other seemingly smart people to give them $7 million. Clearly, they’re onto something and they know what they’re doing.” Doesn’t mean that that’s true, it just means that that’s what their perception is. You’re really just playing off their perceptions.
I think there’s certainly situations where you can either skirt that or use it to your advantage for a relationship or something like that. If the […] that you’re getting after like you get an introduction into them. That way, you’re not going in completely cold. If you can get those introductions from somebody that they trust, then that’s going to help out a lot. That’s a place where if you go into different reseller channels, and there’s tens of thousands of resellers across the world, that their sole business is to go in and sell software to other businesses.
There’s a bunch of large value-added resellers like Dell and HP, in companies like that where they have entire channel programs set-up such that they’re going to and work with small businesses or they will escort small businesses into a deal in order to provide the credibility, and then everything goes down on their paperwork.
That’s how Dell and HP have, like massive services businesses, it’s because they have all the relationships already, they have sales fields reps, they walk in because they have a relationship or they can just make a phone call and say, “Hey, I’m your Dell rep and I’d like to come in and talk to you.” And then they talk to you and find out what your problems are, and they escort a small partner in the door.
If you can get some of those relationships, you can basically get escorted in. You don’t need to have that $7 million in the bank or you don’t have to hire 300 sales people or call center in order to do outbound cold calling in order to find your leads. You can leverage those partners to help walk you in.
Rob: His last few questions are really surrounding this topic of, “Are you a fit for angels and VCs?” One is, “Will your business support growing sales by 50-100% annually for 5-7 years? Will annual sales reach $15-$50 million with that timeframe?” high-growth, right?
Another question is, “Are you comfortable selling your business in order to provide your investors their return in five to seven years?” or maybe earlier for VCs. “Are you comfortable sharing control of and decision making for your company with investors? Is your team plan and pitched in the top 10 percent of companies seeking financing in your region?” All interesting things to think about.
Mike: I think that a lot of those are hard questions to answer too. I’ll say they’re very personal questions and depending on the time and day that somebody asked you, you might also change your mind. It could be hard to come up with a solid answer that you stick with.
Rob: Yup. I would agree. I think these are good things to think about. I think long time listeners of the podcast will have heard us discuss these types of thought processes before. Well, if you’re new to the podcast, you probably think, “Boy, these guys really talk about funding a lot for a bootstrapping podcast.” because in the past five episodes we’ve talked about it twice.
But I do think that it’s becoming more and more relevant. I don’t expect us to talk about it every five episodes by any stretch, but it does seem to be this emerging trend that is coming into the startups space. I think back to 2007 to 2009 or ’10, and I was using a lot of email marketing in my info products, and then I started bringing them into software products and kind of the startups space, it was definitely this emerging trend that I recognized. I talked about it at BOS.
Split testing was something I had seen in info and people in the startups were not doing that, that also became a trend that took off. There’s a bunch of things that have come from different angles. Even customer development and a lot of lean startups stuff was taken from the automotive. You see these trends coming in.
While startups and software have traditionally been VC funded and the trend that you can I have been a part of is this bootstrapping and self-funding kind of spearheading it, I would say, or I mean at least part of the folks who have really driven it over the past eight plus years. I think we look back and the first time I had said “fun strapping” on the podcast was in 2013 or 2014. It’s becoming just a little bit more common for folks to raise a round and not go institutional, which is another trend that I see, not infiltrating because that sounds like it’s a bad thing, it’s just another trend in the space. I think we’re just continuing the dialogue about it to keep abreast of what we see is happening.
Mike: Yeah. Things just change over time. As time goes on, the entire software space has become more and more competitive. I mean, eight years ago when we started podcasting, it was easier to launch products in terms of getting in front of customers. Now, there’s lots of competitions. You have to have a more polished product, it’s got to be further along, it’s got to solve more of the customer’s problems because they’ve got other things that they can pay attention to.
It just makes it, I’ll say a little bit more challenging to launch a product today than it is yesterday, than with the day before. As time goes on, I think that that trend is just going to continue. I say that the natural evolution is you have to have more resources in order to launch something. It’s kind of where the industry is headed. I’m not going to say that that’s where it will end up and that you’re always going to have to raise funding in the future because I don’t think that’s true. But I do think that there are certain types of businesses where it makes a lot more sense to raise some funds than it is to not, especially with certain life circumstances as well.
Rob: Yup. The good news is that it’s easier, I would say, than it has been in the past to get some type of small amount of funding with a lot fewer strings attached than say, 10 years ago. On the flipside, like you said, I believe there’s always going to be bootstrapping. That’s not going to go away. There’s always going to be folks who are hacking away, launching small software products, getting a lot of learning, getting some revenue. I think that’ll last forever and I think that’s a really great thing.
I’ve said this before, we live at an amazing time in history where even 30, 40 years ago, you couldn’t do any of this, and 100 years ago it’s even worst. But now, someone with some type of technical acumen can basically start a whole side business and really never leave their house and have this thing making money while you sleep. It’s always been the big draw I think for a lot of us. Part of it might eb the adventure and the active creating, I think that’s a big deal, but to be able to literally make money from nothing more than your skill and your computer is just mind-blowing. When I think back to being a kid, I was in junior high in high school and it was like, “Well, I don’t really want to work in a cubicle but were my options?” Right? In the mid to late ‘80s. This stuff was just coming about and I didn’t know much about it but the fact that we live at this age–consider ourselves lucky.
Mike: I think at the end of the day when you’re trying to evaluate whether or not to raise funds, it’s all about that trade-off of time versus money. Do you have money to burn? Burn is probably not the great way to put it, but do you have money to spend in order to learn quickly or are you okay taking a much longer time to do it, and doing things slow and steady based on what your financial situation is like, your personal life, and how much time you have available. That’s going to be different for everyone. That’s what generally governs these types of decisions for most people. I think that about wraps us up for today.
If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 410 | Customer Development for Dummies
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about customer development. Based on a Sujan Patel article, the guys walk through 5 tips for doing customer development the right way.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about customer development. This is Startups For The Rest Of Us episode 410.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’ve been drinking coffee.
Mike: It’s not whiskey?
Rob: It’s not whiskey. It’s 10:00 in the morning, so I was hoping it wouldn’t be whiskey. Mike, I don’t drink coffee very much anymore. I’m having coffee right now so this is going to be good.
Mike: I have a coffee cup that says, “This is probably whiskey,” on it.
Rob: Nice. I like that.
Mike: Anyway, we’re here to share experiences, help avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: Aside from drinking just a tiny bit of coffee this morning, which will hopefully come across as making me energized and sharp rather than wandering all over the place and to crazy tangents, I’ve been listening to a book called Valley Of Genius. It is the history of Silicon Valley, all the way back into the, I believe it’s 50s and 60s as Fairchild Semiconductor came up. It’s told in the words of the people who were involved. There’ll be a chapter telling the history and there’s a chapter or a bunch of quotes from Steve Jobs and Fairchild himself, and a bunch of people who worked in Atari, Nolan Bushnell and people who worked there.
Right now, I believe I’m in the early 80s. I don’t know when it’s going to end, if it’s going to keep going all the way to Facebook and Google or where it goes. I’ve really enjoyed books like this. I grew up there and I remember a lot of orchards and stuff that wasn’t developed and all these concrete tilt up started coming. My dad was in construction and he’s in charge of building a lot of fabs for Intel and they shipped that overseas. Then it was biotech. Then it’s was dot com stuff in the 90s. Then it became just more data centers.
It has a special place for me because I was there but even if you’re not, it’s not like you need to have lived there to get something out of this. It is purely history book. This is a fascinating telling of how these things all developed and really how Silicon Valley became Silicon Valley pretty much by accident. If you’re interested in that kind of history and hearing how things developed, Valley of Genius. It’s a decent book.
Mike: On my end, I’ve got a book recommendation that was sent to me from Keith Gillette and he runs tasktrain.app. He suggested Slicing Pie based on a previous episode where we talked about finding co-founders and how to split equity. I looked into it and it’s a very interesting book.
The Slicing Pie book talks about how to divide equity between co-founders based on a variety of different factors in it. Seems like it’s generally applicable to just about any situation. The general concept is that you divide the equity based on people’s contributions and if you believe in your startup, you’ll probably going to work more on it and you’re going to put more time, effort, and resources into it. But at the end of the day, it’s a gamble. You’re essentially placing bets with your time and money and those are essentially translated into equity points for lack of a better way to put it. Those equity points are divided among the co-founders and that’s how you come out with a final equity split.
I think it’s a fascinating way of looking at it. I didn’t dig into all the details. I’m sure there’s some interesting edge cases but definitely want to say thanks to Keith for sending that over to us.
Rob: Yeah. Definitely, appreciate it. I read that book or at least skimmed it when I first came out because I believe the author sent it to me or maybe he sent it to us. This was a few years ago. I thought it was interesting, although it was probably not an approach I would take.
I’m trying to remember even what it was but I think it was all the founders were starting off and it was a developer and a marketer and you’re just dividing. It’s three developers or whatever and I’ve always felt when I started businesses, we’ve always had brought different things to the table but might not just be task-based.
It’s like, “Oh, so-and-so has $1000 to bring to the table.” That really set things different. Or, “So-and-so has an audience they’re bringing and we’re going to build that on it,” and that has a lot more value than, say, building a certain feature or whatever. I think it’s a good model and frankly, it’s the only book I know that’s been written on this topic. It’s something to be thinking about. What are we talking about today?
Mike: Today’s we’re going to be talking about customer development. The title of this episode is actually Customer Development For Dummies but this is based on an article that was written by Sujan Patel on his blog and we’ll link that up in the show notes.
Sujan was a speaker at MicroConf Growth Edition in 2017 but he talks about customer development in a way that I think that most people can at least get a few takeaways from it and obviously, we’ll add our own perspectives on different pieces of this particular blog post.
Rob: And we’ll, of course, link that up in the show notes. It’s an article at sujanpatel.com and it’s called Five Tips For Doing Customer Development The Right Way.
Mike: His first tip is to talk to your customers, which I think is one of those intuitively obvious things that most of us try to do but I wouldn’t say that we’re all necessarily successful at it. But he’s got a lot of advice in here about how he went about approaching the market for when they were developing Mailshake and they going out to talk to customers.
The one thing that I think he pointed out here which is extremely interesting was that if you’re just trying to validate a product, you don’t have customers yet. So, instead you have to talk to new customers, you can go out and talk to the customers of your competitors, which I think is a really fascinating idea. It’s not just because it’s brutally obvious if you don’t think about it, but I hear a lot of people say like, “Oh, if I don’t have customers, who do I go talk to?” I think that’s just a perfect piece of advice for those people.
Rob: Yup and as a strategy, he says to find your competitor’s customers, going to a site like Capterra or GetApp where people are rating your competitors, and you’ll notice that most of the sites let people connect their LinkedIn or Twitter profiles, then you can reach out. He said, reach out to 30 or 40 people and in his experience, you’ll get 20%-30% success rate, and then ask what they like or don’t like about your competitor’s product. I think it’s a pretty clever hack.
Obviously, you could use something like BuiltWith or Datanyze but those are really expensive sales prospecting tools where you can get list of folks who were using things and this should be more of a freeway. Takes a little bit more time on your end, but more of a freeway to reach out to competitor’s customers.
There’s a lot of value in talking to competitor’s customers and even former employees of competitors, frankly, is an interesting avenue. I guess you wouldn’t get as much customer development. Maybe you can find out more about internal processes or at least approaches if that’s something that you need. It’s probably not something you need this early on but it’s something to keep in mind as you grow.
Mike: The other thing I like about talking to customers or prospective customers and ask them what they don’t like about the products is that it gives you a punch list of challenges that they’re probably having with those products and you can cater your own development to trying to solve those. That’s not to say that, that is going to lead directly to success but if you hear enough people saying the same things over and over that are bad about a particular competitor, then you can use that as a marketing point as well as an engineering point to say, “We are going to make sure that we solve this so that when people are looking for an alternative to this because they are so angry about this particular thing that happens, then we’re the obvious choice for them.”
Rob: Here’s a pro-tip. If you start doing customer development like this and you get the feeling or you get the sense that you’re going to have to build your entire competitor feature set, then make changes, adjustments, or additions in order to get the customers, that’s a red flag. Building out features that’s going to take forever. The best kind of market that you can get into is where a competitor or competitors are bloated and have huge feature sets but a lot of different niches or a lot of different verticals are using say, 20% or 30% of it and that 20% or 30% is broken but it’s the best option.
An example of that is QuickBooks. QuickBooks is a huge tool. It can do inventory management. It can do invoicing, AR, and AP. It can do all this accounting stuff. There’s probably a slice of small businesses that just need a pretty simple, kind of based like freelancers, where they just need some basic invoicing and keeping track of expenses. That’s where startups like Xero and LessAccounting came up, and they just built that part of it. They didn’t have to build inventory management because they were just pulling off of that part that didn’t work.
Another example is Infusionsoft. As we were growing Drip, we realized Infusionsoft has landing pages, shopping carts, affiliate management program, payment processing I believe is built-in, then they had email marketing, they had marketing automation, they had CRM, they had a lot of stuff. We did not build all of that. We just needed to be really good at the email marketing and marketing automation, and we were able to pull a lot of customers from Infusionsoft.
So, two examples of how I view markets. If you had to build all of the Infusionsoft or all of QuickBooks, you just can’t do it. It’s going to take you years to do it.
Mike: That leads to the natural question to ask while you’re talking to those customers is, what things do you not use at all? Or do you use very little? That will help give you an idea of some sort of relative ranking of the features of the competitor that you probably have to implement versus the ones that are probably complicated and going to take a long period of time to develop but most customers don’t use. If it’s not used by 80% of the customers, you probably get away without it.
Rob: Yup and one question that I ask during Drip customer development was, what’s your biggest pain point with tool X? Whether that was Infusionsoft or whether it was MailChimp or HubSpot or Marketo or Ontraport, what do you like the least about it or what do you wish they would fix or what do you wish they would add or how could they do better? AWeber is on that list as well.
The cool part is I started seeing patterns of, “Well, I like MailChimp and AWeber and they’re solid tools, but they don’t do this. You can’t tag people, you can do automations.” Someone said, “I like Infusionsoft but it’s really buggy. The Campaign Builder is too complicated. It’s way too expensive for what it is. Didn’t like the $2000 upfront.” There’s some real specific things that everyone referenced back to. If you’ll notice, that’s what we attack really early on with our marketing. We’re like these guys but better, we’re like this but different. It wound up being something that in 10, 20, 30 conversations that I had, could translate into our entire marketing message.
Mike: Yeah and you’ll find that there’s definite hot spots in those areas as well. As you said, you talked to 30, 40, 50 people, you start to hear the same things over and over again, and you just know where to focus your time and effort.
The next tip that Sujan has is to track your competitor’s pros and cons. I think that goes a little bit back to the previous one where there’s a difference between feature set versus what people like and what they don’t like, and what things they wished that the competitors had. The feature set is what they advertise versus how well they mash the customers’ expectations in terms of the pros and cons. There’s obviously some overlap in the feature set in that but there’s a definite difference between how the customer feels about the features versus what their marketing message is saying.
Rob: Yeah and Sujan says to google things like competitor’s name review, like QuickBooks review or QuickBooks testimonials, and visit as many results as you can trying to come up with a list of the top 10 things people like about each of the competitors as well as what they don’t like.
This is a way to do it without having conversations and I would view this as day zero research. You’re trying to put together a list or get a sense of the pros and cons of your competitors and you’re going to do this for multiple competitors. It’s not just one in general. Typically, more than one competitor has a decent market share.
The next step for me would be then to start having those conversations with either people who have signed up for your early bird list. Even if you don’t have customers, you can ask them, “What do you expect? What do you want? Do you use one of these competitors? Do you use QuickBooks? Do you use Infusionsoft and what do you think about them?” Or, if you don’t have that yet, start building it today and then go and do what we talked about in the previous step which was to go to Capterra, GetApp, and start having conversations with your competitor’s customers.
Mike: The other thing he recommends is that you track the changes to this list over time. I think that’s also an important piece that I’ve not really thought about in the past but tend to agree with them because the technology is going to change over time. The entire market itself is going to change over time. As time plods on, there’s going to be a set of features that is standard across all of your competitors and you need to make sure that you have those features. If you don’t, you’re going to end up being left behind.
That’s not say you should always copy every single feature that your competitors have but if you’re the only one who doesn’t have a particular feature, you might want to seriously consider adding it.
Rob: Tip number three from Sujan is to test before you build. He talks about how Hiten Shah does a really good job of going through a lot of testing. If you want to see someone who is really at the top of the game of pre-validating products and doing customer development, go to hitenism.com––it’s called Product Habits now. Sign up for his email list and just watch what he does because Hiten is, like I said, one of the best at this.
Mike: The reason why you want to test these things before you start building them is that you don’t want to waste a lot of time on building stuff that nobody’s going to use or that isn’t actually solving a problem that your customers have. If you’re just blindly copying a competitor, for example, they may have implemented a feature that they didn’t necessarily know that their customers wanted. They may have just said, “Oh, we think that they need this or somebody mentioned this and we’re going to build it,” and then you spend several weeks or a couple of months building something that, because you didn’t test the market, you didn’t know that nobody needed it either. You’re just copying somebody else. You want to find places where you can save time, not waste it.
Rob: You know why I realize is that we didn’t even really define customer development when we started. Some folks may have heard that and they may have an idea of what it is but there is a pretty solid definition because Steve Blank, who’s a serial entrepreneur and he’s now a professor or was a professor, was it Stanford or Berkeley, somewhere in California. He developed this concept called customer development.
It’s a four-step process. It’s customer discovery to start with. There’s a lot of conversations proposing an MVP, trying to figure things out. Then there’s customer validation once you start building it. And then it’s customer creation which is where you’re scaling and then you’re bringing in customers. And then it’s company building, which is where you scale operations and stuff.
If you google what is customer development, there is a pretty nice diagram of all that and we don’t need to go into those pieces for you to understand it, but just in case you are listening, thinking, “What is this customer development term?” it really just means we are focusing really on the first and second steps here, which are the conversations with your customers and then trying to find product-market fit. I think maybe Sujan is really focused on even just the first step in this article, because second, third, and fourth is more company building, scaling, and organization.
Mike: We talked a little bit about the types of ways that you can test things before you start building them. One that I used during the validation process for Bluetick was, I created a set of Balsamiq mockups and then showed those to people. Instead of building codes and instead of creating CSS mockups or Photoshop mockups of exactly what the app was going to look like, I just sketch it all out using Balsamiq and was able to link the pages together. You can see how the application was going to work without writing any of the code for it. It took me probably 20-30 hours or so to put that together, but that’s a lot less time than it took to build the application and put something that was completely functional together.
During the process of showing it to people, I got a lot of questions about, “Oh, what does this piece do?” or, “How would I go about doing this other action over here,” and it gives you a sense of where your design essentially is going to either fall short of what their expectations are or other areas where you should probably spend a little bit more time on it.
Rob: Sujan suggests getting a wireframe and going to sets like in five-second test or user insights, usertesting.com is another one, and that will give you UX stuff but it won’t tend to give you customer insights like you’re talking about, Mike, where you are actually talking to a group who you knew was interested in the solution that you’re going to be providing. I think yours is harder to do but it’s more valuable in my opinion.
Tip number four is to go to conferences or events where your customers are. This is an obvious one but one that a lot of people overlook. I think you can get a ton of value in a two- or three-day conference. You could talk to 50 or 100 people if you scheduled well. Maybe not 100, that actually sounds like a lot but maybe let’s say 30 or 40 people really quickly in person if you really made a point of having your stuff together, you’ve been having mock-ups.
I was at a startup pitch, was a competition. It was more like a demo day for local accelerator here in town the other day. Someone was talking about something and then pulled out an iPad Pro and was like, “Here, let me just walk you through.” He had, it was either mock-ups or maybe it was an actual app running on it. It was kind of funny to see him just pull it out during a conversation as we were having drinks and it got a better picture of what he was up to. Frankly, I was able to give him feedback of like, “Oh, I was confused by that,” or, “I don’t see my people would use that,” or, “That screen’s really nice.”
Mike: I have something that you can actually show to people. It leaps and bounds above just explaining it to them. When you’re explaining it to them, they’re going to have their own vision in mind of what the thing’s going to look like, how it works, and what it does even. You might say something like, for Bluetick it’s an email automation follow-up software or something like that. They’re going to have in their own head this impression of what something like that does based on their previous experiences and it doesn’t necessarily reflect what you are building. So keep in mind that if you can show them anything at all as opposed to leaving it up to their imagination, you’re going to be much further along.
The other thing Sujan points out is that in an informal setting such as a conference or an event, is much more conducive to getting feedback from people because if you’re getting people on to webinar and you’re doing a sales demo or something like that, people have a tendency to hold back a little bit. In an informal situation, you get, I’d say a little bit more honest feedback because they’ve realized they’re not really being sold to and they’d like to help you out. They want to give you feedback that is going to help you. In just any informal setting, that alone is going to help do that.
Rob: And his fifth tip for customer development is to live a day in the life of your customer. He talks about dogfooding your own product. It helps you smooth out the rough edges. This is one of the benefits of scratching your own itch. Scratching your own itch has been thrown around since 37signals said, “Hey, this is all you got to do because that’s what we did, and look, it worked.” It is cool. It is easier if you can do that but it’s not required. It’s not required to scratch your own itch to build a great product. I’ve seen it done for people entering a market that they’re not part of. However, either way, whether you’re scratching your own itch or not, you should dog food that product. You should try to use it as if your customer was using it.
If I recall, dogfooding was coined by—was it Bill Gates or someone at Microsoft because he learned that the CEO of a dog food company would eat the dog food to test it. Bill Gates was like, “We need to basically eat our own dog food which means we need to use our own software to make it better.” So if you’re curious about where that term comes from, that’s at least my anecdotal memory of where it comes from.
Mike: I experienced this first hand with Bluetick. It was a lot harder when I was working on AuditShark just because there’s only so many servers that I have, for example, so scaling things up is a little challenging in terms of using the app for a large number of servers. With Bluetick, I’ve used it to go out and do email follow-ups. It’s interesting to see the places where I’m running into challenges and whether it’s UI- or UX-related issue, things were just not as quick.
For example, there’s a bunch of shortcuts that have been added and it’s explicitly because I found that it was too many clicks to click between different things. Not one customer ever really said that to me but I also knew just from using it, that it was painful to do that if I had to use the main navigation without those shortcuts.
Those are the types of things that you’re going to find and by finding those things that are painful for your customers to use, you’re also going to be able to fix them and prevent them from moving off to other products because they get so fed up with those and they say, “Oh, this has got UI or UX issues and I can’t get around or it takes me too long to do my job.” You don’t ever want your customers to feel using your tool is a chore because you’re trying to solve problems for them and save them time and money. If you’re causing them more headaches, it’s just not worth it for them and they’ll move on to something else.
Rob: Right and using your own product shouldn’t just be done in the early days because once you have customers, you need to use it on an ongoing basis in a perfect world. That’s where, if it is something you use, you have that leg up because you will get in there and you’ll notice things that bother you about it that don’t bother your customers, and it keeps your product at that really high level of refinement, high usability.
You’ll notice a tiny, like a little misspelling or a like a four-pixel difference between this and that and it’s just something that, if you can catch that, because no customer is going to screenshot that and send it into you. Maybe a typo they will, but there’s just these little things that I used to see in Drip all the time when I was using it. It was like, “Man, that bothers me that that is not perfect.” I would send it over to our design team and say, “Hey, we got to fix this little thing.” It came across as a refinement rather than a complaint. It was like, “Let’s make this tool better.” All that’s safe if you’re able to use a product on a daily or weekly basis you think that there’s a lot of value there.
Mike: Just over time, just by doing that it will naturally get better and smoother over time. That’s really what you’re looking to do is just smooth out the rough edges there and make it a nice, clean experience. When people get that experience from one product and have used others where they didn’t get that experience, they talk about it.
Rob: That about wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’ve been drinking coffee.
Mike: It’s not whiskey?
Rob: It’s not whiskey. It’s 10:00 in the morning, so I was hoping it wouldn’t be whiskey. Mike, I don’t drink coffee very much anymore. I’m having coffee right now so this is going to be good.
Mike: I have a coffee cup that says, “This is probably whiskey,” on it.
Rob: Nice. I like that.
Mike: Anyway, we’re here to share experiences, help avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: Aside from drinking just a tiny bit of coffee this morning, which will hopefully come across as making me energized and sharp rather than wandering all over the place and to crazy tangents, I’ve been listening to a book called Valley Of Genius. It is the history of Silicon Valley, all the way back into the, I believe it’s 50s and 60s as Fairchild Semiconductor came up. It’s told in the words of the people who were involved. There’ll be a chapter telling the history and there’s a chapter or a bunch of quotes from Steve Jobs and Fairchild himself, and a bunch of people who worked in Atari, Nolan Bushnell and people who worked there.
Right now, I believe I’m in the early 80s. I don’t know when it’s going to end, if it’s going to keep going all the way to Facebook and Google or where it goes. I’ve really enjoyed books like this. I grew up there and I remember a lot of orchards and stuff that wasn’t developed and all these concrete tilt up started coming. My dad was in construction and he’s in charge of building a lot of fabs for Intel and they shipped that overseas. Then it was biotech. Then it’s was dot com stuff in the 90s. Then it became just more data centers.
It has a special place for me because I was there but even if you’re not, it’s not like you need to have lived there to get something out of this. It is purely history book. This is a fascinating telling of how these things all developed and really how Silicon Valley became Silicon Valley pretty much by accident. If you’re interested in that kind of history and hearing how things developed, Valley of Genius. It’s a decent book.
Mike: On my end, I’ve got a book recommendation that was sent to me from Keith Gillette and he runs tasktrain.app. He suggested Slicing Pie based on a previous episode where we talked about finding co-founders and how to split equity. I looked into it and it’s a very interesting book.
The Slicing Pie book talks about how to divide equity between co-founders based on a variety of different factors in it. Seems like it’s generally applicable to just about any situation. The general concept is that you divide the equity based on people’s contributions and if you believe in your startup, you’ll probably going to work more on it and you’re going to put more time, effort, and resources into it. But at the end of the day, it’s a gamble. You’re essentially placing bets with your time and money and those are essentially translated into equity points for lack of a better way to put it. Those equity points are divided among the co-founders and that’s how you come out with a final equity split.
I think it’s a fascinating way of looking at it. I didn’t dig into all the details. I’m sure there’s some interesting edge cases but definitely want to say thanks to Keith for sending that over to us.
Rob: Yeah. Definitely, appreciate it. I read that book or at least skimmed it when I first came out because I believe the author sent it to me or maybe he sent it to us. This was a few years ago. I thought it was interesting, although it was probably not an approach I would take.
I’m trying to remember even what it was but I think it was all the founders were starting off and it was a developer and a marketer and you’re just dividing. It’s three developers or whatever and I’ve always felt when I started businesses, we’ve always had brought different things to the table but might not just be task-based.
It’s like, “Oh, so-and-so has $1000 to bring to the table.” That really set things different. Or, “So-and-so has an audience they’re bringing and we’re going to build that on it,” and that has a lot more value than, say, building a certain feature or whatever. I think it’s a good model and frankly, it’s the only book I know that’s been written on this topic. It’s something to be thinking about. What are we talking about today?
Mike: Today’s we’re going to be talking about customer development. The title of this episode is actually Customer Development For Dummies but this is based on an article that was written by Sujan Patel on his blog and we’ll link that up in the show notes.
Sujan was a speaker at MicroConf Growth Edition in 2017 but he talks about customer development in a way that I think that most people can at least get a few takeaways from it and obviously, we’ll add our own perspectives on different pieces of this particular blog post.
Rob: And we’ll, of course, link that up in the show notes. It’s an article at sujanpatel.com and it’s called Five Tips For Doing Customer Development The Right Way.
Mike: His first tip is to talk to your customers, which I think is one of those intuitively obvious things that most of us try to do but I wouldn’t say that we’re all necessarily successful at it. But he’s got a lot of advice in here about how he went about approaching the market for when they were developing Mailshake and they going out to talk to customers.
The one thing that I think he pointed out here which is extremely interesting was that if you’re just trying to validate a product, you don’t have customers yet. So, instead you have to talk to new customers, you can go out and talk to the customers of your competitors, which I think is a really fascinating idea. It’s not just because it’s brutally obvious if you don’t think about it, but I hear a lot of people say like, “Oh, if I don’t have customers, who do I go talk to?” I think that’s just a perfect piece of advice for those people.
Rob: Yup and as a strategy, he says to find your competitor’s customers, going to a site like Capterra or GetApp where people are rating your competitors, and you’ll notice that most of the sites let people connect their LinkedIn or Twitter profiles, then you can reach out. He said, reach out to 30 or 40 people and in his experience, you’ll get 20%-30% success rate, and then ask what they like or don’t like about your competitor’s product. I think it’s a pretty clever hack.
Obviously, you could use something like BuiltWith or Datanyze but those are really expensive sales prospecting tools where you can get list of folks who were using things and this should be more of a freeway. Takes a little bit more time on your end, but more of a freeway to reach out to competitor’s customers.
There’s a lot of value in talking to competitor’s customers and even former employees of competitors, frankly, is an interesting avenue. I guess you wouldn’t get as much customer development. Maybe you can find out more about internal processes or at least approaches if that’s something that you need. It’s probably not something you need this early on but it’s something to keep in mind as you grow.
Mike: The other thing I like about talking to customers or prospective customers and ask them what they don’t like about the products is that it gives you a punch list of challenges that they’re probably having with those products and you can cater your own development to trying to solve those. That’s not to say that, that is going to lead directly to success but if you hear enough people saying the same things over and over that are bad about a particular competitor, then you can use that as a marketing point as well as an engineering point to say, “We are going to make sure that we solve this so that when people are looking for an alternative to this because they are so angry about this particular thing that happens, then we’re the obvious choice for them.”
Rob: Here’s a pro-tip. If you start doing customer development like this and you get the feeling or you get the sense that you’re going to have to build your entire competitor feature set, then make changes, adjustments, or additions in order to get the customers, that’s a red flag. Building out features that’s going to take forever. The best kind of market that you can get into is where a competitor or competitors are bloated and have huge feature sets but a lot of different niches or a lot of different verticals are using say, 20% or 30% of it and that 20% or 30% is broken but it’s the best option.
An example of that is QuickBooks. QuickBooks is a huge tool. It can do inventory management. It can do invoicing, AR, and AP. It can do all this accounting stuff. There’s probably a slice of small businesses that just need a pretty simple, kind of based like freelancers, where they just need some basic invoicing and keeping track of expenses. That’s where startups like Xero and LessAccounting came up, and they just built that part of it. They didn’t have to build inventory management because they were just pulling off of that part that didn’t work.
Another example is Infusionsoft. As we were growing Drip, we realized Infusionsoft has landing pages, shopping carts, affiliate management program, payment processing I believe is built-in, then they had email marketing, they had marketing automation, they had CRM, they had a lot of stuff. We did not build all of that. We just needed to be really good at the email marketing and marketing automation, and we were able to pull a lot of customers from Infusionsoft.
So, two examples of how I view markets. If you had to build all of the Infusionsoft or all of QuickBooks, you just can’t do it. It’s going to take you years to do it.
Mike: That leads to the natural question to ask while you’re talking to those customers is, what things do you not use at all? Or do you use very little? That will help give you an idea of some sort of relative ranking of the features of the competitor that you probably have to implement versus the ones that are probably complicated and going to take a long period of time to develop but most customers don’t use. If it’s not used by 80% of the customers, you probably get away without it.
Rob: Yup and one question that I ask during Drip customer development was, what’s your biggest pain point with tool X? Whether that was Infusionsoft or whether it was MailChimp or HubSpot or Marketo or Ontraport, what do you like the least about it or what do you wish they would fix or what do you wish they would add or how could they do better? AWeber is on that list as well.
The cool part is I started seeing patterns of, “Well, I like MailChimp and AWeber and they’re solid tools, but they don’t do this. You can’t tag people, you can do automations.” Someone said, “I like Infusionsoft but it’s really buggy. The Campaign Builder is too complicated. It’s way too expensive for what it is. Didn’t like the $2000 upfront.” There’s some real specific things that everyone referenced back to. If you’ll notice, that’s what we attack really early on with our marketing. We’re like these guys but better, we’re like this but different. It wound up being something that in 10, 20, 30 conversations that I had, could translate into our entire marketing message.
Mike: Yeah and you’ll find that there’s definite hot spots in those areas as well. As you said, you talked to 30, 40, 50 people, you start to hear the same things over and over again, and you just know where to focus your time and effort.
The next tip that Sujan has is to track your competitor’s pros and cons. I think that goes a little bit back to the previous one where there’s a difference between feature set versus what people like and what they don’t like, and what things they wished that the competitors had. The feature set is what they advertise versus how well they mash the customers’ expectations in terms of the pros and cons. There’s obviously some overlap in the feature set in that but there’s a definite difference between how the customer feels about the features versus what their marketing message is saying.
Rob: Yeah and Sujan says to google things like competitor’s name review, like QuickBooks review or QuickBooks testimonials, and visit as many results as you can trying to come up with a list of the top 10 things people like about each of the competitors as well as what they don’t like.
This is a way to do it without having conversations and I would view this as day zero research. You’re trying to put together a list or get a sense of the pros and cons of your competitors and you’re going to do this for multiple competitors. It’s not just one in general. Typically, more than one competitor has a decent market share.
The next step for me would be then to start having those conversations with either people who have signed up for your early bird list. Even if you don’t have customers, you can ask them, “What do you expect? What do you want? Do you use one of these competitors? Do you use QuickBooks? Do you use Infusionsoft and what do you think about them?” Or, if you don’t have that yet, start building it today and then go and do what we talked about in the previous step which was to go to Capterra, GetApp, and start having conversations with your competitor’s customers.
Mike: The other thing he recommends is that you track the changes to this list over time. I think that’s also an important piece that I’ve not really thought about in the past but tend to agree with them because the technology is going to change over time. The entire market itself is going to change over time. As time plods on, there’s going to be a set of features that is standard across all of your competitors and you need to make sure that you have those features. If you don’t, you’re going to end up being left behind.
That’s not say you should always copy every single feature that your competitors have but if you’re the only one who doesn’t have a particular feature, you might want to seriously consider adding it.
Rob: Tip number three from Sujan is to test before you build. He talks about how Hiten Shah does a really good job of going through a lot of testing. If you want to see someone who is really at the top of the game of pre-validating products and doing customer development, go to hitenism.com––it’s called Product Habits now. Sign up for his email list and just watch what he does because Hiten is, like I said, one of the best at this.
Mike: The reason why you want to test these things before you start building them is that you don’t want to waste a lot of time on building stuff that nobody’s going to use or that isn’t actually solving a problem that your customers have. If you’re just blindly copying a competitor, for example, they may have implemented a feature that they didn’t necessarily know that their customers wanted. They may have just said, “Oh, we think that they need this or somebody mentioned this and we’re going to build it,” and then you spend several weeks or a couple of months building something that, because you didn’t test the market, you didn’t know that nobody needed it either. You’re just copying somebody else. You want to find places where you can save time, not waste it.
Rob: You know why I realize is that we didn’t even really define customer development when we started. Some folks may have heard that and they may have an idea of what it is but there is a pretty solid definition because Steve Blank, who’s a serial entrepreneur and he’s now a professor or was a professor, was it Stanford or Berkeley, somewhere in California. He developed this concept called customer development.
It’s a four-step process. It’s customer discovery to start with. There’s a lot of conversations proposing an MVP, trying to figure things out. Then there’s customer validation once you start building it. And then it’s customer creation which is where you’re scaling and then you’re bringing in customers. And then it’s company building, which is where you scale operations and stuff.
If you google what is customer development, there is a pretty nice diagram of all that and we don’t need to go into those pieces for you to understand it, but just in case you are listening, thinking, “What is this customer development term?” it really just means we are focusing really on the first and second steps here, which are the conversations with your customers and then trying to find product-market fit. I think maybe Sujan is really focused on even just the first step in this article, because second, third, and fourth is more company building, scaling, and organization.
Mike: We talked a little bit about the types of ways that you can test things before you start building them. One that I used during the validation process for Bluetick was, I created a set of Balsamiq mockups and then showed those to people. Instead of building codes and instead of creating CSS mockups or Photoshop mockups of exactly what the app was going to look like, I just sketch it all out using Balsamiq and was able to link the pages together. You can see how the application was going to work without writing any of the code for it. It took me probably 20-30 hours or so to put that together, but that’s a lot less time than it took to build the application and put something that was completely functional together.
During the process of showing it to people, I got a lot of questions about, “Oh, what does this piece do?” or, “How would I go about doing this other action over here,” and it gives you a sense of where your design essentially is going to either fall short of what their expectations are or other areas where you should probably spend a little bit more time on it.
Rob: Sujan suggests getting a wireframe and going to sets like in five-second test or user insights, usertesting.com is another one, and that will give you UX stuff but it won’t tend to give you customer insights like you’re talking about, Mike, where you are actually talking to a group who you knew was interested in the solution that you’re going to be providing. I think yours is harder to do but it’s more valuable in my opinion.
Tip number four is to go to conferences or events where your customers are. This is an obvious one but one that a lot of people overlook. I think you can get a ton of value in a two- or three-day conference. You could talk to 50 or 100 people if you scheduled well. Maybe not 100, that actually sounds like a lot but maybe let’s say 30 or 40 people really quickly in person if you really made a point of having your stuff together, you’ve been having mock-ups.
I was at a startup pitch, was a competition. It was more like a demo day for local accelerator here in town the other day. Someone was talking about something and then pulled out an iPad Pro and was like, “Here, let me just walk you through.” He had, it was either mock-ups or maybe it was an actual app running on it. It was kind of funny to see him just pull it out during a conversation as we were having drinks and it got a better picture of what he was up to. Frankly, I was able to give him feedback of like, “Oh, I was confused by that,” or, “I don’t see my people would use that,” or, “That screen’s really nice.”
Mike: I have something that you can actually show to people. It leaps and bounds above just explaining it to them. When you’re explaining it to them, they’re going to have their own vision in mind of what the thing’s going to look like, how it works, and what it does even. You might say something like, for Bluetick it’s an email automation follow-up software or something like that. They’re going to have in their own head this impression of what something like that does based on their previous experiences and it doesn’t necessarily reflect what you are building. So keep in mind that if you can show them anything at all as opposed to leaving it up to their imagination, you’re going to be much further along.
The other thing Sujan points out is that in an informal setting such as a conference or an event, is much more conducive to getting feedback from people because if you’re getting people on to webinar and you’re doing a sales demo or something like that, people have a tendency to hold back a little bit. In an informal situation, you get, I’d say a little bit more honest feedback because they’ve realized they’re not really being sold to and they’d like to help you out. They want to give you feedback that is going to help you. In just any informal setting, that alone is going to help do that.
Rob: And his fifth tip for customer development is to live a day in the life of your customer. He talks about dogfooding your own product. It helps you smooth out the rough edges. This is one of the benefits of scratching your own itch. Scratching your own itch has been thrown around since 37signals said, “Hey, this is all you got to do because that’s what we did, and look, it worked.” It is cool. It is easier if you can do that but it’s not required. It’s not required to scratch your own itch to build a great product. I’ve seen it done for people entering a market that they’re not part of. However, either way, whether you’re scratching your own itch or not, you should dog food that product. You should try to use it as if your customer was using it.
If I recall, dogfooding was coined by—was it Bill Gates or someone at Microsoft because he learned that the CEO of a dog food company would eat the dog food to test it. Bill Gates was like, “We need to basically eat our own dog food which means we need to use our own software to make it better.” So if you’re curious about where that term comes from, that’s at least my anecdotal memory of where it comes from.
Mike: I experienced this first hand with Bluetick. It was a lot harder when I was working on AuditShark just because there’s only so many servers that I have, for example, so scaling things up is a little challenging in terms of using the app for a large number of servers. With Bluetick, I’ve used it to go out and do email follow-ups. It’s interesting to see the places where I’m running into challenges and whether it’s UI- or UX-related issue, things were just not as quick.
For example, there’s a bunch of shortcuts that have been added and it’s explicitly because I found that it was too many clicks to click between different things. Not one customer ever really said that to me but I also knew just from using it, that it was painful to do that if I had to use the main navigation without those shortcuts.
Those are the types of things that you’re going to find and by finding those things that are painful for your customers to use, you’re also going to be able to fix them and prevent them from moving off to other products because they get so fed up with those and they say, “Oh, this has got UI or UX issues and I can’t get around or it takes me too long to do my job.” You don’t ever want your customers to feel using your tool is a chore because you’re trying to solve problems for them and save them time and money. If you’re causing them more headaches, it’s just not worth it for them and they’ll move on to something else.
Rob: Right and using your own product shouldn’t just be done in the early days because once you have customers, you need to use it on an ongoing basis in a perfect world. That’s where, if it is something you use, you have that leg up because you will get in there and you’ll notice things that bother you about it that don’t bother your customers, and it keeps your product at that really high level of refinement, high usability.
You’ll notice a tiny, like a little misspelling or a like a four-pixel difference between this and that and it’s just something that, if you can catch that, because no customer is going to screenshot that and send it into you. Maybe a typo they will, but there’s just these little things that I used to see in Drip all the time when I was using it. It was like, “Man, that bothers me that that is not perfect.” I would send it over to our design team and say, “Hey, we got to fix this little thing.” It came across as a refinement rather than a complaint. It was like, “Let’s make this tool better.” All that’s safe if you’re able to use a product on a daily or weekly basis you think that there’s a lot of value there.
Mike: Just over time, just by doing that it will naturally get better and smoother over time. That’s really what you’re looking to do is just smooth out the rough edges there and make it a nice, clean experience. When people get that experience from one product and have used others where they didn’t get that experience, they talk about it.
Rob: That about wraps us up for the day. If you have a question for us, call our voicemail at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 409 | Defining Product/Market Fit, Using Inexpensive Developers, When to Quit, and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include defining product market fit, using cheap developers, when to quit, and more.
Items mentioned in this episode:
- The Quiet Light Podcast w/ Rob Walling
- FounderCafe
- Closer Sharing
- Sean Ellis: 40% “very disappointed”
Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss the definition of product market fit using inexpensive developers, when to quit, and more listener questions. This is Startups For The Rest Of Us episode 409.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from dan@closersharing.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from dan@closersharing.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 408 | Should You Take on a Co-founder?
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Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer the questions, should you take on a co-founder? The guys discuss the difference between hiring and being a partner, how to begin a partnership, and how to do if you’re a good fit.
Items mentioned in this episode:
Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about whether you should take on a co-founder or not. This is Startups For The Rest Of Us episode 408.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.
Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.
I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.
Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.
Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”
Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.
Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.
Rob: Good for you, man.
Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.
Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.
Mike: Yes, hopefully not.
Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.
Mike: Oh, you’re old.
Rob: Yeah.
Mike: You’re old.
Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.
Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.
I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.
I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.
eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.
Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”
Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.
Mike: Oh, I haven’t thought about that. Darn those people.
Rob: What else is going on with you?
Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.
It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.
It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.
Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.
Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.
Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”
Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.
Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.
Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.
Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.
In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.
Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.
Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.
They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.
The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?
Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.
I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.
Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.
Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.
That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.
Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.
But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.
I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”
Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”
I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.
I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.
Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.
There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”
I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.
If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”
Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.
Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?
Rob: Yup.
Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.
In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.
Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.
Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.
I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?
I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?
Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?
I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?
If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.
I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.
Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.
Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”
Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.
It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.
I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.
I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.
Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.
I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.
Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?
Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”
I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?
I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?
Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”
You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.
But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.
The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.
Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.
If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.
Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.
Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.
The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.
If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.
Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.
I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.
I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?
It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.
Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”
Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.
Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.
Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.
I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.
Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.
Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”
Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.
Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.
Rob: Good for you, man.
Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.
Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.
Mike: Yes, hopefully not.
Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.
Mike: Oh, you’re old.
Rob: Yeah.
Mike: You’re old.
Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.
Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.
I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.
I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.
eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.
Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”
Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.
Mike: Oh, I haven’t thought about that. Darn those people.
Rob: What else is going on with you?
Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.
It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.
It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.
Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.
Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.
Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”
Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.
Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.
Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.
Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.
In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.
Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.
Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.
They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.
The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?
Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.
I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.
Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.
Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.
That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.
Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.
But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.
I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”
Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”
I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.
I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.
Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.
There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”
I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.
If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”
Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.
Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?
Rob: Yup.
Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.
In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.
Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.
Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.
I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?
I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?
Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?
I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?
If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.
I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.
Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.
Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”
Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.
It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.
I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.
I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.
Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.
I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.
Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?
Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”
I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?
I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?
Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”
You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.
But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.
The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.
Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.
If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.
Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.
Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.
The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.
If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.
Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.
I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.
I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?
It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.
Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”
Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.
Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
