Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about setting your yearly goals and some processes to use in order to make sure you meet those goals.
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Transcript
Mike [00:00]: In this episode of Startups For the Rest of Us, Rob and I are going to be talking about how to set annual goals. This is Startups For the Rest of Us, Episode 268.
Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [00:23]: And I’m Rob.
Mike [00:23]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Rob?
Rob [00:27]: Doing pretty good. I’m gearing up/down for the holidays, gearing up to hunker down. I want to do some reading, some thinking, and some high-level plotting of next year. I don’t know if I’ll be able to take my retreat in the next two weeks, but it’s getting to be that time, because I really need to nail down how I want 2016 to shake out, the goals that I want to achieve, and frankly taking an in-depth look at how 2015 went and measure it up to the goals that I set last year. And we’re going to do that in an upcoming episode. I think it’s next week where we actually revisit the goals we set last year, talk about whether or not we achieved them, and then look at our 2016 goals. So I’m hoping to take some time in the next couple of weeks, and then go on my retreat hopefully to nail everything down. How about you?
Mike [01:09]: Well, I’ve been recovering from about two weeks’ worth of major back inflammation. My back’s been acting up on me again, so there were several days where I literally just could not even sit down.
Rob [01:19]: That’s a bummer.
Mike [01:19]: So I basically just laid in bed and read the entire time, because I literally couldn’t do anything else. So five chiropractor visits later and a ton of Aleve, I’m feeling better, but there’s still lingering issues to get over.
Rob [01:32]: Yeah. It’s really hard to get work done when you’re debilitated like that.
Mike [01:36]: Well, when you can’t even sit at your desk. Literally I was just sitting there. It was painful.
Rob [01:40]: Yeah, it’s a real issue. So MicroConf sold out pretty quickly.
Mike [01:43]: Yeah, what was it? Do we have official time on that? Was it seven minutes, or was it six?
Rob [01:48]: Yeah. It was pretty bad. So we did it in waves this year where we sold through Academy members first, then returning attendees, and then the early bird list. And each year it has sold out faster and faster. So we’re having some internal discussions of what we want to do next year in terms of there’s a lot of possibilities, right? You could throw a third conference. You could expand this conference, which is something we haven’t really wanted to do in terms of the size. There’s a lot of alternatives. I think as [Xander?] said, it’s a success problem. It’s a good problem to have, but it’s definitely a problem that we need to think about ways to work around.
Mike [02:18]: Yeah. As you said, there’s a bunch of different potential solutions, but every single one of them also comes with its own set of problems. So trying to figure out what the lesser of two evils is – or the lesser five evils, I guess in some cases – is a little bit difficult.
Rob [02:33]: Right. Because is MicroConf still MicroConf if there are 325 people there?
Mike [02:37]: Yeah. I don’t know. The thing is it’ll change no matter what. I mean, if you’re just adding people it will it make it change? But I also think that much of it is the factor of how much year-over-year growth there is. So if you go from, let’s say, 250 to 400, obviously that’s a much bigger difference than 250 to 325. But even that doesn’t necessarily solve the problems. So tough call, tough call.
Hey, we’ve got all good listener question here come in from [Jeremy Vot?], and he says, “Hi, Rob and Mike. Love the show. I’m curious about something I’ve seen, and recently I’ve seen Rob do it with DRIP, which is to giveaway e-books and video courses for a limited time, and then charge for them. I assume they’re free for things like webinars as gifts. So in all reality, these are free items. So my question is about the strategy of putting a cost to them. Do people actually buy them? Is it simply to give them more value in their minds? Thanks, Jeremy.”
Rob [03:24]: Yeah, that’s a good question. The bottom line is the reason we put a price on them is to communicate the value of what they would be worth if they were not subsidized by the main business, which is obviously the software business – the email marketing software known as DRIP. What we did is we literally sat down in the office and said, “What would this be worth if we were running an info product business, and how much would we sell this for?” And we released a set of three e-books a few weeks ago on email marketing, beginners’ guides, and we released a 20-part video series. It’s an interview series with Patrick McKenzie on DRIP email marketing and tactics and things like that. In both cases, we set it less than I think I would have if we were really trying to turn a profit.
But the idea was, A, to communicate the value, and B, yeah, we have actually sold several copies. It was funny, several hundred dollars’ worth of the e-books, and I was surprised that that happened. But it’s a nice little perk. We were joking that it’s our espresso/snack fund for the office, because it’s not any real revenue compared to what the main product is driving. But it does, A, make these things worth it. So it’s not like we’re giving away a free e-book on XYZ, because instantly that makes you think that this thing’s probably not very good. And they are good. We spent literally thousands and thousands of dollars across writing, editing, and the design and the layout and all that stuff. And we packaged something that is worthwhile, and so we wanted to put a value on it. And there’s also a nice thing. We give it away free for seven days, so there is a little bit of time urgency for people to download the thing. And it’s not something that is going to be free forever, and so you’re able to get it into more people’s hands sooner.
But coming back to it again, I don’t think you can just put a price tag on some white paper that you crank out that’s not actually valuable or not worth it, because that will come back to bite you. It negatively impacts the brand. People start thinking, “Well, they’re putting out crap and putting a price on it just to try to fool people,” and that’s not a good way to go. And so we’ve been very careful that any of these things we do put out are what I consider very high quality. They are production-level, things that I have no qualms about selling. And the people who have purchased them, no one has asked for a refund. So they’re obviously worth that to these folks.
Mike [05:22]: Yeah. The first thing that jumped into my mind when I saw this question was part of it was to set that time urgency so that people would pick it up sooner rather than putting it on the back burner. And that would also, I assume, drive people to your email list so that you can then do marketing to them afterwards.
Rob [05:37]: So what are we talking about today?
Mike [05:38]: Today, what we’re going to talk about is how to set your annual goals. And we’ve talked in the past about goal-setting in general and using a system that’s commonly known as SMART. It’s setting goals that are specific, measurable, actionable, realistic, and time-bound. And in this episode, what we you want to do is we want to focus specifically on how to set your yearly goals. Because this is essentially a timeboxed set of goals that you are going to have for a one-year period, and the idea here is that you want to be able to meet all of those goals. So obviously, in setting your annual goals, we’re going to conform to that SMART system. But this is going to talk through the process of how to go about setting those goals and some other things that should go along with it that are associated with that process, but not necessarily part of the goals themselves.
Rob [06:23]: Right. So we’re not going to rehash SMART here. We have talked about it in the past. A lot of folks have talked about it, and it’s. kind of, the elementary thing that you may have heard a little too much about at this point. Really we’re going to talk about seven ways to set goals that are meaningful and that are worth setting.
Mike [06:39]: And to make sure that you’re achieving them throughout the year, because obviously I think that there’s a lot of people who set their yearly goals and then they just don’t look at them for the rest of the year. They’ll maybe revisit them in September or October or November timeframe and say, “Oh, yeah. I haven’t even started on that yet.” So this process is really about not just setting those annual goals, but making sure that you’re putting systems in place, or forcing functions in place, that will help you to meet those goals throughout the year with various milestones.
So we’re going to walk through the seven different steps in this process, and the first step is to make the time to set your annual goals. And the problem I’ve been guilty of in the past on occasion is to set goals when I have time. Or I’ll think about them and say, “Oh, I should do this” or “I should do that.” And what I’m not doing is I’m not really dedicating time to sit down and really give some serious thought to it and making sure that those things are a priority rather than an afterthought.
Rob [07:33]: Yeah. And I typically do this in an annual retreat. We’ve mentioned it here before. And we did spend a whole episode of ZenFounder — if you go back to the ZenFounder Episode 2, we talk all through founder retreats. And this has been an impactful part of my entrepreneurial journey for the past, I think it’s three years, maybe four. And it’s a bit of a learned skill, but the more you do it, the more addicting it becomes to do it because you realize the value of it. I, kind of, view like It’s like an annual meditation where you go off by yourself and you carve out this time to review the past year and look at the future. And I use it as my goal-setting device. My goal of coming out of that two-day retreat that I do is that all my goals are set, and my vision for the next 12 months is secure.
Mike [08:20]: Exactly. And the first part of this process is making sure that you’re setting aside the time to do that. Because if you don’t set aside the time, you’re not really planning it out. You’re thinking about it, it’s, kind of, on your mind, but it’s not really a main focus. And I think if you’re going to do something as serious as setting these annual goals, you really need to make it a priority and make it your main focus for whether it’s several hours or a couple of days with a weekend retreat, something like that. It needs to be the primary focus of what you’re looking at, not just something you do a couple of hours here or a couple of hours there, or even just when 20 or 30 minutes here or there.
Rob [08:51]: Yeah, I agree. And you may have to do some trading. If you have kids, and your spouse needs to watch the kids for that weekend, then you may have to trade and work something out to where this is possible. If you want to do an overnight somewhere, it’s not always straightforward, and there may be some sacrifice involved. But I think there’s a lot of value in taking the time to set these goals.
Mike [09:08]: So once you’ve set aside that time to do it, Step 2 of the process is to recap the current year. And you have to give some thoughts on what went well, why did it go well, or what are the things that you didn’t accomplish that you wanted to, or are there things that you want to happen in the current year that you just weren’t able to fit into the schedule? I also think that what you want to do is you want to make sure that on your list for the following year, you want to keep in mind what it is that you want to be celebrating the following year. So at this time in December of next year, what is it that you want to be looking back on and saying, “Yeah, I’m really proud of that. I set this goal and I was able to achieve it.”? What is that? It might just be one thing. It might be two things. But you have to give some thought to what that is, in advance.
Rob [09:46]: Yeah, and this is a loose outline and, kind of, a high level. It doesn’t cover all elements of basically the outline of what I used for my retreat. And I took that, of course, from Sherry and adapted it for my purposes. And then she had also taken it from some monk from the 1300s who had a meditation and looked back and said, “What gave me life in the past year? What took life? What do I want to do more of? What do I want to do less of?”
There’s a brainstorming element of it. I always use my Moleskin notebook and I write a bunch of stuff, just page after page of notes. Sherry has a big sheet of butcher paper, sketches ideas out, thoughts, and she keeps the butcher paper from year-to-year. And, of course, I keep the Moleskine notebook. You can do it whatever. You can do it on your computer if you want. I find that the computer tends to tempt me to go check email, or go screw around on the internet, and so I like the feel of pen and paper because it is just so different. It doesn’t make me think of work like the computer does. But to each their own, and you want to figure out which way you do it. But I think recapping the current year and really looking at what you want to do more and less of ,and how you’re going to get there is your first step to setting these goals.
Mike [10:46]: And if you go over to ZenFounder.com or look it up in iTunes or whatever your favorite podcasting app is, there’s a really good episode. I think it’s Episode 2 in ZenFounder where it discusses how to go about a personal retreat. And I think we’ve talked a little bit about it on this podcast before as well.
So moving on, Step 3 in the process is to limit yourself to one or two major goals. And the thought behind this is that these goals are going to take quite a while to reach, and it might take you four to six months to even reach one of them. But you also have to allot some time for essentially a little bit of extra padding in case things go wrong, or you get sick, or some family emergency comes up and it’s going to set you back several weeks or a couple of months. There’s always other things are going to come up, and you have to make sure that you take those into account. But once you’ve got your one or two major goals set then you start doing backwards planning in order to set your quarterly, monthly, and weekly goals. And along with this, you can start setting milestone goals that will give you specific feedback about what your progress is along the way. What you don’t want to do is you don’t want to have this big, fat, hairy audacious goal that you’ve set, and no real way to track how far along you are on that goal. So if it’s writing a book, for example, you don’t want to just say, “Hey, I’m going to write a book.” You want to be able to spell out how far along you’re going to be at different points to be able to make sure you are on track to finish that goal.
Rob [12:04]: I think that especially if you’re not totally in control of your time yet – meaning you have a full-time job, or consulting, or things where you’re not just working on your own products – I think one to two goals is where you want to be. And I think one goal can be, “I want to have quit my job by the end of the year.” Or it might be, “I want to only be doing 10 hours of consulting a week, or zero consulting.” That, for me, was my goal for several years in a row. I didn’t go through this process at that point. I wasn’t doing retreats. This is, let’s say, back in 2006, 2007, and 2008. But I knew that that was my one goal, and then I work backwards from that. And I have just focused all my energy on growing my apps, or acquiring apps, or building apps, or doing whatever in order to hit that revenue mark, and there was a number that I needed to make.
And so if you don’t have your “freedom” yet from your job, or from contracting, that, I think, has to be a goal of yours, assuming that you want to do the entrepreneurial life. If you already have products or you’re already working full-time for yourself in essence on your own products, and you’re making a full-time living from them, I think you can have more than one or two goals. I think you’re in a position where you have more control over it, and I think that having a revenue goal and then maybe a goal of launching something new, whether it’s a new, I don’t know, podcast or blog or even a new product or some new major marketing efforts around your existing product, I think all of those could be included in your goals. And it, kind of, depends on how you label the major goals, but I think early on that you’re going to want to keep it to one to two, and then you can maybe expand it a little later as you get a better feel for how much you can actually get done in a year. Because I think most of us early on overestimate how much you can get done. And then you become more and more pessimistic as you set these goals and you review at the end of each year, and you realize, “Boy I really didn’t get that much done.” And you start pushing stuff off to the next year. You become a bit more realistic about it.
Mike [13:58]: Step 4 in the process is to identify specific ways that you can hold yourself accountable through the various milestones that you’ve set up. And the idea here is that you want to set up an automated system that will essentially ensure that you don’t forget about the milestones along the way, or that you aren’t letting things slide. And you can do this through a variety of different ways. You can use a mastermind group. You can use an accountability partner. Your spouse or significant other is also a good one, or a fellow business owner. If you meet up for drinks, or lunch, or dinner, or something like that on a regular basis with anyone else who is doing the same types of things as you are, you can use them to essentially to bounce ideas off of, and essentially just put together an outline and say, “Hey, every week or every two weeks, this is what we’re going to talk about.”
And you have to schedule this time. One of the things that I’ve found is that if I don’t set aside the time for this, if I don’t actually schedule these periodic check-ins to go back and look at that, it’ll be three or four months before I even go back and look at my goals. So you have to schedule the time and make sure that in some way, shape, or form, that you are paying attention to that moving forward. Because it’s very easy, as Rob said, to just push things off. I find that if you have an automated email that comes in to you every week or every two weeks – this is one of the things that we do in our mastermind group – is we have a link that just gets emailed to us every Monday morning that points to the Google Doc, and that tends to work really well just by drawing attention to it. But at the same time, it’s also fairly easy to almost ignore that, or bypass it, just because it comes in on a Monday and we don’t meet until Tuesday night. So depending on the timing or scheduling of that, it might be a factor. But if you schedule it very close to a particular meeting, it’s going to pop into your email and you’ll see it shortly before the meeting. It’ll be essentially a trigger to remind you, “Hey, we need to discuss this.”
So again, any of those things – mastermind group, accountability partner, all of those things – if there are triggers that you can set in place, especially if they’re automated to remind you that hey, you need to review this on this periodic basis, that will help you to hold yourself accountable to those milestones.
Rob [16:01]: I pretty much always have a revenue goal for the main product I’m working on, which has been DRIP for the past few years and was HitTail before that. And what I have found as extremely helpful for me in the mastermind groups that I’m in is at the end of every month, the next mastermind that I have, I say what the revenue was. And just forcing myself to calculate it to the penny and report it in the mastermind group, even though people aren’t necessarily holding me super accountable to anything in the meetings, it really helps me visualize where I am on the path to that goal. And the nice part is your mastermind folks aren’t going to remember your revenue from month to month, so it forces you to basically say, “Hey, two months ago, I was at this. Last month, we were at this. And now, we’re at this.” And it makes you actively think, “Oh boy, we only grew by a thousand each of the last two months. I’m not going to get there if I grow that slowly.” Or if you can say, “Well, last month we grew by 5000, like the month before,” then suddenly you just become more aware of it because you have to explain it to another person. It’s like the concept of how you really know something once you can teach it. I think that, for me, I’ve always calculated monthly revenue. I’ve always looked at it. But something that helps me absorb it and process it is to then explain it to the folks in my groups. And it really helps solidify that, and it adds this level of a recurring accountability milestone.
Mike [17:21]: The fifth step in the process is to identify your motivational triggers, and these motivational triggers can be either positive or negative. So a positive motivational trigger would encourage you to do more work, or to be more productive, while a negative one would essentially hold you back from that, whether it’s making you procrastinate or just doing some form of work avoidance, or spending too much time on certain things because you feel like maybe they’re ultra important and they need to be just perfect. Those are the types of things that you need to identify so that you can implement additional ways to make sure that those things are not holding you back, or that you are encouraging those motivational triggers that are positive. And these are essentially feedback loops that you want to set up.
Everyone has a different motivational trigger. Some people are positively reinforced by money or fame. Or other people who just say, “Hey, I just want to be healthy.” They don’t necessarily have these giant, grandiose goals, but they just want to concentrate on their family, or they want to concentrate on personal learning. Each of these things, there’s nothing right or wrong with any of them, but you have to recognize what your own motivational triggers are and then set up feedback loops so that you can make sure that you positively reinforce and double-down on those ones that are positive and reduce or eliminate the ones that are negative.
Rob [18:34]: Recently with DRIP, we’ve launched those two knowledge products; that e-book that I mentioned that we gave away for free for a week and then started selling, and then the video series with Patrick McKenzie. And what I’ve noticed is the motivational trigger during that time was that the positive feedback of doing something risky and doing something scary in public, right, because you launch it, you email the list, and you’re wondering, “Boy, are people are going to like this? Is it going to go well? Or is all this time and money we spent just going to go out to crickets?” And I saw excitement in the team as we were reporting the numbers and the number of downloads, and the number of uploads on product time, and the number of comments and all that stuff. And so for me, doing things in public and getting positive or negative feedback has always been a trigger of one kind. And I think the further I’ve gotten away from that, You know, I blog less than I used to due to time constraints. Luckily, I still have the podcast and the conference and stuff. But I think that getting back to the things that really matter to you, and push you in a virtuous cycle, I think, is important. I know that I’ve just recently rediscovered that and remember it. I published just a couple of blogs posts in the past few months. And the feedback, and just knowing that I pushed something out into the world again, and writing – it was something I don’t do often – was really a motivational trigger for me. And so I think that learning that about yourself, and then noting it down and not forgetting – which is frankly what I’ve done as I’ve stepped away from that – I think it’s a positive thing.
Mike [19:57]: And some of those things you just talked about lead us into Step 6 of the process, which is to identify the patterns that indicate that you’re demotivated. And some of these things just boil down to a basic sense of procrastination, but sometimes you can recognize certain patterns. So, for example, maybe you wake up later than you usually do because you lack focus, or clarity, or lack a sense of drive to just get out of bed and start working on your product. And this is especially true if you own your own time and you aren’t sure what you should be doing. And it’s very difficult to motivate yourself to get out of bed and sit down and be motivated to be productive if you’re not really sure what it is that you’re driving for, or what you’re trying to do, or you’re not sure what to do.
Another symptom, or a pattern that you might be able to recognize, is if you’re playing an excessive amount of video games, or watching a lot of TV or movies, or you’re just making a general lack of progress towards your milestones. Any of the activities that you typically do that are essentially time-wasters tend to fall into this category of patterns where you can recognize that you’re demotivated. And I think the recognition piece of it is really important, because if you don’t even recognize that this is a problem there’s nothing that you can do about it because you don’t even know where to start because you don’t know that there is a problem. So recognizing that the patterns that you undertake during those situations is really important. And it warrants writing them down so that you have it in your mind that, “Hey, these symptoms, or these things that I do, or these things that go on in my environment, are demotivational to me, and will hold me back.” So as long as you have that in mind and you’ve written it down, you can use that as essentially a trigger to recognize them. And again, going back to identifying specific ways to hold yourself accountable, these are things that you should review on a periodic basis to make sure that you’re not falling into any of those traps that are going to hold you back.
Rob [21:44]: We’re all going to become demotivated at one point or another throughout a year. The key is, as you said, to identify it, and then to figure out if it’s a short-term or a long-term dip. And if it’s short-term, you can often pull yourself out using tactics, or making small adjustments. And the tactics I tend to use are music, getting a playlist together that matches the mood and that I start to loop and, kind of, puts me in the zone. I will up my caffeine intake for the short term and do it at really key times or about 20 minutes before I’m going to start working. I’ll also change my work environment. If I haven’t worked from coffee shops in a while, I will go work in a coffee shop. Right now, I’m actually working at our house – that’s currently on the market – that we’re not living in, so there’s no one here. And I’m here maybe once a week. It feels like a new environment, and that is extremely motivational to me. And I think to most people, to be in a new environment, it tends to spark creativity and ignite something in your brain, because you feel like you’re in a new place.
I think something else to think about is if you find yourself being demotivated for longer periods of time, it might be that the work is just crappy. Or you’re doing the wrong thing? It’s not a good fit for you. If you feel like you’ve wandered off and you’re, I don’t know, writing an e-book or an info product because everyone’s saying you should, and you’re really, really struggling with it and hating it, then maybe that’s not for you. Maybe you’re more of someone who should launch software. Or vice versa. If you’re sitting there just toiling away at your SaaS apps for months and months and months and you haven’t launched it, and it’s demotivational, maybe that’s not the right path for you. Maybe you should take some expertise and put it into an e-book instead and do something in public, get that virtuous cycle started and go off in another direction.
It’s something to think about and reevaluate, and not just take things at face value that what you’ve decided to do is what you have to do. Because if two, three months down the line you’re still feeling this way, something is probably wrong, either chemically with you – which is certainly a possibility. Wintertime is definitely tough when it’s dark and cold and you don’t go outside. Or it may be that the work is just not a good fit for you and that you’re not going to be happy even once you launch. That’s the thing. If you’re not enjoying the journey along the way, for the most part, then you’re not going to enjoy the destination when you get there.
They’ve done studies and such with doctors, or folks in med school actually. And the people who are really unhappy and just grinding it out, trying to get through, and they’re saying, “Well, as soon as I’m a doctor, everything will be great,” it doesn’t tend to be great for them when they get to be a doctor, right? Because they really didn’t love the work and the journey. And it tends to be the folks who are enjoying themselves along the way. Even though they know it’s hard work, they are enjoying it along the way. And then when they get to their destination, now they can look ahead at the next destination. And it’s not like, “Oh no, I need to grind it out for four more years.” It’s like, “I’m going to enjoy the journey to the next destination as well.”
Mike [24:23]: And a little addendum to that is that if you recognize that you are in those situations, it might be a good time to reevaluate what your yearly goal is. Just because you’ve set those yearly goals, it doesn’t mean that halfway through you might change your mind and decide that it’s not something that you actually want to achieve. You shouldn’t just grind it through just to make sure that you meet that goal if it’s not ultimately going to make you happy. So keep those types of things in mind as well.
Step 7 in the process is to set up a reward system for meeting your milestones and major goals. Know what it is that you’re working for, both in the short and the long term, and use those motivational triggers to help push through some of the hard times. And some of the different rewards that you can give yourself — they don’t even have to be very big. You might just treat yourself out to lunch at Qdoba or something like that. I mean, just go to a taco place in the middle of the day for no other reason than it’s a Thursday afternoon and you decided that one of your milestones was to get to a thousand subscribers, for example, and that you just recently met that goal. So treat yourself.
And there’s a lot of different ways that you can treat yourself in small ways that will help with that positive reinforcement. And it’s great to be able to hit those milestones, but tacking on additional rewards to those things can be really helpful as well. And it could just be a dinner and a movie out with your spouse or your significant other. It could be a new video game. It could be some new music. It could be a new album, a new book, for example, or it could just be a short trip, or even just a day trip out to a museum or a theme park or something like that. Everyone’s is going to be different. Everyone wants different things. And some of those rewards are going to be more appealing to you than others, but make sure that you’ve attached some of those rewards to some of the different milestones that you’ve set up in order to make sure that you’re getting that closed feedback loop that is going to help reinforce you moving forward.
Rob [26:05]: I’m actually really bad at this, and I’m trying to get better. You know who’s really good at this, is Phil Derks. And he has his WordPress Simple Play plugin and a couple of others over at Moonstone Media. He did an attendee talk last year at MicroConf and he lives here in Fresno. And all along the way, he had these great milestones set up when he hit a thousand in revenue and X thousand in revenue. And it was fitting, too. They got bigger along the way. It was like, “Oh, it’s a nice dinner with my wife.” Then it’s a, I think, wine club membership was another one that I thought was a great reward for yourself, because that’s a non-trivial cost each year. But if you’re thinking to yourself, “Boy, when we hit five grand a month in revenue, it’s a big milestone for me,” then do something worthy of that. Go out of town for a night without the kids, or do a really nice dinner, and spend more than you typically would. Or do any of the things you said, or set up a wine club membership, something that you wouldn’t normally do, and that is really icing on the cake to give yourself the payback for all the work that you’ve done.
Because although the journey should be fun, and the goal should be worth doing just for itself, I do think there’s a lot of value in celebrating with some other people around you, and then just having that cool thing that then reminds you of the goals that you’ve achieved, right? Because then when the wine arrives in the fall, then you can think to yourself, “You know, I earned this. I built a business that supported this, and that goal paid it back.” And it’ll remind you of achieving that goal, which I think is something to relish. Because as entrepreneurs, I think oftentimes we are trained to be a little more pessimistic. Maybe it’s just me, but we can tend to look at the dark side of things or look at what’s not going right rather than what’s going right. And so I think we need as many reminders as we can.
And speaking of going and seeing a movie, opening night, Star Wars Episode 7, baby. I’m going to see it with my kid.
Mike [27:55]: We’ve threatened the kids with leaving them home or going to see it while they’re at school.
Rob [27:59]: Nice. That’s great. I love it. That’s a great punishment. Yeah, I wish I had a goal that I had achieved recently and I could attribute it to this, but alas, it’s just I want to see it. And it’s weird that they’re selling tickets Thursday nights. Are you seeing it Thursday? Because it’s supposed to open Friday, but then they have a bunch of Thursday showings.
Mike [28:16]: I didn’t know that they were doing it Thursday before midnight. Usually I like doing it on opening night for a movie. Like if it’s a big movie, they’ll do it at midnight, and so they’ll have midnight showings. I haven’t heard of anybody showing it before midnight on Thursday though. But I haven’t looked either. We haven’t really set aside the time to figure out when we’re going to go.
Rob [28:31]: Yeah, there’s a bazillion showings here starting at 6 or 7 p.m. on Thursday night.
Mike [28:35]: You could just say that your reward is for your lifetime achievement of being the oldest today that you’ve ever been in your life.
Rob [28:41]: Boom. That’s it. So to recap what we said in today’s episode, we had seven steps for how to set annual goals. The first one was make time to set the goals. The second one was to recap the current year and then look ahead. The third was to limit yourself to one to two major goals. Fourth was identify specific ways to hold yourself accountable. The fifth was identify your motivational triggers, both positive and negative. The sixth was to identify patterns that indicate you’re demotivated. And the seventh was to set up a reward system.
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 and we’ll see you next time.
Episode 267 | How to Structure Your SaaS Support Team
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike speak from their first hand experiences about how to structure a SaaS support team as well as the tools they use.
Items mentioned in this episode:
Transcript
Rob: In this episode of Startups for the Rest of Us you are about to hear, Mike and I discuss how to structure your SaaS support team. This is Startups for the Rest of Us, episode two hundred sixty seven.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching 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: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
Mike: You know, as you read the intro I totally thought you were going to mess it up.
Rob: Yeah? That was from memory too. I didn’t even read the doc this time, unlike at MicroConf Europe when I was trying to intro the conference and froze in the middle of the intro, and you had to pick it up. That was a moment.
Mike: Yeah, that was rather interesting. I thought about singing a song or something like that but I couldn’t come up with anything good on the spot.
Rob: You bailed me out. So, what’s going on with you?
Mike: I talked a little bit about it last week, about taking pre-orders for the product I’m working on it. I’m up to ten pre-orders at the moment, and I’ve got some more that are going through the decision making process, and the a few more that need to be scheduled. But I’m thinking about breaking some ground on the code right now, and working out exactly what the timeline is going to look like and whether or not everything is going to make it because that’s still a little bit in flux but things are looking good so far.
Rob: Congratulations, man.
Mike: Yeah, I want to do – in parallel – some testing with some paid advertising to pull in some cold leads, and do a little bit of experimention to figure out what that marketing plan is going to look like post-launch, but I think I have a good handle on exactly what people are looking for and how to position it.
Rob: One piece of advice I’d give is get that landing page up now. Even if you’re not going to run ads to it, eventually you’re going to mention the domain name here on the show, people are just going to start talking about it, it might show up on Twitter, and you want to be able to send them somewhere and have them be able to enter their email. So, if you don’t already have that up I would do that before I touched any code.
Mike: Yeah, that’s definitely on my list of things to do. I’ve been–I wouldn’t say pushing off, but it’s just been a lower priority just because of all of the other things that are going on. So yeah, I recognize that I’ve got to get that done. Even the people that I’ve given a demo to have looked it over there and said, “Hey, there’s no landing page or anything here!” There is a place where they can pre-order, but there isn’t really any content there.
Rob: Right. Have you already created mockups, and you feel like the folks who have pre-ordered know what they’ve pre-ordered, like it’s very locked down?
Mike: Yeah, I spent probably twenty to twenty five hours working out the mockups and building the entire UX for the application, and the demo process that I went through with these ten people who have pre-ordered–I spent anywhere from 25-30 minutes is on the really low end, but the vast majority of them were 45-50 to 60 minutes. I think the longest one was about 2 to 2 1/2 hours; walking through exactly what it looked like, how it would work, answering any questions that they had, working through different scenarios and things like that so everyone who has pre-ordered I believe has a pretty good idea of exactly what it is that they’re getting.
Rob: Very cool, so you’re just itching to get into the code, aren’t you?
Mike: Yeah, and that’s something that I’ve been holding back on.
Rob: Yeah, it’s always a good idea to fight that urge as long as possible.
Mike: Right.
Rob: Because once you get into the code you become hyper focused. I’m not saying you, just in general, developers, we get sucked in.
Mike: Yeah, tunnel vision is really what it comes down to.
Rob: Yeah, there you go. So, I have a couple of things, one is, if you’re listening to this and you didn’t know that I have another podcast that I record with my wife, I wanted to tell you about it. Episode 45 of our podcast “Zen Founder” seems to be catching some people’s eye. It’s about getting your spouse on-board with your startup aspirations. I saw you had recommended it to someone via email, and some other people were emailing and tweeting about it. So if you haven’t checked out Zen Founder, it’s in iTunes obviously, ZenFounder.com. You might want to start with episode 45 because it seems to have resonated with a lot of folks in the boot strapper space. The other thing I wanted to mention is, if you’re not connecting with Mike and I at Twitter, come check us out. I’m @RobWalling and Mike is @SingleFounder.
Mike: So, what are we talking about this week?
Rob: Today I wanted to talk about how to structure a support team. I think we’re going to focus mostly on SaaS. This would probably apply to any type of downloadable software, membership sites, info products. They all have similar issues, and I really want us to speak from experience. I’ve been making it up as I go along for sure. There are experts in this space, Sarah Hatter has built her career on being a SaaS support expert, and spoken at MicroConf a few times. So she has a lot to say about the mindset and how to organize a team, and replies, and how you should handle things. Today we’re going to talk a lot about structure, first hand experience, and the tools that we use to get the job done. I think we’re going to break this up into a couple of areas. The first is email, because that’s where a lot of your support is going to come through. The second, third and fourth are going to be shorter; talking about knowledge bases, live chat and potentially phone/Skype if you end up doing that.
So, to dive into email — it’s interesting because years ago when I had small info products and downloadable software, I was doing all support via Gmail. I basically had a number of email addresses piping into G-Mail, and of course you can then “send as” when you replied and that actually worked. If you’re one person doing support, it’s not totally sustainable, it doesn’t scale that well to not have tickets, and not be able to make notes, and all of that stuff, but I think it’s the best way to get started right off the bat if you have just a small, simple product and you just want to, kind of, do it. But you’re going to want to transition out of that when you hit any type of a scale and move into a system like Help Scout or Groove. From Gmail, there was no Help Scout and Groove when I transitioned, and I moved into Fogbugz which I stayed with for many years. We used it both for issue tracking and for support and, frankly, we outgrew it and it became a little long in the tooth. They haven’t updated it with a ton of new stuff, and so now we actually do use Help Scout and we really, really like it. So, this is how we support my email marketing app, Drip. Help Scout has a lot of advantages over other tools that I’ve used in the past. Basically there are a ton of keyboard shortcuts that you can use, almost like the G-mail keyboard shortcuts. You can do an “A” for “Reply All”, “R” for “Reply”, you can add a note with “N”, you can set Status using “S”, you can almost not use your mouse and use the app. So it’s a lot faster than other tools I’ve used. Another cool thing is it has this email interface, so when you get notified–if you pick something up on your phone that you got an issue sent to you, you can reply directly to that issue, that email right on your phone, or from Gmail, and the reply will go directly to the customer. Or, if you put–there are some fancy keywords you can add; so you can put @note, just the @ sign and then note, and you can attach a note to it, then reply again and put @assign and assign it to someone on your team. It allows you to do stuff without ever having to log into a web app, which I found is hugely productive for me if I’m on the go.
Then it’s fast and there’s a really nice plugin you can build. I think it took us an hour or two — we’ll reference this a little later – but in essence on the side of Help Scout issues, we can see the customer, and we see their gravitar, and we can see if they are paid, or trialing, or if they’re not a customer at all. We can see how many months they’ve paid, what plan they’re on, and their past support tickets. I’m sure there are other systems that can do similar things, but we’ve really enjoyed using Help Scout for the past six months. How about you, Mike, what tools have you used for support?
Mike: Well, kind of, like you, I started out just using Gmail, and right now I still run everything through FogBugz. It’s fast, it’s easy to have everything dumped all into one place, and I don’t really have to worry about it. I don’t get enough support tickets for most things anyway. I maybe get a handful a month, so it’s not really worth going down the road of building this full blown support system. It’s a manageable level, so I don’t really worry too much about it.
Rob: Yeah, very cool. Let’s talk now about these three stages that I’ve defined here. In essence, think about email support when you first launch as Stage 1, and then within three to six months you want to get to Stage 2 – that we’ll define in a second – and then after that Stage 3. So, Stage 1 is the founder, or founders, are doing all of the support. This is really where you need to start, because at this point you don’t have enough information to be able to train anyone else to do support, and your contact with your customers early on is invaluable because you’re going to be getting so much new information and so many new questions all of the time that, A. you’re going to want to improve the product quickly, B. you’re an upstart so you want to be able to respond instantly. When we had just launched Drip, I was responding to everything within 20-30 minutes. Every ticket you’re just getting back to people. Literally we would get a ticket and build the feature, or add the check box they needed, and get back to them within two hours. That’s how you have to be in the early days, in my opinion, of running a SaaS app or software product, is super responsive because that’s one of your main advantages over one of these big companies, it’s your speed of doing it and your knowledge. Since you’re not a front line person at some big company, you can offer in depth advice and you really know how your product works at this point. So I think there is a lot of value in the founders doing email support for the first, let’s say, 3-6 months.
Mike: The other advantage of doing all of that support yourself early on is that you get a sense of where people are struggling with your product or service. So especially if you start seeing the same types of things over and over it allows you to not only build some training collateral that you can hand off to somebody for tier 1 support later on, but it gives you an idea of where the hurdles are that people are running into, so you can either tweak the product itself, or the service, or you can educate the person who is going to be taking over the support later on, or you can just educate your users a little bit better, and your on boarding material. So, there are a bunch of different advantages to doing that support yourself upfront. I see people trying to just take that and say, “Oh, I don’t want to do support” and they try to hand it off to someone else, and that’s really hard to do just because the fact is you need some of that information. It’s harder to get it from someone else than when you hear that stuff firsthand, because then you get this broad view that is unfiltered from these customers, versus when you hear it through a support rep, because the blinders are on a little bit so to speak. Not that they’re hiding information, but they don’t necessarily relay all of the correlations between the different conversations to you.
Rob: I totally agree. Having that directly line with your customers is big, especially early on. You start to build relationships with folks, and they learn to trust your app, and trust you, and think of the whole experience as being a good one. You need to do that early on in your apps life cycle because you’re trying to build this brand in the early days.
Mike: Just what you said there about the entire experience though, that also relates to how you’re going to do business with them in the future. I think that’s an important piece of this, is that when you’re able to get back to them very quickly and you take care of them, down the road if they start running into problems, they’re not just going to throw up their hands, walk away and go sign up for something else. They’re going to come back and talk to you, especially if you’re either not meeting their needs or if something goes wrong — they’re going to be more willing to cut you a little bit of slack if things start to go wrong. And they’re having problems with the support rep, or maybe there are things going on that are just wrecking their productivity–they’re going to be more willing to come back to you because you’ve done the right thing in the past than they are to just walk away and go find something else.
Rob: Right, and the other reason you want to do support in these early days is that you have no process yet. You don’t have frequently asked questions. You may have made up a few and put them on your website, but you haven’t received enough questions and had to think hard about the answers and created some canned responses, and to know the struggles people are having to be able to train a support person. So, in essence, if you did bring someone in this early on, you could say, “Alright, go play with the app, and then answer the questions the best you can. Anything you can’t answer refer to me”. In a sense they’d assign it to you, but you’d be getting a lot of stuff assigned to you, and at that point I believe wholeheartedly in the value of just being on the front lines for all of the other reasons we mentioned as well as this one.
Then at a cretain point you’re going to want get to Stage 2, because as a founder you can’t spend all of your time supporting the app, and handling front line support. You’re going to involved to some extent, but as the requests become a little more repetitive and you do start to develop a process in your canned responses, and you’re seeing the same questions over and over, you want to move into Stage 2, which as I said tends to be about 90 days in. It depends on how fast you’re scaling up. If you’re still at 20 customers 90 days in then maybe you don’t need to move away from it. But if you hit 75-100-150 customers, you do need to start thinking about getting out of the support role. Here is what Stage 2 involves; it’s basically hiring someone to handle your Tier 1 support. By Tier 1, that’s your front lines. That’s the person who handles every single email that comes in, and either answers them or assigns it to the appropriate person. At that point the founder will probably handle all other issues. At this point you have all of this knowledge so you can create your docs, your training screen casts for the basic recurring issues, and then anything that your front line person doesn’t know how to handle they can assign to you and typically what I was doing was then trying to train that Tier 1 support person by not responding directly to the customer but by giving the support person the knowledge so that they could respond, and either put it into a Google doc or just putting it in the reply so that that person is now trained on how to handle that issue moving forward.
There are a couple of different types of Tier 1 support people. In the old days when I had some small info products, I really didn’t have much of a budget, I did hire really low cost VA’s, let’s say 3 to 7 dollars an hour, often in the Philippines or India, and they were handling stuff. As I’ve been able to level up and build apps that generate more revenue, as well as require a higher level of support, I’ve been able to hire higher caliber, more knowledgeable — some people even with a little bit of technical skill, like help desk level skills, maybe not programmers, but people who know what FTP is, and can explain things to folks. If you get that second kind of person — you know we have Andy doing Drip support and Micropreneur Academy support and that kind of stuff — he is willing and able to learn new things and teach himself, so when we did launch Drip – I had been telling him about it, and I was intending to create a bunch of docs for him – he said, “Just give me a login. I’m going to log in, I’ll look through the KB that you have, I’m going to play around with it, and anything that I need help with I’ll let you know”. That’s obviously the highest caliber support person you’re going to find, but you can certainly start out at a lower level where you really are just handing people canned responses. Even if they’re just handling 50-60-70% of the support and others are still coming through to you, it’s still a worthwhile investment until you’re able to level up.
Mike: And that level of support person is going to take time to cultivate. I mean you said yourself that he had started more on HitTail, and then you transitioned him over to Drip, and by the time he got to that point he just said, “Hey, give me the stuff”. That level of effort on his part is also partly a factor of how you have treated him as a contractor for you. So, that translates over to that new product so that you don’t have to train someone from scratch. Obviously there is training that needs to be done because it’s a new product, but you don’t have to train him on how to behave toward the customers. You don’t have to reset – or set – his expectations about how he should be answering questions. All of that knowledge carries over. It’s not the product knowledge, it’s the “how do you do business?” knowledge, and that’s also very important.
Rob: I agree, and that’s something else to communicate. We have a very customer-centric approach to support where we try to go out of our way and do everything we can to help them, and our refund policy is very liberal as well. So folks want refunds – and unless it’s some crazy thing where they’re asking for the last six months to be refunded – every once in a while we do get those, but other than that, when in doubt lean toward doing what the customer is asking for. And instilling that in the support person; you can’t give them the rules for everything. At a certain point there are judgment calls that need to be made, and if you don’t want to be making those judgment calls every time then you need to start instilling some cultural things, or strategies, rather than just the tactics of how to respond to each individual ticket.
SoSstage 3 of handling email support comes a little later, and I think this timeline depends on your growth but it’s definitely going to be when you start hitting multiple hundreds of customers. This is when, as as founder, you don’t even want to be handling all of the tier 2 stuff anymore. You’re still going to have your tier 1 support person. They might be remote. They might work with you. The odds are they’re going to be remote, because that’s the way you’re going to find someone at a reasonable cost who is still high quality. That tier 1 person is going to be doing the repetitive work; answering frequently asked questions, triaging things.
Then tier 2 spiders out. Instead of it just being you, you, kind of, have five roles that I’ve defined. A founder may need to handle more than one of these, but the five support requests and questions that we see coming through are : developer oriented ones, where they just get too technical for someone who is not into code to be able to answer. So that’s the first kind. The second kind is consolation/advice. And this could be pre-sales, it might be while they’re trialing, or it might be when they’re a customer.This is when someone really needs help understand concepts rather than how to use the specifics of your app. I’ll dive into that in a little bit. The third type is billing questions, asking for refunds, exception, the stuff where someone doesn’t want to make a monetary call. Your tier 1 person may not feel comfortable doing that. Your fourth is product questions, often feature requests and that kind of stuff, and then there is this “Other” bucket that I’ve shoved a bunch of other stuff into like partnership and such.
Let’s take a look quickly at number 1, which is “developer”. If you are the developer, as the founder, you will probably need to be this tier 2 role as well. With Drip, when Derek and I launched it, we pretty quickly realized that there are a portion of the tickets that come through that are just too technical or complex for a tier 1 support person, or even a non-technical founder, frankly. In the early days this developer will obviously be a founder or a true developer, but we realized after we launched Drip, that Derek was not going to be able to actually get anything done if he had to handle all of the tickets that were coming through to the developer support role. Because it can wind up being a quarter or a third of a person’s time in a given week, depending on how many customers you have. So, we hired someone as a developer/support person, so they do handle the tier 2 support. If you’ve interacted with Ian at all, in our support que, that’s who handles that.
Mike: Now I have a question for you about this. When you have Ian doing that does he do any actual development too, or is just a developer who is doing developer level support?
Rob: No, he is spending most of his time building features for the product. He is a Rails developer, and then as support requests are escalated to him he flips over and handles them. But actually less of his time is spent responding to support requests, but he does have that in depth developer knowledge.
Mike: So I’m a little confused. It sounds like you hired someone to shift the responsibility for the tickets off of Derek, but then this other person is spending most of their time doing development. I’m a little confused about how that works. It sounds like you just shifted a problem from one person to another.
Rob: Right, when I said Derek was not going to get anything done that may be an exaggeration. He was spending a quarter to a third of his time responding to tickets, and so development — he’s the lead developer. He handles everything that goes live – all of the deployments – so constantly having him pulled off in the middle of the day, he was really struggling to get the big features built. So we did hire someone else who is not the lead developer. He was, kind of, a Junior when we hired him and now he’s worked up to a mid-level, because he’s worked with us over the past year plus. But then a quarter to a third of his time spent doing it is just a better use of time, because Derek is focused on the big, meaty things, and we can move faster – when all the poll requests Derek has to handle, and that’s his distraction.
Mike: Got it, so you’re really just shifting where those interrupting requests end up.
Rob: Exactly, and overall it makes us more efficient. We get more done. And as we add other developers – assuming your developers handling support requests can continue to handle those – then other people are freed up and they don’t need to handle support requests. It’s not like it Round Robin’s. I feel like that could spell trouble if you’re interrupting a lot of developers all at once. I also think that some developers are good at switching. and others it’s a lot more of a struggle for them. And we happen to have found someone who is pretty good at it. So I think if you do find an avid developer and he’s struggling to do the switches -I’m not good at it actually. When I used to write code I had a real tough time switching into support mode, so I quickly knew that it wasn’t something that I was going to be able to do, so keep that in mind. It’s not something everyone can do.
All right. So our next type of tier 2 question, is this “consolation or advice?”. This almost comes down to customer success. It’s helping them be successful with your product – not necessarily about the nuts and bolts of it – but as an example, with HitTail, we used to get questions about, “How should I do SEO? Does SEO work? Here is my site, do you have any advice for me?” With Drip we often get, “How should I structure my tags?” or email marketing questions, “Are my open rates reasonable? Am I doing something wrong?” It’s like architecture and marketing, structure and advice. Sometimes we will jump on a call if it’s short and it’s an easy question to answer. Other times we’ll answer via email. We do have consultants that we refer people out to if we feel like it’s really exotic, or something where they need a lot of time to help. But being able to offer this kind of expertise quickly and give a few sentences of guidance, we found to be absolutely invaluable. And again, it sets you apart from these larger companies. You email an AWeber or a Constant Contact and they have tier 1 support, but they’re not necessarily knowledgeable on how to structure things, so you don’t expect them to help you out on this front. And as a small company this can be one of your competitive advantages, being able to give very quick consolations or advice for free via a support que.
Mike: So early on I assume that you were probably doing most of these in order to help offload the interrupting nature of those types of requests to Derek. What are you doing at this point? Is there someone that you have dedicated to that type of thing right now?
Rob: Absolutely. I was doing that for the first 18 months at least, maybe two years, and it was super helpful. And it helped me develop my knowledge of all of the markets and how they work differently, and it expanded my knowledge of email marketing and marketing automation and all of that kind of stuff with these different spaces that people are using Drip for. Then about six months ago we hired Anna, who is head of customer success, and she handles these now. It’s going really well. If people are trialing your product they are basically wondering if it’s going to work for them, and if they need help and you aren’t able to give it to them the odds are pretty high that they’re not going to convert. And if you do help them–it’s like you said, it’s that early experience, they learn to trust you as an expert and if your advice works out for them then they become customers. I don’t know that I’ll say life long customers but they become loyal customers because they know that you can help them out in the future if you run into this type of stuff. I think this is probably overlooked in a lot of support qeues, or support structures, but being able to offer this is really quite valuable.
Mike: So, the third one you have here is billing. How do you currently handle billing requests that end up geting escalated to tier 2? I think there are two different things to address here. One is how you handle it versus how it can generically be handled. Maybe we tackle those two things differently.
Rob: Sure, billing is in essence — tier 2 stuff is pretty much passed up to me, because often your tier 1 person won’t feel comfortable making monetary decisions. I will often give tier 1 support the flexibility to make the decision up to a certain dollar amount. You could say, “If it’s 50 or 100 bucks no problem. Don’t even both me with it.” And they may not make all of the decisions exactly like you would, but it’s just not worth your time to handle twenty requests if they’re going to make the same decision with eighteen or nineteen of them. It’s just not worth it. So when billing stuff comes to me then I have to make a decision, and often times I’ll involve other people on the team and get their opinion on how we should handle it, because sometimes there are tricky ones of someone asking for a refund of a bunch of months. There are just anomalies that come up where you have to make a decision and there is no clear path.
Mike: Yeah, some of those there is no right answer and it depends more on what will make the other person happy without disrupting things too much internally, both in terms of your cash flow — because the last thing you want to do is go back and refund like an entire year, especially if the person has been using it for at least part of that time. But yeah, there are always situations where someone needs a refund for a very specific reason, and those tend to be more cut and dry, versus the time where someone asked for a six month or twelve month refund because things have been ongoing. And hopefully you knew about those to begin with, but there are those occasion times that come up where something was going seriously wrong and you had no idea and now suddenly it’s a big issue and fiasco that you have to suddenly be dropped in the middle of without any knowledge of what was going on before.
Rob: The fourth category of tier 2 requests are really around the product. And these are mostly feature requests, maybe bug fixes. But really if it’s a bug the developers are typically just going to jump on it. I think if it’s a super low priority bug, only impacting a small amount of people and it’s not any type of showstopper — like let’s say a misspelling, something not catastrophic – then it’s going to go in the qeue and they’re going to handle it. But it’s feature requests that, kind of, need to be escalated because those always need prioritization. When feature requests come through you want to figure out a bucket that you can put them in. And you can either assign them to a made up person, if that’s how you want to do it. For us, in Help Scout, they get assigned to me and put into “pending”, so there’s a list of all of these pending tickets that don’t show up as active that I need to respond to them, but every so often I go through and make decisions of which ones to put into the issue tracker – which we use a Code Tree over Get Hub issues – or I get the team’s involvement, and I’ll often run through a bunch and make decisions and then ask the rest of the team based on what they’ve been hearing, because they’re dealing with a lot of customers as well and they might have the sense of urgency of certain ones.
In an ideal world, when you get passed a feature request you’d have some context for it. Because not all feature requests are created equal. If a customer is paying you $50 a month versus $1,500 a month, you may need to rate that feature request from the $1,500 a month customer higher. Or if it’s someone that you know really knows the space, and their advice is actually going to help your product grow – we’ve had a ton of those. You get someone like Brennan Dunn or Ruben Gomez using your product and they make a suggestion, that has a lot of weight to it because they know product, and they know email marketing in terms of Drip and when they make suggestions these are ones I really listen to because my guess is these are things that are actually going to be applicable to other people. That’s probably a whole other episode to record, about how to prioritize feature requests. But I think the point here is when they come through support you want to have a pretty systematized way to deal with them, because you are going to get a lot of them. We get several per day. You can constantly being manually copying those into some Google Doc or into some other system. They do need to sit somewhere, and you need to figure out a way to batch them.
Then our last category of tier 2 support is just miscellaneous, or other. You’re going to get these requests especially as you grow, for partnerships, integrations, someone is putting together a packet for entrepreneurs or marketers and they want a discount code, they might need a sandbox or test account, they want to interview someone, they want a quote for a [blog pop?]. I mean, there is just stuff that just comes through. And what you’ll find is that as you grow you start getting more of certain kinds and you’ll want to start either automating them or teaching tier 1 how to make the decision. The example of needing a sandbox or test account, you’re probably not going to build that from day one because it’s quite a bit of time, and so over time it’s been escalated to tier 2 every time, and then I take a look at what they’re doing a make a decision. But recently we’ve realized that we’re getting enough of these requests now that we are going to put something in place with a special URL we can provide for people that have a 90 day sandbox account. This makes it a lot easier for us to handle and it’s not a manual process every time. I think partnerships, any of these, really, could be done that way. You could send them a link to a specific form that goes into a Google spreadsheet and you could handle that in batches, instead of handling each one individually. It’s probably going to be worth it at some point for these kinds of partnership requests or interview requests or that type of stuff.
Mike: It seems like these other requests are the ones that tend to take the longest because you don’t have a canned answer for them, and you have to evaluate every single one of them not only individually but also in the context of the other requests that you’ve received in the past that were even remotely similar, and try to maintain some sort of consistent approach to them. But then in addition to that you also have to take into account the growth of your app or product and making sure that you are doing things in a way that is consistent with what your future plans are for it. So all of those things said, it makes it difficult in some cases just to even estimate how long it’s going to take to address some of these, because some of them take a lot of back and forth as well.
Rob: Okay, so moving on from email support, there are, kind of, three other categories that we’ll cover pretty quickly here because it looks like we’re running out of time. I broke them down into like having a KB or some type of self service support, perhaps using live chat and then finally phone and Skype. Let’s look at KB’s really quickly. We were talking offline before we started recording and I was mentioning how surprised I am at how many people use our KB, and how many people really do want self serve, and they don’t just want to send an email in. They either want the answer immediately, or I don’t know what it is. You had some other theories.
Mike: Mine was that because your audience is somewhat technical they view their time as being valuable, and if they’re working on a problem they don’t necessarily want to do the context switching of moving away, sending off an email to support, moving away and then coming back two or three hours later or however long it takes to get an answer that tells them exactly how to do it. Then they have to slot their time in to come back to whatever it is that they were working on. Essentially they’re in a time period where they say, “Hey, I’ve got got an hour or two to work on this” and they just want to get it done and over with, as oppose to working on it a little bit and then having to sit it down and walk away and then come back to it and do something else in the meantime. Honestly, it’s distracting to have to do that, so when you’re in that situation it’s a lot easier and it feels better to say, “Okay, I’m going to dig through the docs a little bit to see if I can find the answer to this”, instead of just going straight to support.
Rob: Totally, and KB can be used in tandem with your email support obviously. We tend to try to answer questions directly and not just refer people off to KB articles because I hate that. If you email a big company and they just send you a KB link, often times I’ll find it’s a massive article and I can’t find my answer in there, or it’s the wrong answer. So if someone would have just answered me like a human then it would have worked out better. So we air heavily on the side of actually responding to someone, but it’s only when they ask something like, “How do I set up this integration?” and we have step by step that answers exactly what they want. Then we’ll be like, “Hey, we created a KB and here is all of the screenshots and everything. Look them over.” So KB’s are cool for both your own support team to be familiar with as well as external customers. In terms of setting up a KB there are a bunch of options. I have a few that I recommend to people. Help Juice, that’s a shout out to [Amyl Hassrick?]. He has helpjuice.com and I know some folks who use it and are happy with it. Desk and Zendesk which, I think if you’re using them for support they have KB’s built in. I’m not a huge fan of having a KB built into your support software because it’s just one more reason you can’t switch away if you decide you don’t like it. Then, you can use what we do on Drip which is just a WordPress plus a support theme. There is one called [Know How?], there are a bunch of others. If you search for it you can do that. Then you have to work with WordPress and deal with it’s anomalies, and themes breaking, and that kind of stuff so it’s not nearly as easy to maintain as a SaaS approach like Help Juice. But then you aren’t paying the monthly fee and you can customize it as much as you want since you’re in control.
Let’s talk about live chat really quickly. If you’re going to use live chat for support, then you’re going to want to put it “in app” only. If you put it on your marketing site, you’re going to get a lot of sales questions, and that’s a whole other discussion of whether or not you want to do that. But if you’re going to use it for support you put it in your app, and I would even consider only activating it for trial users if you can. That’s something we’re entertaining the idea of these days. We’ve done some “in app” live chat stuff with Drip and have had mixed results in terms of how well it works. Often times you just need time to research something, or you get a question that you need to talk to a developer, or you just can’t answer everything so it’s not actually the most efficient even though it seems like it should be. But there are a number of solutions for this; Olark, Zopim. I’ve heard that Intercoms live chat that what they’ve added is not actually live chat. It, kind of, pings you, but it doesn’t show if people are online, it doesn’t work the way you think live chat should work. I haven’t used it personally, but I’ve heard negative reviews about it but Olark and Zopim are the players that I’ve heard a lot about for this type of support.
Mike: Yeah, I’ve never used chat support before. Inside Communifier where we host the Micropreneur Academy there is a chat system there, and I’ve used that to some extent, but it almost feels like there are much better solutions out there for chat and a lot of things just come in through email. Some people just prefer email over the chats. A chat is one where unless you’re there all the time it can be difficult to do that. So I can definitely see where Intercom might fall down if it doesn’t work the way people think a traditional chat system would work.
Rob: And lastly, talking about phone or Skype or something like that. I think if you’re a single founder and you’re just launching a product on the side then this is not something you want to do. I tried it early on with DotNet Invoice and it was incredibly time consuming. It also depends on the type of customers you’re dealing with. Certain customers you can jump on the phone and it’s a piece of cake, and then others are just really tough to explain things to. You’re trying to explain what a screen looks like, or how to click here, and you can’t give screen shots. And if they’re really non-technical you can’t get them to join a screen share to show them, so stuff can become pretty cumbersome and really kill a lot of your time. It’s also interruptive if you’re taking in-bound calls.
The successful companies I’m seeing do this on a smaller scale – you know, when you have a team of five or something – is to have you initiate the call. You can either give them your number or you can call them directly, or you can set up a [?] and try to do something later in that day, or the next day. It depends on how urgent this issue is, for sure. Sometimes it really is the best route if you have a customer – there are certain customers that you know., and you trust, and you know if they have an issue that it’s not some crazy thing where they’re going to waste a bunch of your time, that they really need help now and sometimes that’s just the best way to do it. And then other times you’ll get a customer who you’re not sure about, and you’re a little concerned that maybe they’re going to try to get you on the phone for 30-45 minutes. Those are the ones you have to make a judgment call about when you do it. If you want to do screen sharing, join.me is a decent example. Certainly if you have something like GoToMeeting and you’re paying for that already. It’s a no-brainer. We found that Skype has mixed results. Some people just don’t use Skype so they don’t have a user name. You have to add them and then they have to accept. There is just more to it than that, but there are definitely options for doing this and sometimes it just is the best option for handling more complex issues.
Mike: Yeah, in terms of tools there are a bunch of different systems out there for screen sharing. Join Me is one. Another one — again, these are tools, and the specifics of the one that you choose are going to be heavily dependent upon how you need to interact with them. So whether it’s you need to show your own screen or you need to share a screen and maybe control their screen, all of those things factor into which tool you use but as you said, Join Me is one of them, Copilot from Fog Creek is another one. Then there is also WebEx and GoToMeeting, and both WebEx and GoToMeeting. Both WebEx and GoToMeeting, on the surface they look like you have to pay for them, but they both have free accounts that you can sign up for. It’s somewhat limited, I think on WebEx you can get a free account and you’re limited to three participants, but after the trial period is over I don’t think that you can request control of the other person’s screen. I think up until that trial period is over you can hand off control, but once the trial period is over you won’t be able to do that.
One of the things that we came up with just before the podcast episode was the idea of treating some of the people you’re onboarding differently based on whether or not they’re currently in a trial, versus when they have been a customer for a long time. Because obviously those people who are just signing on to your service are going to have a much higher likelihood of churning if they are not familiar with who you are, or what you’re doing, and they’re not ingrained in the product. So we discussed this a little bit, we don’t really have any experience there, but if anyone out there is listening to this and you have tried doing this before we’d love to hear from you. Just send an email to us at questions@startupsfortherestofus.com we’d love to hear you’re story and we’ll share it on the air with people.
I think that about wraps us up. If you have a question for us you can call it in to our voicemail number at 1-888-801-9690 or you an email it to us at questions@startupsfortherestofus.com. Our theme music is an exerpt from “We’re out of Control” MOoT used under Creative Commons. Subscribe to us on iTunes by searching Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 266 | How to Cope with Hard Times
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about some of the hard times they have come across in their entrepreneurial careers. They also give a list of eight coping strategies to help with these hardships.
Items mentioned in this episode:
Transcript
Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about how to cope with hard times. This is “Startups for the Rest of Us,” episode 266.
[Theme Music]
Mike [00:00:15]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike …
Rob [00:00:23]: And I’m Rob.
Mike [00:00:24]: … and we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:00:28]: Well, we just made the announcement. HitTail has sold, and so I’m down to one software product, just Drip. It feels really weird.
Mike [00:00:37]: I can imagine. Well, congratulations on getting yourself down to just one.
Rob [00:00:41]: Thank you. I appreciate it. We were talking before. We hit “record,” and I genuinely don’t know how to feel. Of course, I’m happy, of course. People are saying, “Congratulations,” and it does feel great to have a nice little exit and have some cash in the bank, be able to focus on Drip; but at the same time, there’s just a lot of emotion. It’s a big change to not have this thing. I’ve owned it for four years. I spent between 18 and 24 months, full-time, just building it up. So, I did find it a bit emotional, I’ll say, to see it go and to realize today, like, “Huh. I no longer own that, and someone else can do what they want with it.” They might redesign the marketing side, or add features to it, or add services or whatever; and I just have no involvement anymore. So, it’s kind of a trip.
Mike [00:01:18]: Cool. Well, on my end, I’m still taking preorders for the new app that I’m working on. Right now, I’m looking at maybe writing some paid ads to drive some cold traffic that I’m going to try and convert to preorders. So that’s my next step in the validation process; to validate the channels that I might try to use for this. I have some ideas based on the conversations that I’ve had from people, and the preorder process has been going pretty well. Nobody I’ve talked to has really had a problem with that. So that part has been going well; but right now I’m focused on trying to figure out where my sources of traffic and customers are going to come from. That’s the next step for me.
Rob [00:01:51]: Yeah, I think that’ll be a fun experiment to run. When you run the ads are you going to run them to the landing page and ask right away for a preorder? Are you going to just ask for an email address and nurture them? What’s your plan there?
Mike [00:02:02]: It’s a work in progress, and it could adjust as it goes along. What I’m thinking right now is I’ll set up a landing page, start collecting email addresses and make it look like – initially, it’s, “This is the problem that it solves. Are you interested in this?” and then put them on a mailing list. Once they get on the mailing list start interacting with them individually to talk to them about the specifics of what it is that they’re trying to solve, why. Although it’s a cold lead at that point, my hope is that those people will have not heard of me before and talk to them and try and convince them to preorder. I do realize that there’s always going to be some shortcomings with that, but without a finished app to show them I’m reduced to showing them mockups. But the goal will be to get them on the phone and talk to them and walk them through some screenshots of what it’s going to look like, and convince them to preorder without having them know who I am. Right now, most of the preorders have come from people who I either know directly, or who know of me, so that makes it, I would say, a little bit less qualified. They’re trusting in my name more than – not necessarily more than the product – because they have heard the product. They’ve seen what it looks like. They’ve seen what it’s going to be capable of. But what I really want to know is can I convert somebody who doesn’t have any association with me first?
Rob [00:03:13]: Yeah, I think that’s probably a good way to handle it. Obviously, I was thinking of the traditional, you know, having a landing page and just doing pre-launch. Like, “Notify me when we launch.” You know, having the value prop and everything. But I think since you have been doing basically high-touch one-on-one so far, and it’s working, I think it’s a really good experiment to figure out if that is something that you’ll be able to do with cold traffic, because that one-on-one stuff and doing the demos it really is magical. It’s so different than just trying to convert someone with words on a page. So, if you’re able to do this, and able to send cold traffic and then basically do demos and get preorders, I think you’re really on to something. And if you aren’t, I guess it would be back to the drawing board to try to find better traffic sources.
Mike [00:03:54]: And that’s what I’m trying to figure out right now, is whether or not the traffic sources that I have in mind are going to be good ones, or do I have the marketing campaign or the ideas about what cold leads would actually want down yet; because I know what the people I’ve talked to want, but can I translate that into words on a page and convince somebody to walk through the process. I know that it’s not going to be perfect. I know that my conversion rates are going to be radically lower than the ones that I’ve experienced so far, but I still want to walk through that process and see what that looks like so that I have a sense, moving forward, of what I can expect once I get to the point where I’m actually doing a full-scale launch.
Rob [00:04:29]: Very cool. What are we talking about today?
Mike [00:04:31]: Well, today’s episode is inspired by episode 11 of the “Startup Chat” with Sully and Heaton, and there they talked about hard times that they had come across inside of their entrepreneurial careers. So, what I thought we’d do today is we’d talk about a couple of different hard times that we’ve gone through, and then go through some coping strategies for hard times in general, and walk through what people can do, how they can evaluate where they’re at, and map out how to move on.
Rob [00:04:56]: Yeah, I was really struck by episode 11. That came out several months ago. But in listening to the story, I found myself resonating with their hard times, and you can just feel the pain that they went through. Coming out the other side, they learned so much from it that I feel like this episode can offer a lot of value to folks maybe who’ve listened to this podcast for a long time and aren’t in tune with what our hard times have been, because I don’t know that we’ve ever sat down and talked about multiple hard times we were experiencing.
Mike [00:05:23]: So, to kick us off, the first hard time that I’ll relay came from back in 2008. At the time, I was running a consulting company. I was actually running my software company and my consulting company at the same time, but I was much more focused on the consulting company. And in December of the previous year, I went out, and I got an office space, and I looked around for somebody to hire. I went to Monster.com and hired somebody through there. I brought in probably, like, a dozen people before I made somebody a full-time offer. And over the next – I’d say, the first four or five months of the year, we were doing great – we had a lot of solid work coming in, and the future looked good.
[00:06:01]: I’d say probably around the fourth month or so of the year – it was probably April-May timeframe – when things started to just not come through. There were engagements that we were expecting to come in, and they didn’t come in. Then the next engagement didn’t come in, and everywhere we looked the world was kind of coming to a grinding halt. This was systematic throughout the entire consulting industry at the time, and it was because of the massive economic meltdown in 2008. One of the first things that companies do when they come on hard times is they start cutting services, and the first service to get cut is what they consider to be “extraneous expenditures”, like having consultants come in and spending anywhere from 6 to $10,000 a week on them. So, almost overnight, our entire consulting revenue dried up, and I ended up letting go both of the employees that I had, and I still had an office space that I was paying a couple thousand dollars a month for. I was in a lease that I couldn’t get out of, and I’d say probably the next five to six months were really, really hard, trying to string things together.
[00:07:01]: I floated the company for a couple of months on credit cards just to make ends meet, and at some point I just said, “Look, I can’t do this anymore.” That was when I let go both of the guys that were working for me, which was really hard because one of them had been the best man at my wedding. I’d known him for 15 years. The other one, I knew that he had a wife and two kids. It was just a very difficult time for me – obviously emotionally, but also financially – because I had dug myself a $75,000 hole, and it was not easy to dig myself out of.
Rob [00:07:31]: What toll did that take on you? What impact did it have on your emotional state, on your day-to-day life: sleeping, eating, emotional state – all that stuff?
Mike [00:07:41]: Oh, it was awful. I didn’t sleep well. I didn’t eat well. I gained weight – and, of course, all those things roll into one another as well. I mean, if you’re not eating well, then you’re probably not going to sleep well. And if you don’t sleep well, you’re not going to eat well either. You’re going to overeat. You’re going to be anxious, stressed out; and all of those things just snowball onto one another.
[00:07:57]: It really wasn’t until about a year to two years later before I got my financial legs underneath me again before things started to really turn around. So it took a long time, and it was just a lot of work to get out from under it. And in terms of an emotional toll, it was just awful. I felt terrible having to talk to the guys and tell them, “Look, this is just not going to work out. I’m going to have to let you go.”
[00:08:20]: At one point, I remember I had taken a trip to go see a prospective customer, and I was on my way back and one of the guys called me from the office, and he say, “Hey, I’m just working on this over here.” I was like, “I let you go a week ago. Please stop working.” I was like, “I can’t pay you for this.” I felt bad, but there was really nothing I could do. I was already in debt up to my ears.
Rob [00:08:40]: Yeah, that’s tough. Yeah, before you get to your second hard time, I wanted to throw mine in. It’s probably the hardest time I’ve had as an entrepreneur since I left salaried work, and it was in 2014. I’ve alluded to it in the past; but, in essence, what happened is 2013 was a very good year. HitTail brought in a lot of revenue. I think we did two MicroConfs that year. Just everything was hitting on all cylinders, and coming into 2014, Drip had launched – at late 2013 – and I had assumed it was going to start growing – right – because, “I’ve done this before, and DRIP’s just going to take off like a rocket.”
[00:09:18]: Of course, that didn’t happen. Drip launched to a nice 7, 8, $9,000 a month; and then there was this five-, six-month period where we were trying to find our positioning, trying to find our market, trying to find the headline, trying to find the right feature set and all that stuff. It was trying to find product-market fit, in essence. Before that time, I had a lot of cash in the bank from 2013 revenue, and I hired a couple developers – a couple extra ones in addition to Derek, so there were four of us. Three of them were developers. And right around March of 2014, I was making some angel investments with some of the cash I had, and I also learned that I had this enormous tax bill. It was the biggest tax bill I’d ever had, and it was because 2013 had been such a big year, and my estimated taxes from the year prior didn’t really cover it. So, now I had a burn rate on DRIP, because I’d essentially over hired – planning for growth, so to speak. But I had so much cash in the bank, I knew it would back it; but then a huge chunk of that cash went out to the IRS. Then the estimated for that year went up. So it wasn’t just paying the previous year, but my estimated taxes were huge.
[00:10:21]: Then all my angel investments that I’d committed to suddenly seemed like they all came due at once. So I wrote a bunch of checks to those, and it was super stressful. My bank balance dropped by 90 percent to the point where I was making lists of “How am I going to cover payroll?” and I was pretty stressed-out. This was early – let’s say, between March and June of 2014. Then things rebounded, and it kind of just bounced around to that year. It wasn’t until Drip really started growing in, let’s say, August of that year – that’s when the hockey stick started. It wasn’t until then – so it was a solid five, six months where I was having trouble sleeping. I was thinking constantly about, “Where can I get cash from?” I was looking at my 401(k), which is something I never do. I mean, you hear me talk about on the podcast about how risk-averse I am, but I was thinking, “I need to cover this thing, because I don’t want to essentially lay someone off who I hired 60 days ago.”
[00:11:16]: So, overall, it was a rough year. It was a really good learning experience for me, both to be more aware of taxes and estimated – stuff like that – not to over commit just because I have cash in the bank. I just wasn’t looking hard enough at the upcoming expenses. There was actually another expense. Like the hotel expense for MicroConf came through late, and I should’ve known that it was going to come through, but I didn’t think of it. So, it’s kind of like that. I’ve become more wary and more aware of, “Just because I have cash in the bank, obviously, I need to be looking down the line and figuring out what big expenses are coming here in the next 90 to 120 days.”
Mike [00:11:49]: Yeah, sometimes those budgeting things are really hard when you’ve got the money in your checking account, and it’s not always easy to set that money aside in your checking account. It’s not like you’ve got little folders where you can tuck the money away or tag it for different things and say, “This is, kind of, already spent.” What was the timeline there? You said there was, like, five or six months where –
Rob [00:12:05]: Yeah.
Mike [00:12:05]: – it was bouncing around, and you were kind of unsure whether or not you were going to make payroll?
Rob [00:12:09]: That’s right. I was going to whatever lengths I could. I was going to go whatever lengths to make payroll – selling annual plans of things, and doing special deals to my list, and really just trying to keep the boat afloat. I never got to the point where there wasn’t money for payroll. I never had to do anything crazy, but I don’t like to be that close to the edge.
Mike [00:12:31]: Now did that have any sort of effect on your relationship with Sherry? Because I remember when I was going through stuff with my consulting company, things were not good in my marriage either, and it was just a stressful thing. I mean, it wasn’t like we were fighting or anything like that. It was always financial stuff. It was just like, “Oh, how are we going to pay for this?” “What’s going on over there with that bill?” Credit cards were mounting up, and when credit cards start to mount up and you’re carrying 50, 60, $80,000 on credit cards, it’s stressful. And it’s not just stressful on me; it was stressful on her as well, because I’m relatively open with that stuff. It’s not like I hide any of my money anywhere. Did that have any effect on your relationship at all? Or, is that stuff kind of insulated?
Rob [00:13:09]: Lucky for me, our personal stuff is insulated enough, and I didn’t put any money on personal credit cards or anything like that. I was still taking a salary, and Sherry was still taking her salary. So the personal stuff was actually fine. It was just the business stuff I was worried about. We didn’t have trouble with that. There were no fights over that, but I was just kind of a pain in the ass. I was pissed off all the time and just stressed out. Rather than pissed off, I was stressed out all the time – for months. There was so much stuff. It wasn’t just about money either, you know? It wasn’t like, “I need more cash.” It was like, “Why the hell isn’t this app growing?” “What’s going to bail me out of this? It’s DRIP growing. Why isn’t it growing? I’ve done this before so many times. Why can’t I get this app to grow sooner?” That was really the thing. So, I was just probably not the most pleasant person to be around during that time, and I think that caused more the issues than anything.
Mike [00:13:56]: Sure, and it’s funny because that – not funny, but it’s ironic that that anger carries over into other aspects. So, you get very frustrated very quickly about just little things. You’re trying to watch a movie on Amazon, and it’s not working, and you get really poised off really quickly – and it has nothing to do with Amazon, really. It has to do with the other stresses that are in your life.
Rob [00:14:14]: Absolutely.
Mike [00:14:15]: On my end, one of the issues was that my wife had stopped working the year before. So we didn’t really have that second income to rely on, which was a contributing factor; but that kind of stuff happens.
Rob [00:14:25]: Sure. It makes it hard, man. It’s hard to make decisions based on the current information, and it’s the best decision you make. Because I’m sure at the time your wife stopped working because you guys were fine. There was cash in the bank, and you had business. Then something changes so drastically, so quickly, and it’s like you can’t recover, and that’s where you get pushed to that limit.
Mike [00:14:44]: So the second hard time – we covered this in a podcast earlier this year, but the second hard time for me was essentially killing AuditShark. And, unfortunately, it was something that I had known for months, probably closer to almost a year, that that was on the horizon, and it was a very distinct possibility; but it didn’t necessarily make the decision any easier. I think when we did that episode, things were probably still pretty raw. The decision was still pretty fresh. But looking back on it now, I look at that and say, “Yes, that was definitely the right decision. I wish I’d done it sooner”, but I also think that there’s a lot of decisions that we make that we wish we had done sooner, and we just didn’t because we were afraid of the changes that were going to take effect because of that.
Rob [00:15:24]: Yeah, that makes sense, man. It’s hard to be into something five years and just make the decision to turn it off. So I know that was a tough one for you.
I think, to a lesser degree, my other hard time was just the recent sale of HitTail. There was a hard time during due diligence and everything, because where were some – we’re trying to transfer it over, and due diligence can fail pretty quickly, and then sales can fall through. And by the time you’re that far in, you are emotionally invested in exiting, essentially, and not owning it anymore. You know that the cash is in escrow, and that it can go into your bank account anytime. And so I actually had many sleepless nights just a couple weeks ago, wondering if the sale was going to go through. We had trouble transferring some servers, and some of their guys were in the Ukraine, and so it meant that I was up late at night. So, I wasn’t sleeping well. Like you said, I was eating, kind of, crappy, different times of the day, and it just – it was a tough week, two week span during that time.
[00:16:18]: Now that I’m out of it, I expected there to be a massive relief when it happened, and it’s hard to process. Like I said earlier in the episode, it does feel good, and it’s the right choice, and I feel good about it. But it doesn’t mean that suddenly all of that stress is – poof – gone, right? I think I almost need time to heal from that and then get some distance from it, because I’m still turning on that and having maybe some resilient feelings about it.
Mike [00:16:44]: You know what that reminds me of, is selling a house. Last year, I sold a property that I had up in the Adirondacks that I had bought back in, I think, 2003 or something like that. It was basically this little cottage on a lake that I had kept for all these years, and I sold it last year because it just wasn’t something that we used very often. It was a monthly drain, and, quite frankly, for the amount of time that we used it, it just wasn’t worth keeping it. But at the same time, there’re still issues with selling a property that, one, you don’t live in, and. two, you’re just not anywhere close to. I mean, it was a six- or seven-hour drive to get there, and it was a seasonal property, so selling it was problematic. When it finally got to the point where it was going through the process, and they had brought somebody in to take a look at it and inspect it, and going through all the paperwork with the lawyers – that stuff just takes time, and you do have sleepless nights when that kind of stuff is going on. So, I can definitely relate to that. I mean, I think that that’s probably a similar situation, and I think there’s a lot of listeners out there who probably will go through something similar at some point in their lives, because selling your house is something that a lot of people go through.
Rob [00:17:47]: Yeah, I do think it’s similar. There’s also some emotional attachment to a house, typically and –
Mike [00:17:52]: Yeah –
Rob [00:17:52]: – that’s part of it, you know.
Mike [00:17:52]: – Definitely. Yeah, with mine, it was a vacation property that – I grew up in that area. It was a very small lake. It was only, like, three-quarters of a mile long, or a half a mile long, or something like that; but I spent my childhood there. So I was very emotionally attached to the area – not just the place that I had purchased. So, yeah, all that stuff factors into it. It can be hard to let go. And when I sold it, all the paperwork was done, the money hit my bank account, and I’m just like, “Huh.” I didn’t know how to feel. I should have felt great about it, because it’s like, “Oh, I’ve got this financial burden, and I’ve got money in my account now.” I didn’t really know how to feel about it.
Rob [00:18:26]: I think that’s a good summary of how I feel. I don’t know how to feel about it yet, you know? I think as you move further away from it, I think that’ll become more clear for me. So it looks like you have eight strategies here for coping with hard times.
Mike [00:18:39]: Yeah, the strategies that I put together come from a couple of different sources. Some of them actually come from Alcoholics Anonymous. Other ones come from places like “The Huffington Post” and a couple of other places, and we’ll link those up in the show notes. These eight coping strategies essentially allow you to reflect on what’s going on, and work your way through it both mentally and emotionally. To start off with, the first one is to reflect on the situation. Whatever that situation is, you have to recognize that not everything is your fault, but that doesn’t mean that you shouldn’t take responsibility for some of the things that are. So inevitably, in any situation where you’re undergoing hard times, there are going to be places along the way where you made some mistakes. And you have to admit that you made some of those mistakes, because you can’t change something if you don’t take responsibility for the mistakes that you’ve made.
Rob [00:19:26]: Yeah, definitely in 2014 I was reflecting pretty hard on. “How did I get there?” I think I have several pages in my notebook where it’s like, “What did I do wrong so that I never do this again?” I did tend to adopt things as my fault. I took responsibility for what had happened. There were a couple unforeseen things. There were a couple foreseen things that I didn’t keep in mind. I’m a big, big proponent in taking responsibility for as much as you can handle, because I think that the sooner you do that, then the sooner your attitude will turn from one of kind of a victim, of “Everything bad happens to me,” to, kind of, the victor – right – someone going after victory and striving to overcome a hardship; and to look at it rather as something that’s beating you down, as something to overcome.
Mike [00:20:12]: And something else that you had just mentioned there was the fact that there are things that are going to happen outside of your control. That’s part two, is accepting that you have limitations. There are limits to things that are under your control, and some of those things you simply can’t change. That includes things that have happened in the past. Stressing over the things that you did, or the things that you didn’t do, isn’t going to change any of those things – and you have to accept that. There’s no other way to move on is to accept that there were things that probably happened that were completely outside of your control.
Rob [00:20:41]: I think that’s important, and I think there are things that happened that could be within your control, but they’re done now. You made a bad choice. You got yourself into this mess. Now figure out how to fix it rather than stressing about things that you did incorrectly, or you did poorly, or you didn’t foresee that you should have. That’s actually why I sat down and spent the focus time to write it in the notebook and figure out: “What did I do wrong? What will I not do again? What are the strategies that I’m going to use to get out of this over the next several months?” I used that, frankly, as a way of closure, so that I was, in essence, accepting my limitations; accepting I made some poor choices. Then at the end of that, I said, “Okay. Now I’m not going to think about that anymore,” because I’ve essentially documented it here, if I ever want to reference it in the future. If I suddenly come up with another idea of something I did wrong, I will come back. I will write it on this list, and I’ll be done with it.” I, kind of, brushed that dust off of me. I was done thinking about the stupid things that I did, or the mistakes that I made, or the decisions that I shouldn’t have made; and then I was ready to fight this thing head on. That’s a transition that I think you need to make in this. Kind of, accepting your limitations and not stressing about the past.
Mike [00:21:52]: The third coping strategy is to recognize that everyone makes mistakes. You can’t always be perfect. You’re not always going to out and be successful at every, single thing that you do. But at the same time, you have to make sure that you’re willing to make those mistakes, because if you’re not willing to make mistakes, then you’re not going to learn. You’re not going to grow as a person. But you have to be painfully aware that everything you do isn’t going to turn to gold. And even if there’s people watching you and you don’t want to make mistakes, you’re going to make them. You can’t always be perfect.
Rob [00:22:21]: I don’t accept this. I know that I’m not going to be perfect, but I still get pissed off every time I make a dumb mistake. Every time I look back at a decision that I made and I think, “You know, I should’ve made a different decision. I had the information,” or, “I was sloppy,” or, “I was a little bit lazy” or whatever, it infuriates me. So, of all these eight, this may be the one that I struggle with the most. I hang on to things for too long. And that’s why I’ve started adopting that approach of going into the notebook, writing down what I did, writing down why I did it, why I’m not going to do it again in the future, and essentially trying to close that chapter so that I can move on and fix the problem.
Mike [00:22:57]: The thing that gets me, I think, the most, is in situations like this – where I’m afraid of making mistakes – is that I’ll have a tendency to procrastinate, or hold off on making a decision, because I don’t want to make the wrong decision. I know conceptually, “Oh, I should just make a decision and move on.” But sometimes it’s really hard because you don’t have all the information you need. You know that you want to make a decision, but you don’t want to make the wrong one and waste a lot of time or effort. For me, I find that –
Rob [00:23:22]: I think that’s really –
Mike [00:23:22]: – challenging.
Rob [00:23:23]: – common. I do that from time to time, too. The procrastination on a difficult email, or a difficult decision – it’s like our lizard brain’s way of keeping us from making that hard decision, right? Because we don’t want to endure the pain of it.
Mike [00:23:37: The fourth coping strategy is : remember that you grow as a person through some of these experiences. These experiences are what help to shape you, and they help you learn, even if they’re painful. One of the things that you have to keep in mind is that the mistakes that you’ve made in the past are essentially what make you who you are today. If you’d gone through a hard time in fifth grade, for example, you’re going to remember that, and it’s going to influence who you are today, what decisions you make, and what decisions you make down the road. That’s true of anything that’s happened in your past. Anything that sticks out in your memory, those things shape who you are. But they also make you what you are. You wouldn’t be where you are today, or who you are today, without those experiences. So it’s important to just take a little bit of a step back and recognize that those things are important to who you are.
Rob [00:24:23]: I think they have a way of feeling really crappy while you’re in them, and then, in retrospect, being pivotal points in your life – or, at least have the potential to be, if you look at them the right way and if you learn from them rather than make that same mistake over and over – which some people do, unfortunately. But if you’re self-aware enough to be thinking about this stuff, I think that when you’re in the midst of a hard time, it is much better to think about, “Wow. This time sucks. I feel like crap. I know a lot of other people go through it, too.” And you can come back to this episode. You can go to episode 11 of “Startup Chat” to hear each of us talk through that, and you can probably hear a little bit pain in our voices. You don’t just get over this stuff. It hangs around with you. There’s this resonant internal trauma that I don’t know if that ever goes away, because you remember how hard that was. So, if you’re in that situation, what I’ve started doing is: a) trying to think about other people who have gone through it, or go through something like this, and also realizing that there is opportunity here; that, “Even though this part sucks, once I make it out of it, I’m going to be a better entrepreneur, a better founder,” or a better whatever it is you’re trying to be.
Mike [00:25:30]: The fifth coping strategy is to not give in to some of your fears. Many of the fears that we have are more imagined than they are real. So, for example, not everyone is watching you or is thinking about you all the time. Many of the beliefs that we have, or the fears that we have, are very self-limiting. So going back to what you had said earlier; people procrastinate when they’ve run into a situation where they have a difficult email to write, and they either put it off or they take forever doing it because they don’t want to make that decision. They don’t want to click the “send” button, for example. There’s other situations where you’re simply afraid of – you know what action you have to take, but you’re afraid of what the consequences are. I think the reason for that is we’re more afraid of the unknowns than we are of the things that we know we’re going to run into. So, you click the “send” button. What’s going to happen? You might be able to think of two or three different situations that can come out of that, but you also know that there’s a distinct possibility that there’s other things that could happen that you just aren’t aware of, or you couldn’t even begin to contemplate happening. That’s what’s more scary. It’s not the things that we know could happen, it’s the fact that there could be things out there that are going to happen as a result of hitting that “send” button that you just didn’t even consider.
Rob [00:26:39]: I’ve gotten so much better at this over the years, and the first thing I ask myself now when I see things tanking, or when I feel hard times coming on, or when you get an email from a patent troll saying they’re suing you for some patent they own that they aren’t using. The first thing I ask is, “What’s the worst that can happen here?” “What’s my worst-case?” And if I don’t know the answer, I try to find out. I find an expert. I find a friend. I find the Internet. I research and figure out what is the worst-case outcome of the situation. Maybe that means sitting down with your notebook, or talking to your spouse, or talking to a trusted adviser, or someone. Try to get a reality check on your fears, because your fears can run rampant, and your body stresses out, and anxiety goes through the roof; but often the worst case is nowhere near as bad as you are feeling it could be. And if you sit down and logically think through what you’re actually afraid of, in most cases it’s not nearly as bad as you think.
Mike [00:27:32]: That one leads directly to the next one, which is remembering that you’re not alone in the world. There’s always other people that you can talk to who are going to listen. Whether that’s friends, or colleagues, or family, they can help to level-set your expectations and help to ground some of those fears, or biases, that you have and help you objectively look at them a little bit better so that you don’t sit there and dwell on them forever, thinking, “Oh, I should’ve done this.” or, “This could happen.” They can give you a little bit more objectivity than you might have yourself.
Rob [00:28:01]: Yeah, and like I said earlier, that can range from a spouse. It can range from your mastermind group – which I definitely talk to about all this stuff. It can be someone that you hire you might trust, and you can hire them through Clarity. Or, maybe it’s an adviser that you’ve had for a long time. Or maybe it’s a therapist. If you go to therapy already, someone can give you a sanity check on this type of stuff. I can even see having a consultant or some type of expert that you pay. It depends on your situation, but let’s say you’re in a legal thing, or a tax thing. It’s like getting a CPA or a lawyer to tell you, “Oh, the worst-case is this.” That’s actually worth quite a bit to hear from an expert that it’s probably not a bad as you’re making it out to be in your head.”
Mike [00:28:42]: The seventh coping strategy is to map out the appropriate course corrections. Essentially, what this amounts to is determining what things need to change, and how you can get there. You need to pick one thing that needs to change and fix it and, then once you’ve done that, figure out what’s next. Sometimes you can do multiple changes at the same time, but depending on how big they are, or the situation that you currently find yourself in, that can be more difficult than other times. You really need to sit down and logically think through, “What are the next steps here?” “How do I move on from this, and what needs to be done?” “What do I need to do?” Because just sitting and waiting for a situation to resolve itself is almost never going to actually resolve it – unless it’s some time-based thing where you literally have to wait until a certain date before you get more information. Typically, that’s not going to happen, but if you can sit down and walk through – clearly identify the one or two things that absolutely need to change, and those things need to change first – you can work on those and then iterate through the rest of them and eventually solve the problem.
Rob [00:29:40 ]: Sherry has a phrase that she used once. I don’t know if it’s common or not, but she said, “I went from ‘Oh, no’ to ‘Oh, hell, no.’” It just meant this mindset shift of feeling like, “Oh, no. Everything’s terrible whether I made a mistake. I’m going through a hard time. This is stressful,” to, “Oh, hell, no. I’m not going to allow this to happen.” That’s what we’re talking about here. It’s that mental shift from dealing with the stress, or dealing with the hard time, to suddenly shifting into fixing it, and figuring out the strategies that you’re going to sketch out in your notebook, or you’re going to talk through with the expert, with your spouse, with your mastermind group to correct this course, and to make things better – and not make the mistake again, but also to be able to fix it in the short term and move away from whatever hard time it is that’s plaguing you.
Mike [00:30:28]: The eighth coping strategy is to ask people for help. This could be in the form of accountability, or moral support. It could be guidance. It could just be you need an extra set of hands to work on something. But essentially you need a framework to help make sure that change is going to happen. Sometimes all you need is that accountability. Sometimes you need somebody to say, “Hey, this is something that you still need to work on, and it still needs to get done.” Or, if you just need somebody to say, “Look, you’re doing fine,” and, “Things are not nearly as bad as you think they are, but you still need to keep going.” Sometimes, that’s all you need. Sometimes, it’s just, sort of, a coach. But other times you will need that extra set of hands. If you ask for it, chances are really, really good that you’re going to get that help.
Rob [00:31:07]: Yeah. I think, as founders, we’re a little bit headstrong. I know that I am. I have a really tough time asking for help, but it’s something I’ve gotten better at over the years, and to letting people into my inner world as I’m going through hard times, rather than referencing them once I’m through them. I personally think, in retrospect, looking back at my life, I think it’s a mistake when you try to deal with stuff on your own, because there are almost always some people around who – if you give them the information and you let them know what you’re going through – they can help.
[00:31:36] That 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 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. [00:31:57]
Episode 265 | The Absolute Bare Minimum You Should Know About Segmenting Your Email List
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the bare minimum you should know about segmenting your email list. They discuss the different stages your customers can be categorized as and how to target them specifically in order to get them to the next stage.
Items mentioned in this episode:
Transcript
Rob [00:00:27]: In this episode of “Startups for the Rest of Us,” Mike and I discuss the absolute bare minimum you should know about segmenting your email list. This is “Startups for the Rest of Us,” episode 265.
Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike [00:00:28 ]: And I’m Mike.
Rob [00:00:33]: – and we’re here to share our experiences to help you avoid the same mistakes that we’ve made. What’s the word this week, Mike?
Mike [00:01:06]: Well, we got a really interesting listener question from Chris Koenig, and he says, “Hi, Rob and Mike, I really enjoy the show. My question stems from your FAQ on startupsfortherestofus.com, specifically the part about transcription. You’ve switched transcription services in the past and mentioned how each one seems to decline in quality over time. When you see a pattern like that, what, if anything, does it tell you about the market? Does significant customer turnover mean these companies are having trouble scaling up? Or, might it be a deliberate tactic to focus their attention on the newest customers for that initial trial period? Hope it’s not too inside-baseball for the show, but I’m curious about the space and would be interested to hear your viewpoint.”
Rob [00:01:39]: My take on it is that people come into transcriptions because it’s easy to enter, and there’s no barrier to entry, and that’s a problem. It’s basically a commodity business, and people underprice themselves at the start because there’s no other way to compete in a commodity business, right? It has to just be cheap; but then they get in three months, six months, 12 months and realize, “I’m not making any money. This is a lot of work,” and they either just bail on it; or, maybe they’ve raised prices, but they’ve grandfathered, and so those grandfathered people, they’re giving less service to because they’re not making as much money. That would be my take on it.
Do you have a sense?
Mike [00:02:37]: Yeah, that was going to be my guess, was the grandfathering of existing customers because if you’re offering a commodity like that and and the price point’s really low, it’s difficult to justify raising your prices to the existing customer base. So, when they find that they need to raise prices because they’re not getting the people to do the transcribing that they need to, or things are just not working out as well in terms of quality, then their pricing model basically goes to heck in a hand basket. So, it makes it difficult for them just to make ends meet. And I think that that’s it more than anything else, because most of these – I think the ones that we’ve gone to tend to be newer. It’s not like there are transcription services out there that we’ve used that have been around for a very long time, so obviously there’s going to be that issue of trying to go up-market with it and keep your existing customers happy while also trying to charge them more. I think that most of them just – I don’t think any of them have ever come to us and said, “Hey, we need to raise our prices.” I think they’ve all just capped it at, like, a dollar a minute or something like that.
Rob [00:03:40]: I know, and if I was doing a productized consulting service or, I guess, even as these guys are, really, at just an hourly service, I don’t think you can grandfather the way that you do a SaaS; because the reason you can grandfather with SaaS is because a lot of the effort and the time is spent up front acquiring the customer and then onboarding them and supporting them early on. After that, the marginal cost to support them is very low, and so grandfathering them at an older, cheaper price is pretty easy to do. But in terms of ongoing consulting engagements, where you’re literally paying someone to do an hourly or a by-the-minute task, I do think that you need to raise prices over time. Just the way it needs to go in order to maintain a viable business. I do think that your better customers are going to understand that.
We did have some pretty reliable services transcribing over the years, and if they had come to us and said, “Look, we need to raise 10 percent, 20 percent,” we would’ve done it; because the switching cost is painful. If they needed to double their price, that might’ve been a problem, but the fact that the quality has declined over time pretty much across the board – I think we’ve used six or seven, different transcription services in the last five years because within about six to nine months, they all eventually flail around.
Mike [00:04:27]: I think the other thing that factors into that is when you are running a service like this, you have employees or contractors that are working for you, and they’re working for a set wage. Let’s call it $10 an hour just for a nice, round number. At some point in the future, you’re probably going to want to pay the people who’re doing a really good job more, and it’s difficult to raise their salary if you’re not bringing in any more revenue from the customers. And that is a fixed cost. If it’s $10 an hour, if you’re only making $11 an hour from the customer, it’s hard to raise what you’re paying that person in order to retain them as a good employee or a good contractor and still make ends meet. I think that also factors into it as well just in terms of the timeline, because you’re right. We’ve gone through a bunch of these, and over time, without fail, they eventually go downhill.
Rob [00:05:23]: That was a good question. Thanks for writing in.
On my end, just kind of as an update, my chaos is definitely subsiding. Some things have wrapped themselves up. There was a big sale I was working on that closed last week, and so I do feel like a nice exhale coming about in my life as kind of the overwhelm has dissipated. I feel like I’m able to get back to focusing on things that matter instead of just rushing around like I was for the past few weeks. Things are clear, and it’s end of the year. Not a ton happens in terms of business stuff here end of November and December, but this is the time when I’m going to take to really focus on what 2016 needs to look like; and I’ll probably be doing my personal/business retreat here in the next, I’d say five or six weeks, taking notes, figuring out what my goals are. You and I need to record a goals episode, where we look back at the goals we had for last year and plan our goals for 2016. I’m going to be honest. I’m kind of looking forward to what I’m hoping is the quiet of December.
Mike [00:05:30]: Cool. Well, on my end, I’m actively taking pre-orders for the new product that I’m working on, and I’ve got about half a dozen pre-orders so far.
Rob [00:05:31]: Nice.
Mike [00:05:48]: The product itself is aimed at automating the process of moving people through your sales pipeline. If it’s a high-touch sales pipeline, it helps to automate the process of moving them through it so that you can essentially focus on your own work as opposed to going back and continually following up with people.
Rob [00:05:54]: Very nice. When you say “taking pre-orders,” do you mean that you’re getting verbal commitments, or are you actually charging credit cards?”
Mike [00:05:56]: No, I’ve actually charged half a dozen credit cards so far.
Rob [00:05:57]: Bravo.
Mike [00:06:09]: Yeah, it’s going well so far. I’ve still got a bunch of conversations that are scheduled over the next couple of weeks, and I’m hoping to reach my internal goals for financial commitments. And once that’s been reached, then going to start breaking ground on the code.
Rob [00:07:00]: Sounds good, man. It’s exciting stuff.
We have a slew of new iTunes reviews, 456 worldwide reviews. Thank you so much for going into iTunes and clicking that five-star rating. We also have some really good comments. Crispin Hennace [ph] says, “Do not launch a bootstrap business without Rob and Mike on your team.” He says, “I recently discovered this podcast and have been listening to old episodes on double speed. There’s a lot of great material, and it’s fresh and relevant each week. Listening to the archived episodes is like picking up gold nuggets on the street. Every entrepreneur, bootstrapped or not, should make this valuable resource a part of your week.”
And then a nice review from Jamie Hillfield in the UK. He says, “Great podcast. My absolute favorite startup podcast, by a country mile.”
So, thanks so much for your comments, for your five-star reviews. This helps us continue to grow the user base, gives us motivation to continue to do it. If you haven’t logged into iTunes and clicked that five-star, we’d encourage you to do so this week.
Mike [00:07:01]: What are we talking about this week?
Rob [00:09:24]: This week, we’re talking about the bare minimum that everyone should know about segmenting your email list. The idea here – obviously, I run Drip, which is about segmenting emails and sending targeted communications to people based on the things they’ve done and what you know about them. It’s actually funny. When we’ve demoed Drip at, let’s say, conferences, or went to the Microsoft Build conference last year, people say, “Oh, so you guys send spam or something?” Developers especially would come up and joke about that, and we said, “Actually, no. We ensure you get fewer emails that are more targeted to you rather than just getting these blasts from these big companies.”
So, that’s really what we’re talking about today, is the fact that one-to-many email, you know, just the broadcast email, sending it out to your massive list, is really dead, or it’s dying. The businesses that are really savvy at it these days are moving towards one-to-few and one-to-one email, and what that means is that the more you know about someone, the more customized that email can be to them, and the more customized the flow that they follow through your app and your email sequence will go. It’s not magic. It’s not like it’s some AI thing cranking out these magical emails. You have to write these emails, and you have to build certain flows and move people in and out based on tags, or based on what they click; but the idea is it’s about sending people the exact message they want to hear at the right time, to encourage them to take the next step.
That’s what email segmenting is about. It’s about figuring out, “How many buckets do I need to drop people into?” because it’s not as complicated as it sounds, right? It’s not like you need 100 different buckets for your list. Really, what we’re going to talk about is there’s essentially four stages, or four buckets, that I start with. You can go more complex than this, but the minimum you’ll want to know is you’re going to have a marketing list. And these are people that have not signed up for a trial. They have not downloaded a sample of your product. They’re people who are just hanging around, and they’re going to want top-of-the-funnel educational content: maybe blog posts and updates on your product from a high level, like feature stuff, but not in detail how to use it. It’s not super educational. That’s the first bucket, or first stage, is marketing.
The next one I call them a “trial user.” This applies mostly to SaaS, but it also applies to – let’s say you’re selling an eBook and you have a sample chapter. I consider them a trial user, because they have downloaded something, hopefully consumed it. You’re going to need to encourage them to consume it via email, and that’s your second book. It is, in essence, a trial user; and your goal there is to nurture them through that trial path to becoming a customer. That’s, of course, the third stage, is someone paying you. Then the fourth stage is someone becoming a repeat customer.
Mike [00:09:54]: I think there’s different subsections of these stages that you can have as well. For example, if somebody’s a trial user at that second stage that Rob just talked about, they could be somebody who basically fell out of the bucket at that point. They signed up for a trial, and then they decided not to proceed, for whatever reason. That, in essence, becomes something of a subset of that particular stage, and you may want to market to them differently. But at a high level, these four stages generally capture the bulk of your audience.
Rob [00:11:50]: Yeah, and if you’re listening to this, wondering who does this actually apply to, I think there’s three or four markets that I thought about when I outlined this episode; and they are, of course, SaaS and downloadable software. That’s the first. Second is consultants and freelancers. The third are people selling information, basically eBooks, online courses; if you have a personal brand, or you’re a blogger, that kind of thing. All of this heavily, heavily applies to you and you really need to be doing this, moving forward or, else, you’re going to fall behind.
The other two that I thought of that this applies to, but it’s not necessarily what I was thinking when I outlined this, e-commerce. E-commerce tends to be quite good at this. If you have an online store, you basically have your friend list and then people who are hot leads, and then you have your customers and then your repeat customers.
And lastly, even – in Drip and, frankly, in HitTail we’ve had a lot of folks who are lawyers and real estate agents, and it’s the more tech-savvy of those groups. For them, it applies as much as it does for consultants, as much as it does for SaaS. You may not be doing it, but it really puts you ahead of your competition if you are segmenting your list like this and really sending people exactly what they want to hear.
So, let’s dive in. Like I said, there’s these four stages. It’s basically marketing, the trial user, customer and then your best or your repeat customers. Let’s start with this first bucket of marketing. These are the people that really you want to be educating about your space, your industry. You want to be educating them a little bit about your product, but you’re not doing necessarily a hard pitch very often. You’re going to be capturing these emails using a lead magnet, some type of opt-in reward. I always recommend an email mini-course over something like a PDF, because the course is nice because it’s over five or seven days, and it gets them used to opening your emails and reading them. People are more likely to consume something if it’s in their email inbox, because they can just do it right on their phone; whereas, a PDF, they’ll typically download it, put in Dropbox and then not read it unless you ping them again and encourage them to do so. A PDF tools list is a really good start to capture that email. But I prefer, if you have the time, to instead put together an email mini-course.
Mike [00:12:32]: The other thing, I think, that is overlooked in terms of the tools, especially in terms of PDFs, is just Excel spreadsheets that allow people to calculate different things. I think when we had Jesse Mecham on the show, he talked about how his very first product was actually just a Excel spreadsheet that people could download and he would charge them for it, and people were more than happy to pay for that because it would help them do their household budgeting. That essentially morphed into youneedabudget.com and the product that he sells today, but it was a tool that people could use. And Excel is notoriously useful in a variety of different circumstances, and if there are ways to build a simplistic tool out of Excel, then you could offer that as a download as well.
Rob [00:13:12]: Right, and if I was going to do that, what I would do is offer the Excel as a download. Just as a reminder, you don’t want to attach that to the email, because spam filters and all types of stuff choke at that. You definitely want to have it up on a server somewhere and then link to it within the email. Once they download that, well, then you put them in a sequence to hear from you the next day and be like, “Hey, what did you think of that?” “Did you notice that cell 35 does this?” “Here’s a quick use case for it.” Then you ping them two days later, and you say, “Hey, by the way, with that thing do you know there’s this other feature you can do in that Excel spreadsheet that I gave you?”
In essence, you turn it into a mini-course even though they really opted in for that core thing; but you’re kind of educating and teaching them how to use it and how to get value out of the thing that they downloaded from you.
Mike [00:13:36]: Why don’t you expand a little bit on that, because I think that some people don’t necessarily realize that just the nature of attachments – not just that they get blocked on a regular basis, but also the fact that you don’t know if they’ve opened it or not? You don’t know if they were interested in that attachment. Why don’t you talk a little bit about the process of, for example, tagging people when they click on those links? Obviously, if it’s hosted someplace, how do you know that they downloaded it?
Rob [00:15:00]: Yeah, that’s right. That’s a good point, actually. With an automation tool like a Drip or an Infusionsoft, you can basically just put a little rule in that says, “If someone clicked on this link in the email, then tag them with downloaded Excel spreadsheet,” right, or, “downloaded X, Y, Z report.” Like you said, you can’t tell with an attachment, so you lose out on that reporting.
What you can do later on with the information of whether or not someone actually downloaded it is if they didn’t download it, then you can send them another email the next day, or two or three days later. You can say, “Hey, I noticed that you got the email and you didn’t actually download the thing. I wanted to give you another opportunity to do so.” If they do at that point, then you’ve now pulled them into your funnel, and you can send them more information about how to use it. If they don’t, then that may be time to write them off. You don’t want unqualified prospects in your funnel, because that just kind of wrecks your numbers and over time, if they’re not opening your emails, not clicking your links – the ESPs are pretty smart these days, like Google and with Gmail and Hotmail on Yahoo, they’re starting to get smarter and smarter, and if people are not interacting with your emails, not opening them and not reading them, over time Google knows that; and they start putting your stuff into promotion and eventually will just put your stuff in spam if you even get a small number of spam complaints.
It’s valuable to know who on your list is doing what so that: a) you can target them differently. That’s really what we’re talking about here, right, is segmenting them; and b) so that your deliverability and your placement in these email inboxes remains high.
Mike [00:15:39]: What I like to do in those cases is, if you see that somebody hasn’t downloaded something that you sent to them that you wanted them to, you just send them a reminder email so it doesn’t say, “Hey, I noticed that you didn’t do this,” because it depends on your audience a little bit, but it can come across as, “Oh, my God. You’re tracking me,” or, “You’re looking at everything I’m doing.” Well, yeah, you are, but at the same time, you don’t necessarily want them to feel that way. So, I like to just send them an email that says, “Hey, just wanted to remind you about X.” But if they downloaded it, then they wouldn’t get that reminder. So, that’s a neat way to be able to get around those. And those are all psychological objections. They’re not technical limitations or technical objections. It’s just how you are interacting with the people that are on your list.
Rob [00:15:58]: Yeah, that’s a good point, actually, is knowing your list and knowing how they’re going to react to this stuff because, if you’re emailing marketers, they know. They know that you know if they opened it or not. But if you’re emailing less technical folks, or maybe developers, or people who aren’t necessarily in tune with all the fancy tools that we have in a tool like Drip or Infusionsoft, then you’re right. You may need to couch it a little differently.
Mike [00:17:09]: Part of what you can do in addition to just tagging people is you can use mechanism for what’s called “lead scoring.” The lead scoring allows you to figure out who is engaging with your emails. You can use that lead scoring mechanism to subscribe them to additional sequences, and you might use that in cases where, if somebody has opened every, single one of your emails. Then chances are good that they are really engaged with the content, and you might want to send them a special offer. So, if their score reaches a certain level, you send them into a different sequence in order to either make an offer for an upsell, or a special bonus or something like that. It doesn’t even need to be something that you’re selling to them. It could just be something that you’re giving to them as a reward for interacting with your emails. But those lead scoring mechanisms can help you to determine who you should be approaching with some of your different products or different services that you’re offering. You tend to not want to send an email to somebody saying, “Hey, buy my thousand-dollar products,” if they’ve only ever opened up one of your emails before. So, in a way, this lead scoring allows you to get a lot more intelligent about who you are targeting with the different emails that are in your different campaigns.
Rob [00:20:45]: Yeah. If you’ve never used lead scoring, it is mind-blowing to basically be able to have a score that tells you how engaged someone is with your website and with your emails. The concept behind lead scoring is you can set a point value that, when someone opens your email, let’s say they get +1 point. That’s typically the default, and there’s kind of a generally agreed-upon marketing automation thing. I think Pardot and Marketo published things, and they said open is worth one point. A click is worth three points, and then visits to your pricing page is often worth five points. And so we have that, of course, all built into Drip. We built lead scoring into it pretty early on.
And then you can configure it as well. Our tour page, we give folks three points if they visit it. If they visit your careers page or your job listing page, you typically deduct ten points, because it’s indicating that they’re probably looking for a job. You can then add custom events, like, hey, they signed up for a trial, maybe, or, even if you had maybe used a tool. Like, if you have a tool where you’re doing a website grader, or a speed test, and they entered their URL, that could be an event that, hey, they pushed that through, and you could give them five or ten points for that. Downloaded a report.
And then you basically set a lead threshold where you say, “This person, when they’re below 65, let’s say – and that’s, again, typically the default – when they’re below 65 points, they’re really considered just a prospect. They’re hanging around. When they bump above 65, now we’re going to call them a lead, and you can do stuff with them.
One thing we do with Drip is if you get on our list and you’re really engaging with our stuff, in addition to the educational content that we’re sending you, we also subscribe you to a second campaign at the same time, that we call our – it’s our RTB sequence, “Ready to Buy.” That one has a little more Drip-specific stuff. It’s less education about marketing automation and less segmentation, and it’s more about, “Hey, this is why Drip is for you,” and, “This is what Drip can do for you,” and, “This is a comparison of Drip and MailChimp,” “Drip and Infusionsoft.” “Here’s how to sign up for a trial.” “Here’s how to click to get a demo.” There’s a little more sales talk. It’s not high-pressure, but it definitely leans in a little bit. The reason we can do that and feel comfortable is because these are the folks who are really engaged with our emails, so it’s indicating that they are actually interested in hearing about us.
The last piece in the marketing stage is something that you can do. Again, this is optional, but it’s interesting that, if you’re asking folks to do a live demo, what you often find is you have a lot of unqualified folks signing up for demos. If you can figure out what that pivot point is, where someone is a really heavily qualified lead, or that they’re worth doing a one-on-one demo, it’s pretty easy to segment them just by – you give them the form where they enter their email to sign up for a demo, their first name, last name. Then you ask them one question that’s basically like, “How many subscribers do you have?” or, “How many invoices do you send per month?” It’s whatever that pivot point is for you that, hey, if they send ten invoices a month, this person is worth doing a real, live one-on-one demo. And, again, when they fill out that form, they’ll select it, and that goes right into marketing automation. Obviously, Drip does this. Infusionsoft does this, ONTRAPORT. Then right in there, you can just say, “Hey, if that person filled out this value, then let’s send them a [Calendly?] link where they can sign up to have a one-on-one demo.” “And if it’s less than that value, then let’s actually send them over to do more of an automated demo,” because you’re going to get – 70 percent, 80 percent of your people are going to be less than that value because they’re just a lower-end tier, and you may not have the manpower to be able to do all the one-on-one demos.
That’s something we actually do at Drip. We’ve had a lot of success with it, and it’s something that you can only do if you’re segmenting. You can’t do this with older-school newsletter tools, like an AWeber, a MailChimp, a Constant Contact. They just don’t have the capability to be able to do this lead scoring and then to very simply, without writing any code, be able to put them in different buckets and send them different emails to move them along into the trial phase.
Mike [00:20:56]: Let’s start talking about the trial phase. What’s involved in treating somebody like a trial user? Obviously, they have to sign up for a trial, or download a sample chapter of an eBook; but what are the different things that you can do in there?
Rob [00:22:30]: Yeah, this is where you make the switch, right? You’ve segmented them into someone who has a lot of interest, and they have interest in your product now, not just in your space. They’re not just thinking, “Oh, I might need an email marketing provider.” They’re actually saying, “All right. I’m really going to dive in. I’m going to either compare you to other things I’m already using, or I’m doing hardcore evaluation.” The goal here is that you want to really convince them to consume the material or try the product, right? So, if they’ve downloaded a sample chapter, you want to switch from that marketing lens of “I’m just trying to educate now.” You want to totally cut that stuff off, in general, and you want to switch to now, “Hey, did you see what was in that first chapter?” “Have you done the exercise at the end of the chapter?” “Here’s some more information.” “Here’s chapter two,” maybe, even, if they’re engaged.
Or, if they’re trying your SaaS app, you need to find out that “minimum path to awesome,” that MPA that I’ve talked about before, which is what does this person need to do during their trial to get that endorphin rush of, “Oh, my gosh. My head is about to explode?” If it means that they need to activate an email campaign with a couple emails in it and get a form installed on their website and get at least one subscriber, then you figure out how to guide them through that. You’ve really switched modes here from marketing and education into much more trying to show them how to use the product.
It’s not an easy problem. It’s not an easy thing to do. Really, if you summarize it, it’s onboarding. You can onboard someone with a sample chapter. You can onboard someone with a SaaS app. You can onboard someone as a consultant to try to get them to spec out their project, or whatever; but each of those things is the mind-frame that you have to switch into when you’re treating someone like a trial user instead of just as a cold prospect, like you would with marketing.
Mike [00:24:01]: I think one of the key pieces of treating somebody as a trial user is essentially giving them an experience that they are going to be comfortable with such that they will give you money, and that ultimately boils down to trust. You want them to trust that you’re not only going to deliver, but that you know what you’re talking about, that your product does what it’s supposed to do, that you’re going to be responsive if there’s any problems. You want to make sure that, if there’s any sort of time pressure or time deadline associated with it, especially for, like, a time-limited trial, that you are giving them all the information that they need in order to succeed during that time frame. The last thing you want to do is give them the product and just say, “Okay. Let me know if you have questions,” because that’s generally not going to work. People are going to need a little bit of hand holding and, in fact, they want that hand holding. So, if you know that somebody has just converted into a trial user, then you want to give them the information that they need in order to succeed.
Along with that, I mentioned this earlier, if somebody essentially falls out of that trial user bucket, you treat them as a lost trial. That’s kind of a subset of this. You can also treat somebody as somebody who is a trial user who may be having some problems. Have they not done certain things? If they haven’t done certain things, you can use that with either lead scoring or tags to essentially notify your email automation system that this activity, or lack of activity, is going on and go back and reach out to those people to try and help them figure out what is holding them back from being successful with the product.
Rob [00:25:17]: Exactly. Those are all really good points. One thing I’ll add, and then we’ll move on to customer communication, is another tactic that you can use with trial users is figuring out which track someone is one. There might be multiple ways to get onboarded in your app, depending on the person’s goals. In Drip, for example, when you first log into your account, the very first time we have a guided setup. It says, “Are you trying to send emails to your marketing list, or are you trying to send emails to your trial users and customers?” There’s two buckets we put people in, and if you click that marketing list, then we send you down a different path of emails because it’s a different setup process, right? You don’t need to connect the API to Drip. You just need to get the form on your website; whereas, if you’re doing trial users and customers, then you either need to do an import, or you need to do some type of API interaction. There’s a number of different ways to do this.
But figuring out early on and then sending that one-to-few or one-to-one communication that I talked about earlier will have an impact on your conversion rates of people who actually do get onboarded. The cool part is I’ve watched it over time with all of my SaaS apps that I’ve worked with. And the number of people who actually do get onboarded and get to that “minimum path to awesome” that you define, it highly, highly correlates with the number of people who convert to paying customer.
Mike [00:25:18]: What’s next after trial user?
Rob [00:26:32]: The next two stages are customer and then your best, or your repeat, customers. There’s actually a lot less to do with these folks. You definitely want to keep them engaged, and you want to let them know how you’re improving the product. That’s something big that we do with SaaS is that, since they’re continuing to pay the same amount month to month and you’re improving the product, they’re actually getting better value over time. I think that’s probably one of the first things that you’ll want to keep communicating to customers, because basically you’re trying to retain them and you want to show them that they’re continuing to get value and that they stick around. So, sending out a feature email every four to six weeks, based on what you’ve launched, showing them what you’re doing for them so that they do stick around is one thing that you’ll want to be sending to your customer list.
You want to send similar emails to your trial list, but it’ll be couched a little differently, right? It’ll say, “Hey, look at the cool stuff we just released. Maybe check it out,” but you’re phrasing it differently than you would, say, to customers, which is, “Look what we’ve done for you,” and, “You should really stick around.” You can send that same email to your marketing list, but with your marketing list you want to go much less in-depth. You don’t want to really show them how to get onboarded with it, because they don’t care yet. Right? They haven’t used your app. They haven’t logged into it. You just want to give them a high-level view with some flashy screenshots of, “These are the cool things we’ve rolled out.” But it is a different thing, so having that segmentation is powerful.
Mike [00:27:03]: And that essentially allows you to reuse the existing content that you’re creating, so instead of just educating your existing user base about what new features you’re adding, you are educating your marketing list about what new features that they could potentially have access to if they were to sign up for a trial of your product and start using it. As you said, it’s a difference in how you present it to them, but, in essence, the basic concept behind those emails that you’re sending is going to be very similar.
Rob [00:28:16]: Right. And then something else you’ll want to do is, if they’ve done a one-time purchase, let’s say they purchased an eBook, then you’ll want to lead them down the product path, right? You want to pitch your next product, because if they purchase an eBook, then maybe they want to attend live training, or a conference, or purchase a video course. You basically want to pitch them on your next product, because these people are much more likely to buy that next, maybe more expensive product that you do have. If you’re a SaaS app, that’s obviously not what you doing, right? You’re not going to tend to pitch them on the next product, but maybe you want to pitch them on an annual plan: get 12 months for the price of ten, and you get all that cash up front so that you’re able to go out and buy ads and do other things.
Basically, you’re offering them some value by showing them how the app’s improving, and then you’re basically pitching them on some other ways that they can become deeper engaged into your funnel, become more committed users and generate more cash for you in the short term.
The other thing that I like to do is to ask for referrals. This is the point where, if people are in and they’re engaged and they’re pretty happy – you don’t want to ask someone for a referral when they’re two weeks into their trial, so don’t do it then. You want to ask for referrals really when they become customers and then definitely again once you’ve determined that they are one of your best or repeat customers.
Mike [00:29:11]: A lot of that capability has to do with the timing of the emails that you’re sending, so a lot of this is going to be based on sometimes just customer actions; but sometimes it is going to be situational, based on what your business is doing. Other times, it’s situational based on what the customer themselves are doing. For example, if their credit card is coming up for a renewal, that might be a good time for you to pitch an annual plan so that they won’t have to worry too much about their credit card expiring. It may be one of those things where you get them to not only upgrade to an annual plan, but you get their updated credit card information as well. Because you’re giving them a discount, then it helps to push them in the right direction.
But all of this is just simply about having a little bit more intelligence about what your prospective customers are doing and what level of activity they have and really being aware of where they are in your marketing funnel.
Rob [00:30:13]: And then to wrap this up, there’s this next level of customer, and these are your best customers, your repeat customers, depending on what you’re selling. If it’s one time, these are going to be your repeat customers who’ve bought a lot of your stuff. You get to know these folks by name. In SaaS, your best customers are maybe people who are on your bigger plans, folks who give you a lot of helpful feedback and work with you and spread the word. These are folks that you want to reward with some stuff.
Something that we do is we’ll often give our best customers early access to new features or inside information, so I have a small group with a tag called “Drip Insiders.” These are consultants who are actively getting people onto Drip, and I’ll send them stuff several weeks before other people are going to know about it. They love to have the inside track so they can look to their customers like they’re knowledgeable. We give them alpha access to new features we’re rolling out; and so, again, you’re giving them value. You’re not just always pitching and asking for stuff.
So, think about what you can offer your best customers in a way that makes them feel like they have exclusive access to something and like they’re maybe getting a little more than just the other customers.
Mike [00:30:39]: And on that note, one of the pieces that you want to make sure of is that you’re treating this like a relationship. A relationship will go both ways, so you don’t always want to be taking. You want to be giving as well. If these people are already customers, if you’re already charging them, then you want to be giving them as much value as possible so that they feel like they’re being taken care of, and they feel like not just a good customer, but they are getting value out of it and it’s in their favor.
Rob [00:32:12]: Right. What you’ll find over time is that you develop a genuine relationship with these folks. You don’t view them as subscribers or some aggregate thing. Everyone on that list is a person. I think that beginning marketers, early marketers often make that mistake of just thinking too much in terms of aggregate numbers. Pretty quickly, you’re going to realize that everyone on your list is a person and that this is about building a relationship. So, by giving these best or repeat customers something exclusive and making them feel good, then you can sometimes ask for stuff. Sometimes you can pitch a higher-end product, or a higher-end tier or a done-for-you, productized consulting service that adds on to your SaaS that’s very expensive, but that these folks are much more likely to use. Or, again, you can ask for referrals. That’s another thing that we commonly do in our best customer lists. We say, “Hey, obviously, you guys rave about us. You tell a lot of people. What’s another way that you can get the word out? Can we do a joint-venture email?” “Can we do a co-webinar?” “Can you tell three friends?”
There’s a bunch of different ways to do this, but this is when it’s valuable to know who these people are. Because, again, you don’t want to send any of those emails to people in your marketing list, or people in your trial list. You have one goal for them, and it’s to get them to the next stage. And by the time they’re here, your goals change, and that’s why we wanted to talk about segmenting your email list today because this is so critical, and so many people are not doing it. And with the tools that are coming out now, these email marketing automation tools, it’s becoming easier and easier to do it.
It’s just a no-brainer. The benefit that you get from this is tremendous. If you’re listening to this, and you’re thinking, “Oh, my gosh. This is blowing my mind,” it really is. The more you do it, the better results you will get.
Mike [00:33:08]: I think the last piece of being able to know who your best customers are is that it allows you essentially a focus group of people who you can talk to and reach out to on an individual basis to ask them questions about what other things that they need. In essence, to them it looks as though you’re reaching out to the to help provide more value; but at the same time, moving forward, if you’re able to provide that value to them and if they are your best customers – however you define “best customer,” whether it’s the amount of money that they’re paying you, or the amount of usage on the product. It depends on what stage your business is. I think later on down the road, you’re more interested in the amount of money versus earlier on, you want the most active people so you can gain knowledge; but that knowledge will help you to direct the future development of the products to gain more of those type of people. That’s really what you want, is you want to be able to identify who your best customers are, whatever the criteria for that is; and to be able to zero in on those people and get more of them.
Rob [00:33:54]: And I was very careful, as I’ve outlined this episode and as we went through it, to not make this just a big sales pitch for Drip because that’s not the intent. The intent is to give you tools that you can take and use with any automation provider. So, there is ActiveCampaign and Infusionsoft and Drip and ONTRAPORT, and there’s others out there. In my opinion, if you’re listening to this podcast, Drip is probably the best one for you. We’ve heavily focused on SaaS apps, downloadable software, consultant freelancers, and people selling online information products, like eBooks, online courses or, if you’re a blogger, selling a digital product online.
So, I’d encourage you, if this does pique your interest and you’re either unhappy with your current provider, they don’t give you the automation you need, or that you haven’t tried an automation provider before, I’d encourage you to come check out Drip: getdrip.com, and we will definitely take good care of you.
Mike [00:34:15]: I think that about wraps us up. If you have a question for us you can call it in to our voicemail number at 1.888.801.9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an except 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, and we’ll see you next time.
Episode 264 | How to Identify New Product Ideas
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to identify new product ideas. They discuss some of the different stages you will encounter while researching a new business idea and some techniques to get the most out of it.
Items mentioned in this episode:
Transcript
Mike [00:23]: In this episode of Startups For the Rest of Us, Rob and I are going to be talking about how to identify new product ideas. This is Startups For the Rest of Us, episode 264.
Welcome to Startups For the Rest of Us. The podcast helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [00:24]: And I’m Rob.
Mike [00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?
Rob [00:28]: Man, feeling a bit chaotic. If you listened to last weeks episode of ZenFounder you’ll have more details. But basically me and both my professional life and the personal life with the family just have a lot going on right now. Unusually large amount of chaos in terms of we’re selling our house, we’ve moved in with some friends temporarily while that’s going on. And trying to find a new place to live here in Fresno. Moving to a different part of town. And then have a bunch of transitional stuff going on. So, just trying to keep my feet under me at this point in time and just feeling overwhelmed and trying to maintain my sanity. So hopefully there’s some things that are starting to get checked off the list over the next few weeks. Somethings that close. And in fact, I don’t know if I mentioned on the show here, there was basically a patent troll that had sued me like a month or two ago. And that resolved itself pretty quickly. But there’s just been a bunch of bizarre stuff like that that’s come out of the woodwork right in the midst of this. And luckily, things are starting to take care of themselves here.
Mike [01:20]: Yeah, it’s always hard when you have several major things going on. And moving is one of those things that’s, I think, on the higher end of the major stressors in like. I think the other one is getting married and having kids. Those are two of the other ones. I forget what else. Oh, changing jobs is another one. But I imagine getting sued by a patent troll would be up there.
Rob [01:38]: Yeah, indeed. It definitely came as shock and it was for an old product done at invoice that I don’t actually even own anymore. But these things take time and then you have to do research and you have to not freak and then figure out how to handle them. So it’s always a learning experience, I guess.
Mike [01:52]: Cool.
Rob [01:53]: How about you?
Mike [01:54]: Well, I’m finally almost caught up with all the podcast episodes I’ve missed while my phone was gallivanting around Barcelona. So I’m down to under five behind at this point. Hopefully, from now on I’ll be caught up on a weekly basis as opposed to several weeks behind everything.
Rob [02:07]: So what are we talking about today?
Mike [02:09]: Well today we’re going to be talking about how to identify new product ideas. And we had a question that came into us from Twitter from Jason [Sweat?]. And he was essentially asking how to perform research to find a new business idea. So what we’re going to do is we’re going to go through a couple of different various stages of what that looks like. I mean the basic process is you do some idea generation, idea filtering, validation, and then execution. I think we talk a lot about execution on the show so we’ll kind of leave that off the list here. But essentially what we’ll do is we’ll walk through the idea generation, idea filtering, and then the validation phases. And walk through what each of those things look like and how to go about them in order to identify a new product idea.
Rob [02:48]: Sounds cool. Let’s dive in.
Mike [02:50]: So the first step is to look at idea generation. And you just have to keep in mind that when you’re generating ideas, this is an iterative process. You’re really looking for quality over quantity, essentially. Because the way that this is set up, you do the generation and then you start filtering things based on different criteria. So really what you’re just doing here is brainstorming. And you don’t want to prematurely eliminate things that might be viable ideas. And the main reason for that is because if you have an idea and you immediately cross it off the list, then essentially what you’re doing is you’re not only crossing that idea off the list, but you’re crossing every potential variation of that idea off the list as well. So when you’re brainstorming you really want to start looking at some of the past problems you’ve experienced. The current problems that you’re having, any interests that you have, and products or solutions that you use that you don’t like for one reason or another or you wish did things a little bit differently. Anything where there’s a spreadsheet handoff for a signature or approval or workflow needed, those are places that are good places to start for trying to generate some of these ideas because they lend themselves easily to building a software product.
But the other thing to keep in mind is that when you’re generating these ideas, you don’t necessarily have to restrict your ideas just to software. So you could, for example, go down the training route, or education route where you’re building training videos or tutorials and things like that, you’re going to sell to a perspective buyer.
Rob [04:09]: All right. So talk about the process.
Mike [04:11]: So when you start taking a look at this process, one of the things that you want to do is you want to start considering specific market verticals or people to serve. And that’s just one place where you can start. And there’s obviously several different places you can start. I talked about some of them before when you’re brainstorming. But essentially you just want to pull out something like a Word document or a spreadsheet and start hammering out these ideas. And then any variations that you can think of. And you want to push these out as quickly as possible. So if you write faster than you type, then feel free to write them. If you type faster than you write, like I do, feel free to type them out. But the idea is to not only come up with those ideas, but come up with the variations of them as fast as possible. So they might be based on a specific market that you want to serve. If you are already into the real estate market, for example, you might want to start there. Or if you don’t like the real estate market, for example, you might want to look at another one that you’re interested it. Whether that’s something that you’ve had any experience with in the past or just something that you want to learn more about.
You can also start taking a look at products that are out there that you like or admire. Or dislike, or don’t like for whatever reason, and you want to create a new version of it that performs in a different way. So you start taking those ideas and as you’re putting them down, typically you can think of variations of those ideas. So for example, if you start thinking about, let’s say, accounting software for example. Accounting software is a very broad idea, but how can you slice up that idea into smaller pieces of it. You can think about it in terms of sending invoices, sending receipts for things that people are purchasing. You can also think of it in terms of just capturing payment information, for example. There’s a lot of different ways to slice up that invoicing thing.
In addition, you could also go down the route of saying oh, well I just want to make it easy for people to issue purchase orders or to send purchase orders back to the company. As I said, there’s a lot of different variations of this and as you start iterating through that list, you’re going to find that as you come up with an idea you can probably come up with three, four, five, maybe even ten different variations of that idea for a specific business. So some of these are going to be based off of core business functions But other might be based off of just functions that somebody in the business might be performing. So whether that’s an administrative assistant, a software developer or marketer, etc. Each of them has a different job and a different set of tasks that they do. And if you can identify some of the problems that those people are facing, then down the road, you’ll be able to easily come up with a customer avatar for them. But those are places where you can concentrate to just start getting ideas down on paper.
Rob [06:42]: Yeah, and when I talk to people about idea generation, I find that some people say they just have too many ideas and that business ideas are always flooding their mind. And others say it’s just so hard to come up with ideas. I think that the folks who say they have tons of ideas always flooding their mind, my guess and in short conversations with the few of them, my sense of it is that they have a lot of business ideas but most of them are not very good. And so, what I tell people across the board is whether you think of a lot or not a lot, put them in a notebook, put them in a text file, put them somewhere and save them because these things are fleeting and they go away really quickly and you’ll forget some of the good ideas you have. And it’s also pretty easy to come up with a new idea and think that it’s great and hang on to it and not allow yourself to see the other ideas you’re coming up with at that time. But later on you may invalidate it and then you kind of have lost all those other ideas. I think being able to make a list of ideas over time that you kind of maintain and nurture, and then being able to hit it when you’re ready and actually look then with fresh eyes on this list of things that maybe you’ve collected over the course of months or years, I think is a pretty powerful way to- you kind of get some context around it. You’re not blinded by the passion or the madness of this idea that you’ve just come up with.
Mike [07:55]: So once you have this cache of business ideas that you want to start taking a look at, the next step is to start filtering those ideas. And the way that I like to go about filtering these ideas, as Rob just kind of pointed out, if you have a lot of ideas, it doesn’t necessarily mean that many of them are good. I mean you can have plenty of ideas and maybe only two or three of them, if any of them, are good ideas. So the basis for idea filtering is to walk through each of those ideas and develop a list of pros, cons, and disqualifiers for each of those ideas.
Something constitutes a pro for an idea if you have domain expertise or you have personal contacts or the engineering effort for something like that is going to be low or if you have passion for the idea or the problem space. Or if there is existing products out there, the product or the problem that it’s trying to solve are easy to explain. These are all considered pros for an idea. Now most of your pros are going to be able to be applied across all of your ideas. All of the ones that I just gave are examples of that kind of thing. So for domain expertise, let’s say that you’re going to come out with invoicing software that just sends out invoices, kind of like FreshBooks or something along those lines. If you have a lot of expertise with something like that, then you might give that a domain expertise of eight or nine, because maybe you’ve built three or four of them before for previous customers or clients when you were doing consultant work. But that exact same pro could also be applied to something where you’re, for example, developing a product around selling real estate, which maybe you don’t have any experience there, so you might only rate that as a one. And the idea here with filtering is to apply the pros, cons, and disqualifiers to all of your different ideas. And essentially, what that allows you to do is it allows you to rank your ideas against one another.
Now ranking the ideas against one another, the intent is to help make this more objective. It’s not because you want to rank them and say this is the best idea. Rather, you want to give yourself a quantitative approach to being able to rank them and how close they are to one another. So if you score your ideas and something comes out to, let’s say, 30, versus another one that only comes out with a score of five. Well clearly you want to go after the one that’s 30. But if something only comes up with a score between 25 or 26, and the next one is a 23, for example, it becomes very difficult for you to say, well this one is clearly better than that one. So again, you want to create these pros and cons in such a way that they are much more objective.
So in terms of cons, some of the things that I’ve used in the past are looking at the number of competitors for different products. Or if the concept or the difference from existing solutions is very difficult to explain, it’s a huge amount of engineering effort or it’s going to take a long time to bring the product to market. Those are the types of things that you can generically apply as cons across every product idea. But there are also ones where you might look at that and say, well this is a con but it only applies to this particular idea. So, for example, you might decide that in terms of the cons, there might be an advertising component. And that’s the [monetization?] strategy for a particular idea. That’s probably not a good idea to use an advertising strategy for most bootstrapped products. But, again, that’s not something that’s going to be generally applicable across most of your other ideas. You could try to apply in most of them. Or you’re going to say I’ll give it a score of ten because there’s no advertising component. You can do that as well. But sometimes those things just come out and say, yeah this doesn’t necessarily apply to this particular idea.
Rob [11:22]: Yeah, I’ve actually done kind of a matrix like this before. I struggled with it because when I did the zero to tens for all the categories, the pros and cons, I even had multiple categories of like my level of interest versus how big I thought the market was, versus how easy I thought it was to reach. And then when I got to the end I had two or three that were almost exactly tied and I realized that since I wasn’t able to weight different factors, that it like, I don’t know, it didn’t work for me, I guess. I shouldn’t say it didn’t work. What I should say is that it didn’t help me make the decision altogether. What it did help me do was rule out the ones that were overall just had low results or low scores. So it did help me narrow down to a few. And then from there I really looked at did I want to be working on this thing for the next two to five, to ten years. And that started narrowing some others out as well.
Mike [12:18]: Yeah, and that’s exactly the point of scoring these different ideas is not to necessarily point you and say this is the idea that you should look at. But it’s really to start eliminating some of those lower tier ideas that aren’t anywhere remotely close. And then the last step of the idea filtering process essentially apply and any disqualifiers. So if something is a two-sided market or it’s B to C or there’s customers with a lengthy sales cycle or they’re going to be difficult customers to deal with, maybe you’ve dealt with them before and you know that they are just very demanding and not necessarily willing to pay for things. Those are the kind of things that you might look at and say well, this is a property that I’m going to apply of a disqualifier to this particular idea. And it may not even matter how much you work or how hard you work on a particular idea, some of these disqualifiers are essentially blanket statements to say, not that it’s impossible, but it’s much more difficult than it probably should be and there are most likely easier ways to make money.
Rob [13:12]: There is some other disqualifiers. We’ve talked about these in the past. But things that require virality or a network effect in order to work. If you’re going to bootstrap it, I mean, you’re really looking at a long shot if you are requiring virality and a network effect. Unless you know how to do this. If you’re Matt Inman or you’re Sean Ellis or you’re someone who knows how to do this, then that’s another story. But if this is your first time, I’d say don’t start with that type of app. Another one is having indirect revenue streams. We’ve talked about having a two-sided marketplace where you’re taking three percent, five percent off the top. Really hard to make even a funded business at that level. So that’d be something that I’d instantly kick off the list. Or having no revenue stream apparent. Again, if you’re bootstrapping, self-funding, since you don’t have a bucket of funding that you’re going to be able to live on and hire employees on, that’s not going to be a good way to go. And then having a bunch of revenue streams also, I don’t know if it’s a disqualifier as much as it’s a really tough way to go because it’s just too complicated. Because you’re just trying to get your legs under you at this point. You’re trying to figure out what people want, can you build it, trying to draw in new customers. And if you’re trying to then sell through multiple avenues, it gets really complicated really fast. So these are all things that I would push those ideas down on the list unless they don’t have these attributes.
Mike [14:25]: One of the things that I briefly mentioned earlier was the process of scoring these. And as Rob pointed out, this essentially becomes a matrix for you to help make a decision about what to do. So to help you visualize kind of what this would look like, if you were to create a spreadsheet, along the left side of the spreadsheet you’d have a list of what all of your ideas are. And then across the top of it you’d have all of your pros set up and then followed by all of the cons. And within the cells that meet up where the pros and cons cross with the ideas, you’d essentially put a number that says how well you could execute on that particular idea for that pro or how much it helps you versus over on the cons side, how difficult it is. So essentially what you have is there are a set of pros and let’s say, there’s four of them, they all have eight, and then there’s a set of cons and they all have five associated with them. Well obviously the numbers are going to come out in such a way that that’s going to be a positive number, assuming that the pros and cons are equal. But it could very well be the other way as well. And what you want to do is you simply want to add up the scores across the board. And ideally, what’s going to happen is the number of pros that you have is going to equal the number of cons. But there’s a lot of cases where this simply isn’t going to happen. In those cases you can either just let it be or you can say, okay, well add or subtract the difference between the number the pros and cons and then multiply by five, either plus five or minus five depending on whether you’ve got more pros or more cons to essentially establish a baseline for you that helps you level set these things against zero. So if you have ten pros and ten cons, you’re best score would be a 100. You’re worst score would be minus a 100. And then it would be right in the middle for kind of an average idea. And what you want to do is you want to order these once you’re done by their final score. You want to validate from the best score down. And as I said, some of these scores could come up very, very close to one another. At that point, you can kind of just make a judgment call or figure out which one interests you a little bit more. So if the difference between the scores is very small, you can say, hey I’m going to try that one first.
And what you want to do is you want to be consistent about your optimism or your pessimism for each pro or con that you put into this matrix because otherwise, what can happen is you are essentially artificially leaning your scoring mechanism towards an idea or against it.
Rob [16:36]: Yeah, and the idea here, it’s to rank these in a way that starts to bring some clarity to it. This is not an absolute list where the top one on the list is the one you should do and the bottom one you should absolutely not. But I would say that if you have ten and there’s kind of a spread between them, typically there’s going to be two or three that are a lot further ahead than the others, then that’s your cluster and that’s what you should really think about doing. I also think depending on what stage you’re at it depends on how much you really want to do the idea. So let’s say you’re at a step two or a step three where you’re really diving all in and you’re going to be building an app for many, many years, then I think you really need to want to enjoy the domain that it’s in and want to hire employees in that space and you want to hire customers in that space. I think if you’re really early on and you’re just looking for your first thing and you want to make a few hundred bucks a month or thousand, two thousand bucks a month, then I think that your interest in that space does not have to be as high because this is just a stepping stone to something greater.
Now there’s also the thought that long-term, if you do launch four or five products as you step up, it would be nice if they all focused on the same niche or the same market, same customers. I think there’s value to that. That’s something to consider as well. However, don’t let that paralyze you and don’t let it make you think oh, this is a good idea but do I really want to work with construction companies for the rest of my life, because that’s maybe not a decision that you have to make now. Any excuse that you find to be paralyzed or to stop and think too long or to basically procrastinate on this stuff is an excuse that will keep you from launching. And so you have to figure out which of these things you’re putting in place just as mental barriers on your own and get rid of those so you can charge forward.
Mike [18:11]: So once you’ve scored and essentially filtered your ideas, what you want to do is move on to the idea validation stage. And this involves making a list of your assumptions about the idea and making a determination as to whether or not you need to validate each of those assumptions. So some of the assumptions that you might come up with are how much time somebody spends on this particular problem. And it’s very easy to validate some of these things and others it’s going to take you a lot longer to validate. But for something like how much time somebody spends on the problem, you might assume that it’s an hour or two, but at the same time, just a quick 15 minute conversation could reveal to you that oh, they only spend ten or 15 minutes on it and that’s only once a week or once every two weeks. So it essentially helps to level set what your assumptions are about the problem space with what the reality of the situation is so that you can make good decisions moving forward.
Another thing that you can start asking people about it whether or not they use existing solutions, are they paying for those solutions. If they are how much are they paying for them, does it work for them, what do they like about it, what do they dislike. And once you start getting further into those conversations, you start asking questions about who makes the decisions about paying for those types of solutions, what schedule do they make those payments on? Do they pay a one time fee for them, do they pay monthly, do they pay an annual fee for it? And as you start going through this conversation, you can start asking more direct questions about what it is that you’re bringing to the table and whether or not they’re willing to switch away from what it is they’re currently using to a different solution. And that’s, I think, and important thing that some people don’t necessarily consider is what is somebody doing now versus are they willing to switch. And one of the things that I’ve heard in the past in talking to people from Fog Creek Software, for example, one of their biggest competitors is people using spreadsheets. Spreadsheets tend to be free for the most part. So competing against free can be somewhat difficult for an organization, especially for a bootstrap company. If you’re competing against Notepad, for example, it ships on every Windows PC and Macs have a text pad editor. So it’s hard to compete with something like that. But if you have a definitive list of benefits that essentially help justify somebody moving from that to your product, then it might help push things in the right direction. But you have to have those conversations. You can’t just assume that somebody’s going to switch from whatever they’re currently using unless you ask them directly.
Rob [20:30]: Yeah, I think Pen and Paper or Excel spreadsheets are the competitor of the majority of our apps. You have a proposal app, you have invoicing software, you have accounting software. Any of those apps, I mean unless it really is something maybe like email marketing software where you actually need something to manage that, can maybe not be competed with [via?] paper. But I think that this is always something to keep in mind that you’re going to have people who are kind of at the forefront. It’s your Geoffrey Moore Crossing the Chasm idea, right? Where you’re going to have early adopters who really want to move into a nice tool. And then you can have the laggards, all the way at the other end, that are really still doing it on pen and paper. And then you have the massive middle. I forget what it’s called, but it’s the folks who might be using spreadsheets right now. And you got to figure out where your technology is in the adoption life cycle in order to figure out maybe how much viability there is an how big- the market ultimately may be huge, but where is that market in this space, right? It’s like where are people already at the middle of the curve and they’re really adopting it en masse. Or is it something more like wow, there’s really a big market but only the early adopters are in it right now and it’s going to be another year or two until this niche or this market really starts attacking it.
So think about, let’s say, lawyers for example. The market for lawyers and maybe for software for lawyers is very large. But from what I’ve seen and I’ve had a couple people launch that I’ve known, that have launched apps into the legal space, lawyers tend to be laggards. So they’re still not really keen on doing a lot of SaaS apps. There certainly are some that use SaaS apps. There’s some that do SEO. There’s some that do email marketing. But the bulk of them do not. And so when will that happen? It’s going to tip eventually, but you don’t know if that’s going to happen now or later. Whereas if you look at web designers, web developers, online marketers, just to name a few examples of people who tend to, just as a group be early adopters, a lot more of them are paying for SaaS already. So that’s why those markets tend to be a little easier to get to use a SaaS app. Now it’s also a lot more competitive to market to them. But these are the types of things that you have to weigh and look at. The existing solutions they’re using versus their willingness to use a new solution.
Mike [22:32]: Now once you’ve started validating some of the base assumptions about the problem space itself and whether or not people will pay for that, then you have to start asking the questions about whether or not they will pay you for that. And I think that is a very important distinction because you can build something and just because you’ve built it doesn’t mean that they’re going to be willing to switch away from whatever they’re currently using. So even though you may have identified some problems with a competing product, there could still be some pretty big deal breakers in terms of what you plan on offering that are going to prevent them from switching. Because there’s always going to be some sort of switching cost, especially if they’re using a current tool that’s in the market. How much of the functionality of that tool that you’re going to need to duplicate or build before they’re going to be able to switch over. And every single one of those pieces that you need to build before they will switch is essentially a dealbreaker to them and it’s going to extend your timeline to getting them up and running on it. So there’s this minimum feature set that you’re going to need to implement and the only way that you’re going to find out which pieces are important to then, without assuming those things, is to ask those people upfront. You need to ask them what are the dealbreakers, what’s the minimum things that you absolutely need in order to start using this and have it provide value to you.
Another important piece to ask is how the tools currently integrate into their workflow, how are they using it today and how does it affect their work to use it in a different way. Especially if you’re planning on implementing something in a different way. So, for example, if you are hosting a solution versus something that they are installing on their desktop, that to them is going to be a fairly different paradigm. Both in terms of purchasing and in terms of usage because they may be disconnected from the internet for parts of the day. Maybe they’re on their phone for most of the day. Those types of things can prevent them from using a new product that is in a slightly different paradigm than what they’re used to.
Rob [24:25]: And the point to remember is that what we’ve just talked through is a list of assumptions about the idea or a list of questions that you have and you’re trying to find the answers. Perhaps for multiple ideas at once. Now, I’m personally not very good at trying to sell multiple ideas at once. So I would pick one, focus on it, really hit it hard for as long as it takes. And it should be a matter of weeks because this should be something that’s at the forefront of what your doing, right? This is not something that you kind of put on the back burner or you put on the side with other things. If you’re going to be serious about this and you’re really going to try and validate an idea this way, rather than doing it- let’s say you find a tiny niche and you find some organic traffic and you’re going to put up a landing page and start building a small site and validating it, that’s kind of a different way. You’re not really talking to end customers and you’re kind of seeing can I get in front of a channel of traffic. And that’s a different way to validate ideas. What we’re talking about here is more traditional customer development, where you’re talking to people. This is a big time investment and it’s something that you need to be serious about and you probably want to move it along quickly because if you lose momentum on something like this, it just has a tendency to take forever.
Mike [25:31]: I think the last key piece of this is to not assume that the idea that you’re thinking of or the thing that you have in mind is actually what people want. In going through the conversations with the customers, you may find that the idea that you have or the product that you want to develop is not something that they need. But they need something related. Or they just don’t need anything in that area at all. So keep in mind that just because you have the idea doesn’t necessarily mean that that’s the end goal. It’s not the place that you’re going to eventually go. It could be something related. It could be in a completely different direction and you need to, essentially, cut your loses and move on before you’ve gone in and invested a huge chunk of time in developing the product.
Rob [26:08]: Remember that validation is hard and it’s not an exact science. And that there’s a certain element of gut feeling to it, but you don’t want that gut feeling or especially your optimism to overpower warning signs. Or you also, if you’re normally a pessimistic person, you don’t want to throw every idea away at the first sign that something’s not going to work out. It really is this balancing act and you get better at it the more data that you see and the more of these you do. Like anything else, it’s a learned skill. So that wraps us up for today. This whole episode was outlined based on a question sent to us. And 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 Out of 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 263 | Per User Pricing for SaaS, Drip Email Sequences for Freemium, and SaaS Subscription vs. Commission Pricing
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike take a group of listener questions including Per User Pricing for SaaS, Drip Email Sequences for Freemium, and SaaS Subscription vs. Commission Pricing.
Items mentioned in this episode:
Transcript
Rob [00:00:00]: In this episode of “Startups for the Rest of Us,” Mike and I discuss per-user pricing for SaaS apps, Drip email sequences for Freemium and SaaS subscription versus commission pricing. This is “Startups for the Rest of Us,” episode 263.
[Theme Music]
Rob [00:00:21]: “Welcome to Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:00:30]: And I’m Mike.
Rob [00:00:30]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where you this week, sir?
Mike [00:00:35]: Well, I’ve been spending the past couple of weeks working on getting the Founder Café data migrated over into Discourse and been working with a DBA who’s been extremely helpful on that front. I think you kind of referred him over to me, and his name is Creston. He runs Ruby Tree Software, so you can go to rubytreesoftware.com if you’re looking for a DBA. He’s done a really fantastic job of getting a lot of the data converted over into a format that we can use inside of Discourse using the [postgreSQL?] back end. I’m really happy with how things stand right now, and right now it’s just a matter of working on a lot of the mundane stuff like onboarding instructions, the terms of service, privacy policy, CSS and things like that. So, things are looking good.
Rob [00:01:13]: Yeah, and so far, so good with Discourse, huh? I mean it seems to be a pretty good platform. We had looked at it – was it two and-a-half years ago when we moved from basically WordPress forms over to our current platform, which is Communifire? I think it was –
Mike [00:01:25]: Yeah, it was about that.
Rob [00:01:26]: – a while ago.
Mike [00:01:26]: Yeah, it was –
Rob [00:01:27]: At the time, Discourse was, like – I don’t know – an alpha or something, because it was pretty early-stage. But we had our eye on it, and we actually looked at it at that point, and our experience with Communifire has been mixed, and it isn’t exactly meeting the needs of what we want to do. So, we feel like moving over to Discourse is a good choice. A lot of people are familiar with it, and the usability is really good, right? Jeff Howard has done a good job making really usable forms.
Mike [00:01:50]: Yeah, so definitely looking forward to that. Hopefully, we’ll be done by the end of the month.
Rob [00:01:53]: Awesome.
Mike [00:01:54]: What about you?
Rob [00:01:54]: Well, we have two job openings right now with Drip. If you’re a content marketer and you want to help us with the blog and help crank out content – it’s not just about writing, but it’s about promotion and all that stuff – definitely get in touch with me. I’m hiring in the next couple weeks, soon as I find someone. It’s pretty much, I would say, anywhere in the world. Ideally, it’s within three hours of Pacific time zone either way, but we’re looking for someone with experience. You can email me directly, or hit the Start Ups for the Rest of Us site and contact me through there. The other thing we’re looking for is someone with a lot of UX experience, like a mid-level to senior UX person. Some Rails experience would be ideal, but we can work. If you know Python or know some type of service ad language, even if you’re not an expert, what we really need is heavy UX experience.
[00:02:39] So, things are growing and moving, and I think we’re going to probably have some more job openings here in the next few months as well.
Mike [00:02:45]: Very cool. So, what are we talking about this week?
Rob [00:02:47]: Well, we’re going to answer a group of listener questions. They continue to stack up, and we have some pretty good ones related to SaaS – pricing and development platforms and stuff like that. So, let’s dive into our first one. This first question is from Vincent Pruyer [phonetic], and he’s from wearewizards.io. He says, “Hey, guys. Thanks for the podcast. Lots of interesting stuff every week. We currently have a side project. It’s a password manager called ‘Passopolis.com.’ It was originally from another company, and then they open-sourced it when they shut down, and we’re currently running it for free and thinking about how we can monetize it. Our main competitor is LastPass, and it’s around $24 per user per year, and this kind of pricing only seems sustainable once you get to 100,000 users because the pricing is so low. If we decide to monetize it, we’d need to invest in design and do some other stuff.”
[00:03:34] To summarize Vincent’s question, he’s wondering if they should do this low per-user pricing, if they could compete at that – looking at, like, 10 to 12 British pounds per user per year – or, doing tiers, where it’s like one to five users is 30 pounds a year and six to ten is 100 pounds. But, really, his question is, “Should we just keep running it for free and not try to actually monetize this? Or, do you see a way to make this work?”
Mike [00:03:57]: Well, I think this is a pretty hard question to answer. One of the things that I see here is that it’s definitely aimed at the consumer market, or at least it feels that way; because in order to monetize it, especially if you’re going to try and compete against LastPass, the pricing on LastPass is just so low that you’re going to need a ton of users in order to be able to make ends meet. You could run it as a side project, but that’s probably all it’s ever going to be; and your number of users still has to be very, very high in order for it to just work, in general, for you.
[00:04:26] I think that it’d probably make a little bit more sense to look at other ways that you can solve similar, but related, problems using the same type of technology and possibly target businesses instead. So, if you’re looking, for example, at – your main competitor’s LastPass at this point. I think I might try and compete against something like Passpack, where you are instead selling it to teams of people and specifically at teams of, let’s say, five people or more and then charge those people on a monthly basis and give them team management of accounts. You could use that in situations where you have a bunch of people who are working together, and they need shared credentials to different machines, for example; or, to different websites for a variety of different reasons. But I think that competing head-to-head against LastPass is probably not the wisest choice in this situation.
Rob [00:05:12]: Because you’re not just competing against LastPass. There’s one password and a bazillion other of these password managers; and trying to make money, if you’re bootstrapping, charging $10 or, I guess in this case, 10 pounds sterling per year is insane. I mean the price points just aren’t there, and as Vincent pointed out, you need 10,000 paying users to make $100,000 a year; and just trying to find 10,000 users, unless you have just this enormous funnel and enormous channel of people using it now, there’s just no way you’re going to get there. You don’t have the team. You don’t have the traffic sources to get that many people.
[00:05:48] The worst thing I think you could do is to try out that pricing and get 100 or 500 paying customers. The problem with that is once you’ve done that, now you kind of owe them something. They’ve paid for a year, and you’re stuck to supporting them, and you really haven’t made much money. If you got 10,000 customers, that’d be great. If you have zero paying customers, then you’re home free; but once you make this leap into this really cheap pricing and you have to support these people for a year, and you’ve only made hundreds or a few thousand bucks, it’s not going to be worth it.
[00:06:15] I agree with Mike. There’s no way I would try to compete directly with LastPass on this. They’re just so far ahead. Unless you have a major differentiator, that’s where I would look for – is the competitive advantage you have is that, since it’s open source, I imagine you have some type of user base. Well, what is that user base contributing or asking to be built that’s different than LastPass that would allow you, in one sentence or one headline, to describe how we are the opposite of LastPass, how we’re way better, or way different.
[00:06:40]: You look at how Gabriel Weinberg is competing with Google. He has DuckDuckGo as a search engine, and he’s been on the podcast a couple times, I think, now. He didn’t do it by trying to compete head-to-head with Google. He figured out “how can I be different than Google in a way that I can sum up in one sentence?” And, typically, he uses the phrase, “Google tracks you. We don’t.” Right? It’s about privacy and tracking. Now, there’s also some other points: where they’re only going to have one ad at the top. They do some other stuff, but that’s been his big focus, and that’s the only way he’s competing with Google. It’s not by trying to be better than Google, or cheaper than Google, or faster than Google; because you can’t out-Google them.
[00:07:13] I think the same goes with LastPass. They’re just too big. You can’t out-LastPass LastPass. Figure out a major differentiator, whether it’s what Mike said, where you’re actually pivoting into another space; or, that you just pick a niche and you are the best password manager for web designers, or whatever. Maybe you add something that allows them to share with their clients, that no one else does, then you have a real differentiator. Then you don’t charge 10 pounds per year. That’s when you charge 50 or 100, or you charge monthly because you are so much better for that small group of people, that it’s warranted and they’re willing to pay for it. I hope that helps, Vincent.
[00:07:46] Our next question is from Chris Sciora [phonetic]. He’s from gomobileiq.com. and he says, “Hey, guys. It sounds like both of you started with a handful of different languages in the past. Maybe C# for Mike, and Rob has also definitely used .NET. Rob recently using Rails for developing the last, two web applications; and he’s indicated he doesn’t have much experience with it, certainly not enough to actually write the apps. Without arguing about the merits of the different frameworks, I’m curious what benefits you saw by making that change. It effectively removes you permanently from the development review process, while adding another layer of complexity. What were the reasons for dropping a familiar platform and effectively starting from scratch?”
Mike [00:08:24]: Well, I think this is mainly aimed at you. My take on the different languages is, in most cases, you’re going to use the best tool for the job; and I think that if you’re going to go in a direction for using something where you don’t know the technology at all, then it would probably be an intentional choice to help keep you out of the technology. That would probably be the main reason that I would go in that direction; but, Rob, obviously you have your own reasons for having chosen Rails. Was it based on pricing? Just finding people who knew that technology? What was it?
Rob [00:08:53]: Your first point of intentionally keeping yourself out of the development is actually a good one. That was part of the reason, is that I found with all the products I had – from Dot Invoice to HitTail to WeddingToolbox and the other ones that I was managing – that I kept getting pulled into these little fixes and these little issues and these little bugs, and I would kill half a day troubleshooting something in PHP or, heaven forbid, in ColdFusion with WeddingToolbox. Not being able to do it is actually a benefit to me, because it means that I just can’t these days. That’s giving something up. You have to get over the fact that you can’t go in and do it.
[00:09:33] At the same time, though, I was able to find a trusted resource who I knew could help support it, and that was Derek, right? He was contracting for me at the time. He’s now cofounder of Drip, and early on, we discussed what language should we build Drip in. He knows Rails like the back of his hand. He’s very knowledgeable and just a senior, senior dev in it; knows about architecture and how it works. So, that was kind of a no-brainer, right – the fact that he knew it so well. Then, you can find Rails developers. Rails developers have heavy UX emphasis, typically, and wanted to make it very UX-friendly.
[00:10:04] Finally, I had run into real issues. I got an acquisition offer on HitTail several years ago, and since it was written in ASP.net stuff, the person didn’t want it. They really wanted something in PHP, Python, or Rails. If you’re going to build line-of-business enterprise apps, then, yeah, Java.net – those are great. But if you’re going to build startups, essentially; or web applications, and you want to be able to find developers that aren’t really expensive, find developers that have the startup mentality in general and maybe someday be able to sell it, or transition it to another company – whether that’s your plan from the start, or not – building in an enterprise language like a .NET or a Java will be to your detriment. That’s where I’d say Python and Rails would be my top two choices. I think PHP would be another one that’s perfectly reasonable. We can go into the merits of doing everything in node and using bits and that, but it probably isn’t worth the time of it.
[00:10:56] The bottom line is the reason that I dropped the platform is: 1) so that I wouldn’t get sucked into development; 2) because Derek knew the language really well; and 3) because it makes it easier to find people to work on; and if someday there was some exit event, or someone merged, or there was ever that need to transition it to another team, it’s just an easier transition when you’re using a language like this.
Mike [00:11:17]: I’ll just interject here to point out that I’ve heard that as well in terms of using something like Rails, or Python, or anything like that. Those types of languages, it’s easier to find the developers, especially the ones who are motivated to self-teach and are in the startup space. The pricing for apps that are built with those tends to be a little bit higher, so if you’re looking longer-term, I’ve heard that as well. It’s just the types of technologies that people tend to be more interested in acquiring then the C#s and Javas of the world.
Rob 00:11:50]: All right. Our next question is from Nathan Rimmer. His subject line was “20 percent of IT spending creates no value. I need your advice on how to fix that.” He says, “I’m a requirements analyst and a startup fanatic. I’m a huge fan of the podcast. Studies show that about 20 percent of IT spending creates no value. It’s like throwing a fifth of your IT budget out the window. This is a huge problem for startups who have limited funding, which is pretty much everyone. Reclaiming the lost value would allow startups to employ more people,” et cetera, et cetera.
[00:12:18] As you know, there are frameworks for coding and product development, like Bootstrap [?] startup, but there’s no framework for creating, communicating and managing business requirements. I see there’s a fundamental need in reclaiming the lost 20 percent. I’d love to hear any thoughts you have on what a business requirements framework should contain or take into account. I’d even be interested to hear if you think it isn’t needed.” So, what do you think?
Mike [00:12:37]: I think the first mistake here is assuming that startups and enterprise companies that have a full-blown IT department are the same, and that’s just a blatant falsehood. I don’t think that those two things are even remotely close to each other, so when you start looking at studies like this that come back and say 20 percent of IT spending creates no value, my inclination would be to believe that something like that comes from Gartner or Forester. Those are wildly different environments than a startup that’s got less than ten employees, for example. So, to try and equate them is just a nonstarter. There’s just no equivalence there.
[00:13:12] The other inclination I have is that when you’re looking at this type of spending, that 20 percent of IT spending is probably on technologies that are purchased because they are – either this person was sold on a dream of – some sales rep came in and said, “Hey, buy this software, and these particular problems will go away.” Or, they purchased a bunch of consulting, and the project was mismanaged, so all that money basically went out the window. Those are very, very common things that I’ve seen when I’ve been doing consulting, so those are the types of things that would factor into studies like this. I think that, honestly, this is just probably bad data. Maybe that’s a gross assumption on my part; but my guess is that, because it’s not applicable to startups, you can’t really draw a line of equivalency between them.
Rob [00:13:56]: Yeah, I would second that. I also think that, since the environments are so different, that this requirements framework that Nathan was asking about is much, much less applicable, if not totally inapplicable. It depends on what you mean by “startup,” but let’s just say it’s someone that’s less than 20 employees or a company that’s less than 30 employees. At that level, basically just a kanban process, where you’re writing stuff down on notecards and you’re sticking them up on a wall, or you’re using a Trello board, is a really good way to get requirements across; or, simply using an issue tracker. We use Codetree, which is over GitHub issues, and there has not been a single feature that we have released in Drip that has required more than a few paragraphs of discussion and description in our issue tracker.
[00:14:40] We don’t spec out these massive, waterfall projects like you do in IT, where you have these requirements that you have to manage, and you have this – you know, you used to have the 300-page spec doc. None of that is done in the startups that I know that are moving quickly. We release multiple features per week, sometimes multiple per day, and so each is individually specked out and is its own, little, tiny micro issue. So, for startups, honestly, I just don’t see the need. Maybe for enterprise IT there needs to be some framework, but I wouldn’t even be able to speak to that now. I’ve been out of that so long.
I hope that helps, Nathan. Thanks for sending in your question.
[00:15:12] Our next question is from Christopher Gimmer, and he says, “Hi, Mike and Rob. Huge fan of the show. I had a question about auto responders for freemium SaaS products. With a typical SaaS trial, you’re hoping to help users find value and convert to paid before the trial runs out. With a freemium product, there’s no time limit and not everyone will be interested in a paid version. Just wondering what kind of advice you would give on how to set up an auto responder for a freemium product. Would it be any different than a normal trial sequence?”
Mike [00:15:39] Yeah, I think that there’s a couple of different things that you can do – different approaches, I’ll say. The first approach is when you have somebody come into a funnel like that, are you trying to sell them directly on the higher-level version of the product, or are you just trying to get them in the door to start using it? I think the answer to that depends a little bit on how complicated your product is to get up and running for people and how valuable it becomes to them over time. Obviously, in a SaaS scenario, you want to be charging people on a recurring basis if the value of your product goes up over time. So, something like – to throw to an example here, bug tracking software, or anything where you’re aggregating data over a time period. Over time, hopefully, the users are sending more data into that system so that as they use it more and more, it becomes more valuable to them.
[00:16:27] Now, if you’re trying to get them to just use the product, then you probably want to get them onto a paid version, assuming that they’re a big enough customer that they’re going to be using it extensively. Or, if they’re on the smaller side, you just want to encourage them to use it in case they end up larger companies later on and be able to bring it in the door. In each of those situations, you’re going to do one of two things. You’re going to try to get them onto a paid plan first and then essentially back off if they end up going into the freemium plan for the product and then over time, try and pitch them on the benefits.
[00:17:00] I think that when you start seeing their usage of the product over time, you can check to see whether or not they’re going to run up against any of your internal barriers for that freemium product. So, let’s say that you’ve got BugTracker. You only allow them to track 100 bugs, for example; or, only manage two or three projects at a time; or, only have a certain number of users. When they get close to that user limit, you hit them with an email that says, “Hey, you’re getting close to this limit. Would you like to upgrade?” That’s a trick that came from Patrick McKinsey at one of the previous MicroConfs, but there’s lots of ways that you can monitor what their usage is and then perform specific, targeted emails to identify those people and try and get them to upgrade; but I don’t think that you want to beat them over the head with it every, single week. Then just on a rolling basis, maybe every three or six months, try and pitch them on the benefits of upgrading to a paid plan.
[00:17:49] What about you, Rob? What do you think?
Rob [00:17:50] Yeah, the sequence is worlds different than free trial. When you have a free trial that runs out, you have a time pressure there, and you are trying to get them on board before the end of that free trial. With a freemium product, like you said, you’re trying to get them to activate. That’s the first thing I’d focus on – is just hitting them up once, twice a week and saying, “Hey, you haven’t done this yet.” “Hey, you haven’t set that up,” because if they never do that, then they’re never going to use the product, and they’re never going to upgrade to free. So, you really want to get them to use the product, or get them to say, “Stop emailing me.” It’s kind of like that follow-up thing from Steli. If you’re getting this big traffic of freemium and no one’s activating, that’s a real problem, so the email should gently nudge them to do that. Then as their usage increases, touch base with them via these point-in-time emails based on actions or based on levels in their account. Then let them know that, “Hey, we do have these extra features,” or, “We have more that you can get by using our paid plan.”
[00:18:40] Just like you said, I’d probably pitch it more often than every three to six months. I would think about, say, every six weeks to three months. If you do have this free user base and you really do have something that’s much more valuable to them, I feel like it’s worth mentioning. And you don’t do it directly. Maybe every six weeks you don’t pitch them with this direct hard sales pitch. Maybe that is every three to six months, but in between there you want to touch base with them about new stuff you’re releasing and then have just a little pitch. You know, if you’re using marketing automation and you have tags, then you’ll know that they’re freemium, and you can actually put something different in there than if they’re an actual paying customer. In even a feature announcement email, you can basically include a paragraph only if they’re on the free plan and say, “Hey, this stuff’s only available to paying customers.”
Rob [00:19:20] Yeah, I definitely think this trial sequence is quite a bit different than freemium. You really just need to think through what their journey is and how different it is from a typical paid trial. I hope that helps, Christopher.
[00:19:33] Our next question is from Caesar, and he asks about when to show pricing. He says, “I’m struggling a bit about when should I show pricing on my marketing website. Should I do this right from the beta? Should I do it after the beta? Should I show the cheapest tier first and for the rest have people contact us? Should I start inviting testers even if they don’t know about pricing? I realize most of the answers will be ‘it depends,’ but it’d probably be interesting to hear your experience about it.”
Mike [00:19:59]: I think when you’re early on and you’re still trying to figure out what the value of the product that you’re billing is worth to people, it’s a lot harder to figure out what to charge people. One thing that you might want to try is essentially just asking those people who are early on, “What is this worth to your business?” “Is it going to cost you to not use this particular software?” That will help give you an idea of what the value proposition is going to be to them in terms of dollars for the product.
[00:20:27] Once you’ve done that, you can start showing that information, but I think that you need to start taking orders from people. It can just be maybe your first 20, or 30, or even 50 customers. Maybe every, single one of them pays something different; but if you don’t post the pricing, then you can have each one of them pay something completely different, and nobody’s going to know anyone – not unless they start talking to each other and say, “Hey, I’m only paying this,” or, “I’m paying that.” You want to figure out what it is that people are willing to pay for it, and why; because your feelings of what the value are of the product are probably going to be different than what your customers feel it’s worth. That’s a common theme among people in the startup world – is that they’re essentially undercharging for their products because they don’t understand the value that it provides to their customers.
[00:21:12] Then there’s also – the flipside of it is maybe you think that it’s worth a lot more than it is, and the only people who are going to be able to tell you that is the people who are cutting you a check. So, charging them different amounts for the first 50 or 100 people is probably fine. Maybe it’s only the first ten or 15 people, but if you can get an idea of what those prices are and talk through why those beta customers think that those prices are justified, then it gives you a better idea of what to put on your home page.
Rob [00:21:37]: Yeah. If you’re pre-launch and you’re still hand-holding folks into your app – at that point with Drip, we didn’t even have a marketing website. I don’t even think we had placeholder text. We were literally just getting people in. I had told them in an early email, “I think our pricing for this long-term is going to be between 49 and 99 a month for our lowest plan.” That was kind of the first thing we said, but I did let them know up front that we were going to be charging. This was not going to be some free-forever plan. So, if you’re still handholding, you have the luxury of being able to do that one on one.
[00:22:11] If you’re not and you’re starting to let larger groups in, I would be charging by that point. If you’re starting to let 100, 200, 500 people in, that’s the point where I know my pricing; or, at least I have an idea of it, and I’ve picked a price. Then I’m going to test it with that first group. I don’t believe betas should be free. I think beta testing is you’re building it. You’re doing unit testing. Then you do integration testing with everything together. Then you test the crap out of it with your own stuff, and then you get maybe ten people who you one-on-one handhold through the app, and you get them all set up. You’re going to have worked out a ton of stuff by that point, and from then on you’re done. Beta’s done. This is not something where you let 100 people use it for free until you decide on pricing.
[00:22:52] Maybe you give them a really long trial, if that’s what it takes. We were doing – if I recall, with our early beta testers, I didn’t know how long the trial would be at all, and some people got months and months to try it out; because we just didn’t know. We were trying to build features to make it valuable enough for them. Once we got out of that, it’s pretty much been a 21-day trial since day one. A few people have asked for extensions based on extenuating circumstances, but that’s it.
[00:23:15] Then in terms of the other part of this question, he asked if you should show pricing on the marketing site, or just show the cheapest tier and have “Contact Us.” If you’re selling to enterprise and you’re going to do the whole figure out how much people can spend and negotiate pricing, then, yeah, everything should be “Contact Us.” But if you are just selling a typical SaaS app or a downloadable app, I think you should have all your tiers up there and then a big enterprise tier that says, “Contact Us” for people who do want to spend a lot of money and get more. There’s always a need for someone who wants to spend $10,000 on your software, but aside from that, I don’t see a ton of value in trying to obfuscate your tiers or hide pricing from people.
So, thanks for the question, Caesar. I hope that was helpful.
[00:23:53] Our next question is from Jeff, and he asks about SaaS subscriptions versus commission pricing. He says, “Hi, guys. I’ve listened to a couple shows where you discuss SaaS pricing models, and I haven’t heard you mention commission-based pricing at all. We recently launched our SaaS offering, which is a marketplace platform around the wedding industry.”
[00:24:11] So, stepping in here, I think what he’s saying is they have kind of a two-sided marketplace where they have brides and grooms who are about to get married, and then they have providers. I would guess it’s like people who sell wedding cakes and flowers and maybe wedding planning services and venues and that kind of stuff. So, I wouldn’t actually call this really a SaaS offering as much as it’s just a wedding marketplace. Now back to his email.
[00:24:32] He says, “We’ve had great traffic to the site, but our conversion rates have been pretty low. Our packages include a percentage commission on sales, and I’m wondering if that is turning people off to the product. We’ve tried emailing our customers along with everyone that’s expressed interest, but we didn’t get much of a response. I’m curious to hear your thoughts on commission-based pricing for a marketplace site like this. My gut is telling me that it must not work in most instances since there doesn’t appear to be many SaaS offerings out there that are using this pricing model.”
Mike [00:24:59] If I understand this correctly, what he’s essentially saying is they have a marketplace platform for the wedding industry, and they have brides and grooms who’re getting married on one side of it and then the vendors on the other side. One of the two complaints, or issues, that they have is they’ve got a lot of traffic, but their conversion rates have been really low.
If you’re charging the vendors, but not the brides and grooms, then that would almost be expected; because the brides and grooms that are visiting the website are probably going to outnumber the vendors by a pretty wide margin. That’s going to drive your apparent conversion rate pretty far lower than it probably otherwise should be counted. You might have, let’s say, 10,000 brides and grooms who visit, but you only have 200 vendors that visit. Well –
Rob [00:25:43]: Right.
Mike [00:25:43]: – how do you know which 200 vendors there are versus the 10,000 people? And what number are you going to count it against?
Rob [00:25:48]: I would agree –
Mike [00:25:49]: So, I think that –
Rob [00:25:49]: – and I think we should clarify here he says, “We’ve had great traffic, but our conversion rate has been pretty low.” We’re making the assumption that he means that it’s the vendor conversion rate.
Mike [00:26:01]: Yeah, so that’s –
Rob [00:26:01]: And I’m not 100 percent sure.
Mike [00:26:03]: Yeah, I’m not either, so – that’s just a point for him to take home, though, is that might be an issue if that’s what he’s looking at and he’s just not thinking about that piece of that – that division between the two – as one issue.
[00:26:15] The other thing is that if you are charging the vendors and you’re charging them on a commission basis, essentially what you’re doing is – let’s say that somebody buys a $50,000 wedding package and you’re charging the vendor, let’s say, 5 percent, something like that. Well, that becomes a $2500 fee that that vendor has to pay versus if you have a static pricing tier for each of these things, then it would be, let’s say, $500 for them.
[00:26:42] Since you and I run MicroConf, one of the things that we really don’t like is having to deal with any sort of variable costs. It is a lot easier to run an event when you know exactly how many people are going to show up, because you know exactly what your budget is, and you can plan and anticipate things in advance. You can make decisions about what you’re going to spend and what you’re not going to spend. But if you’re a vendor, and you’re on this marketplace, and your costs are going to be variable, it makes it much more difficult to get a handle on some of that stuff. Quite frankly, there’s a lot to be said for just avoiding the hassle of even bothering.
[00:27:19] I would wonder whether or not a commission-based pricing structure is even the way to go here. Maybe it’s a flat fee on a per-event basis. That would be my thought; but, again, if you’re having a hard time seeking feedback from people and getting responses from them, then it seems to me like there’s a completely different problem that you actually have to tackle, which is why are you even not getting feedback from these people?
Rob [00:27:43]: Yeah. Let’s just be clear here. In no circumstance should you charge the consumers here, because they’re going to be super price-sensitive. It’s the vendors that you should be charging, so I think we’re just making the assumption that that’s going on. If not, then you should definitely do that. I can’t imagine at this stage charging a subscription fee to the vendors, because I can’t imagine a vendor that’s going to want to pay for a completely unproven solution. Maybe if you have millions of people coming and you have tons of money going through your system, you can move to subscription fees; but at this point, you’re probably going to need either a flat fee per event like Mike said, or a flat commission.
[00:28:18] I think a flat commission is fine. I probably wouldn’t call it a “commission,” though. I typically call it, like, a “transaction fee.” If you look at Gumroad, or another platform like this, that’s what they add on. If you’re going to pick 5 percent or 10 percent, that’s fine. Mike’s objection to it being variable, I think, is a valid one; and I think the way you could get around that is have a maximum. You could say it’s 5 or 10 percent, and it’s capped at 250 bucks, or 500 bucks – just a maximum somewhere. Maybe for different vendor types, it’s different amounts because, obviously, flowers might only be a few thousand and a venue might be more than that.
[00:28:51] To be honest, it doesn’t sound to me like this is the major issue, if you have all this in place. I would guess that there’s something else at play here, and that people aren’t engaged – or, that none of the people who visited were actually vendors and that everybody who came in was a consumer, and that’s why you got a lot of traffic and no one converted. So, this is a tricky one. There’s a lot to dig in here.
[00:29:11] I think, in general, my advice would be don’t try to bootstrap a marketplace; because they’re really, really hard. Even if you make this work and you start getting people signed up, making 5 or 10 percent on a fraction of these transactions, you have to be at scale to make any money at it. We just saw last week Gumroad laid off 90 percent of their employees. If you go to Tech [?] and search for it, you can see that even them, who – everybody in our space knows who they are, but they’re trying to take these tiny, tiny, little snippets of fees from these transactions; and it seems to me that they just couldn’t get enough volume, because unless you’re doing Uber-level, or Stripe-level volumes of transactions, then you’re not making any real money. You’re making thousands or tens of thousands a month, and that’s not enough to justify all the employees and all the support you need to handle a set like this.
[00:29:59] So, that’s our two cents. Hope that’s helpful, Jeff.
[00:30:01] Our last question for the day is from Ely Gescheit [phonetic], and he says, “I’m a big fan of the show. I’ve listened to you for the past couple years. My startup is focused on helping the building industry, such as town planners, architects, et cetera. However, the app could also be applied to the legal profession, because it essentially converts boring legislation into a more user-friendly format. There are around 600 town planners listed in Sydney, Australia, on Yellow Pages and around 10,000 lawyers. My initial idea was to focus the app on the building industry and later pivot to the legal profession. The idea behind this was to test the waters with a smaller target market. Given the app will be more scalable in the legal profession, I’m thinking of switching my strategy and focusing on legal first and then moving into building.”
[00:30:43] To me, the risk trying to target a smaller market is really high, and I’m not sure whether it will even be worth all the effort for just a small market. What are your thoughts?
Mike [00:30:51]: I think I’d be very hesitant to target either town planners or lawyers, regardless of the numbers. Essentially, when you start weighing these against each other – the numbers he throws out are 600 town planners versus 10,000 lawyers that he’s identified. With town planners, you’re going to be dealing with government paperwork and government budgets, and they’re going to be on strict timelines. They’re going to have to plan it in advance, and your sales cycle is probably going to be longer for most of them. That’s a blatant assumption, but you could just make some phone calls to five or ten town planners and ask what their purchasing process looks like and find out pretty quickly how long it’s going to take to onboard them as a customer based on however much it is that you’re going to be charging them.
[00:31:31] For the lawyers, I know people who have startups in the legal space, and it’s not always easy to get customers. Sometimes it is. Sometimes you can get to the right people very quickly and they are willing to talk to you as long as you are going to be providing a service to them that you can essentially pitch very quickly and that they can see a justifiable ROI on it; but you’re still probably going to do a lot of handholding, because those types of customers are probably not searching online for stuff. The legal profession is – in a way, they’re stuck in the ‘80s. They use fax machines for everything. They’re somewhat technology-averse, and you’re probably going to have to find a way to gather them as customers, and it’s not going to be through a lot of the things that we talk about on this podcast, like SEO and online marketing and things like that. You’re going to have to really go after them.
[00:32:19] With those things said, I don’t know if it actually makes a heck of a lot of difference which one you go after. What I would do is, if you’re still in this early stage, talk to ten, or 15, or 20 of them and test the waters a little bit and see which one of those two things is going to do better for you. Come up with a short list of identifying factors or traits that you would like to see and then ask those questions and find out if those are actually present in that particular market. If they’re not, maybe you kill the idea and move on to something else, or move over to the other market instead. Come up with a list of pros and cons for each of them, iterate through them and then see what the numbers come out; because it seems like you can get a lot of the information you need just by talking to ten or 15 people in each of those two industries.
Rob [00:33:03]: Yeah, I’m also pretty bearish on this idea, especially if it’s your first app. I would go for a smaller, easier win that you can market online. But if you really enjoy high-tech sales and you’re willing to do six-month sales cycles, and you’re building something that either of these niches would pay – let’s say $12,000 a year is probably the smallest annual contract value I would do when targeting these niches. I’m pulling that out of the air a little bit, but if you build something that’s 50 bucks a month or 99 bucks a month, you’re nuts to try to go after these markets. They’re just too hard to sell into when you’re getting started, especially if it’s your first time doing it. You don’t have any competitive advantage in these markets.
[00:33:42] So, all that to say I would think really hard if not all of those things are in place. If you’re thinking that you can set up a marketing side and drive SEO traffic and pay-per-click traffic and convert on an app that’s 20, 50, $100 a month, this does not sound like that idea.
Mike [00:33:59] Thanks for the question, Ely. Hope you found it helpful.
[00:34:01] If you have a question for us, you can call it in to our voicemail number at 1.888.801.9690, or you can email it to us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
[00:38:18] Thanks for listening, and we’ll see you next time.
Episode 262 | 13 Signs You Should Kill an Idea You’re Validating
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike make a list of 13 signs you should kill an idea you’re validating. These are different signals that can be negative to the idea actually working.
Items mentioned in this episode:
Transcript
Mike [00:00:00]: In this episode of “Startups for the Rest of Us,” Rob and I are going to be talking about 13 signs you should kill an idea you’re validating. This is “Startups for the Rest of Us,” episode 262.
[Theme Music]
Mike [00:00:16]: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built you first product or you’re just thinking about it. I’m Mike.
Rob [00:00:24]: And I’m Rob.
Mike [00:00:25]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Rob?
Rob [00:00:29]: Well, I was just looking back at my 2015 goals, because it’s early November now, and so it’s kind of time for things to start winding down. I’m starting a new [?] what I would like my 2016 to look like. I’ll do a retreat around the end of the year, but so far, so good on the goals. There was a revenue goal for Drip that we passed a couple months ago. I hadn’t even realized it. I probably should’ve celebrated, and I definitely think I’m actually not great at is celebrating my victories. I tend to be happy for five minutes and then say, “All right. What’s next?” I actually think that one should celebrate them more, actually. I think it brings you – it just adds longevity to what you’re doing, because we all have a lot of downs. It’s like take the opportunity to have an up once in a while.
Mike [00:01:09]: Well, if you’re not celebrating those opportunities for where things are going well, then it can also be a long time between certain types of goals that you have, just because the nature of some of them is an extended time period. If the reward pattern is off a little bit, then it can be difficult for you to stay motivated to go after those goals.
Rob [00:01:27]: Yeah, that’s right. So, it was quite – I looked at a list. There were, like, four or five goals; and I think I achieved four of them. The fifth one was to write another book, or rewrite my last year’s book and within probably 60 days of saying that, I called that off. There’s no chance it was going to happen, so it’s kind of an honorable mention, I guess; and I feel okay about not hitting that one. We’ll talk more in depth about this probably in December, when we review our 2015 goals and set goals for 2016.
How about you? What’s going on?
Mike [00:01:53]: Not much. Just doing more design work for the app that I’m working on so that I can go back to people that said that they were interested in it.
One thing I saw that was completely unrelated to that was that Google has started selling domains. I think that they announced that they were going to be acquiring some top-level domains, but I hadn’t really heard anything about it. Ironically enough, I saw that they were advertising for these Google domains on Facebook.
Rob [00:02:15]: That is so cool. So, Google is running Facebook ads is what you’re saying?
Mike [00:02:19]: Yes, because –
Rob [00:02:19]: That’s great.
Mike [00:02:20]: – it was – yeah, and I looked at it, and I was like, “Oh. I feel like I have to click on this just to make them spend money.” [Laughs]
Rob [00:02:25]: Are you sure it wasn’t more of, like, an affiliate or something that maybe was getting a –
Mike [00:02:31]: I don’t –
Rob [00:02:30]: – commission?
Mike [00:02:31]: – no, I don’t think so. I don’t know. Maybe it was. Maybe it was. It was in the main activity area of Facebook, and it looked like a Google ad. It went directly to domains.google.com.
Rob [00:02:42]: Yeah. The other thing regarding Google domains is – did you hear someone registered google.com through the google domain engine, and they owned it –
Mike [00:02:48]: Oh, yes.
Rob [00:02:48]: – for, like, two minutes, 12 seconds?
Mike [00:02:50]: A minute. A minute.
Rob [00:02:51]: I don’t know.
Mike [00:02:51]: Two minutes.
Rob [00:02:51]: Yeah, or something like that, and Google caught it. They didn’t even get access to the DNS or anything, but I thought that was funny that they sold their own domain.
I want to give a shout-out and congratulations to the guys at Less Everything, Allan and Steve, for launching lesschurn.io. Lesschurn.io is a little software widget – it’s in JavaScript – that you put in place of a cancellation button in your SaaS app and, instead of just having a “cancel now,” it does some cool stuff. You can have it ask some questions, or you can have it offer them help, or you can just have it do some stuff that they’ve used in their own SaaS apps. They’re trying the product [?] to make it easier for folks to get the help they need instead of canceling, because a lot of people just go by default to that cancellation button; and they’re just using their best practices and baking them into the software product. I always like seeing approaches like that. So, again, that was lesschurn.io.
Mike [00:03:40]: Yeah. I think I saw a blog post from either Steven or Allan a while back that discussed their own approach within Less Accounting, and that’s how they were getting information back from their users, so it was to intercept those people and ask them questions about why they were cancelling so it’s interesting to see them turn this into a product other people can use.
Rob [00:03:58]: So, what are we talking about today?
Mike [00:03:59]: Well, we got an email from Jeff Madsen, who asked when is it time to call it quits on validating an idea? He says, “Hi, guys. Listen to all the shows. Have a question I’d really love to hear your input on. When do you call it quits on validating an idea? I know this feels like a ‘that depends’ type question, but I think there has to be some science behind it – or, at least some good ground rules. Appreciate your input. Keep up the great work.”
[00:04:18] So, what we did was we put together 13 signs that you should kill an idea that you’re validating. Essentially, these are things that you might be doing as part of the customer development process, or even before you started building. Quite frankly, some of them might come after you’ve started building, so it’s important to take a look at these things and keep in mind that, depending on where you’re at with your application, you may need to rethink where you’re at. The other thing to keep in mind is that not all of these things mean that you need to walk away from it. Some of them just mean that you need to rethink it, maybe take a couple of steps back, or re-validate certain parts of it. So, it doesn’t mean that outright it’s time to kill it, but it’s time to reevaluate where you’re at.
Rob [00:04:58]: Yeah, I think these are more signals than true deal breakers, show stoppers, red flags. That’s not what they are. They’re really signs or signals that are negative towards the outcome of this actually working, so the more of them that stack up, you really need to take notice and think twice about continuing with the validation.
Mike [00:05:17]: I think one of the things that’s worth pointing out here is that when you’re talking about validation, there are different stages to the product development process. There’s the part where you’re very, very early on and you’re just validating whether or not people are interested in something. Then you move on to say, “Are people not just interested in this, but interested enough to the point that they’re willing to pay for it?” Are you trying to validate that your idea is actually solving somebody’s problem? I think that there’s different angles that this validation comes up on and, depending on the specifics of what part of it you’re validating, then that’s going to play a role in some of these different signs.
Rob [00:05:54]: Yeah, you can certainly be pre-problem-solution fit, where you’re just saying, “Boy, is there a problem?” Right? You’re just trying to validate if there’s a problem. Then next you’re saying, “I now have a solution. Is that the solution to this problem?” Then the next thing is, “Is this product going to be that solution to the problem?” Then, “Will people pay for the product if I build it?” Then, “Can I reach people who will pay for the product if I build it?” Right? I just outlined five steps right in a row that I would want to validate each individually.
[00:06:23] Then there’s also validation like – let’s say you have a product, and you have 500 customers, and you’re wondering, “Should we build this major, new feature?” or, “Should we go in this major, new direction?” Oftentimes, you need to validate that. You don’t just want to go out and spend two months building something. You actually want to validate that by talking to your existing customers, talking to prospective customers. Validation should not just be something you do once at the very early stages of building a product. I believe it’s something that you want to do all the time, because it just saves you so much time in terms of not building features that no one wants.
Mike [00:06:54]: I think with that said, we’ll just dive right into the first one. The first one is that you’re avoiding talking to prospective customers. I think there’s a natural inclination to just start building because you have a good idea of what it’s going to take to solve a particular problem, but sometimes you really need to start talking to those prospective customers to figure out whether or not they’re actually interested in solving that particular problem. It’s very easy to say, “Oh, this is going to be a really cool technology,” or even just finding a cool technology that you want to work with and starting to build something and then saying, “Oh, I’ll figure out who I’m going to sell it to later.” I think it’s a different story if you’re just trying it out to learn something versus you’re going to try and figure out how to make it into a product later.
Rob [00:07:34]: I think especially for technicians and whether you’re a developer or a designer, just someone who likes to build and create things. Most of us – especially if you’re introverted, you don’t like talking to people. You don’t like going out of your comfort zone. You feel like that’s probably more for salespeople. This does get easier over time but, to be honest, early on I had a really time with it as well. You might have a vision that you want to launch a website and never have to talk to a single person and that they’re going to come and sign up for your SaaS app and then hang around, and maybe you can email with them and support a few times, but that’ll be it. That’s not impossible; but it’s very, very rare. You’re not going to build a long-term business.
[00:08:10] Even if you don’t want to build something huge, if you just want something to stick around over time and pass the test of time, you really are going to have to talk to your customers and get to know them. It’s just in every business that I see that’s successful and that’s been around for many years at this point. In SaaS, “many years” is – what – four? Five? Six? You really are going to get to know your customers, and I think the more that you get to know them and the more that you talk to people, the easier this gets later on. So, this is an acquired skill just like delegating, just like marketing, just like development. Just being able to speak one-on-one with customers and talk to prospective customers and not feel anxiety about that anymore – I think that is a learned skill. And it’s one that, if you’re not good at it already, that you should really focus on improving over the next six to 12 months if you are, in fact, trying to validate an idea.
Mike [00:08:55]: The second sign you should kill an idea you’re validating is that you’re having a difficult time finding people in your target market to talk about the idea. I think that there’s two, different pieces that come into play there. One of them is that you don’t even really know what your target market looks like, so you don’t know the type of people that are going to use it, whether it’s realtors or real estate developers. Obviously, those two are different things, but they’re related. So, you might have an idea of who you should talk to, but if you’re having a hard time getting them on the phone or getting them to give you any sort of attention, then that right there is a signal that you might need to just take a step back and reevaluate where you’re at.
Rob [00:09:31]: It’s important to have at least an idea up front how you’re ultimately going to sell this product; because if the product requires you to do high-touch sales, then you’re going to need a very high price point, which means it’s going to be more of either enterprise pricing or at least several hundred dollars a month if you’re going to have to speak to everyone on the phone before you close them. And if you are selling to realtors, or lawyers, or more non-technical brick-and-mortar stuff, the odds are that you are going to need that several-hundred-dollar price point. It can scale really well, but you need to know that you’re going to be talking to folks. And like you said, if you’re having a difficult time, whether it’s through cold calling, or whether it’s doing some type of inbound lead gen and talking to them on the phone, and you’re not able to get them up front just to validate the idea, then imagine how hard it’s going to be once you’re actually trying to sell them something.
[00:10:18] The same thing goes if you’re going to sell online. If you want to set up a landing page, you do some SEO, or do some pay-per-click ads – whatever you’re going to do to drive traffic to that – you’re going to know pretty quickly whether that traffic’s converting, if you have a nice headline and you’re offering something in exchange for an email address, even if that thing is just a sneak peek at the product, or early access, or whatever it is. And, again, if you’re having trouble driving traffic to that or getting people to convert, then imagine how hard it’s going to be once you actually have a product. This kind of plays hand in hand with validation. It’s can you even get people interested.
[00:10:48] So, if you can’t get over the hurdle of just finding people who are willing to talk to you about the idea, then it’s probably not enough of a pain point either. There’s one of two things happening. It’s not enough of a pain point for them, or you’re just really bad at this, in which case you need to get better. And you need to identify which of those it is, but I agree that this one is definitely not a good sign.
Mike [00:11:08]: The third sign is that you find it difficult to describe the idea or the value proposition quickly and easily. I don’t think that this in and of itself is a deal breaker, because early on you’re not necessarily going to have the best handle on exactly what that is. Sometimes you fully understand what the value proposition is, but you make that pitch to people, and they don’t care. Unless you’re going back to number one, if you’re avoiding talking to people, even if you have a solid value proposition for it, if they’re not really that interested in it, it doesn’t really matter what you come up with because they’re not going to buy it anyway. So, you really have to be careful that you can describe that idea in a way that doesn’t confuse people; because if people find the idea confusing and you’re talking to them over the phone or in person, how confused are they going to be when they hit a landing page or a website? You really have to be able to target those things in, because you have much less time to explain it to people. When you’re talking to somebody one on one and you have them as a captive audience, it’s a lot easier to convince them to give you a little bit of extra time to explain it, but on a website you don’t really have that option. So, you have to be able to narrow it down exactly what it is that you’re offering and what problem you’re solving. And, again, this just takes time. It’s going to take some of those conversations to really narrow in exactly what it is that you’re talking about.
Rob [00:12:24]: Ninety-nine times out of a hundred, you will not get the value proposition right the first time. It’s just too ambiguous and amorphous until you’ve talked to dozens of prospective customers and really understood the language that you’re using and really understood where they’re at in terms of their understanding of this problem; because if you come in and you start talking right away about SEO, or email marketing and DNS, or marketing automation – I mean you throw these terms around – a lot of people have no idea what they mean. Suddenly, you’re going to realize, “Oh. Calling myself ‘Marketing Automation for Realtors’ has no meaning for them, because they don’t even understand what that term means.” Maybe you have to say, “Boy, I have to start asking realtors, ‘Do you know what email marketing is?’” Maybe they don’t know what that is, so then you say, “Boy, do you know what Constant Contact is? Or, MailChimp?” You just have to seek which terms they’re familiar with and then piggyback on those in order to describe your product; because most people, when they see or hear about a new product, they try to categorize it in their head, and they try to relate it to products that they already know exist. Right? They try to figure it out in relation to one of those, so that’s what you have to do here.
[00:13:25] You’re highly unlikely to get this right the first time; but you start with something, and then as you talk to these prospects, you’re going to hone that value proposition, and you’re going to arrive at something where you start saying it, and eight times out of ten, it really resonates with people. That’s when you know: a) you’ve made a bunch of progress, because you have a clearer idea of what people want. You’ve written the headline for your home page, probably, and that’s how I would look at it, and you’ve done a lot of learning. Even if you haven’t validated the idea fully, you at least know how to describe it now – which is a big step.
Mike [00:13:57]: The fourth sign you should kill an idea is that you’re having a difficult time identifying a specific group of people who will use it. By this, what I really mean is that if you can’t narrow down the type of person who would use this — you can’t put together a customer avatar for them, so you can’t say, “Oh, it’s somebody who works in a company from 10 to 50 employees, who works in the accounting department,” for example. That would be a good mechanism for identifying a specific type of person, or a specific group of people. As soon as you start out with, “Anyone who,” and you’re not able to really narrow down to being able to say, like, exactly what I just said about the person in the accounting department in a small company; if it’s just, “Anyone who works in an accounting department,” that is going to fall over on itself some point along the way.
[00:14:40] If you are having a hard time differentiating between multiple groups of people and you’ve got maybe three, or four, or five different categories of people who could use it, then you really need to start digging a little bit further and identify one of them, or the one that you think is the most likely to be a good candidate and then validate whether or not they are a good candidate or not. I don’t necessarily think I would worry too much about which one is the best candidate, over finding one that is a reasonably good candidate.
Rob [00:15:08]: And our fifth sign that you should kill an idea is really a list of general disqualifiers. So, this is not something that you’re doing during validation, but more of just some not-to-do’s, especially if you’re a bootstrapper trying to validate an idea. I’ve seen some of these. Jason Cohen talked about them in his MicroConf talk a couple years ago. We’ve mentioned several of these on the podcast. You had them in your book. I have them in my book. These are things that I think overall are just anti-patterns for trying to bootstrap a startup, so early on in validation, if you find yourself doing one of these, the sign is not good for you.
[00:15:41] The first one is that you’re not able to directly charge your customers, meaning that – now, again, this is for bootstrappers, right? If you’re going to raise 10 million bucks, then that’s fine. You can try to do an ad revenue model, or you’re going to take a tiny, 5 percent cut off of each transaction. You go do that. But if you’re trying to bootstrap off of revenue, you really need to think about directly charging your customers, because you just need so much more revenue. You need to provide so much more value to a smaller group of people rather than looking to make a dollar per month off of 10 million users.
[00:16:09] The second disqualifier, or negative signal, is to try to develop a two-sided market. It’s not impossible, but it’s really hard to do as a bootstrapper. There’s so much work involved, and you basically have two marketing efforts. You’re trying to bring in the supply side and the demand side. So, trying to bootstrap Uber, as an example, or bootstrap eBay – which I know they did for a very, very short amount of time – it would be nigh impossible at this point. That’s why these guys do raise buckets of capital, tens and hundreds of millions of dollars to develop both sides of a marketplace. So, for bootstrappers, something we definitely do not recommend. The other problem with two-sided markets is you’re typically just taking a little cut – let’s say 10 percent, 20 percent – of that revenue. Unless you’re at scale – meaning tens of millions of users – you can’t make enough money to keep the doors open.
[00:16:43] The third negative sign of these general disqualifiers is you’re dealing with difficult customers, really enterprise customers, government customers. Education tends to have very long sales cycles. Consumers often have a lot of support. Consumers it’s not a “never do that,” but it’s not a great sign. You typically want to be dealing with small and medium size businesses. It’s kind of the rule; and, hopefully, if they’re online, even better, if you have those skills.
[00:17:17] The fourth one is don’t try to build a social network. What’s funny is – you know, I’m on Cora pretty frequently kind of looking around, and there’re so many people that are posting like, “I have the idea for the next Facebook. What should I do?” And it’s crazy. I think in our circles, it’s just understood you should not do this, namely because it tends to be difficult consumers. See one above, that I just talked about. And you’re not able to directly charge customers, so it’s kind of a tiny, tiny ad percentage revenue model. Most importantly, you just need tens, if not hundreds, of millions of dollars to even have a shot at this; and the odds of it succeeding are infinitesimal. Just because something’s popular or hot today, and we see everybody – you know, the Instagrams and let’s say a Whatsapp – I know it’s a messaging app, but there’s a social aspect to it – and Facebook and Twitter and all that stuff – you don’t go there. Just don’t go there if you’re going to bootstrap. You’re going to need to raise funding.
[00:18:03] The last one is, frankly, if it doesn’t have a revenue model; or, more commonly, if you have multiple revenue models – and that’s the worst thing. I’ve talked to folks. See, I’m starting to do a little more angel investing these days, and I’ve talked to a few folks who have three or four different revenue models. It’s like, “Well, we’re going to do ads, and we’re going to have a premium marketplace, and we’re going to have a this and that.” For me, I like to keep it simple. Especially if you’re going to bootstrap, or just raise a really small amount of funding and do the fundstrapping route where you’re going to get to profitability, if you pick multiple revenue models, it’s not a good sign, in general – unless you really know what you’re doing; because just like having a two-sided marketplace, where you’re trying to market to two groups of people, having multiple revenue models means you have to manage and maintain all of these things. You have upsells all over the place. It becomes very, very complex to manage and to actually close some of those sales. The simpler you keep it, especially early on, when you’re low revenue numbers, the better off you’re going to be.
Mike [00:18:56] I think the important point to keep in mind about all those general disqualifiers is that you may try to avoid them up front, but you also may find out through your discovery process that the path of, quote-unquote, “least resistance” is actually through one of those disqualifiers. At that point, you really need to take a step back and say, “Okay, now what do I do?” And if you want to go the funded route, then that’s perfectly fine; but if you’re going to try to go the bootstrapped route, it’s probably not a good idea to keep going in that direction.
[00:19:24] The sixth sign you should kill an idea is that you’re having a difficult time identifying a common problem among the people that you’ve spoken to. So, for example, there’s a lot of heavily fragmented markets out there, including help desk software, bug tracking software – those types of things. If you start asking those people, “What do you really need from the software? What is it lacking?” chances are really good that you’re not going to find a lot of commonality between those people. There’s just a lot of different products on the market that do those types of things, and it can be very difficult to identify a small slice of the market that you’re going to be able to peel off and be successful in just because of the sheer number of competitors that are out there and the size of the people who run in your circles and the number of the people who you’re going to be able to talk to. So, if you can’t find a common problem among them, it’s going to be very difficult to get a product off the ground just because you can’t find enough of those types of people.
Rob [00:20:17]: The seventh sign is that people say it’s interesting, but nobody’s actually willing to pay for it. There’s different levels of “willing to pay for it.” Some people will just verbally commit, and you can trust that they’ll pay for it. Some will. Some won’t. You can take their credit card number, but not charge it. You can get a check from them, but not cash it. You can take their credit card number and charge for three months of service. Obviously, you let them know up front. So, there’s varying degrees, and I think we could probably do a whole episode on the merits of that. I think maybe we have done a whole episode on the merits of charging up front during validation versus not, but the idea here is that you really want to get someone to commit either by giving you money, or verbally committing to give you money. If no one is willing to do that, then it is definitely a bad sign for your product.
Mike [00:21:03]: The eighth sign is that you can’t see yourself working on this or being interested in this in the next four or five years because you’re doing it for the money. I think this one’s really hard to address directly just because of the fact that there are certain ideas out there that you look at, and you’re like, “Wow. I’m not particularly interested in this, but I think that there’s a lot of money here.” It can be very difficult to maintain the level of motivation that you need in order to be able to follow through with that and maintain it as long as you’re going to need to, because if it’s successful – and you want it to be successful – then you’re going to be working on it for probably a long time.
[00:21:37] Now, you could certainly get partially down the road and, assuming that it’s at least moderately successful, you could end up selling it off; but at the same time, you don’t necessarily want to sell something that is on a hockey-stick growth curve, for example. So, you do have to be a little bit careful about whether or not this is something that you’re interested in or not.
Rob [00:21:53]: The ninth sign is that you’ve spent more than a month doing customer development, and you still haven’t been able to answer basic, objective questions about the idea: who it’s for, the price range – the fundamental things you need to know to move to the next step. I think a month is a good, round timeframe. This is an arbitrary amount of time we’re choosing here, but a month is nice because even if you’re doing it on the side, it’s enough time to get something done and get some hard questions asked; but it’s not so much time that you’re going to do this perpetually.
Mike [00:22:24]: The tenth sign is that you can’t quantify how much the idea is worth to somebody. You can say that it either saves time, or it saves money, or it makes money; but unless you have a benchmark to measure that against, it can be very difficult to really understand what you should be charging for it. I think that there’s another side of it, too, which is what you believe it’s worth to people and what they believe it’s worth. Those two things, hopefully, will intersect; but there are occasions where those things are just wildly different from one another. If your expectations for it are much higher than that of your intended market, then you have to think about whether or not that’s a direction that you want to keep going, because that’s a bad signal. If you’re expecting to be able to charge $500 a month and people are only willing to pay $50 a month, you have to think about, “Well, is there additional value that I can add that will make it a $500-a-month product?” Or, is there just really nothing that you’re going to be able to do? You can either accept that it’s a $50-a-month product and go down in that direction, or you can walk away from it and go find something else that is going to be in that level.
Rob [00:23:24]: The exception to this is if you’re doing business-to-consumer stuff, because there can be a lot of entertainment, or other aspects that it doesn’t necessarily save time, make money or save money; but you’ll notice that, in sign five, we talked about “don’t do business-to-consumer stuff.” That’s why we’re focusing here on actually quantifying what the idea is worth.
Rob [00:23:42]: The eleventh sign is that you’re finding it hard to be objective. In other words, getting emotionally wrapped up in an idea, kind of like an “I’ll show you I can do it” attitude; or, instead of trying to disprove the hypothesis, pushing really hard to try to prove the hypothesis and really forcing it and looking for any way that you can find an affirmative answer to the theory that you’ve posed.
Mike [00:24:03]: I think that’s very difficult to do is to be able to look at that objectively enough to try and not prove yourself right, but to prove your theories wrong. I think it’s a different way of looking at it. I think it was – Heaton and Steli talked about this on the Startup chat about validating and kind of a popular misconception around Lean Startup, which is simply trying to prove different hypotheses wrong and not be emotionally attached to them. I think that in certain cases, especially if you are invested in an idea because you have this particular problem and you say, “Oh, I know exactly how to solve this, and this is how I’m going to do it,” it can be very difficult to separate yourself and your own ideas about how to solve that problem from those of the people who you are supposedly trying to serve; because it’s the people who you’re trying to serve that are going to be paying you – not you.
Mike [00:24:49]: The twelfth sign is what people want is something that you can’t deliver. There’s certainly going to be times where you’re doing customer development and you’re talking to people, and they say, “Hey, it’d be really great if you could do this.” For example, if you’re dealing with stacks and stacks of paperwork from the government, for example, and somebody needs to go get something notarized and there’s no electronic equivalent of a notary, for example, it could be very difficult – virtually impossible – to get that done if there’s no electronic equivalent. So, either you have to find a way to manually handle that particular process, or you have to just say, “Look, I can’t do this. Maybe there’s somebody else who could.” Or, if they had millions of dollars, maybe you’d go out and get some laws changed, for example; but it may be bordering on impossible to get certain things done.
[00:25:34] There are certain a lot of other examples as well. For example, if you’re building software that will integrate in with a platform and you don’t have direct access to that platform, that’s another place where it may be technically possible to do it; but for you it’s going to be almost impossible just because you can’t deliver something like that. Another one that I’ve heard a lot of people in different circles complain about is the fact that when they start building on certain platforms, those platforms can change underneath them. I think Twitter was kind of notorious several years ago for constantly changing the rules about how they operated and how people would integrate into their systems, and it just made it very difficult to build additional products that would hook into Twitter just because they would change the rules all the time.
[00:26:13] So, if those types of things are going to cause you an extensive number of problems and you’re not ultimately going to be able to deliver the experience that people are looking for, then that’s also a negative sign.
Rob [00:26:23]: Another good example of this recently in the bootstrapping community is Justin Vincent from Texting was validating an idea, and it had something to do with transcribing meetings for development teams. People seemed to really want it, and he described it, and they liked it; but the technology wasn’t there. He wasn’t going to himself write the transcription engine. He wanted to use an off-the-shelf one, because obviously you’d have to be an expert in voice transcription. He went and used several different APIs, and none of them could do it. So, frankly, what people wanted was something he could not deliver at this point.
[00:26:52] Maybe in the future, transcription software will catch up, and he’ll be able to launch the product, but for now he said he just had to shut it down, because he couldn’t get the results that he wanted in order to actually have people pay for it.
Mike [00:27:02]: The thirteenth sign you should kill an idea you’re validating is that you’re not learning anything new. If you have come to the conclusion that the people that you’ve talked to have essentially told you all the things that you could possibly learn, then it’s time to either move on to the next step of validation or walk away from it. I think that applies more to moving on to the next step than it does to walking away from the idea; because if you’re having, let’s say, 20, 30, 40 conversations with people and you start hearing the same things over and over again and you’re simply not learning anything new, then at that point you’ve got the information that you need in order to make a decision one way or the other.
Rob [00:27:38]: To recap our 13 signs you should kill an idea you’re validating. Number one was you’re avoiding talking to prospective customers. Number two, you’re having a difficult time finding people in your target market to talk to. Number three, it’s difficult to describe the idea or the value proposition. Number four, you’re having a difficult time identifying a specific group of people who will use it. Number five, we gave general disqualifiers about several factors that make an idea very hard to bootstrap. Number 6, you’re having a difficult time identifying a common problem among people you’ve spoken to.
Mike [00:28:06]: Number seven is that people say that it’s interesting, but nobody’s actually willing to pay for it. Number eight, you’re interested in it just for the money, and you can’t see yourself working on it for an extended period of time. Number nine, you’ve spent more than a month doing customer development and still haven’t been able to answer some basic, objective questions about it. Number ten, you can’t quantify how much the idea is worth. Number 11, you’re finding it hard to be objective. Number 12, what people want is something that you can’t deliver; and 13, you’re not learning anything new.
Rob [00:28:30]: 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 261 | Interview with Nathan Chan of Foundr Magazine
Show Notes
In this episode of Startups For The Rest Of Us, Rob interviews Nathan Chan of Foundr Magazine about his journey to success and what he has learned along the way.
Items mentioned in this episode:
Transcript
Rob [00:00]: In this episode of “Startups for the Rest of Us,” I interview Nathan Chan of “Foundr” magazine. “Foundr” magazine is an online magazine, and Nathan bootstrapped this completely on his own two years ago, starting in about 2013. He was sued by one of the biggest magazine publishers in the U.S. within the first four months of starting. He’s gotten interviews with folks like Richard Branson, Ariana Huffington, Tony Robbins and Seth Godin; and he’s really stair-stepped his way up from not knowing what he was doing or how to do it into building a really solid brand and a profitable online magazine. This is “Startups for the Rest of Us,” episode 261.
[Theme Music]
Rob [00:47]: “Welcome to Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built you first product or you’re just thinking about it. I’m Rob, and today with Nathan Chan, we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, today I’d like to welcome Nathan Chan of “Foundr” magazine. “Foundr” is a tablet-based magazine, so on your iPad, or your android; or, I’m assuming you probably get it on – can you get it on Kindle Fire as well?
Nathan [01:14]: No, you can’t.
Rob [01:15]: Okay.
Nathan [01:16]: You can’t, but you can get it on mobile, too.
Rob [01:18]: On mobile. Okay. You can download the Founder app. It’s spelled F-O-U-N-D-R, and Nathan has somehow been able to secure interviews with some pretty amazing people: Steve Blank, Richard Branson –
Nathan [01:31]: Ariana Huffington, Tony Robbins, Seth Godin –
Rob [01:34]: – very nice.
Nathan [01:35]: – various – many more.
Rob [01:36]: He’s a bootstrap startup founder, and that’s why I wanted to have him on the show, just to talk about his experiences. The magazine’s been out since 2013. He’s learned a ton on his journey, and so although listening to this podcast, you may be thinking, “Well, I’m not going to start a magazine,” there’re so many lessons that Nathan has experienced and learned through his time that we’re going to dive into over the next 30 minutes.
Thank you so much for joining me today, Nathan.
Nathan [02:00]: Thank you so much for having me, Rob. It’s an absolute pleasure. I’m a massive fan of the show.
Rob [02:04]: Very cool. Talk to us a little bit about “Foundr” magazine: why’d you start it, and maybe give us maybe a little background about what it is and what the goal is.
Nathan [02:12]: Yeah, sure thing. I started, actually, Foundr while I was working my full-time job. I bootstrapped it, as you mentioned, from the ground up. I actually didn’t even leave my day job until I fully replaced my income, and that’s something that a lot of people don’t do. They usually go cold and just leave their job and just make it work; but for me, I’m a very risk-averse person. It all started because – also, you mentioned that “Foundr” is my first business. I’ve never ran a business before, and it all started from just the curiosity of always wanting to become an entrepreneur and not really knowing where to start, what it takes; and also the fact that I identified that there wasn’t really a publication out there – an entrepreneurial, business publication – that myself, as an aspiring entrepreneur, could relate to. I think magazines like “Forbes,” “Entrepreneur,” “Fast Company” – these are great magazines, and they produce great content, but I found it difficult to relate to. I think they go on the assumption that you’ve already started a business; or, you already have a business; or, you’re an experienced, accomplished entrepreneur, and I found it quite intimidating. I knew that podcasts were really not, and I also realized that there wasn’t really a magazine targeting the younger demographic as well – nothing that was known. So, I just thought to myself, “Well, let’s just give this magazine thing a try.” We launched just on the iPad while I was in my day job, and I said, “I’ll give it a good, hard crack for a year.” Then I built it up, left my job; and, yeah, here we are today. But I guess the magazine just stemmed from just my own curiosity and wanting, I think, to fill that void in the marketplace that I identified.
Rob [04:04]: Very cool. To give folks an idea of where you were at, you were basically working a full-time job. You bootstrapped this. You didn’t raise funding. Everyone who helped you work on the magazine is a contractor, you mentioned, so you have, I’m assuming, contract writers, contract photographers, contract designers and layout folks. I mean this really was the effort of one person and very doable. This type of thing is very doable by anyone – right – if you were able to pull it off?
Nathan [04:32]: Yeah, I think so, definitely. I’ll be very clear. We have a lot of people that are helping me behind the scenes, and we do have some full-time staff now; but, yeah, yeah. To pull it off it was just me, man, and just utilizing freelancers, contractors all around the world; and I think that’s the awesome thing about the Internet now.
Rob [04:50]: Yeah, for sure. This is really cool. You’re 31 episodes in. You started, it looks like, March of 2013. How did you get that initial kick-start? You probably spent months planning, designing, building that first issue; and you launch into the iOS App Store, I assume, the Android App Store at the time. What did you do? How did you try to find people and convince them to download the app?
Nathan [05:15]: Yeah. I remember the first day we launched, we had 70 downloads. I made $5, and that was the first $5 I’d ever made online [laughs].
Rob [05:24]: Wow. Very cool.
Nathan [05:27]: What I realized was I needed – I didn’t have any money, and we were bootstrapping, so I had to work out, “What is the lowest-hanging fruit?” I quickly worked out that one of the best ways for us to get more downloads – I kind of tracked it back. So, “What does it look like for someone to subscribe to the magazine?” Before that, they have to download the app. Then before that, how do they even find the app? I did all sorts of things – not too heavily, to be honest with you, Rob. I didn’t really do any social while I was in my day job, so it took me about a year to build up the magazine. For that whole year, all I focused on was shipping a monthly magazine every month and try and get as many readers as I could. I didn’t really touch social, didn’t really touch content marketing, couldn’t afford any paid customer acquisition; so, I really had to just took at my playing field and find, “What’s the lowest-hanging fruit?” “Where’s the starving crowd?” I identified if you have an app, one of the lowest-hanging fruits is App Store optimization. So, Google for the App Store, like SEO for the App Store. What I found was that there’s all these people looking for business-type magazines, and they’re searching for key search terms like “entrepreneur magazine,” “business magazine,” “startup magazine,” “startup.” So, what I got really, really good with was optimizing that whole funnel from finding the app to getting people to subscribe. I can tell you for a fact that anyone that first opens the magazine, we have a 30 percent uptake of people subscribing. Then from there, I can tell you, working backwards, that if you search for “entrepreneur magazine,” “fast company,” “Forbes,” we actually piggyback off all of those magazines. So, if you ever search for those magazines that you want to read digitally in the App Store or Google Play Store – not hardly ever our downloads come from the Google Play Store – I’ll be very clear – but in the App Store, if you search for that, any of those key terms, “Foundr” will come up. We play also on the fact that you get your free Richard Branson issue. We try and build that trust; make it a no-brainer; and, yeah, just take it from there. But App Store optimization has been massive for us, Rob.
Rob [07:47]: I like that, because I have this theory called the “stair-step approach” to bootstrapping, and typically it involves launching a small product with a single marketing channel that you get really good at, then expanding into others and moving up this ladder. Typically, it’s with different products; but it sounds like with Foundr, you launched it, and you got really good at App Store SEO and, for lack of a better term, and then you branched out from there. I’m assuming by this time, you’re doing social. You’re obviously doing podcasts to promote it and other avenues, but when you started out, just getting that single tool on your tool belt can be so valuable for a first-time entrepreneur.
Nathan [08:22]: Yeah, I agree. That’s pretty spot-on, Rob; because it was only actually when I left my job we went down the content path. We used to have a really crappy website. It was terrible. It was just a basic landing page to keep Apple happy; but, yeah, once I left my job, it actually freed me up to focus on the content marketing page, roll out the podcast and roll out social. Yeah, we’re kicking some goals with social now, like the stuff we do with Instagram. We’ve got an email database of 100,000 that we built in a year from 3,000. A lot of that traction’s come from Instagram. We’ve found a few other channels now as well.
Rob [08:56]: That’s pretty impressive. You said you built it on Instagram. Obviously, Instagram is heavily image-based, so was that pieces taken out of the magazine, like different pages or different stories that you’re putting up there?
Nathan [09:06]: Yeah. What I’ve found with Instagram is – same with all those social channels. If you go and look at “Entrepreneur” magazine, “Fast Company,” “Forbes,” a lot of them post quotes on Twitter, or Facebook. We do the same in Instagram. We post, like, 95 percent quote; and we post a little bit about the podcast, a little bit about the magazine, a little bit – it’s a very small portion – behind-the-scenes stuff. But the quotes work really, really well because they have that virality where people tag their friends. They share it. They screen-shot it. They repost it; and that’s worked very, very well for us.
Rob [09:39]: Yeah. See, I like this because anyone can take lessons away from this. Again, if you’re listening this, you’re not starting a magazine, per se, you hear what Nathan’s done as a first-time entrepreneur: a) he shipped. He just said, “I’m going to ship for a year, and I’m going to get 12 issues out, and I’m going to figure it out along the way. Then he focused on a single tool in his tool belt – it was this App Store optimization – and then expanded out from there. You’re now talking virality, which is how you went from 3,000 to 100,000 email addresses; and although Instagram may not be the particular channel if you’re running a B-to-B app, or if you’re doing other things there’s always byproducts. You’re basically taking byproducts of something you’ve already produced, which are quotes out of the magazine, which is your finished product that you’re selling. You’re taking these byproducts and figuring out where they’re going to catch. In your case, it is Instagram; but I can imagine for other apps there’re going to be other approaches. This is good stuff.
Nathan [10:29]: Yeah, I think it’s all about just, yeah, shipping every – producing something consistently every, single week; every, single day; every, single month and just focusing on it and just having a relentless ability to attack whatever it is you’re focusing on if you get a little bit of traction and just scaling that up.
Rob [10:48]: Speaking of scale, at this point, how many monthly readers to you have at this point?
Nathan [10:51]: We have 25,000 monthly readers.
Rob [10:53]: Got it. Looks like you have multiple channels now. You have the magazine, which is obviously your flagship. You’ve started a podcast. Are you interviewing folks that are also appearing in the magazine?
Nathan [11:05]: Yes. What we do with the magazine – and I didn’t realize this until later, but one thing we do is we do these interviews on Skype, just like me and you are doing, for the feature interviews in the magazine. Now, we’re actually repurposing – because we actually imbed those interviews within the magazine. What I realized after a year was I’ve got all these amazing interviews with all these super successful founders and hard-to-reach founders. Why not just get our best ones and put it out into the world with the podcasts? I know it’s a great tool, a great platform. I always said I didn’t want to do a podcast, and that was how we were going to differentiate ourself, and the podcast has really taken off. It’s been an amazing trust builder, so now it’s just like another, I guess, latch on our tool belt to build our platform, to build our reach and to spread the mission and the word of just really promoting entrepreneurship and showing people what it takes.
Rob [12:00]: Very cool. I’m curious. Do you do much of the writing in the magazine yourself? Or, is it all hired writers?
Nathan [12:05]: Yeah, no. We have a part-time editor who now helps with all of our content that goes out, because we’re pumping out a lot of content now, man. So, yeah, Tate, he’s from Boston. He manages all that, and then we have tons of contractor writers – you know, 15, 20 contract writers. I only write the “Editor’s Letter” –
Rob [12:24]: Got it.
Nathan [12:25]: – but in the early days when I first started and it was costing, like … oh, my God, man. It’s funny, thinking back. Operating costs to produce the first few issues was under $500 –
Rob [12:37]: Wow.
Nathan [12:38]: – and, yeah, I had to do some of the writing. I was getting my mom to help me do some stuff.
Rob [12:42]: Sure.
Nathan [12:42]: I was getting friends to help me do some stuff; but, yeah. No, long away from the writing and touching that now.
Rob [12:47]: Yeah, you were scrappy and lean at one point, and now you have to be –
Nathan [12:51]: [Laughs]
Rob [12:52]: – no, you have to be sane. You can’t work 80-hour weeks anymore. So, very cool. And then you’ve also branched out. I think folks will find this interesting. You’ve also branched in now to creating a couple of knowledge products, or information products. One is about marketing on Instagram.
Nathan [13:06]: Yeah, we have a crowd funding guide, but that’s just like an eBook that is very well-curated.
Rob [13:11]: Right, so you’re taking a little bit of a push into that area, right? What made you decide to start selling info products as well?
Nathan [13:18]: Yeah. What I realized was – the magazine was doing well, you know, a profitable, six-figure business – just the magazine alone. What I realized was a lot of people started asking me – because we were using Instagram as an amazing channel to grow the magazine and to build our awareness and reach and email database. What was interesting was I wrote this blog post and, still, to this day, it’s one of the most successful blog posts on our site. It was titled “How to Get 10,000 Followers in Two Weeks on Instagram,” and that just crushed it, man. Neil Patel always references it, all sorts of things. All these people would come up to me, and they found that blog post. What happened very quickly was a lot of people started asking me how I was doing this stuff, and then a lot of people started asking me to do consulting. I was like, “I don’t really have time.” “I don’t really want to focus on that.” I thought, “Why don’t I just create a course?” So, I just put out to our email list an email saying, “Guys, would this be something you’re interested in?” Even though our database was around 5,000, 7,000 at the time – this was very early, because we got some really great traction early on with Instagram within the first couple weeks. People were just like, “Yeah, I’d love” – hundreds and hundreds of responses from people writing back to me in our community. So, this was something our community as asking for. I launched a beta, and then we relaunched the full course, and then it’s been really, really lucrative for the business and also just the community that have signed up to the course, it’s amazing some of the results our students are getting. It was something that I was just like, “Wow! Okay, so this is something that our community wants. It’s something our community is asking for. They’re asking for more help,” and I’m constantly getting asked about all these other things around starting a business, how to scale – all these other things. So, what I’ve realized is “Foundr” is the front end of the business, and then we can further monetize and build it up for the back end. I’ll be very clear, Rob. I won’t be doing the teaching. I’ll have many other experts coming in, and we’ll be doing curated courses using the publishing model, where I offer somebody an opportunity to either white-light all their content, or their video course that they have existingly. Then we package it up in the Foundr way with our tools, with our platform, with our systems. Then we do a deal, like an ongoing profit split. That’s the model we’re going to scale up. So, “Foundr,” podcast, blog content, social content, all on the front end. Right now, 95 percent of our content is free; and then if people want more help, it is there. I speak to a lot of people in our community. I actually jump on the phone whenever I can and just find out what their biggest problems, frustrations, desires are. A lot of things I’m hearing is people are saying, “Nathan, we love the stuff you’re producing. We love the free stuff, everything you’re doing; but sometimes we just need more help,” “Need more help.” Like, “I want to try this.” “I want to do this.” “I want to do this.” People always love that handheld content if they don’t have time to stuff around, or – you know, a lot of people just want their hand held. So, I think this industry, the online education industry is a multi-billion-dollar industry; and I think we’re now better equipped, then, to tap into that.
Rob [16:44]: What I like about the approach that you’ve taken is the common approach for building an audience these days is to start a blog or a podcast; and then you build the audience up, you find out what they need, and then you build products for them. You’ve taken a different approach and started a magazine, then made that profitable and then are looking at basically these content upsells. I’ve seen a few others. I know “Entrepreneur” magazine has their book line, and they have some events that they throw. I guess a lot of magazines wind up throwing events in order to do it, but I do like this hybrid model; because – let’s be honest – just purely publishing a magazine or a newspaper these days, even online, is not a growth business, per se. People expect the content to be free. I know they do pay for yours; but it’s going to be very, very difficult to build that into, let’s say, a $10 million business, or a $20 million-dollar – I mean you just can’t get to the scale. Whereas, adding these upsells and actually charging money for really valuable information and being able to charge a premium for these courses that are put behind your brand name – because your brand name obviously has a lot of equity with the folks that are reading our magazine and respect what you’re doing. Then, if you can place that on front of some $19 eBooks at this point, and then maybe it’s a $100, $200 video course, maybe at some point you throw an event – that’s where you’re going to be able to really grow this business and increase your revenue.
Nathan [18:03]: Yeah, I agree. Look, don’t get me wrong, Rob. I’ve got my eyes on building an eight-figure business. I think we can do it, do be honest with you, probably in a couple of years. That’s my goal. Now, it’s all about just finding out further ways to serve our community; just keep producing epic content; and, yeah, just rolling out and serving as many of our people in our community as we can and just producing more epic content, whether that’s paid or free.
Rob [18:28]: Very cool. I’m interested to hear how – you started this magazine from scratch. You were, in essence, kind of an unknown, I’ll say; and within eight months, your eighth issue, you have Richard Branson on the cover. In fact, your sixth issue has Neil Patel. You got Ed Dale in issue two. You got some big names early on. How did you possibly pull that off?
Nathan [18:51]: Yeah. One thing I realized, Rob – I didn’t know this when I started, but having a magazine is very, very powerful for building authority; and people take you really seriously. Some of the people we’ve got lined up for 2016 for our covers is crazy, like really, really hard-to-reach founders. I don’t know if I can say, but we’re talking to billionaires and stuff like that to get on our front covers – more billionaires, not just Richard Branson. Yeah, people take you really seriously, Rob; and you have a little bit more weight as opposed to having a blog or a podcast. I didn’t realize this until – it took me a few months to work this out, because if you actually look at the front cover of the first issue, Rob, I didn’t even have a successful person on the front cover. I had a stock image [laughs], and that’s kind of funny, looking back; because now we don’t have any problem. The reason we had that stock image was because no one would get back to me, but I just kept pitching, man. I just kept hustling, and within the first four months, I realized, “Richard Branson’s been on the front cover of every, single business magazine. Why can’t he be on the front cover of ours?” I just went down this path of finding out how to contact him, and I made a lot of phone calls. One thing: if you want to get any ambassadors for your brand, well, here’s a few, quick hacks for people that I know all you guys that are listening are going to love. One, make phone calls. I found that they get so much better cut-through, if you want to find ambassadors for your brand, if they’re an influence in whatever niche you’re in. If they have a book, try and contact the publishers. Find out who publishes that book, like Random House. Find their PR team. Speak to them and then try and find either the company’s PR team, or the agency that represents that person or company’s brand – their PR team. Then just try and find those people, because they’re actually paid to find press, so they can make you look good whatever kind of mutually beneficial exchange in value you come up with. Then I found myself about four months into the magazine on the phone to Sir Richard Branson’s head of PR. I pitched her over the phone. I remember I was so nervous. I was stumbling, and she said, “Look, please understand we get, like, ten requests a day; but shoot me an email. I promise I will get back to you. It might be a while, but I will get back to you.” I pitched for a Skype interview, and she said, “Sir Richard’s really busy, but he can do an email interview.” Then from there, his team worked with me to get the photos, and we come up with a feature, and we ask the questions. We get the answers. Then we come to a story, an angle; and then from there, to be honest, Rob, that was Richard Branson. Then I’ve just used that as a springboard to gain influence in the space. Yeah, just keep pitching, man. I’m just very, very relentless and very organized now, too. We’ve got up until June 2016 covers booked with some very cool, hard-to-reach founders. They’re going to be amazing interviews, hard. It’s going to be really solid content. Yeah, I’ve just played on that springboard. Another good tool that I use in my arsenal, if you are pitching over email, is a Gmail plugin called “Rebump.” Because you come from an email marketing background, you might know of it. It’s amazing. It allows you pretty much to just “set and forget.” When you are pitching business development style, you send an email. You get the Gmail plugin installed on your Gmail, and then you tick that little box. Then there’ll be literally, like, templated emails that will follow up; and it knows, because it’s connected to your Gmail, if somebody writes back and just flat-out follows up for you. That works very, very well.
Rob [22:39]: Yeah, I use Boomerang for that –
Nathan [22:41]: Yeah.
Rob [22:42]: – but it doesn’t automatically follow up. It just boomerangs it back in, and then I have to do another reply; but that’s what I commonly use. I think that’s a really good tip. That ties back in with something Steli Efti was saying. He’s kind of the master of startup sales, and he was saying that at MicroConf last April – basically, that you just have to follow up. Oftentimes, he wouldn’t get a sale, or wouldn’t get an answer until he followed up 15, 20, 30 times; but the people who are doing that are the ones that probably are the ones that are getting Richard Branson and Daymond John and Seth Godin and Tony Robbins like you are. I’d imagine these days, though, with all the issues you have and with all the people you can mention that you’ve already interviewed, you just have such credibility that I bet – when you emailed Seth Godin, was it even that big of a deal? Or, did he say, “Sure, I’ll just come into the magazine”?
Nathan [23:27]: Yeah, you got it spot-on, Rob. I just had to build it up, just build up that credibility and just keep – I used Richard Branson as a springboard. Yeah, with Seth Godin, it was pretty much I emailed him; and then he emailed me back in the morning, saying, “Can you do it in two hours?” I was like, “Yeah, [?].”
Rob [23:43]: That’s great.
Nathan [23:43]: So, we had the podcast interview; and, yeah, it was really cool; really, really fun. Great guy.
Rob [23:48]: Yep, that’s what I’ve heard.
I want to wrap us up on this final topic. You told me offline that you were sued by one of the biggest magazines in the first four months of your starting. Obviously, you lived to tell about it. Talk to us a little bit about what happened there and how you recovered. I’m definitely interested to hear how you felt during that time.
Nathan [24:09]: What happened was – it’s funny, looking back. We were just talking about this offline. It is not a very nice feeling to be sued, especially when it’s your first-ever business, and especially when you have no money and you don’t never, ever in the world ever expect that to happen. Just always play it really smart. Don’t ever think it won’t happen to you, because it might. You just never know. What happened to me was the magazine actually wasn’t called “Foundr.” We had to change it four months in. I remember we’d just locked down the interview with Richard Branson, and I was just thinking, “Wow. We’re kicking some [grows?].” Then I woke up in the morning about 7 a.m., about to go to my day job, and I checked my email. I got this email from this lawyer saying, “Hey, Nathan. I’m from so-and-so. I just want to know if you weren’t aware. You’re being sued by this company. They’re one of the biggest print magazines in the States.” He said, “Yeah, I just wanted to let you know you’re being state in Dallas, State [of] Texas. You’re being sued by this company.” He’s like, “You probably want to move fast.” He’s like, “I actually have a really good relationship with the judge on this case, so you should totally get me to represent you.” [Laughs] And I was just like – 7 a.m. in the morning, I was freaking out. I was like, “Is this sophisticated spam?” I haven’t been served. I didn’t know what the hell was going on, man. You know, it was crazy! A long story short, I had to change the name. I’m so glad that it happened now when it did, because we got a ten times better name, ten times better branding. It was such a blessing in disguise; but at the time, Rob, I was so stressed out. It was really, really crazy. I was lucky enough I didn’t even have to pay any money just because I had some amazing mentors that helped me through that whole process. Some of my mentors had been sued before. We just changed the name, and they left us alone. It was, yeah, really a blessing in disguise, [a] great lesson to be learned early on. But for the audience, when it comes to trademark infringement, if you’re erring on the side of caution, just don’t even do it. Make sure that your name, your branding is very individual and unique. If you think to yourself that it might be a little bit similar, or it might be a concern, just, yeah, go down the path of making sure you protect yourself. I think that’s really important.
Rob [26:34]: Right. Then the other lesson – because I’ve heard from several folks who’ve had run-ins like this – is that when you’re contacted – in an ideal world, they wouldn’t have just sued you. They would have sent you a letter letting you know about the issue, and then – you know what I’m saying – and then send a [?] – I’ve had a friend who’s had a couple different WordPress plugins, and as it turns out, it accidentally infringed on trademarks of company names, because they were helping people use that company through WordPress. So, it’s a natural thing to include the name in there. But they’ve been nice enough not to just sue him. They sent him a letter. Typically, it’s an email. It says, “Hey, I’m in the so-and-so department. This has come to our attention. We want to work with you to help you transition,” you know? They don’t give some hardline. There’s two ways to go about this, right? You can come in swinging and be like, “My lawyer will be in touch!” Or, you can say, “Let’s work with you on this.” That’s the way that I think so many of these cases turn out, and I think it’s such a better approach to just be able to resolve it without going to court; because let’s be honest. If you actually go to court, the only people that win there are the lawyers. They get paid a lot of money, and even if you win in –
Nathan [27:39]: [Laughs] That’s right.
Rob [27:39]: – court, you almost never really win in court. There’s just not that much money that comes out of it for either side.
Nathan [27:45]: Yeah, that’s exactly right. And, look, dude, I had no money at all. So, [laughs] you know.
Rob [27:49]: Wasn’t gonna happen, yeah.
Nathan [27:50]: [Laughs] Yeah, that’s right. We weren’t really making much money at all, anyways.
Rob [27:55]: Yeah. Well, very cool. Thanks again for coming on the show. If folks want to keep up with you online, where should they look?
Nathan [28:01]: You’re welcome, Rob. Best place is just hit up our website: foundrmag.com, F-O-U-N-D-Rmag.com. Now you know why we spell it “Foundr” without the “e,” because there was no one in the world that had that name, so we can be protected.
Rob [28:19]: Very cool. Thanks again.
Nathan [28:21]: You’re welcome. Absolute pleasure.
Rob [28:23]: 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 on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we’ll see you next tim
e.
Episode 260 | What is the One Metric That Matters?
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the one metric that matters. The idea of focusing on one metric at a time, the metric that is helping move your business forward.
Items mentioned in this episode:
Transcript
Mike [0:00:00]: In this episode of “Startups For the Rest of Us,”
Rob and I are going to be talking about the one metric that matters. This is “Startups For the Rest of Us” Episode 260.
[Theme Music plays]
Mike [0:00:16]: Welcome to “Startups For the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [0:00:23]: And I’m Rob.
Mike [0:00:24]: 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 [0:00:28]: MicroConf 2016 in Las Vegas, the dates are set. We signed a contract, although we haven’t received the counter-signed as of today, but as far as we know, everything’s in place. Las Vegas, April 3rd through 5th. So if you’re interested in hanging out with about 200 of your closest founder friends, a lot of bootstrapped founders heading over there out in early April. Go to MicroConf.com, enter your email address. The tickets every year sell out way before they make it to the open market. So if you are interested in coming, you want to get on the list.
Mike [0:01:01]: You know, it’s always a little disconcerting talking to people about the dates before we have that counter-signed contract.
Rob [0:01:06]: I know, I know. I’m such a more conservative in terms of stuff, and I like to have everything signed and known, but boy, we’ve been talking to the hotel for months and the odds are pretty good it’s going to go through.
Mike [0:01:17]: Yeah, I think I even remembered that there’s a clause, kind of early on that they kind of throw in there that just says that if they kind of offer us right of first refusal. So if somebody else comes in and says, Oh, we want that date, they have to come to us first and offer it to us, or at least try and get something signed. But because we don’t have a counter-signed contract, I guess it’s, I don’t know, I guess it seems less official.
Rob [0:01:39]: Sure. Well it is, it’s not legally binding at this point. So feasibly there could be a screw up at some point, where they get our signed contract and go to hand it to whatever the VP in charge of signing contracts, and someone else hands him one for the same dates, and they’ve just totally screwed up. It’s within the realm of possibility. But knock on wood, this is what our eighth or ninth conference? And we haven’t ran into any major issues like that. How about you, what’s going on?
Mike [0:02:02]: Well, I’ve been doing a little bit more customer validation on the new idea I’ve been working on, and that’s been going well. I’ve had a couple more conversations this past week. And right now, something else I’m working on is I’m testing whether or not it makes sense for us to move Founder Café off of the Communifire platform and onto Discourse. So I don’t know how that’s eventually going play out, but so far it seems to be going reasonably well. I don’t know all the details of it. It’s kind of the unfortunate part. I know about half of it, because I don’t know the Discourse side of it, or Rails or Postgres. But I’ve got all the Communifire stuff that I’ve been working on. I’ve been working with a contractor to help with the other side of things. And we’ll see how things work out. I’m not real sure it.
Rob [0:02:45]: All right, cool. You mentioned that you’ve been doing a small amount of validation for your new idea. How come so little? I would imagine that you’d be fired up, cranking away on it.
Mike [0:02:55]: So what I did, when I was going through my validation steps, was every conversation I was having with people, I would basically just take a ton of notes during the conversation. And I’m starting to get, probably more towards the end of my list of people that I’m talking to, and I’m starting to hear the same types of things over and over again. So I’m going back through and I’m probably having less conversations now than I have in the past couple of weeks, but it’s more because I’m sifting through all that data I have to try and find overlap between different people and figure out exactly where to go. And I’m at the point right now, where I’m probably going to start – I am at the point where I’m starting to kind of draw up designs for what it’s going to look like and then take those designs back to them as kind of a double check.
Rob [0:03:37]: Is that your next step?
Mike [0:03:38]: Yeah, that’s what I’m working on right now is, as I said, just sifting through the things that they’ve told me, figuring out where those overlaps are and seeing what the lowest common denominator is that I can put in front of them that they’ll say, that they’ll still continue to say, “yes, I’ll pay for that.” And then kind of get the commitments from everybody to move forward.
Rob [0:03:55]: What’s your ETA on doing that?
Mike [0:03:56]: I’d probably say, I started working on the designs this past week, and it’s taken longer than I expected it would to go through some of those designs. So I want to say one week, but I’m guessing it’s probably going to be closer to two or three.
Rob [0:04:10]: Those things are always hard to estimate, kind of like building software. We’re working on some pretty cool stuff inside the Drip walls, and our end growth is continuing like as it has been for the last several months, things are going well. We’re actually hiring another developer, more of a front-end emphasis. And we just have so many features that need to get built, and now there’s even marketing stuff that I want to do where you just need some code and you need some design work and you need some Javascript and some CSS, so that it’s just enough that I can’t sit down and bang it out and I can’t get everything else done that I’m trying to do, so we’re probably going to hire someone and have him or her help do the majority of their time in hardcore development, but then also helping out with kind of marketing tasks, because that need front-end work and development.
Mike [0:04:58]: Cool. So this week, what we’re going to be talking about is the one metric that matters. And this is inspired by a couple of articles that I’ve come across online, one of which is from the Kissmetrics blog, and the other one is from leanstack.com, and then a third is from the leananalyticsbook.com. And all three of these articles refer back to the one true metric that matters. And essentially the idea here is that you should only focus at one metric at a time. And that metric is the one that is supposed to be moving the needle in your business. And we’ll link up all three of these articles in the show notes. But again, going back to this point, the idea is that you can track other metrics, but there’s one that’s going to be the most critical to you, which is going to depend a lot on the goals that you’re trying to reach at that time. So for example, the one key metric that I’m tracking right now is the number of prospect conversations per week. And because I’m kind of moving into the design phase, that’s probably going to change. But that’s the one metric that I was tracking over the past three weeks.
Rob [0:05:55]: And for me, I haven’t given it any thought in advance of recording this episode, and I guess we’ll see as we go through this if mine fits this criteria because I know we have some kind of does and don’ts of how to do it, but I would say it’s MRR for me. And so you might look at that as MRR growth, how much did it grow this month and is it going to grow more next month than last month. But really the one I look at is just MRR since it is a recurring metric itself, that’s what I have tended to focus on. And I think if I were to commit, of course, there’s everything then falls below that, right, of I could look at the trial count for the past 30 days. I could tell you if we’re going to grow and by how much at this point at the trial. The paid conversion and what we’re going to turn out and the upgrades and all that stuff. But the real focus that all feeds into, MRR.
Mike [0:06:39]: So the first thing we’re going to talk about is why? Why is it that we’re only looking at one particular metric? And the first thing to keep in mind is that these metrics encourage focus. If you only have one metric that really matters, then you can essentially ignore everything else that’s going on, whether – and in your case, for example, you’re tracking MRR and that’s the one metric that matters the most, then you can essentially ignore all these other things like the conversion rate and the number of visitors to your website. A lot of those things can just go right out the window because they don’t necessarily matter. And sometimes these metrics will play into one another and influence each other, so that’s something else to keep in mind when you’re looking at these metrics. And it’s especially important when you’re looking at something like MRR because all those things do essentially influence MRR, but not directly.
Rob [0:07:26]: Yeah, I would agree with that. I mean, I think being able to focus on one thing and not be distracted by trying to chase after a lot of things all at once is going to be a good thing. One point, early on, when Noah Kagan was building AppSumo, I had talked to him and we were talking about kind of what you’re focused on, it was like focusing on one thing. And at the time, I think I was doing, it was early in HitTail, and I was talking about, yeah, it’s just MRR I was focused on. And he said, I’m focused on growing my list. He said, it’s the number of subscribers total and the number of subscribers we’re adding each week or each day. And I remember thinking, oh, how interesting that he wasn’t focused on – there was not, he wasn’t focused on revenue, wasn’t focused on profit, wasn’t focused on deals per month, there’s a bunch of other things that you could look at, but at that point he knew that to get where he wanted to go, he had to build that list. And that’s kind of why I look at MRR as SaaS founder, is that to get where I want to go, I need to get that to increase. Now there’s a bunch of ways to do it, but it does give you focus. The other thing is it tells me what not to look at. As an example, I don’t, at this point, when we’re in heavy growth mode, I don’t look at profitability. Now, we are a profitable company, but I’m not measuring my success based on how much cash we can make in a month on a net basis. I am looking at that growth number as long as we are not doing stupid things like paying more than our customers’ lifetime value in order to acquire them or something like that. If you keep that in mind, I think that focusing on that one thing and then looking at all things that lead to it is a good way to go.
Mike [0:08:49]: And that’s the second on the list of why you should be looking at just one metric, because it helps narrow the field of things that you need to pay attention to. And even if you can’t pick just one, if it really boils down to like two or three, then at least it’s eliminated a lot of the other things that could potentially be distracting. If you’re looking at too many of these different metrics, essentially what happens is it just becomes noise, because it’s hard to get everybody to look at the same thing at that particular moment. If you have everyone looking at the same thing, then what it does is it helps create accountability for everyone. Everyone’s all focused on the same goal, and it becomes very easy to relate the different things that people are working on to the projects or the tasks that other people are working on.
Rob [0:09:30]: This also creates accountability for your team because folks can kind of focus on a single metric and then all be working towards a higher level metric. When I say that, to come back to the MRR example, that as a founder of a SaaS company, that’s what I’m looking to grow. But perhaps the person sitting next to me is working in marketing, her goal may not be to grow MRR directly. Her goal may be to drive more trials. I know that is going to feed towards the company goal of increasing MRR. But then she doesn’t have to look at her job and say, boy, how did I myself increase MRR this month? She can just say, I know I drove this many trials and directly measured that based on her efforts, so I think that having a single company goal as well as individual goals for each person or kind of individual metrics based on what they’re working on that they can directly influence, that all lead up to that company-wide goal, is I think a good way to do it. Or it’s at least something that we found success with at Drip.
Mike [0:10:24]: It also encourages people to kind of experiment within the guidelines of that because you can always look at something that is not necessarily related to that KPI and say, well, I’m going to do this A-B test over here. And that could be very well be optimize a specific part of your sales funnel, but it’s not necessarily related to your goal. And it’s not to say that doesn’t help the business in some way, shape and form, but if it’s not what you’re focused on, then essentially what you’re doing is you’re spending time improving something that isn’t directly related to the company’s current goals. So the next part of this process is figuring out which metric matters. And essentially, there’s four tenets of how to pick the metric that does matter. There are four pieces of this. There are things that you know, which are essentially facts. There are things that you don’t know, which are questions that you have, which you know the questions to ask. Then there’s things that you don’t know that you know. And those are essentially things that are driven by your intuition. You have a gut feel about something. And then the last one is probably the most mysterious of all these is those are the things that you don’t know, that you don’t know. And a lot of times if you start exploring these areas, this is where you’re going to find those unfair advantages. You’re going to uncover things that other people in the market haven’t really figured out yet, and those could substantially drive your business forward.
Rob [0:11:39]: I’m not sure I understand these four in terms of how they relate to picking that metric.
Mike [0:11:45]: So the idea with these four tenets is that essentially what you’re trying to do, is you’re trying to distill all of the things that you do know and that you don’t know into a mechanism for identifying the analytics and the metrics that you should be looking at. So for example, if you are able to directly measure what is going on in your website, the number of visitors that are coming, then you can interpret those as facts. So if you have Google Analytics installed you can, with giving some credit to Google for actually being accurate on all of this, you can look at that and say well, yes, I know that I’m getting ‘x’ number of visitors per month or per week to my website. So those are the facts that you know. And then there are things that you don’t know that you could answer by reporting, by saying, okay, well, we know that we’re getting this number of visitors to our website, how many people are coming over and viewing our pricing page, or visiting our pricing page and then going in and signing up for a trial? And for something like that, you might use Kissmetrics or Mixpanel or something along those lines. But those are questions that you have that you could ask that you just, you know the question, you just don’t know the answer because you haven’t gone and looked at the data yet. And then there’s things that you don’t know, that you know, which are things that you just have a gut feel about. So for example, you might say, well, I think that we’re getting a lot of our trials coming in through word-of-mouth. If your products are growing and your customers are telling other customers about it, then you might have an intuition about that. But you don’t necessarily know that, and it can be very difficult to figure out exactly how that’s happening without doing a lot of analysis of those people that are coming in and having direct conversations with those people one-on-one, for every single person who signs up for your service. And then the fourth category are the things that you don’t know, that you don’t know. And those are things that, honestly it’s going to change a lot based on your type of business, but you might find out that maybe you believe there is a viral component or that people were sharing a lot of information about, oh, you should sign up for this service and your customers were talking to other customers about it. But you may just find out that, oh, it was posted on some forum someplace, and you didn’t even know that that was a great way for people to find out about your service.
Rob [0:13:53]: Okay, cool, that helps clear it up. Finding the metric that matters also depends on what kind of business you’re in. If you’re running a SaaS app, maybe it’s MRR, maybe it’s MRR growth. Maybe if you’re at an earlier stage, it’s just trying to get some customers in the door, customer count. If you’re like in a collaborative or a community software company, maybe something like StackExchange or Reddit, then maybe it’s the number of votes, the number of comments, the number of new content pieces that are created for you by the community. If you’re a media company, maybe it’s the number of page views that you’re getting. If you sell games, maybe it’s the number of in-app purchases. Or if you sell apps and maybe don’t have direct access to your customers, you’re obviously going to have less data than if you’re dealing directly with folks, so maybe you sell a mobile app through the iOS app store, then you might have to look at a higher level thing, like the number of downloads of your free version and then the number of purchases or number of dollars coming from your paid version. And finally, if you have just a transactional business with like one-time sales, so maybe you have desktop ftp client, or you have invoicing software that someone can download and install and it’s not a subscription, obviously your metric is going to be different than a SaaS app, because you don’t have monthly recurring revenue. At that point, maybe it just is total revenue per month of total downloads of your free version, if those tend to highly correlate with getting more downloads and more sales of your paid version.
Mike [0:15:20]: The other thing that factors heavily into this is what stage of your business are you at. So are you really in the early, early stages where you’re just talking to people and you’re just trying to get attention for a landing page that you’ve put up. Are you actively having conversations with people and doing a needs discovery? Are you at the validation stage, where you are creating an MVP for the product? Or have you even gotten past that point and you’ve launched the product and now you’re looking at doing feature optimizations and implementing customer requests, or even further than that where you’ve got a stable app and you’ve hit product market and you’re really just trying to optimize the entire business, based on which of those stages you’re at, your metric that you’re looking at is going to change kind of dramatically from one stage to the next.
Rob [0:16:03]: Yeah, absolutely. I mean, if you’re pre-launch, then I’d say a big metric is how many email addresses can you get on that pre-launch list. If you have a few customers, beta customers in there early and you’re doing customer development, maybe it’s the engagement, maybe it’s like the amount of times they log in or the amount of features that they’re using. Or even like the number of features that they suggest that kind of fit within your vision. I mean, it could be as simple as that, when you’re trying to get to that next step, it actually comes easier and more clear once you’ve broken past, I’ll say product market fit, but once you know that you’ve built something that people want, it becomes easier because then you tend to just have a pretty straightforward metric that you’re trying to grow. It’s going to be probably revenue or trial downloads or there’s something there, but before that at each stage it’s going to be changing pretty frequently as you move between the stages.
Mike [0:16:53]: Right, I remember kind of a specific example from when Facebook was kind of building up in the early stages. One of their metrics was that they wanted somebody to sign up and add, I think the number was like 10 or 20 friends, within seven days. And those people were going to have a dramatically experience and be more “successful” with their product than the people who did not. So that was one of their key metrics that they used very early on. So it was very feature driven at that point. They said if somebody uses this particular feature which is just adding friends, then they will be more successful with the product, and we want to be able to identify those people and figure out how to get more of those people. So the next thing to think about is who is this metric for, you know, who is the intended audience for this metric? If it’s MRR, then it might be to management, but there are different metrics that you can track that could go to internal groups. It might go to the marketing team or the developer team. You might have metrics that you’re developing for investors or for the press, or as part of a marketing campaign. There’s lots of different reasons why you might have these metrics, but you want to be able to make sure that you are identifying these metrics for a very specific reason. And you want to know who those metrics are going to, because that’s going to make a difference. And the specifics of which metrics you’re tracking.
Mike [0:18:10]: So let’s start talking about what makes a good metric. And the first part of this is make sure that your metric is a rate or ratio, because those are going to be better than an absolute or a cumulative value of any kind. So, I’ll give you an example, from earlier in this particular podcast I talked about the fact that I was measuring the number of conversations per week. Now, if I were just measuring the total number of conversations I had, then that wouldn’t necessarily be a good metric. But the fact that I’m measuring them on a per week basis, I’m able to relate one week to the next and figure out whether or not I’m maintaining progress or declining or exceeding the expected rate.
Rob [0:18:51]: And I think it’s interesting to think about with the SaaS app, we never even talk about what’s the total aggregate revenue that the app has ever generated, right? That would be a very bad metric, that’d be an absolute number and it would grow every month, right, because as long as you have revenue coming in, you would just add it to it. And that number could be hundreds of thousands of dollars or millions of dollars, but that doesn’t give you a really good picture of what the business is doing because there’s no rate or ratio to it. So I think, if you think about MRR as it’s basically the recurring revenue that you have at the end of that one month, so that gives you kind of a rate there, and then I think growth, like MRR growth is a ratio as well, right, because it is the amount of new revenue, new MRR you’ve added compared to your total. And so, I know that a lot of start-ups look at their month over month percentage growth, and that’s a big thing that [YEC?] looks at and a lot of these accelerators look at. I personally don’t track, I’ve gone back and calculated it for particular purposes when the audience, whether I’m giving a talk or whether I know someone is actually looking for that number, it’s easy enough to calculate going back, that is not a key driver that I look at when managing the business, but that’s not a bad thing. I think if you are a startup like Paul Graham says, growth is everything, and so for them, even if you’re doing revenue growth, they probably lose sight of the absolute revenue because that’s less important than the growth and the rate of growth that they’re experiencing as they’re working on it. Because growth has a lot to do with whether or not you have traction. And traction has a lot to do with whether or not you’re going to be able to raise that next funding round. So if you’re in the V.C. space, the venture funded space, about every 18 months you tend to have to raise a round. And even if your MRR is going up, if your growth numbers don’t hit the ranges that they need, it’ll be pretty hard for you to raise a round. So you can see how for those guys, given their audience, they’re tracking more growth, whereas someone who’s maybe boot-strapping a business, and probably has other goals, might look at something a little more solid like monthly recurring revenue or some people might even look at monthly net profit.
Mike [0:20:56]: But I think the key point that you’re making there is that those are monthly numbers, that it’s monthly recurring revenue or monthly profit. And it’s important to have that monthly piece of it, because if you don’t have a time period of any kind, then really it’s just a number, it’s a vanity metric at that point, which is essentially meaningless to the business. You can’t compare it to other time periods because it’s just a number. If you are able to compare it to other time periods, that’s when it becomes meaningful, that’s the important piece, and that’s what makes it a good metric.
Rob [0:21:25]: Yeah, it also makes predictions a lot more easy to come up with and probably more accurate. If you’ve been tracking this number over time for these small time periods, so let’s say weekly growth or monthly revenue, you get a sense of where this thing’s going. You can notice pretty early on if you’re looking at the rate of change, you’ll notice on a graph or even intuitively in the numbers, if you’ve been following this, you can kind of feel the pulse of it. And you’ll notice as things are changing, you’ll be able to predict out a month or two. I don’t tend to do predictions for predictions sake, but there are a few conversations I’ve been in where people have asked me, now where do you think you’ll be in three months or six months or whatever, and I have a decent idea. And so far the predictions that I made during the summer were hitting those, barring some unforeseen circumstances, you can get pretty good, if you’re doing this ratio per time period, you can project out and be reasonable as long as a major roadblock that’s unexpected doesn’t crop up.
Mike [0:22:18]: Another thing that makes a good metric is that it’s easy to understand. So for example, monthly recurring revenue, is very cut and dry. You can easily understand that. Same thing when it goes to like profit or conversion rates. But I think that once you start getting into some of the super advanced metrics that are much more difficult to understand, so if you’re aggregating a bunch of data, and then trying to use that to compare against other aggregated data over different time periods, as soon as it becomes a lot more difficult to understand, it becomes much more difficult to also figure out what it is that you need to do in order to start making changes to that number or how to influence it. So you want to try and choose a metric that’s simple and easy for everybody in the organization to understand so that they know what their capabilities are around influencing that number.
Rob [0:23:06]: And another piece that makes a good metric is if the metric helps you make predictions more accurate. I already touched on this a little bit, but I kind of went about it the other way, saying that if you have a good metric, it makes it more accurate. But you’ll want to choose a metric that actually helps you make better predictions. I think that’s a key piece. If you find that yours is not, then it’s probably not a very good metric.
Mike [0:23:30]: And the last thing that makes a good metric is that, the metric has to change your behavior. And one of the things that I’ve seen a lot over the years is that when people are doing A-B testing, for example, they’ll do A-B testing just to do A-B testing. And it doesn’t change what they do. They’ll pick it up, they’ll do it for a little while, and then they’ll stop. And whether they see results or not, the fact is they don’t carry that forward. So it doesn’t change their behavior. So the fact of the matter is, like why are you even bothering. If those numbers that you’re getting out of that aren’t going to change or influence what you do, then why are you even tracking that. It’s essentially immaterial at that point.
Rob [0:24:05]: If you’re interested in learning more about finding your one key metric, we have three links for that we’ll put in the show notes that Mike used to help put together this episode. And if you haven’t read it, you’ll probably want to check out “Lean Analytics.” It’s a book from O’Reilly Press. It’s written by Ben Yoskovitz and Alistair Croll. And it is worth looking at, if you are looking for the single metric that matters. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our them 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 and we’ll see you next time.
Episode 259 | Making Your First $2k from Products, Whether to Look For a Co-Founder, Rehabbing an Existing Product, and More Listener Questions
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike take a number of listener questions including talking about making your first $2k from products, whether to look for a Co-Founder, and rehabbing an existing product.
Items mentioned in this episode:
Transcript
Rob [00:29]: In this episode of Startups For the Rest of Us, Mike and I talk about making your first $2,000 from products, whether to look for a co-founder, re-habing an existing product, and more listener questions. This is Startups For the Rest of Us, episode 259.
Welcome to Startups For the Rest of Us, the podcast helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:30]: And I’m Mike.
Rob [00:34]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike [00:39]: Well, tomorrow at precisely 4:29 p.m., Marty McFly arrives from the past.
Rob [00:46]: Very nice. I’ve heard a lot of folks talking about it, and then asking where the hoverboards and the nuclear fusion thing that straps to your car.
Mike [00:47]: And the fax machines, you know, don’t forget those.
Rob [00:49]: Indeed. What else is going on?
Mike [01:40]: So I spent the past couple of weeks doing, essentially market validation for a couple of the different ideas that I’ve had, and I’ve been focusing really in on the one-to-one email sequences. And so far I’ve had 23 conversations with people, and of those 23 conversations 11 people have said that they would pay me for it. So I’m still trying to work things out because from one person to the next there seems to be a lot of variation between the specifics of what they are looking for and the problem that they’re trying to solve. They’re all very, very similar, but trying to nail down exactly what would work for the vast majority of them is, kind of, the hard part. I’m figuring out where that is and where I can get the most traction, I guess that’s the challenging part right now. And people are using different terminology for the same types of things, too. So that makes it even harder.
Rob [02:15]: For sure. For sure. And that’s the hard part about customer development is that you’re either going to get 20 different opinions, or you’re going to get several opinions that are the same but you don’t realize they’re the same because they’re using different vocabulary. And it’s hard if something doesn’t exist and you can’t just show it to them to figure out if it’s actually A, going to do what they want, or B- the little subtleties with email. It could be cold email, it could be warm email, it could be bulk email. There’s so many things. So until you can figure out which stage they’re using it at and how much value it has to them. Like, have you talked price point at all?
Mike [02:19]: I have. I’ve talked price point with virtually every single one of them.
Rob [02:19]: Good.
Mike [02:38]: So I have a ballpark idea so far of where the MRR would come from if they were all to sign up today. But I’m at the process where I’m still just gathering information right now, and then once I have a better idea of what it is that the solution would look like, then I’m basically going to draw up the designs, go back to every single one of them and say, “Can I get a pre-order for this?”
Rob [02:45]: Mm-hmm. You said you have 11 commitments, how many are you going for before you start moving forward?
Mike [03:12]: I want to be able to get to the point where I have at least 10 who are willing to move forward on that commitment. So it’s kind of nebulous as to how many I have to get to. Is it 15, is it 20, is it 25. It really depends on one, how far I want to take it, how much variation I see between people. If I think I have something that is going to fit for at least 12 to 15 people, then I’ll probably start moving forward. But, again, like I said, some of them are all over the map, so it’s still up in the air right now.
Rob [04:21]: For sure. Well while you’re in the process of adding to your product portfolio, I’ve actually been in the process of paring mine down so that I can focus on, essentially, on Drip and MicroConf and the podcast, and my blog and the other stuff. But really have been either selling or I’ve actually given, DotNetInvoice to my business partner. And HitTail is up for sale right now through Thomas Smale at FE International. If someone is interested it is still on the market. So it feels good to be able to focus more on the things that are really working. Double and triple down on Drip in essence, because that is where I’ve been spending the bulk of my time, and it’s where I think it should be spent for the next “until it’s done”, is what it is. And if that’s five years or ten years, that’s where I’m at. I’m not in the mode anymore of the “starting the next one after one to two years”, which I was for a while, and building up the portfolio. I think I’m ready to head in the opposite direction and really build this one up. There’s just a lot more opportunity and a lot more growth going on than anything I’ve done in the past. So I’m doubling down on that.
Mike [04:30]: Do you think that’s a byproduct of the type of product this is in relation to some of the previous ones, or is it more of a career trajectory sort of thing?
Rob [05:05]: Yeah, you know that’s a good question to ask. I think it’s partly both. Certainly, I’m at the point in my career where I do want to focus on some things that I really enjoy, and I kind of want to take things to the next level because it allows me to learn and that’s when I’m happy. That’s one of my definitions of success is learning a lot of stuff and being in control of what I’m working on. But I also think that if you look at Drip, and you look at how large the market is, and if you look at the opportunity here and the price point, the average MRR per customer. Just all these things are completely different than everything I’ve done in the past. So I think it’s some of both, to answer your question.
Mike [05:06]: So what are we talking about this week?
Rob [06:16]: We have a slew of listener questions. We’re actually backlogged. Some of these are from almost a year ago. And apologies to folks who sent them in and haven’t had us answer them yet. But we still want to answer ones that are general enough that I think they’ll apply to most folks listening. Our first question is from Daniel McCraty and it’s actually not a question. It was just an email to say thank you. He says, “Hi Mike and Rob. I really wanted to say thank you. I’m a long time listener who’s starting to see some success from your advice. As a full-time developer and now a technical lead, I don’t get a lot of experience with marketing in my day-to-day job. Listening to your podcast has helped fill in some gaps and kept me from going down the wrong path. I’ve created a minimal product and nice clean landing page that people actually purchase my product from, and I’m getting great feedback on feature enhancements that the customers want. I know I have a lot of work to do but 20 sales in the first two months is a success in my book.” And his subject line was “I made $2,000 in the first two months.” Yeah, thanks a lot for writing in, Daniel. His app, if you want to take a look at it is at Woo Ticket Studio, that’s W-O-O, ticketstudio.com if you’re interested in checking it out. And thanks, as always, for writing in with success stories. We love to hear from folks who have been long time listeners and have implemented what we said, whether to launch product, make the first couple thousand online or to quit your job.
Mike [06:17]: Yeah, great job, Dan.
Rob [06:37]: All right. Now let’s queue us up for our first question. So this is from Justin McGill and he sent it over a year ago. Sorry about that Justin. But he asked us “What do your daily and weekly schedules look like? Rob with his multiple projects and Mike with whatever he’s working on at the time. I think both perspectives would be helpful.” Why don’t you kick us off, Mike.
Mike [07:42]: I guess, in terms of my daily schedule, I try to get up before eight o’clock, and there are definitely days where that just simply does not happen. A lot of times, my schedule for the day tends to be dictated by how late I worked the previous day. So if I were working until five or six and then spent time with the family, and then if I decide for whatever reason to go back and sit on my computer and do some work or fool around or anything, there are definitely times where I stayed up until 12, one o’clock in the morning. And that will have a severely negative impact on my following day. So I try to avoid it as much as I can, but it does still creep in there one and a while. And then for the rest of the time, I try to stick to a schedule where roughly from eight to five I’m working, and then after that lately it’s been up until about three to four o’clock, where after that it’s been difficult to get things done, just because my office has now moved upstairs. So the kids get home at three, so there’s definitely a lot more pressure to get everything done by three o’clock or four o’clock because the kids will start to interrupt. So that’s generally what my schedule looks like. I try to avoid working on Saturdays or Sundays, just kind of out of matter of principle. What about you?
Rob [09:56]: I think I’m pretty similar to you. My schedule used to be very different. Obviously it was all nights and weekends for a long time, for the first several years, because I was typically doing salary work, or in the later days, consulting, you know, in 2000, let’s say, 5, 6, and 7. I was doing 30, 40 hours a week consulting during the day, and then working on products on the side. And then I hit a certain point where I just decided I really didn’t want to do that anymore. I didn’t want to do the night and weekend stuff. And so I will do some work in the evenings, sometimes. And especially if Sherry’s out with the kids and I’m home alone, unfortunately, I will tend to veer by the computer and either do email or work on something that needs to get done. I’ve been trying lately to not do that, because I find that if I work too much, I just become not productive. Your work expands to fill whatever time you give it. And so I’ve really been trying to avoid that. I listen to a lot of audio books, I read a lot. I listen to a lot of podcasts and I do find myself thinking about work, jotting notes down, doing a lot of strategy type stuff in the evening if I have free time, or on the weekends if I’m out and about running errands or just doing stuff around the property. I wind up coming up with a lot of, what I think, are my best ideas when I’m not sitting behind my desk – because that’s when you’re actually getting work done – but I’m out and about, I’m doing stuff. So I wouldn’t say I work on the weekends or the evenings, but I do get kind of strategic thinking done. In terms of the daytime, I’m up by 7 a.m.. I make breakfast for the family and then take the kids to school, one or both of them. And then I head into the office two days a week, three days a week, it depends. And work from around 8:30 until whenever it’s done, which is between 3 and 5 depending on the day. And so if I don’t get a full workday in during that time I will add a little time in the evening or on a weekend to make up for it for sure.
Our next question is about entering a competitive SaaS market. And it’s from Scott Underwood and he said, “Here are some podcast ideas for you.” He says, “Do you have any thoughts or tips on entering a SaaS market with large competitors?” Meaning you take someone else’s SaaS app or niche and you innovate on it?”
Mike [11:32]: I think there’s some interesting opportunities in going into these types of markets because you can essentially build, not necessarily features, but add-ons or plug-ins for other vendors and essentially build on top of their platform or on top of their application. And there’s lots of people who’ve done this very successfully. I think the one thing you have to really be careful of is, I think, what Joel Spolsky at one point called “snatching nickels from a steamroller.” And his reference point was the fact that people were building a lot of copy-paste applications back when iOS was first released and it didn’t support copy-paste. And then all it takes for that entire business to go away is for them to implement that one feature. So there’s got to be a compelling reason for them to not do it. And if it’s a feature that is compelling enough for them to implement, you have to be careful just because they will eventually kill your business. So if you’re bolting something onto those larger applications, you do have to be a little bit careful of that. The other thing I’d say is if you’re taking a much larger application and just taking off a tiny little slice of it, you could probably do a much better job then they are. But you also have to find people who are willing to pay for just that tiny slice of the solution as opposed to the entire thing. So those are the caveats around it, I think. In terms of my general thoughts on it, I don’t think there’s anything inherently wrong with it, but you do have to pick and choose which of these battles you fight, because some of them are going to be worth it, some of them aren’t. And there’s going to be some where that larger competitor comes in and essentially, squishes you just because they come in and they have the resources to bare on a problem, and if it’s important enough to them and to their customers, they’re going to do it.
Rob [12:14]: So you were taking that from the angle of building like add-ons for larger products or in their ecosystem. I would look at this, I mean he’s asking more about how to take on a larger competitor. Yeah, obviously marketing automation would be an example. I’m not building add-ons for HubSpot or Infusionsoft or one of those guys, but we are taking them on kind of directly as a one-on-one competitor. So actually I do have a lot of thoughts on this. I got an interesting email. It was probably about a year and a half ago, from Drew Sinaki, a long time listener of the show. And he asked are you trying to do an innovators dilemma to Infusionsoft? And I thought that was a really interesting way to put it. Have you read that book?
Mike [12:15]: Yes, I have.
Rob [14:13]: So the “innovators dilemma” is where you’re a big company in a market that’s existed for ten or 20 years and the market’s starting to shift and there’s a lower cost or an easier solution that’s coming in front of you, but you won’t cannibalize your business in order to take advantage of that new market opportunity. And so IBM has seen this, Microsoft is seeing this. It happens with a lot of larger technology companies, in general, as the technology changes. And I thought it was a really interesting way Drew put that in the email. It got me thinking. I actually went back and listened to the book again. I hadn’t listened to it in a few years. And I think that that’s the tactic that you need to take if you’re going to go after. Or I think it’s probably the optimal tactic. There’s probably many that you can do, but that’s the approach that I would look at doing is to basically [couch?] yourself as the opposite of whatever they are. So if they are big and cumbersome and clumsy and they don’t have a lot of features and they’re expensive, well, start off as being the opposite of all that. And you can be pretty intentional about marketing yourself as that. If you go to the Drip homepage, there’s a couple thousand words on that page that really are positioning us as the opposite of the larger players. And after that, it’s execution, right? I mean you actually have to really build a better app. You can’t just build a clunky app and expect that since you have fewer features you’re going to be easier to use, because that’s not the case. So you need to focus a lot on usability and really double down on your differences and also try not to get the feature bloat that a lot of these larger apps have. So you can’t build everything that everyone’s asking for. So those would be my thoughts about kind of early advantages when heading into a market with heavy competition.
The other question Scott had for us, he said, “Do you have any data or lessons learned from Drip for the most effective opt-ins for building an email list? I know you don’t like the exit pop-up forms but I’ve seen several people tweeting how effective they are.” He’s talking like a bounce exchange exit intent pop-up. Do you have thoughts on those? Do you use one of those?
Mike [15:28]: I have tested them. I’d have to go back and look. I think that I might actually have it on my blog. I don’t remember if I ever went back and either disabled that or changed it. But I do remember testing it. And now that you bring it up, I don’t remember if I ever actually went back and looked at the results of that test, because I probably got distracted so that’s totally on me. I’ve heard similar things like people have said over and over and over again that the exit intent pop-ups convert better. Now I think the one point of caution I would say is they get you more email addresses, they don’t necessarily convert to sales any better. They may, they may not. I think that it depends on what your industry is. But at the same time if you don’t get an email address then you have no opportunity to sell to them. So in a way it makes more sense to get as many email addresses as you possibly can. There are, I’ll say, certain people, myself included, who kind of feel like, “Well I don’t want to be too intrusive about it.” But at the same time, if you’re offering a product of a solution that is extremely helpful to that audience, then it’s kind of an obligation to get in front of those types of people in any way, shape or form because you can give them a lot of value. So there’s different schools of thought on that. I’m kind of in the middle. I think that it really depends on what type of product that you’re selling as to whether or not I’d do it.
Rob [18:00]: Yeah, I have a personal take. I don’t like them as a user, and so I won’t put them on my sites because I find them irritating and I have heard that, like you said, you get more emails, but I use the justification of they’re probably not going to convert as well because you kind of forced people into it. I haven’t tested it. It’s just one of the things that I’m not willing to do. I think when I was back in the day, reading a bunch of Dan Kennedy stuff about copywriting, he’s a very good copywriter, I adopted the things that I was willing to ethically take on and the purchases I was willing to do and feel good about myself. I never say something in a sales letter or on a marketing website that I wouldn’t say face-to-face to someone at a conference or at a cocktail party, frankly. And that’s just a personal thing so that everyday I wake up and I feel good about myself, and I can tell my kids and my wife that this is stuff that I’m- I’m really proud of what I do and the value I give back. Now in theory, are you leaving, perhaps, something on the table by not using one of these exit intents, or by not using a more aggressive form of marketing? Yeah, in theory, sure. Is that extra five percent or ten percent or 20 percent over the course of your life, is it going to make a huge difference if you feel like you are sacrificing something internally? Whether you call it like a moral code or just something that you’re not comfortable with, that you don’t feel good about. It’s your choice. Different people have different lines. I think there’s a lot of things in business like that, right? There are some absolute lines of legality and illegality, and then a lot of things that have gray areas. And I feel like this is one of them. So certain people shout from the rooftops that exit intent is the way to go. And obviously they feel comfortable with it. Now when I visit their sites and I get irritated by it, I’m much, much less likely to go back to their site. And I also have never, I don’t think ever in my life, entered my email address into an exit intent pop-up. And I typically make a note like, “All right, this is definitely a site that I’m not in love with.” I don’t feel like they treat me with respect when they use it. I feel like they’re interrupting my flow and they’re bothering my flow of web surfing and consuming content on the Internet. But maybe the site owner doesn’t feel like that. And to kind of wrap it up, for a long time we didn’t build an exit intent pop-up, or exit triggered pop-up, in Drip. But we found that in certain industries and certain niches and just based on different marketers, certain people like them, and they work for them. And so I realize that applying that piece of judgment on exit triggered stuff wasn’t necessarily the way to go. And so we do offer it as a service if you enable it in Drip, but it’s not something I would personally use myself.
Mike [18:31]: Yeah, I went back and just double checked while you were talking. I disabled it. I don’t recall whether or not I looked over the details of what it was, but I definitely tried it out. I don’t think that there was a massive increase for me. It just didn’t seem worth it for wrecking the user experience, as you said. Because I’m kind of in the same camp as you, like when I start seeing those exit pop-ups, I just close the browser or if it’s an article I really want to read then I’ll read it or click by it. But if I have to enter an email address to read, out of principle, I just won’t.
Rob [20:32]: Yeah, and there may come a time when it’s the norm and you have to deal with it. There may be a backlash at some point. I mean ad blockers are coming up because of this type of thing. Because of the more aggressive advertising and these marketing approaches, ad blockers are being used by more and more people. And I think that’s kind of a shame, frankly. I think that if we were able to all agree on a decent level of advertising and marketing, I think that the Internet becomes a better place, and I think people don’t necessarily use that kind of stuff. I’ve been trying to go to just some basic news websites. Drip got written up on the Huffington Post yesterday. And just surfing around that site, it’s like there’s so much stuff. The site is slow. There’s Javascript, there’s videos autoplaying in front of me. It was crazy. I really haven’t read news online in a long time, because I consume most of it via podcast, but I hadn’t realized the state that we’re in and now I realize why these pop-up blockers are becoming so prominent.
Our next question is from Richard Garside. And his question is on breathing life into an old product. He says, “I really love the show and I find it very interesting. I’m setting my goals for the next year and one thing I’m thinking about is whether or not to breathe life back into an old software product of mine called Font Picker, Thefonticker.net. I created it when I had some spare time and it did quite well. Since then I have not had as much free time and I’ve just left it for almost two years. Sales have slowed and they continue to do so. I think I could both improve the product and the marketing. I continue to get good feedback and feature requests from customers and the app has a really good ranking in the Mac app store. In some ways, this is kind of like buying an existing product that you think you can improve. I think you’ve covered everything I need in various shows, but how would you approach saving an existing product from a slow death and bringing it back to full glory? Some things I’m thinking about are : improving the user interface design, improving the website, adding more features and just improving my marketing ability. As a developer, I want to get stuck into new features but perhaps that’s not the most important thing. I’m also fighting the urge to rewrite it in Swift. Time is limited and I don’t have time to do everything I want to do. Thanks for the shows and everything.” What do you think?
Mike [21:23]: Well I think the first thing I would say is do not rewrite it. If you’re trying to breathe life into an old product, especially one that’s on the decline, then I don’t think that rewriting it is going to make any difference. Your customers are not going to care that it’s rewritten. Unless you’re looking for some wholesale, complete UI redesign, which I don’t think entails a complete rewrite in a different language, then that’s probably not the way to go. In terms of a lot of the things that you mentioned, improving the UI, improving the website, I’m not so sure about adding new features but definitely getting better at the marketing aspect of it. Obviously, those are all good things to pursue. But I think at the end of the day you also have to ask yourself is this something that you really want to do, because if it’s not something that you want to do then you’re basically either going to half-ass it or just not be committed to it. And at that point the product itself is going to suffer.
Rob [25:21]: Yeah, I’d agree with Mike. I would not rewrite it yet. If you decide to get into it and it starts making quite a bit of money and you decide that it really is a hassle to add features, you could consider it at that point. But at this point, all you want to do it figure out, can you even rehab this thing? Can you get more sales out of it? Because if you can’t then none of the other stuff is worth doing. So the first thing I would look at is how are you going to drive more customers to it? That’s really what I would think. It’s like if you get a lot of your leads from the web, then I would probably redo your marketing website or at least improve the copy, make it look more modern. And if you have enough traffic to split test, that’s fine, but if not, just go with your gut on this and try to improve it there. Or if you get most of your customers from the Mac app store, then do some research on how to get your rankings up there. And if it’s releasing new features gets you mentioned or gets you reviewed or gets you whatever, then I’d do new features. But if not, then I would not be writing any code at this point. I would purely be looking at how to take the existing channels that are already driving customers, double down on those. How could you grow those by 50 percent, 100 percent, 200 percent, over the next three months without writing any code, right? Any production adjustments to the app. You can obviously write web code if you’re redoing the marketing side. So that’s the first thing I would do. Second thing I would think about is are there other marketing channels that you can start looking at? So with a small price point, obviously you’re not going to be able to do something like advertising, but if you’re not ranking well in Google, is there an SEO play here? If you’re not ranking well in the app store, obviously, that’s kind of a no-brainer to do it. Or there’s some JV partnerships where you could email your list and someone else emails their list. These are the types of things that I would start off right off the bat and attack. These are your early wins. It’s your low hanging fruit. Some of it’s not going to scale, but if it gets you a nice little bump in sales it all just aggregates and will build up over time. And then, if you’ve proven that you can grow this thing and it is doubled, tripled revenue, it’s making enough money to make it worthwhile, then you can think about, “I’m going to add a bunch of features,” and then you have something to talk about to your list. That’s the other thing I would do. I would definitely get – I don’t know if you’re already collecting email addresses – but build the list, right? Build the list on fontpicker.net for something really cool that folks would want to know about. They’re looking for font pickers then I’m assuming it’s a design audience so add a five day mini-course on how to pick the best font or how to have fonts interact with color, whatever it is. There’s certainly something off the top of your head that you’ll be able to do because that list will be huge for you. If you get a few thousand people on that, every time you release that new version you can email that list and get that bump in sales. But that’s probably where I would start. There’s obviously a lot to it.
Our next question is from Josh and he’s asking for some advice on either starting up a UX productized service, or buying an existing business. He says, “Hey guys. I love the show. Started dipping into old episodes and saving out things that you’ve talked about recently. Namely what to not focus so much on when you’re just starting out, etc. Here’s my dilemma. I used to run a UX consulting firm. It wasn’t scalable, and if I did it today I would do it way differently. I would offer it as a productized service to startups and small businesses. So I’m considering that as one route. Then I was listening to one of your episodes which mentioned buying existing business. I did some research and found that I would need around three times my salary to make this happen. This shouldn’t be an issue as I have some money saved up from investments that I can use and I can get 50 percent as a loan from the bank. So I’m debating either starting a UX productized service, or buying an existing company for cash flow and running both of them in tandem.” He has, “And/or, buying an existing company and running both in tandem. My question is, how do I structure this as a business? Right now I have a LLC and have it registered as doing Internet services. Would I be able to buy a company and roll it into the existing LLC or should I do another corporation?”
Wow, actually I don’t think that’s your question. I think your question is should you do the UX consulting thing or acquire a business. I obviously have a lot of thoughts but why don’t you kick us off, Mike.
Mike [26:12]: Yeah, I wouldn’t do both of them at the same time. I think the big red flag that pops out at me is buying something for three times your current salary when it seems to me like you’d also have to get a loan. I think that’s what he said, is that he’d also have to get a 50 percent loan from the bank. And that seems to me to be a huge chunk of money to go out and plunk down on something where typically the returns on those, you’re not going to get a full return on that for quite a while because you’re probably going to buy it for 3x the annual revenue or something along those lines. So I would have a really hard time going out and plunking down that kind of money for something that either I wasn’t necessarily passionate about, or didn’t necessarily know enough about. And I haven’t bought anything at that level. I think Rob, you, back in the day, you bought HitTail and that was for a good chunk of money, but at the same time it still had a lot of potential to it, I think.
Rob [26:14]: Yeah, it wasn’t nearly that amount.
Mike [26:43]: Yeah, so like the dollar amounts, I think, are significantly different. I wouldn’t personally feel comfortable dumping that much money into something if I wasn’t really, really sure. And for me to be really really sure, it would probably take a lot more than just a month or two or even six months of looking at the books and stuff. I’d want to be involved with the business before I bought it. I don’t have any good advice on that other than don’t do both at the same time. The other thing that does come to mind is look for something smaller to buy that you could run on the side.
Rob [26:43]: And grow it.
Mike [27:07]: Yeah, that seems to be like a better way to go because then you could at least learn, too. I think the last thing you want to do is essentially learn on a bigtime production app. I mean you’re basically saying, “I’m going to go play in the majors when you haven’t even really played around in the sandbox.” so to speak. It seems to me like a big risk. I wouldn’t be comfortable with it. Your mileage may vary on that one.
Rob [28:26]: Right, yeah, it’s funny. The corporate structure, I think, is certainly the least of your worries. I’ll talk a little bit about that in a second. I’ll cover it last because it’s the lowest priority. I wholeheartedly agree absolutely do not do both at once. Pick one and go all in on that thing and grow it and grow it as large as you can. And then either have an exit from that or use the cash flow to do your next thing. But I really, really would encourage you not to try to do both at once, to grow two things. It just does not work. In terms of acquiring, I agree, buying something for three times your salary, if you’re not already versed in marketing products, is quite a risk. I wouldn’t say never do it, but it’s a big risk. Probably bigger risk than I would be willing to take. It doesn’t feel like you’re stair-stepping up, you know. If you already had a few WordPress plugins or a small SaaS app and you were looking to buy something for $200,000 or $300,000, I’d say well you have the experience to do it. But just jumping up and trying to do that is really a big deal. I do know that in terms of, Mike you were concerned about the numbers not being valid or maybe the revenue not being there or whatever, I know that when the reputable brokers like FE International, they do a ton of vetting. So I think the odds are pretty good. Obviously it’s possible that there be an error and not have it actually be as successful as you want. But in my experience, the risk is going down now that these brokers are in here and actually doing a lot of vetting.
Mike [29:03]: Yeah, I don’t think it was the risk. For me I don’t think it’s the risk so much of like you getting ripped off or not a good valuation. But just the time that it would take to get a return on that, it seems to me like if you’re looking for something to just provide you with a stable income that you can grow incrementally over the next several years, great. But somebody got out of that business for a reason, and it may very well be that they took the business as far as they could and what guarantees do you have that you’re going to be able to do any better with it. And it’s not saying that you can’t. I’m just pointing out that there is an inherent risk that says that you can’t.
Rob [32:30]: But I think that’s kind of the entire opportunity of buying a business is that you may get someone who, like me is selling HitTail to focus on other things. I’ve seen HitTail do three or four times the revenue it’s doing right now. It was very successful, but I haven’t had time to focus on it. So the potential is there. I think you could also get someone selling- like a lot of the ones I’ve acquired where someone built it and it had a single traffic source and the developer didn’t know how to grow the thing. They didn’t know how to 5x it or 10x it. And that could be an opportunity. So I think that’s just part of the process of buying something based on an opportunity that you see. And so if you know how to do SEO or AdWords or content marketing or you have a skill that you can apply and you see that someone’s not doing any content marketing in a niche where it totally makes sense to do so, I think that’s an opportunity. That’s how I used to buy and grow things. But with that said, we don’t know Josh’s toolbelt. And so Josh, if you don’t have any marketing skills that are proven at this point that you’ve done really well in the past and had success with, then it is a bit of a risk. Now I will say that I’ve been surprised- you can actually take out an SBA loan, at least in the U.S., there’s a small business loan, and they just changed the rules in the past year to where you can now take it out to buy software products, or I’m assuming income generating online stuff. And the loan payment on a loan for, let’s say 200 or $250,000 is a lot less than the revenue, or even the net profit you’re going to make, from an app that costs that. So there is margin there. I don’t know if it’s enough to live on, but it’s an interesting approach. Personally I’m not the type to take out a loan to buy a business. It’s just not my style. I’m going to be more stair-stepping up to doing it. But if you’re all in and you need to go towards it right now, I do think it’s an interesting and/or creative way of doing it. The other approach I saw recently is someone actually raising a small seed round from friends, family and a couple more notable kind of adviser folks. Basically like a little angel round to go acquire a SaaS app that has a ton of potential. And I know about this because I talked to him as a potential investor. And it’s really interesting because the app already has product market fit, and with the team I think there’s a lot of potential there, and so it’s kind of a no brainer. Because getting to that point is always costly and takes a lot of time, but if you can buy something that already has it, I think you’re in a good boat.
I think to wrap it up, the product, as consulting, to be honest, is probably – I don’t know that I’d say your best bet – but I think it’s more of a sure thing. And I actually think that waiting around and trying to find something to buy, it could take a while. You can’t just make something appear in a niche that you want to be in. So if you’re in a hurry I’d probably do the productise. If you’re willing to wait around and take the risk, you could consider acquiring the app. The last piece of your question was, “How do I structure it as a business?” You said, “Would I be able to buy a company and roll it into the existing LLC?” Don’t buy the company. You don’t want to buy a company because a company comes with liabilities, meaning if someone did something, got sued later on for that time period, you now have taken that on because you own the company. All you want to do is buy the product, essentially the assets of the company. And so once you have a product you can of course roll that under an LLC or an existing corp structure. I am not a lawyer so you’ll want to consult one, but that is how I’ve seen it done many times here in the U.S..
Mike [32:51]: Thanks for the question, Josh. I think that about wraps us up for time today. 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 Out of 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 and we’ll see you next time.
