Show Notes
Transcript
[00:00] Mike: This is Startups for the Rest of Us episode 147.
[00:03] Music
[00:11] 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.
[00:19] Rob: And I’m Rob.
[000:20] Mike: 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?
[00:24] Rob: The word is Drip is in prelaunch. I have 310 emails going out and it’s basically kind of a chunk of our launch list and we’re doing as a test just to make sure that everything works and all the sign up and the trial emails and billing and all that stuff works but it’s pretty exciting. I have a four email launch sequence that I use often and two of those emails of have gone out. So tomorrow is the email that actually lets people in and gets them start using Drip. So it’s kind of the first time that we’re launching to a group of people rather than doing one off stuff.
[00:54] Mike: Yeah, that’s really nice to see.
[00:57] Rob: I want you, AuditShark here like next week or two weeks from now, that’s where I want you to be.
[01:02] Mike: Because I’ve been thinking a lot about how to deal with the issues for remediation. Just because doing things on an automated basis to like remediate them is kind of a scary thing and I’ve actually been looking at putting together kind of a hybrid model where the software does some stuff and then on the back end, there isn’t software that automates it but I can go in and do things myself. So essentially have the software cost one price and then if you want remediation in addition to that, I can charge you an additional fee on top of what the software costs and we’ll go in and manually take care of that.
[01:35] I’ve got a couple people who – there’s one guy that’s really good at operations stuff. He’s worked in a lot of larger production environments and so have I. So either one of us could actually go in and make those fixes and understand the implications of all the fixes that we’re doing. Of course that becomes something of a hybrid offering where you got some software and some services. But I think that because there’s a combined services and software offering, I could actually charge a significant higher price to do that because people are going to understand oh well here’s the cost of the software. Here’s the cost of the remediation effort beyond that and it does bring up the price of the overall offering.
[02:12] You know as well as I do when you first start launching a Saas product that the ramp up is going to be slow and I think adding in services like that is going to ramp up that revenue stream very, very quickly.
[02:21] Rob: Yeah. I think that’s a really good idea. For those who are listening, if you don’t know what remediation means, AuditShark finds problems or confines security issues and remediation means fixing those. And you’re talking about doing some manual work where a person has to be involved and you’re right. It raises your price point but it means you provide so much more value because if you think about what AuditShark probably does is it will add items to my to-do list as a server owner.
[02:46] And this is the same problem I saw with HitTail. It’s the same problem you see with a lot of apps that will cause churn like people feel guilty about it. They don’t want to pay for something that is not actually fixing something. It’s just telling them something needs to be fixed. There’s a big, big difference between those two end points.
[03:01] So I mean I’m doing it with Drip. We have a concierge service where we will write someone’s’ entire email sequence for a fee. We did it with HitTail where we automated the article publishing. We have writers who write articles for people to take that off their to-do list. It’s adding human powering your Saas app basically and it’s taking up the next level both in price point and in the amount of service that you’re able to offer.
[03:24] So yes I fully support that and I think is the future trend because so many of the low hanging fruit Saas apps are being built and they’re done. How much more can you do with invoicing and accounting and these other things? I think that over the next few years we’re going to see these hybrid approaches because most software developers don’t want to do them because they’re messy. We want everything to be code. We want everything to scale.
[03:47] So adding that human powered side to it, you just have such a chance to grow revenue faster and to offer so much more value like exponentially more value to your end customers than you can just do with code.
[03:57] Mike: I think the other significant advantage of doing something like this is the fact that you may not know upfront what its going to take to do all that remediation at least from my product there’s obviously different problems that needs to be solved for other products but for those, there’s going to be a different manual process in place. And you’re not going to necessarily know how to handle that in every situation automatically. So you’re going to have to go through those manual steps.
[04:20] You sometimes have to do things, they just simply don’t scale. And then once you get a handle on how to do them, then you try to automate them and I think this is just a natural extension of that is to be able to do these manually, try and figure out what sorts of things we going to regularly check to make sure we’re not breaking other stuff. And then make those changes, test everything, make sure everything’s still working and figure out what those additional things are that need to be done to make sure it’s still working and automate those down the road.
[04:46] Rob: Or you have a Saas app, you’re thinking about one, ask yourself this question. What can I do to do more for my customers? Even completely non-scalable requires manual labor. What can you do for them to provide them more value and therefore give you the ability to be better than your competition and to be able to charge more. And so you’re going to have a higher revenue for growth.
[05:06] Music
[05:10] So we both hired bookkeepers.
[05:11] Mike: Yeah. How was yours going?
[05:13] Rob: Mine’s going really well. I’ve been happy with him. He’s been doing all my Numa group Books for about two months and he has me setup in Xero which is xero.com and I’m pleased with the software. It’s easy enough to use and finally I’m not like dreading taxes in next year because he actually went all the way back to January and did InDinero, manually migrated my books. He charged me for it which was fair and then now he’s keeping it on a monthly basis. How about you?
[05:41] Mike: Yeah. My book keeper’s been really working out as well. She came in, I think she was here yesterday and worked through the rest of the stuff and all the bills and stuff that I had to pay for the month and I just walked her through the process. So far it’s working out great. I mean it was really nice to just hand her everything and just kind walkway and say let me know if you have questions. I just didn’t even have to think about it. It was awesome.
[06:01] Rob: Yeah. It’s definitely a way off my shoulders. It was reasonably easy when InDinero work but once we started having bugs I was spending a lot of time on it. So it’s nice to know it’s taken care of. It’s like too expensive to outsource in my opinion when you have good software that can do it or if you have a simple solution. If you have a pretty simple scenario where you have one product that’s generating revenue, I would recommend using outright and you can probably do it almost completely automated. If you setup a few rules, even with Xero, you can setup a lot of rules. You can probably most automate it and don’t need a bookkeeper. But once you get more complex or I think like you Mike, you have a lot of paper that you process.
[06:35] Mike: Yeah.
[06:36] Rob: That’s a point where your time is more valuable than sitting there. You’re doing something basically that’s not pushing your business forward. We have two congratulations, two new product launches over the past couple of weeks from long time Micropreneur Academy members. The first is Ivan. He not only launched his split testing plug-in for WordPress but he saw his first sale within a day or two of launching and that’s at abpressoptimizer.com and he gave us a coupon code for our listeners. If you use Startups25 that will get you 25% off.
[07:14] And he dropped us a little note. He said the Micropreneur Academy gave me a realistic outlook and the tools I needed to launch my first product. Having the support of the academy community gave me the motivation to finish my product and made me accountable for my progress. He says out of everything I’ve built in my career, nothing has been this gratifying as when I got that email for the first sale. So definitely, congratulations to Ivan.
[07:36] The other launch is Nitesh Singh also been with the academy for several years and he launched auctionplugin.net it’s also a WordPress plug-in. it enables you to launch an auction site in a few minutes.
[07:48] Mike: I’m just getting a lot of people going to the WordPress space and launching a lot of different plug-ins.
[07:54] Rob: Lot of opportunity there. And it’s like we’ve talked about on the podcast now for the past six months of kind of getting that early win. Because these are the first products that these guys are launching and you launch it and you get – even if it’s a few thousand a month like it shows you that you’re capable of it. It gives you that early win. It gives you confidence and it also teaches you a lot about the different elements that you need to then grow and kind of a more – maybe a more complex app or a complex market. And it’s a stair step approach right? Of starting small and kind of moving up. I think it’s really cool.
[08:26] Mike: I think what I find really interesting is I’ve seen some people launch in these WordPress plug-ins and they don’t know anything about WordPress development. They’re essentially outsourcing the entire thing to other people and then they’re simply attacking the marketing side of things to understand how to sell it, how to put the site up and everything else and really focus in on the marketing and letting somebody else deal with all the code behind it. Even though they are developers and they could theoretically figure out if they wanted to but they’re just not…
[08:53] Rob: Right. I think that’s the nice benefit of something like a WordPress plug-in over Saas is that it’s so much less complex that you can hire a developer and more easily outsource it. There are also a lot of decent WordPress plug-in developers around and they’re not super expensive. Again, building the Saas app can take four to six months of pretty heavy development whereas you can get a plug-in developed in a month and kind of what you see is what you get. There’s just a lot of fewer moving parts and I still maintain that. Right now it’s still a good strategy for someone just getting started.
[09:26] Music
[09:30] Today we are going to be answering some listener questions. Going to the back log. Our first listener question is a voicemail about the best pricing strategy for a B to B Saas app.
[09:41] Dan: Hey my name is Dan and I am representing Chart Breeze. That’s chartbreeze.com it’s charting for your Trello projects. I want to know what’s the right strategy to take when trying to price your Saas project and specifically when trying to price for potential businesses to buy your product not necessarily consumers. Thanks. I’ll listen to your answer. Bye.
[10:06] Rob: So I think Dan really has two questions. First part, he’s kind of asking what’s a general approach for it but I bet he also may appreciate some advice about his site specifically which he said is at chartbreeze.com. In terms of general Saas pricing, I think almost all Saas apps are going to be business to business. There are very few B to C Saas apps that I’ve seen actually work because consumers don’t really love subscriptions.
[10:31] I think in general when you are talking about Saas pricing, just assume that its B to B. There’s a bunch of different approaches you can take. I think that I always like to price on value meaning if it saves someone money or makes them money or saves them time, then you can somehow justify the price that way. Now I know there’s argument about whether or not that kind of pricing actually works but it helps at least shape the thought whether you use that in your marketing or not, it helps at least shape it in your mind of what could this potentially be worth to someone.
[11:00] The second approach that I think about is like a gut feeling of what I’d be willing to pay and I will also ask a handful of people what they think it would be worth. You run the risk – if you’re trying to do both do customer development and develop the product as well as ask them about what they should pay then you kind of have two conflicting things going on. Right. So you can’t do that. I feel like you need to figure out your feature set first, figure out what solves the real paying point and start building that and then ask a separate group of people here’s what I’m building, would you buy it? And how much would you pay?
[11:30] And then, once you get a number that you start feeling comfortable with, like these things are like $29. $29 a month might be a lower number, then go back to the first group and say alright, I’ve solved your problem and I’m going to charge $29 for it. Are you good with it? And then you’re going to see reactions all over the board. Some people will say that’s a no brainer and some people will say it’s way too much. And then try to figure out what’s the different between those guys. Are they both Saas companies buying your app? And is one of them just makes so much more per lead so they’re willing to pay more for it?
[12:03] Try to figure out the point which you can segment and that’s the trick. Its figuring out is it the number of emails sent per month or the number of subscribers that they have or the number of documents they upload. There’s these things to pivot on. You’ve really got to dig in to start figuring that out. It’s not a trivial process. There’s been a lot written on this. I actually like sixteenventures.com which is Lincoln Murphy’s site and he’s written a lot about Saas pricing so if you want to go deeper I would definitely check out sixteenventures.com.
[12:32] Mike: I think for chart breeze, one of the things that strikes me is the plus plan for example is listed at $29 a month and for anyone who’s not looking at it, there’s basic plus then enterprise priced at $9, $29 then $59. If you look at business class Trello, its $25 a month or $200 a year. So to me it seems a little odd to charge more for an add on than for the product itself.
[12:58] Rob: Got it. And for people, Chart Breeze is charts for Trello. It says create gorgeous charts for your Trello boards.
[13:05] Mike: The Trello business class only cost $200 a year. So to me it seems a little odd to charge more for charting capability than it does for the product itself. It’s not to say you can’t pull it off. The other end of the spectrum is that you also have to understand that this is being built on a product that could theoretically be free. So people could be using the free version.
[13:26] I have a hard time coming up with a pricing plan that is an add on for something that’s theoretically free. You can kind of look back at WordPress and say well that’s free. You’re paying for the plug-ins that extend the functionality. And that’s one way to look at it. I don’t know with chart breeze how you would justify that. I really think you need to start digging and find out what people are using it for and then try to come back with a pricing scenario that makes sense for the problems that they’re trying to solve.
[13:52] The other thing you could do is find ways that people are using Trello and build something around that such that your add on product really addresses those needs in a way that leverages the Trello back end and uses your front end. And then essentially what you’re doing is you’re using the Trello engine to power your application as a value app.
[14:10] Rob: Yeah. I think Chart Breeze doesn’t really have a pricing problem. I think it has more of a value proposition problem because I use Trello and I manage. I have now several Trello boards and I’m using it to manage some different things. But I don’t know why I would use Chart Breeze. The homepage headline says Trello plus charts, so that’s what it is, not what it does for me. And it says create gorgeous charts for your Trello boards and my next question is okay, but why?
[14:37] So then there’s three benefits listed on the homepage. See the bigger picture. Work smarter not harder and clearly communicate victories. But none of those freely apply to me or they feel so vague that I don’t understand. I almost need like a case study or multiple case studies specifically how would I use this today? How is it going to save me time, make me money or save me money? That’s really what I want to know when I come to you as a business.
[15:00] Mike: And that’s kind of why I was pointing to finding out what people are using it for and then building a front end that is going to leverage the Trello back end to specifically solve those problems and use it as their value added. Because obviously, you could use Trello for I’ll say bug tracking if you really wanted to but is it really setup for that? The answer is no. But could you build a front end that would leverage that Trello back end using the API’s and make it into a great drag and drop bug tracker and you probably could.
[15:28] So those are the things I’m thinking that would probably be applicable but I think it goes right to the heart of the matter what you just said as why would I use this? I don’t know why anyone would want to chart things in Trello and I think it really depends a lot on what they’re actually using Trello for.
[15:45] Rob: Right. And so if its only software development companies that give you an agile development using Trello then that’s it. Chart Breeze becomes are you on agile development, are you a developer? You want all of that verbiage and you want to tightly niche it to them. If it turns out that realtors want charts because I know there’s a continuum of realtors who are using it then book, that’s when charts becomes in realtors Trello charting app.
[16:08] So I think there’s more digging to be done here to really find out the value prop that you’re offering, very, very specifically boil down into one sentence and to find out the audience that needs that the most. If you don’t know that yet, that’s okay. You just have to do some digging and continue to look for it because I think at this point if you launch with this app, I don’t know if you’ve already launched I don’t think you have a pricing problem. I think you have like I said a value problem and you need to dig deeper to find that before you’re going to be able to really start attracting customers and solving a deep paying point. So thanks for the question Dan.
[16:40] Our next question comes in from Brandon Crocket. He says hey Mike and Rob. My partners and I have been listening to your podcast for a while now and find it very informing. Our company is called Qdaptive web based truly adaptive question generating app that uses class notes to generate study material. Our question is what do you recommend for a small business checking account? We have an LLC formed and we are finding tons of fees associated with the business accounts. Do you have any recommendation for us?
[17:08] Mike: Having recently gone through this process of finding a new bank for my businesses, I’ll give you the one that I think is probably the best for anyone who’s starting out and they’re essentially in a pre-revenue state. Look for local credit unions. And the reason I say that is because if you go to any of the big box banks like bank of America or Wells Fargo, what’s going to happen is you’re going to sign up with them and get an account with them. But the problem is because you’re not carrying a large balance, they’re going to start charging you monthly fees and those fees can be anywhere from $15 to $30 a month.
[17:39] And if you don’t want to be charged those fees then you have to carry this minimum balance which is probably in the neighborhood of $10,000, $15,000 or $20,000. Now when you go to a smaller bank, those smaller banks probably have a little bit more flexibility but it’s really the credit unions where you can start to leverage their business banking side which they don’t necessarily concentrate on. The smaller credit unions concentrate on consumers but they do offer business banking accounts.
[18:04] So for example near me there’s a bank called DCU and they’re digital federal credit union but they have a lot of business services and they actually have some substantial backing on the business side because they take all the stuff that they offer their members and also offer them to businesses because many of the members own businesses. So in order to offer their members more options in terms of banking let’s offer these to our members who own businesses as well.
[18:32] And they’ve kind of grown that so they will offer stuff to a business even if you don’t have personal accounts with them. But because it’s a digital credit union, they are trying to move everything online so for someone like me, that works out really, really well. But you can leverage that too. You go to a local credit union, find out what sorts of business options they have. I did a search in Massachusetts and found half a dozen credit unions that offer business banking and almost all of them were no fee. Almost all of them did not have a monthly minimum that you had to maintain. $5 is a small price to pay to be able to get that business banking account and not have to pay any fees.
[19:08] Rob: I was going to answer this with a BofA (Bank of America) account. I’m not a huge fan of BFA but they do have a nice online banking and you can deposit checks through their mobile app and I don’t pay any fees on any of my accounts but then you pointed out that it’s because I keep a minimum balance. So when you’re first starting out, you’re right, a big bank is always going to charge you fees until you get to that point of having whatever the minimum balance is typically $10,000 to $20,000 for a business checking account in order not to not pay the fee.
[19:36] Mike: Thanks for the question Brandon. Hope that helps.
[10:38] Rob: Our next question is from Sean Walberg about segmenting customers. He says hey Rob and Mike, I enjoy your podcast each week. Thanks for taking the time to share your experiences. I created a tool over at isithacked.com that checks a website for hard to find spam and it’s been doing a great job at catching infections that other tools have missed. People have been asking me to add a subscription feature that will notify me automatically rather than having to go to my site to check their own sites.
[20:04] I’m not sure how I should build pricing plans to segment my potential customers. I’d like to have some way of making product available to micropreneurs but also make sure I have higher price plans that cater to larger customers. Any guidance you can offer will be appreciated.
[20:16] Mike: There’s to different ways that I can see of kind of segmenting the market. The first one would be for those people who only have a limited number of either websites or servers. I don’t think it would actually be all that difficult to figure out whether or not somebody has one website on the same server or 15 different websites on the same server. What I think you’re going to have to deal with is of somebody has 10 websites are they a large business or are they a small business?
[20:43] It can fall either way and I think that’s going to be the challenging part is trying to figure out whether or not they fall into more of a higher tier business plan versus somebody who just has 5 or 6 small products that they’re trying to work and they happen to all be on the same server but they’re just trying to figure out what is going to work for them and that’s what’s not and they just throw away the other ones.
[21:05] Because the problem that they’re going to have is even if they’re making a fair amount of money from one of their products maybe let’s say its $500 or $1,000 a month and the rest of them are making almost zero, you still want those other ones protected if they’re on the same server because if something gets on to one website, it could theoretically cross infect all the other ones or infect the entire server. So you may need to do a little bit of leg work on an individual customer basis and set up pricing tiers to say okay, well based on this number of servers or this number or this number of websites, you’re going to end up in a different tier.
[21:36] You can also combine those a little bit and say one server or up to five websites and kind of say they’re the same thing. I think WP engine talked a little bit about in a podcast I heard about how they segmented their customers and they realized that if somebody had 10 websites, chances were really good that only 2 or 3 of them have a lot of traffic and the rest of them had virtually none and that was applied primarily to bloggers but it has to do with the distribution of how those are spread out.
[22:03] Another way that I can think of to segment the market a little bit is to identify how many times you’re going to hit their website in either a day or a week or a month to say okay we’re going to check it on this time period to see if it’s been hacked or not. Multiple business are going to say I want to know at least once a day or maybe I want to know every hour because I want to make sure that website or the web server isn’t getting hacked. And if it is, I want to know immediately versus somebody who’s just doing it on a more casual basis once a day or once a week is probably fine for them especially if they’re not making any money from it. So those are kind of my thoughts on how to monetize the site.
[22:39] Rob: I think those are all good thoughts on it. The other thing I would look at is I would go to pingdom.com and look at their pricing going to I’d go to sucuri.net because these are related services. Pingdom checks your up time and some other stuff frankly and then Sucuri is malware detection alert and clean up for websites. So they’re more of a competitor for you. And I imagine when you said that you pickup stuff that others don’t, it might be Sucuri whose not because I think they’re kind of the leader.
[23:07] If you look at how they do it, they say one website is $90 a year. Two to five is $190 a year and then six to ten is $290 a year. They kind of do all inclusive plans. I think it’s a reasonable way. You can think about having a one website. If you really want to help out micropreneur you could have a one website tier that’s a little cheaper and then as you get more websites realize well they’ve probably have more revenue so kind of increase the price accordingly as they go up in bulk from as an enterprise that has many websites should be paying more.
[23:38] The other thing, but they’re all these things that Mike said you can pivot on and Pingdom has them as well its like how many SMS alerts do you get? How many email alerts? Do you multi user capabilities? Because if you want multiple users to log in, you have a team of people, then you should definitely be paying more. And these are things you probably don’t have built yet and may just be on your feature list but those are ways to start segmenting your audience.
[24:04] The other thing is if you start doing integrations with anything whether its reporting, pulling in data or pushing data out that in order to use your API you can move that into like a middle tier or a higher tier because just the basic person who simply wants the basic scans might be willing to forgo that in order to pay a lower price. So good question Sean. Thanks for sending that in.
[24:24] I also like the website I have to admit. I think he did a good job here because the headline is “is it hacked?” and then you can enter a URL and they’ll take a look to see if its hacked. And then below that he has want to know more about keeping your site safe? Subscribe to our mailing list. I bet by now he has a decent mailing list of people that when he does go to launch a Saas version or subscription version of this, he actually has a head start.
[24:47] If he hadn’t had that in, I mean you basically have – you’re starting from scratch and even though you site’s been up all this time you don’t have assets. So even though he’s basically doing a free model at this point, Sean is still getting something out of having this site live. He’s basically building a list of people who may be interested in his subscription service down the line.
[25:04] Mike: The other thing I can think of is this type of service just in general I think is aimed more at business than it is at consumers anyway. So I would think that most people are going to be willing to pay for it. I almost feel in many ways if you start down the road of looking at security then changes are good that for somebody to be interested in paying for security, they have to have something that they’re willing to protect or that is on the line that they want to protect.
[25:32] So once you get to that point, changes are good that you probably have money to spend on that anyway. So I don’t know as I would worry too much about the pricing. I understand if you want to try and give back to the community, there are certainly ways to do that. I mean you could have regular pricing plans and then after that, underneath you can say are you a single founder or do you run a small business with one employee? Click here and let us know and we’ll work with you with special pricing or something along those lines.
[25:58] Rob: Our next question is about building a Saas app for a client and turning it into a product. It comes from long time listener Scott Underwood who his emailed before. He says I have a client who requested a proposal for a web app. I have a feeling the bid to develop the app will be higher than he’s expecting. It’s in a niche that I think I might have some promise to market the app as a Saas app.
[26:17] The client has three similar businesses that he would like the app customized for. The apps will be similar but will apply to three distinct business types. So I think it would appeal to a wide market and could be further customized for other similar businesses. My thoughts on how to work these are 1) provide the client with a proposal to create the app for a fixed fee with a monthly maintenance fee and I would retain the intellectual property rights to use the code, to resell it, create a Saas app etc.
[26:42] Option 2) offer to create a Saas app providing him with the functionality he needs and he can be customer 1. I would require him to commit to a minimum 12 month subscription paid monthly so he has an initial lower upfront cost and I have a customer for 12 months. I would also utilize his input and his industry knowledge to improve the app by getting feedback from him and his employees.
[27:01] Option 3) try to get an initial payment of 50% of his first year subscription and then give him 50% off the monthly fee for the first 12 months. There are only one or two similar Saas apps out there in the space and they’re dated so there is room for improvement. The price points for plans are $99 minimum for one location. $600 average for six locations and a high end of about $1,000 for ten locations. I don’t have industry experiences in these businesses but the initial client could provide a lot of feature request and improvement so that the app provides more value.
[27:30] I’ve emailed 10 similar businesses to get their feedback and whether they would be interested in it, benefit from and subscribe to this web application. I’m leading towards option 2 where he agrees to subscribe for one year minimum to the app. The app isn’t overly complex so I think it’s something I could create the initial version of it in a reasonable amount of time to get them up and running and then use his monthly payments to cover improving the app over time. Looking forward to hearing your thoughts.
[27:52] Mike: I think the first thought that comes to mind for me is in your question, there are a couple different ways that you’re trying to get the customer on in committing them to 12 months and paying you on a monthly basis. I would think if this customer really has three different businesses that they’re trying to get this application built for, then it would probably make a lot more sense to charge them upfront a year fee for the entire thing. And that way you don’t have to worry about monthly recurring payments that collections process. You don’t have to worry about it. It makes things a little bit easier. You can probably just get them to cut you a check and be done with it.
[28:24] That does alleviate a lot of the issues with providing them with a price quote that’s going to be well outside of their price range and I think I would first go to them and say flat out look, I think this price quote is going to be far outside your price range. What do you think of this as an option? Let’s just kind of talk through that. So you can kind of float that to them without bringing together a full blown proposal and that’s probably where I would start.
[28:47] In terms of going through and actually making it work I would definitely just try and get them to pay the 12 months and commit upfront to the whole thing. The problem that you’re going to run into that you and the customer are going to need to decide on is when does that time period start? When does that day one of that 12 month contract start because there’s going to be a lot of things that you do that you’re going to try and put these things into the program and you’re just not going to have time for all of it on day one.
[29:15] So there’s going to have to be a line in the sand that you draw to say look, at this point we’re going to pull the trigger and this is when the time period is going to start otherwise you’re going to run into problems down the road as to when the customer thinks that the time should start versus when you think it should start. And you may want to go down the road of having a deadline set at some point. So let’s say right now it’s August. Let’s say you decide December 1st that’s when you’re going to pull the trigger and that’s when the time period is going to start. At some point before then you collect the 12 months.
[29:42] So those are my thoughts on it like I said I would lean towards that initial 12 month subscription and try to get them to just pay all of it upfront and then you can provide them a yearly plan from then on.
[29:53] Rob: My initial thought is this is complicated. While I don’t think it’s a bad idea, I think it’s a last resort. And I think if you could possibly fund this yourself for doing on off hours it’s just going to be easier. It’s going to be less complicated. Because while you’re not technically taking on a partner who has equity, you are going to have someone who maybe thinks that they can dictate every aspect of the app. What if they request a feature and you don’t want to build it? It doesn’t apply to anyone else. It takes a long time to build it. There are a lot of potential conflicts that could come up here.
[30:29] And so I think dealing with the right partner who has an open mind and is willing to work with you on this and is pretty easy to deal with, I think this is realistic. But I think if that person is demanding and or entitled and thinks that by paying you an upfront payment of say $600 a month to about $7,000 for an annual, if they think they could suddenly dictate every aspect of your app that would have otherwise cost him $50,000 to build then that’s a real problem because its going to sideline you. Its going to cost you a lot of time. And potentially a lot of money.
[31:04] If you think about it, building this app, it would be good to have this person’s input because they do have the industry knowledge but frankly marketing it and trying to find that next market, because if you build three versions, I don’t know if you’re going to own all three of those, how you’re possibly going to market all three of those, that’s the real concern. That is an enormous amount of time. If they really are Saas apps that need full on kind of marketing and scaling and all that. It’s not something that one person could easily do.
[31:33] Mike: I think what he’s trying to do is solve the same problem for three different businesses and he’s charging the person for three different subscriptions.
[31:42] Rob: Yeah. That is the thing. You would need to charge for three subscriptions because although you may not have to write the code three times you are going to have to support three different apps, three different instillations, three different deployments, all that stuff. If your client thinks that he can basically pay once and then get three versions out of it, I think that’s another thing to think about is that there’s always a lot more with having three apps than just writing that shared codebase. So in general, I’m not wild about this idea. I don’t think it’s terrible but it’s not an ideal situation. It’s not a scenario I personally would embark upon.
[32:14] Mike: Would you be more comfortable with it if he built the whole thing first and then basically work through the issues with the person and then said okay, if this meets your needs then I’ll charge you for those? Because it seems like that’s really the sticky issue is getting the customer involved so early on the they feel they’re involved in the development effort and its really being customized for their environment.
[32:36] Rob: That’s right. That’s my big concern is you have kind of a marriage there that needs to be well defined as to what their role is and your role is in the specific ownership and who can dictate what gets in the product. Because if stuff goes down in the middle and they request a feature and you say no we’re not going to build it and they get really upset about it and what are you going to do? How do you resolve that? So thanks for the question Scott.
[33:00] So our last question today comes from Brian Donahue. He says hi guys I’m a newbie academy members and I attended my first MicroConf in April. I was very glad I was able to attend. There was one idea that was espoused repeatedly that I’m struggling to understand how to put into practice, the idea that you should sell your product before you’ve written any code. That sounds great but gives me all kinds of anxiety just thinking about it. I’m wondering how the looks in practice.
[33:25] What is the sales pitch? What promises do you make? Are you promising a delivery/lawn schedule? If they actually give you their credit card and you take their money, how long can you reasonably wait before they have something usable? If you have any experience or stories you can relate about this was done successfully, what things need to be in place and how to pre-launch customers engage in and get value from the process, I think that would make for a great show. Well if there’s some info you can point to me that I missed that explains in more specifics, I’d love to find it. Thank again for all your hard work. It’s usually inspirational.
[33:54] Mike: I think one of the things you have to keep in mind when you’re asking people for money or you’re asking them to commit is not necessarily that you’re asking them for the money. It’s asking them for a commitment to at least give the product a fair shot. When push comes to shove and you deliver the product or you’ve handed it to them, put it in front of them and said hey this is what I built. Let me know what your thoughts are. Is this something you’re willing to pay for? And that’s really what you’re trying to get. You’re just trying to get that commitment.
[34:20] It’s not about the money. That money could be a dollar. It could be down payment on a house and to the actual dollar amount in some cases are somewhat immaterial which you really just want is them to give it a fair shot and be in enough pain that they’re willing to come back to your site later on based on an email to actually follow through and sign up. And that’s what you want. You want that commitment. It’s not about the dollars. It’s not about them saying yeah, I want this and I want it in three weeks or three months. Chances are really good if they have this problem now they’re still going to have this problem in three months. They’re still probably going to have this problem in six months.
[34:54] And depending on how painful that is, if the problem is so incredibly painful that they need a solution immediately, there are going to be other people out there like them. So I don’t know as I would worry too much about them finding another solution because if they do find another solution that’s market validation for you. It means there are other products in the market that are solving that problem and you’re going to be able to carve out a space for yourself in that market.
[35:17] Rob: I think Brian’s talking about – a few people pointed out that you should actually get a credit card and charge their card or get a check from them maybe and don’t cash it. As a true commitment that until you have that, you don’t have a true commitment that they actually are going to value what you’re building. I’ve never done that. I don’t think it’s necessary. I do think it’s probably better or I know it’s better than getting a list of emails.
[35:43] But I find that asking someone for a purchase commitment upfront before you’ve built it will – if you do it online in pages in example, it will substantially reduce the number of people who you’re actually going to be able to engage with later on because you have to really sell hard on that page in order to get them to put their credit card number in. Whereas if you promise what the app is going to do and then you get email addresses, you then have a way to contact them and a way to explain what you’re doing and give them updates and get buy-in on the process and hopefully convert them by engaging with them over time and showing them what it is you’re building.
[36:18] So if I was going to do a solely online, that’s definitely how I’d do it. That’s how I’ve done Drip. And for an example you can go to getdrip.com right now you can see the landing page and that’s the promise that I make to people. That’s how I sell before coding. On the flip side, I do know there are people who cold call or get in face to face conversations and then do actually ask for the credit card. I think if that feels odd to you, if it feels scary then maybe don’t do it this time around and wait until you have your legs under you or wait ‘til you have an app that you’ve launched you feel more confident about it and consider at that point.
[36:51] I don’t think that there’s only one right answer to this question. I don’t think the end all be all way of doing it is to always get credit cards because again I think it limits the number of people – not only limits the number of people who you can kind of get in to your early access but it means you really have to flush out early on exactly what you’re building. Because if you explain kind of a vision or a value prop, it’s hard to get someone to write a check for the first month or the first six months of that. It’s really hard.
[37:17] But once you have something to show them then you can say alright, does this do it and how can I chance it so that it does provide you with the value to write that first check? There’s a range here of things you can do and what you feel comfortable with is probably what’s going to work best for you and I do think multiple options are viable here.
[37:34] Music
[37:37] If you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or email it us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.
Episode 146 | Product Companies Vs. Service Companies
Show Notes
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I discuss product companies versus services companies. This is Startups for the Rest of Us: Episode 146.
[00:08] Music
[00:17] 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.
[00:26] Mike: And I’m Mike.
[00:27] 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?
[00:31] Mike: Well I just got back from vacation. Naturally because of that, I’ve gotten nothing done over the past week or so but other things have still been moving along as the different contractors. I have been working on things here and there. And because of the way some of the things in AuditShark work, I can just make things up and they’re like I didn’t know I could do that and I’m like well, it can now but only because I designated that role case.
[00:52] Rob: Nice. Because you were like off the grid for a few days.
[00:55] Mike: Yeah. We went over to Niagara falls first and spent some time out in that side of New York and then we went to the Adirondacks. From the beach I had 4G wireless access which is kind of awesome.
[01:07] Rob: Awesome. Yeah that is cool, so you could go down there and watch the kids play and get some stuff done.
[01:11] Mike: No, I got nothing done. I sat in the beach and got sunburned.
[01:15] Rob: But you said hey look, I have 4G and I’m not going to do any work.
[01:19] Mike: Exactly. That’s really what happened.
[01:20] Rob: Because whenever I come back from vacation I find that I’m either totally charged up to hit work really hard or I come back and I’m completely unproductive because I would want to stay on vacation. Do you have a typical mode that you come back or does it vary? And how do you feel coming back off of this one?
[01:36] Mike: Because it was such a long drive on Friday and when I got back, I wanted to do nothing for the rest of the day but then on Saturday I spent 5 or 6 hours doing work and I actually got a lot of work done on Saturday. But the past two days, because today’s Tuesday, I really haven’t gotten very much done because I just haven’t really felt like it. I had that burning desire to get things done when I first got back and then it just completely went away for a couple of days.
[02:02] Rob: Yeah. Well we want to send a congratulations to Josh Pigford. He’s a MicroConf attendee this past year and he runs pop survey. He just launched a new app called temper and it’s ate temper.io basically it’s a way to survey your customers on an ongoing basis and to find out how your customers feel about every aspect of your business. So it’s kind of like a little mini survey tool. It’s pretty neat. And he’s basically created a little coupon code for our listeners. It’s a SAAS product so it’s a monthly subscription.
And if you used coupon code podcast, you’re going to get 50% off forever, for as long as you are a customer. So if that’s something, and I’m definitely going to be looking at getting something like this into Drip especially in the early days to figure out how frustrated people are. There’s a bunch of different options but the one I like is kind of the multiple faces and there’s like a sad face, a medium face and a smiley face. And then you can prompt them from their based on what someone clicks when they log in.
[02:55] Mike: Yeah. That’s really cool. I really like the way he’s kind of built the website on and the design and the product itself looks really interesting. It’s very crisp.
[03:03] Rob: I feel the same way about pop survey. The other thing I like about this is I’ve seen it, this functionality custom built in several apps that I use and I’ve never wanted to custom built, and I am so willing to pay for something like this that allows me to – I’m assuming it’s just a snip of a java script that you drop in. I’m so much more willing to do that than to have someone, one of my developers taking off the core app to build a little off shoot product like this.
[03:30] Mike: Yeah, so congrats to Josh on that. Have you checked out the Gmail tabs at all?
[03:35] Rob: Yup. I’ve disabled them after about three days. It was like I had three inboxes to check and I hated flipping through the tabs.
[03:42] Mike: Yeah. I’m kind of in the same boat. I’ve been using it for two days now and you’re right. It feels like I’m flipping through different inboxes and its just like why am I doing this again?
[03:53] Rob: Yeah. I understand the gist of it. I think it depends on how you use your inbox. I actually stuck with inbox zero for 6-8 weeks and just last week I got an inrush of emails and I probably have 20 in my inbox right now but I’m trying to get back to inbox zero. And since I do that and I put things in my Trello list instead of trying to keep in my own inbox. Having the three inboxes – it just didn’t work with my workflow.
[04:18] Mike: I think what bugs me about it is it doesn’t seem that you can customize it be on the tabs that they give you. They give you these certain tabs and that’s it. But I don’t really see them as any different than the labels and stuff that you can apply to things as they come in. You can just say oh well, if it matches these criteria then mark it with this label or that label. I just don’t see it as any different because those labels all appear on the left for me as opposed to the tabs which go right along the top.
[04:43] Rob: Right. I think they’re supposed to learn a little more than your filters. Your filters are static when you set them but…
[04:49] Mike: Yeah. And you can drag and drop things. It will learn but I just don’t really see the point. As you said, I mean if you got one inbox that you’re trying to keep to inbox zero, you feel like you’re switching between 3 or 4 different inboxes. And it kind of sucks.
[05:04] Rob: so I was on the bootstrap web podcast came out a day or two ago and its by Brian Casel. He launched sweetprocess.com we’re actually putting together your SOP docs, your standard operating procedures and other ways of organizing docs for VA’s and other processes. So he interviewed me about scaling a portfolio of software products and it was a pretty fun interview because it wasn’t stuff that I – it was some specific questions that I haven’t answered in the past on other interviews.
[05:31] It’s nice we spend almost maybe 50-55 minutes going into this stuff that we don’t have time necessarily to cover on this podcast and never going to talk on it. So I’ll like that up in the show notes and if you go to casjam.com you can check out that episode.
[05:48] Robert Graham who’s a lifetime academy member, been to every MicroConf, he posted a really insightful comment on episode 144 and it was regarding Dave Ganoe who has sent us a question. And he was considering building an expense tracking apps for engineers and construction firms. So Robert’s comment, the full comment is there. You can read it but I just want to excerpt that.
[06:11] He basically said if you’re serious about the engineers/construction niche, I have a few pieces of advice. There are professional organizations with local meetings for civil engineers in particular. They’re always looking for speakers. Be a speaker. Additionally, go talk to some engineers out there. It’s not hard to send out some hand written emails after researching some promising targets. 5-10 in person meetings will change a lot about how you approach the niche. You can get that done in less than 4 weeks without any trouble. I validated an idea for consulting engineering firms and I built a list and did this in the Austin Texas area.
[06:41] One thing that Rob and Mike did not mention about outbound sales but I think is really important to keep in mind is you may have to do it to get jump started. Jason Cohen’s MicroConf talk included an anecdote about scratching and clawing to get your first 50 customers. You do need a repeatable and affordable channel to build the business but you shouldn’t quit until scratching and clawing and totally unscalable ways doesn’t work. Also happy to chat by email, Dave.
[07:03] So Dave, if you’re listening to this and you would like to get connected with Robert, you can click through to his site. He’s at coldcallingbook.net or you can drop us a line and we’ll connect you with him. So thanks Robert for the obviously good comment and for offering to help out with Dave.
[07:17] Music
[07:21] Mike: So this week we’re going to talk about some of the differences between product and services companies and kind of contrast them a little bit, talk about where the overlap is, talk about some of the pros and cons of where they might be jealous of each other I’ll say.
[07:35] This particular episode is inspired quite a bit by Patrick McKenzie’s blog article where he actually – there’s two different blog articles where he does products versus services and then services versus products. And discusses some of the pros and cons but he also talks about how each of them can learn from the other.
[07:51] Rob: So the purpose of this episode is so product companies can realize that they might not have it as good as they think and service companies can realize that the grass is not always greener on the product side. Is that the idea?
[08:05] Mike: Yeah, that is the idea. And especially when you’re first getting started on the software side, I mean there’s a lot of pressure to go move more towards the services side just because it’s so much easier to build your business in the beginning when you’re doing services because services, it’s very easy to customize those things. Whereas when you build a product is its very much set. It’s trying to solve a very, very specific problem.
[08:27] But with services, you can talk your way around those things. Say well this can’t do that right now but I can make it do that and here’s how much it’s going to cost and how much time etc. When you’re offering a product, it’s very much pre-packaged. It’s hard to do that unless you’re doing an in-person sales. We’re going to talk about some of the pros and cons of each of the different types of companies.
[08:46] So why don’t we start with the pros of being a product company? Running a product company. I think the first one is with the product company, you can typically scale it a lot higher with less people. Usually when you’re trying to scale out the business in terms of the problems that its solving, you use automated resources like you’re throwing additional servers at the problem or you’re writing more codes to solve additional problems or to do it for more people.
[09:10] This is one of those classic draws for product companies where you don’t have to hire more people to process more data from your customers. You simply write more code or you distribute it among more servers and you’re paying for more servers as opposed to paying for more employees to process work.
[09:26] Rob: Right. So when you say scale higher you mean in terms of revenue right? Growing company?
[09:30] Mike: Well both in terms of growing revenue but also in the size and scale of the problems that your solving. Let’s say that you’re analyzing data for customers and whatever that analysis might be, let’s say that you reach this tipping point where one server isn’t enough to solve the problem. You can add another server.
[09:50] Versus if you’re running a services company, somebody gets to the point where they’re overworked, you have to hire somebody else. Well the problem with hiring a new person is you’re doubling your cost which is fairly substantial for having an employee. But when you’re adding a server, the cost of adding a new server to you infrastructure is monumentally less than it is to hire an employee.
[10:13] Rob: Right. And this is I think the holy grail of product companies and why anyone who’s doing services are – I’ll say most people who are doing services do have their eyes on doing products. My eyes were first opened to this when I was reading Joel Spolky’s blog back in probably 2001-2002. He just talked a lot about the economics and product companies and now something takes off, you get a product that really does start scaling up. it can be just astronomically different in terms of having to hire employees.
[10:41] You can just have a much smaller team and yet still like you said, solve bigger problems or have a lot more revenue which I think is probably been the goal for most of us.
[10:52] Mike: Another pro of having a product company is that you’re typically a lot less dependent upon a single customer. When you have services companies, obviously you have to deal with selling those services to the customers and there’s a lot more revenue involved. However, you’re trying to spread that revenue out amongst multiple customers as a product company because you don’t want all of your eggs in one basket. You want lots of people paying you smaller amounts of money so that there’s not one single source of revenue if they decide oh, I don’t need your services anymore, then you’re going to go out of business. Whereas with a product company its really the opposite.
[11:26] Rob: Yeah. This is a big one. I worked with a couple of confuting clients back when I was still doing it who yeah, they just weren’t that easy to work with. And since they were either 50% or 100% of my revenue, I couldn’t really turn them down. It’s so hard to fire a client when you only have one or two of them. I really do think perhaps one of the biggest perks of owning a software company that’s building products is that you really shouldn’t be reliant on any single customer or even any small group of customers.
[11:58] And if you are, I’ve heard of some folks who do this who get this really big contracts and there might be one customer who is 40% or 50% of their revenue and that’s something to get out from other as soon as possible if you find yourself in that situation because at that point, that customer has a lot of control over you. So that’s something like I said, definitely consider trying to solve if you find yourself in that problem.
[12:20] Mike: Yeah and that kind of lands into the next positive thing about having a product company is you control the direction. If a customer wants something out of their products, you can just say well no, it doesn’t do that and it’s not going to ever do that. Very similar to what you just said, if a single customer is locking up 75% or 80% of your revenue then it’s very difficult to tell them no, because then they can just turn around and walk away.
[12:46] But with products, because that is distributed amongst different customers, if one of them comes to you and says hey I want you to build XYZ, you can just tell them no, that doesn’t fit in with our product strategy and you can essentially just move on right there.
[12:58] Rob: One of the big perks of being able to control the direction I think is you’re able to express some of your creativity. You’re able to come up with unique ideas, interesting approaches to solving a problem within your app. You just don’t have to do what a team of people or some committee is deciding. Again, back when I was consulting, it seemed like there were always five people that had to be notified of making any type of decision. So we’d go on to do something what I consider like an innovative or a cool approach to doing something.
[13:28] By the time you get to all these people who just want to keep their jobs and really want to do the same thing, then they’d say well we’ve been doing it this way forever and you’re basically just – you do more or I wind up doing just more boring stuff. that wasn’t not only not creative but I actually think it wasn’t as good a way to solve the problem. And so if you’re able to control that direction, I think like job satisfaction goes up because you’re just able to build something that’s more interesting to you that you can be more proud of.
[13:56] Mike: The biggest pro that you can take away from a product company is that you can take time off and customers generally don’t notice this especially if you have already built your marketing funnels and your sales funnels. And you have most of the product pipeline automated customer support has to be dealt with in some way, shape or form.
[14:12] But that again is something that you could potentially outsource as opposed to when you’re doing services and providing services, if you take off for three weeks, the customer’s probably going to notice and they are not going to be happy about paying you for those three weeks. Whereas if they’re using a product that you’re making available from your website or you’ve already sold them, then they use that and whether you’re around or not, they’re still going to be able to use it and things should still work properly.
[14:37] Rob: Yeah, taking time off is way easier than when you’re consulting. In addition, your mobility tends to increase and your ability to work when you want even when you are working. So if you’re a night owl, you can work then. You can kind of wherever. With MicroConf Europe happens in October, I’m actually bringing my wife and my two kids and we’re going to be in Europe for a month.
[15:00] I’m going to do some work from there. I’m going to do maybe 1-2 hours a day to keep up on things but that’s a lot of flexibility that I really wouldn’t have if I was consulting. A lot of consultants have to be on site and even if you don’t have to be onsite you tend to have to work certain hours even if you’re working remotely so there’s definitely a lot of time and location independence that products can bring.
[15:23] Mike: And if you’re a services company you wouldn’t be able to put in one or two hours a day and still expect to be able to be compensated for the entire day or the entire week. It’s a completely different story. So let’s talk about some of the cons of running a software company. I think that most of these cons tend to be much more front loaded.
[15:44] So if you are starting up a software business and you’re just getting started, you don’t really have a full pipeline of sales. You haven’t really quite hit the product market fit. I feel like these problems are a lot more pervasive into people’s thinking. The first one is that your software tends to solve a very fixed problem.
[16:03] Again if your software solves just one problem but it does it really well for lots and lots of people, that’s great. But when you’re first getting started, you don’t have the revenue to be able to rely on it. So because it just solves a single problem, you’re looking at the services company saying man, I wish I could just turn this a little bit so I could use this in addition to maybe doing consulting and charge them extra for this and do more of a scope of work where you’re reliant on the product but you’re also bringing in your skills to solve the problems that the customer has.
[16:33] Rob: Maybe a sub point to this is since you do solve that fixed problem, if you get a couple of years down the line and your app has become mature and its really solving the problem well, you can find yourself not feeling as creative as you did before, maybe not being as interested in the work you’re doing. I think that you’re less likely to get bored if you’re doing services, if you are a consultant and I think product companies at a certain point when you hit a success level, they do become a little mundane.
[17:01] You have a lot of legacy code to maintain. There are certainly some drawbacks that you wouldn’t see with services companies in terms of it moving to new projects all the time because its often learning new technologies and really being challenged typically with Greenfield development.
[17:17] Mike: Another problem with product companies is it really takes time to hit scale and you’ll read about a lot of these product companies that feel like they come out nowhere but the reality is they’ve been at it for a very, very long time until they got to the point where you even heard about them. And suddenly they’re wildly successful because you didn’t hear about them until yesterday. Reality is most have been working at it for 3, 4, 8, 10 years before they really achieve that level of success that they are more well known by the general public.
[17:47] Rob: Yeah. We talk a lot about that 4-6 month timeframe just to get to launch which is kind of when the journey begins and I would say at least another 4-6 months to kind of learn about your customers and just learn about who gets value out of it and tweak. So now you’re 8-12 months is a reasonable estimate. That’s just about the time you can maybe start figuring yourself out and get to product market fit and actually start doing enough marketing to scale your business.
[18:13] So that’s on the low end. That’s when you’re just starting. And then if you nail everything, maybe it’s another 6-12 months after that, then things are really picking up. So it’s a multi year time frame to hit some that brings in as much as say a consulting firm even if you’re just a one person consultant could bring it on day one.
[18:31] Mike: The next major problem with a product company is there’s no statement of work that clearly tells you what the customer wants. So this is a problem for every product company. I almost don’t think that it is limited to the smaller ones or the ones that are just getting started. Even when you’re trying to make big changes or you’re trying to offer new things to the customers, it can be very challenging to figure out what those are even if you are talking to them because you’re not always on the same page with them. You’re not always using the same terminologies for customers.
[18:58] So it can be very, very difficult to figure out exactly what it is that they want and to be able to present it to them in a way that’s completely understandable such that they’ll look at and say yes that’s exactly what I was looking for, heres my credit card.
[19:10] Rob: Yeah. There is a challenge coming from both being just a software developer or as a like a developer who’s also a consultant is that coming into products is a different game since there isn’t someone there telling you what to do and how to do it. It’s a learned skill and it takes a lot of – there’s a bit of luck in it, of actually getting something that people want but there’s a lot more of talking to a large number of people rather than being able to just sit down with a client who’s writing a really big check and saying what do you want me to build? How should we build it? And working with them to do that, so that’s definitely one of the challenges of building products.
[19:42] Mike: the next problem that product companies usually run into is that when their customers are looking at the product that they’re selling, they are usually going through a lot of comparisons that you as a software vendor not probably to and you can’t talk your way around them because you’re not in those conversations. So you essentially have to build the marketing material on your website in such a way that it addresses those objections that the customer might have and is able to present them at the right times when the customer is making those evolutions.
[20:10] Because they’re going to be looking at not just your product but some other products as well and any of your competitors products, they’re going to take a look at those too. And they’re going to be evaluating pricing, they’re going to evaluate features and possibly even support. Maybe they’ll call up the competitor and find out how quickly their support gets involved. Or they’ll send emails, things like that.
[20:28] I’ve seen customers do this where they’ll – in order to figure out which vendor is the best vendor, they’ll send out emails and contact their support before they actually follow through with the purchase in order to figure out which ones are going to be the better vendor for them moving forward. Sometimes it’s not all about the products. It’s not all about the features. It’s about the support that you provide. And if you’re not providing that timely support, they’re going to walk.
[20:50] Rob: It’s hard to sell a product when you’re not talking to them face to face or when you’re not involved in the conversation that’s going on in their head and that is definitely one of the drawbacks of running products the way that we do like doing the more low touch scalable model you really need to know you customers well and you didn’t know how they think about your product because your copy everywhere will find your website, and your emails, just anywhere they see it, in your app, your help, everything has to be perfectly honed because as soon as you lose someone, you don’t have a chance of explaining something twice. As soon as you lose someone, it’s just so easy for them to wander off and try a competitor.
[21:29] Mike: I think the last major obstacle that product companies have is growing monthly revenue is extremely hard. And although you’re running a SAAS company is really the kind of Holy Grail of software companies, it is notoriously difficult and if you doubted it in any way, shape or form goes take a look at Gail Goodman’s talk from the business software from last year about the long slow SAAS ramp of death. And it’s an hour long but it’s very good. Watch that and you’ll see just how difficult it was for constant contact to get to where they are. And although they’re wildly successful, it was not an easy road.
[22:06] Rob: It can be kind of a crap shoot. We know that there are ways to improve your odds but consulting, you tend to go sell a project and the odds are good that you’re going to get paid, you’re going to get paid well. You’re going to know in a few weeks if you’re not going to get paid. Whereas building a product, you can spend months, years toiling away and still not have success. Its way easier to fail when building a product than it is when you’re just consulting one on one with folks or even starting a small consulting firm.
[22:35] Mike: So now that we’ve talked a lot about the different pros and cons of running a product company, let’s talk about services companies and what sort of things they bring to the table. With a services company, you’re essentially selling consulting services. It can be anything from custom programming to systems management. It can essentially even be as little as outsourced systems administration for example.
[22:56] I mean if somebody could pay you to go to their website everyday and do the same thing day in and day out and essentially what you’re providing them is a service that you have to manually go in and you have to execute them. But you’re really relying on human resources at that point to execute on whatever those tasks are.
[23:14] One of the biggest pros of having a services company is that you typically charge more per customer. And in fact you tend to charge exponentially more per customer. And the reason for that is because everyone knows that when you’re buying professional services, it doesn’t matter who you’re buying it from, there is a human on the other end of that who has to deliver those professional services and that human is going to be expensive in terms of what it cost to keep them employed and all the different benefits that go along with it.
[23:41] There’s an expectation that the customer has that they’re going to generally pay more for that than they would if there was just a pre-packaged off the shelf solution that they could buy, that would execute that process.
[23:53] Rob: The nice part about this is you can actually have a pretty low traffic source, something like even a blog that just gets mildly popular. If you get one lead a month, one consulting leads a month that you’re able to close or one every 2-3 months, you can make a full time living from that. I actually back in the early days, software by Rob where I was one more about coding and that kind of stuff, I would get 1 or 2 inquires a month for consulting services and that was it.
[24:23] Some of them were for $50,000 and $100,000 projects. I didn’t need many of those to kind of fill out my year. Whereas when you’re trying to sell a product for a couple hundred dollars or $20 a month, you just need so much more volume. There’s just a bigger challenge there.
[24:39] Mike: Another nice thing about running a services company is that in some ways it can be easier to avoid working with problem customers. The way you can take a problem customer that you have and you can essentially push them out is to either charge more or fire them. If all of your revenue or the vast majority of your revenue comes from 1 or 2 customers, it could be very difficult to fire that customer but you can always go to them and start charging them more.
[25:02] And essentially what you’re doing is you are justifying the pain that it takes you to deal with them by charging them more. That’s one strategy that you can use to essentially deal with some of these problem customers. And it doesn’t make the problem go away. It just makes it more palatable.
[25:16] Rob: Yeah. With my experience, I actually find it easier with products to not work with problem customers. They’re just easier to fire, to let go off, because the revenue is such a small percentage. But I will say that I found there are a lot more problem customers. A lot of people paying us $20 a month have higher expectations of what we should be doing than the people who used to pay me $20,000 a month for consulting. It’s pretty funny.
[25:42] Mike: Yeah, I was talking more in terms of avoiding working with problem customers like you can tell when you’re talking to somebody when you’re trying to work through the terms or the scope of work or something like that. You can tell when you’re talking to somebody whether they’re going to be a problem customer. And it’s usually fairly obvious. There are a lot of red flags that people send up.
[26:00] You can just tell sometimes that somebody’s going to be a problem customer and then you can just say oh well, other things have come up. Versus – I think that’s a different position than if you are already working with somebody and then they essentially turn into a problem customer or they already were and you just didn’t notice.
[26:16] The next pro for a service company is that it’s easier to customize your service offering on a per customer basis. One of the nice things about running a service companies is if you have a standard set of things that you’re doing for a customer, you can pre-package your service offerings as if they were product.
[26:30] And that allows you some flexibility, allows you to do a lot more standard marketing through SCO and a lot of things that you would do for a product company. And you can essentially have this off the shelf package that somebody can buy and they know what they’re getting. You’ve already essentially laid it out for them but in addition to that, if there are things that somebody wants that aren’t in there, you can customize that for them and say hey, you know what, I know that we said we would do these 17 things but you’ve expressed interest in these four other things that our service offering doesn’t do, I‘m willing to do those and this is how much extra it’s going to cost.
[27:06] Versus if you’re selling an off the shelf product, you’re not involved in those conversations. It’s difficult to say oh well we can also do that for you or we can add those into the product and its gonna take an extra amount of time. You’re not involved in those conversations; it’s difficult to let them know that.
[27:22] The last pro for services is that people understand paying for services. They get that if they’re buying consultant services for software development, they’re paying for a software developer to go and build software for them. When they’re paying for a product especially something like a SAS application or even something that goes into a database and documents it. It can be very difficult for somebody to get a sense of how much value is this providing to me, how much value is this providing to the business? Is this price that I’m looking at paying justified? What does the pricing that the competitor is charging?
[27:57] And they’ll go and try and figure out those things but it’s still very difficult for most people to understand them. And that’s why when you go to some of the different product companies websites and they’re able to lay out all of the different value propositions for the software that they’re providing. Those are the ones that tend to do really well versus the ones that don’t really have those comparisons and its difficult for them to essentially justify their own existence.
[28:22] Rob: And I think especially if you’re dealing with more consumer oriented markets like the mobile app market. The pricing there has just been devastated by the app store specifically apple’s launch of the ios app store. So that people expect to pay $1 or $5 per software now. And I’ve heard from some developers I know that people are paying 99 cents for something they’d be super demanding about like specific features they want built and they would actually like basically try to extort them or blackmail them by saying I’ve going to leave you a one star review unless you do this.
[28:57] Its 99 cents like it’s crazy. Whereas most people pay for someone for some service at some point whether its lawn person or someone to come do your plumbing or your mechanic or something. So you’re right, it is just a little more palatable even in the consumer space for doing that and then definitely any type of B to B situation, people know the cost of developers and that kind of stuff. So there’s going to be so much more flexibility with pricing and then you’re sitting on a five figure bill in front of someone makes a lot more sense if they’re actually getting a specific human being to do something rather than just having an off the shelf software.
[29:33] Mike: So now that we talked about some of the pros of a service company, let’s talk about the cons. I think there are a lot of them who kind of filtered out the list a little bit. One of the first things is if a customer asks for something that can be done you usually end up doing it even if you don’t want to. The primary reason for this is they’re footing the bill.
[29:51] So if the customer puts their foot down and says hey I really want this, then you generally have to do it because you’ve agreed to work for them for whatever the amount is per hour per week and they’re basically calling the shots or making the rules and they’re saying I want this done and this is how much I’m paying you for it.
[30:07] And a lot of times, if you’re under some sort of a contract like that, you really don’t have a choice. I mean you really need to go through and get those done versus a software company where you’re selling off the shelf stuff you can essentially tell the customer look, that’s not in our roadmap or it’s not going to be useful to other people. It’s not something that we’re going to follow-through and do because we never committed to doing that. It was never part of the long term goal or the current implementation of the product.
[30:29] Rob: Yeah. When you’re building a product like I said before, you just have a lot more creative control and when you’re working for someone as a consultant, you need to be a little bit political about things. You often need to be very diplomatic. And sometimes that works and sometimes it doesn’t and so like you said, sometimes you wind up doing things you don’t really want to do but maybe you can’t. You just kind of can’t say no because they are the client after all.
[30:51] Mike: The next major downside to a services company is that cutting costs generally mean firing people. I’ve had to go through this before and its absolutely awful. And it’s not so say that’s going to happen with every single consulting company or even most of them. You can certainly structure the business in such a way that you’re hiring subcontractors yourself and at that point those people are responsible for their own salaries and you don’t have to worry about it.
[31:17] But the reality is you do have to worry about it because if you’re not paying them, they’re going to go elsewhere and you’re going to lose them to either competitors or they’re just going to go off on their own and you’re not going to have access to those resources. You really want to be able to provide the same resources to people over and over again as if you were a product company even though you’re not because you want at least some form of consistency between one offering and the next. You want to be able to leverage the feedback from one customer to help you land the next engagement.
[31:44] Rob: Yeah. I think the other part of this is I found my revenue when I was consulting to be fairly erratic. If you have long term arrangements, obviously that’s different but even with some of the long term gigs I had, they would end abruptly and then I didn’t have other relationships so I’ve kind of scrambled to find other people. And since you only have one client or two clients often that are paying, such a big percentage of your revenue, it does make it more of a challenge than if you have some type of recurring revenue with a product or even if you have one time sales from a product, those, they do tend to be what I found a bit more stable than consulting income.
[32:19] Mike: I also think in general if you take aloof at services companies versus product companies, I think services companies tend to have lower margins than product companies. And part of the reason for that is as we said before, as part of the pros of having a services company, people understand what they’re paying for. They understand paying for somebody’s time. And the problem with that is they also know how much that person’s time is worth so it can be very difficult to charge exurban amounts of money for spending an hour or three hours with somebody unless you’re able to justify that with a solid marketing value and proposition.
[32:52] Next, if you or your employees are not working as a services company, you’re generally losing money. Also once you get to a certain scale as a services company you tend to have middle management. And because those middle managers are not actively working for customers, they’re essentially managing the people underneath them. They’re not contributing to your bottom-line.
[33:11] So especially you have a lot of additional overhead there anytime you bring in middle management and then in addition if you don’t keep those people busy and even if it’s just yourself, if you’re not working as a consultant, you’re generally losing money. Using a subcontractor will shift the overheard burden to them but at the same time, using subcontractors cost more.
[33:31] But in some ways it feels like it hurts less when you’re using a subcontractor and you just don’t have them booked versus having to pay for an employee and they’re not booked for let’s say two weeks at a time and you have to pay for that person even though they’re not working and they’re not contributing any billable hours to the company.
[33:47] Music
[33:52] So I think that about wraps this episode up. I think one of the points Rob and I want to make is there are pros and cons to each different type of company and although we run software companies and that’s kind of the direction that we’re going it’s not necessarily that running a product company is the best decision for everybody. There are perfectly valid reasons to go down the road of building a services company.
[34:12] But I think it’s important to understand there are pros and cons to each of them and it’s not like going down the road of product companies is going to magically remove all of the problems that you could’ve ever possibly thought that would happen to you as running a services or a consulting company. In short, the grass is not always greener on the other side of the fence.
[34:28] If you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or email it to us at question questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 145 | Does Lean Startup Work for Bootstrappers?
Show Notes
- WordPress Digital Signature Plugin
- Nice slideshow overview of Lean Startup Tenets
- Lean Startup Wikipedia page
- Lean Startup book on Amazon
- Lean Startup website
Tenets discussed:
- #1: Startup Defined
- #2: Validated learning
- #3: Build-measure-learn feedback loop
- #4: Minimum Viable Product (MVP)
- #5: Innovation accounting
- #6: Pivot
Lightning Round
- #7: Customer development
- #8: Problem-solution fit & Product-market fit
- #9: Continuous Deployment
- #10: Split testing
- #11: Actionable metrics (vs. vanity metrics)
Transcript
[00:00] Mike: On today’s episode of Startups for the Rest of Us, Rob and I are going to be talking about lean startup. This is Startups for the Rest of Us: Episode 145.
[00:07] Music
[00:14] 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.
[00:22] Rob: And I’m Rob.
[00:23] Mike: 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?
[00:27] Rob: I noticed that you have a really cool email opt in widget on auditshark.com as well as a nice email mini course that looks like you launched this week.
[00:36] Mike: I did. Did you like that?
[00:36] Rob: I did. Mike is now using Drip. I logged into the Drip dashboard and I noticed that his account was all setup went to Audit Shark and it looks like your conversion rate is going really well. Your subscription rate is going well and your course is frankly one of the better ones that I’ve seen. Yours has a lot of data and a lot of research and I’m looking forward to the rest of it. I‘ve only seen the first email at this point.
[00:56] Mike: Yeah. I’ve sent it out to a few different people and they forward it on to some other contacts in the industry. I think that might be influencing the conversion rate a little bit but you and I did track through and it looks like the conversion rates are pretty good anyway but it’s nice to see that – and just in talking to a couple of people, the information they’re seeing in there is really good so far.
[01:15] So I kinda want to wait ‘til people get through the entire course to give me feedback on the entire thing but I’ve re-read everything a couple of times, gone back and forth through some of the emails and the sequence, just to make sure that I’m not repeating myself too much and that it naturally leads from one email into the next.
[01:32] Rob: Yeah. Very good. What’s nice is every subscriber you get to that would’ve just come and left the site even if you get 20 or 30. I mean there are some people getting a few hundred a week, yeah, just nice to be able to follow-up with them later. It’s kind of building your early access or your beta list depending on the stage you’re at.
[01:47] Mike: And of course the obvious benefit since I’m seeing their email addresses is to be able to track them back to see the types of companies that are taking a look at it. Obviously you can’t really do that with Gmail account. But when you start getting corporate domains in there for the email addresses, it’s really nice to go in there and say they’re a PCI compliance company. Maybe they’ll look and use Audit Shark for their customers or they’re a health insurance company and it looks like maybe they want to lock down their servers and do HIPAA compliance on those machines.
[02:13] Rob: Yeah I’ve been doing the same thing. So Drip is continuing to move forward there at the point where I frankly don’t even have account on the number of people who are in there using it. It’s in the low to mid 20’s at this point. Another paying customer this week, the trial ended. Like I said, I’m doing trial period based on I log in and I say hmm, I think they’ve received enough value from this and I’m going to email and say do you think you’ve received enough value? Are you interested in paying? We’ve got one more this week and think I’m going to email another guy today. It’s cool.
[02:42] So revenue’s in the mid three figures, that’s the SAAS ramp. That was in July and I’d expect to double or triple that this month and then move on from there. The plan is in the next – we have about 2-3 weeks left of features that we need to get in because to this point I’ve been doing so much stuff one off in terms of on boarding people and the trial emails and just all that touching base. So we need to get all of that automated because I want to email a couple hundred people on the launch list. And before I do that, I’m going to need to get stuff in place to automate it because I just can’t do that part manually. So that’s about it.
[03:19] So hopefully it’ll probably be a couple more weeks before things really start to move with Drip. Busy behind the scenes building a lot of features but nothing new to report for a couple weeks until that email goes out. And then I’ll be running frantically.
[03:30] Mike: Yeah. I’m probably a bit behind you. I’ve been going through – and there’s about a little bit more than a dozen machines that are currently being audited through Audit Shark. It’s good to see that those things are going in there. And I’m talking to two different people that have been added in this week. It’s kind of funny that there are sections of Audit Shark that I spent just a phenomenal amount of time and effort and making sure that they would work and that they were simple because they are far from simple by any stress of the imagination.
[03:57] And both of the early access people who went in this past week, both of them just kind gave it a hand wave or one liner and said “oh, well I did this and then now what do I do?” And they just completely glossed over all the complexity of that. And on one hand it’s like “oh, I can’t believe you didn’t notice how hard that is” but at the same time it’s also a really good feeling to say the time and effort that I spend on that was justified because it’s so incredibly simple to use that they didn’t even notice how hard it was.
[04:24] Rob: Right. You don’t want them to notice how complex it was.
[04:26] Mike: Right. Going the big things I’ve gotten back is that they’re interested in immediately skipping to the remediation pieces which is not something that I had really planned on tackling right away because remediating people’s servers is kind of a risky thing anyway. But it seems to me like they’re really looking for that guidance and input and to what they should be doing, how they should be prioritizing things and what their next steps are once they get the information back.
[04:52] So it looks like I’m going to have to go through and start implementing those remediation steps that I was thinking that people just would not be interested in because they’re production level servers and it turns out they are interested in that. So I’ve got my work cut out for me there.
[05:04] Rob: Right. And by remediation you mean your auditing software finds that these things are wrong and now how do we fix them right?
[05:10] Mike: Yeah.
[05:11] Rob: I received an email from a listener this week. He had just kind of a success story to tell. He’s building a SAAS app and then he decided after reading my book and kind of fall in love with you to build a WordPress plug in to get an early win. He said “here’s a short back story about how you guys have altered the course of the project.”
[05:28] “Initially I started building a SAAS app for approval management and that’s at approveme.me” he said “but after $1,500 and a development cost and not knowing at the end of the day if anyone actually wanted what I was building I came across your writings, the chapters about…” he calls out specific essays and then he says “I immediately put the brakes on the development of the SAAS and I started brainstorming about a better way to build a list in the same market space before trying to tackle the goliath of SAAS.” He said this is how WP digital E signature was born. So it’s a WordPress plug in to help people do digital signatures.
[06:00] He says “per your advice, I outsourced the programming, built the marketing landing page alongside my team, ones who got the very first premium release with bugs and all. I setup the store just to see if anyone was interested. One guy emailed. I gave him a 50% discount and he’s been super helpful. Just the other day we received our very first real order from start to finish on the product without any direct human interaction. It’s the best feeling in the world to know that someone somewhere was willing to pay money for a product that I’ve created. Taking your advice has helped save thousands of hours and brought us much closer to the starting line.”
[06:31] That was from Kevin Gray thanks a lot for writing in Kevin, definitely good to hear. Like I said, his SAAS app is at approveme.me and from there he has a linked to WP digital E signature.
[06:41] Mike: That’s a really cool idea for a WordPress plug-in. I hadn’t even thought of that.
[64:45] Rob: Yeah I know. I’ve been seeing a lot of web apps that are then being encompassed or built into a WordPress plug-in. So there’s like kind of an event registration system that’s in a WP plug-in. You can take almost any SAAS idea and put it into a WP plug-in. It’s a pretty interesting concept for finding new businesses I think.
[07:02] Mike: Definitely. The only there news I have is MicroConf Prague is now sold out.
[07:07] Rob: Yeah that’s very cool. It was by 8 or 9 days. So sold out house at this point. We’ll see you in October if you’re going to show up otherwise maybe you can make it Vegas next April.
[07:16] Music
[07:19] This week we’re going to be giving our thoughts on lean startup. This topic has been requested in the past but I think since we just talked about Dan Norris’s stuff about his article of is startup validation bullshit, we received another email. We received a voicemail basically saying you guys commented on lean startup. We’d love to hear your thoughts on. I guess the pieces that we feel that apply to our businesses, the pieces that maybe we feel are less applicable to bootstrappers, less applicable to people launching small apps.
[07:48] The challenge with this and the reason we’ve never done this before even though people have requested it is that lean startup is huge and it’s getting bigger all the time and its changing constantly. So lean startups started with a few key concepts and its now – frankly its more than we could define in a podcast episode much less, actually give our thoughts. And so this makes it hard not only because it’s a big subject but it just seems to be a moving target.
[08:10] So basically, what we’ve done, I went through all the lean startup principles and tenants and try to boil them down to the ones that we know the most about. Frankly since it is so big, neither you and I are experts in it. You’ve read most of the book. I read the book. We’ve both seen Eric Riese speak and give his overview of it and certainly you just hear people talking about it and all that stuff.
[08:33] So we know the concepts of validated learning and minimum viable product and the buzz words in that. But I think we want to get into giving our thoughts on specifically on some topics and some will have to define and then others will just kind of run through.
[08:47] I guess to start off with, if you’re only kind of familiar with lean startup, it basically started in 2008, Eric Riese standing on the shoulders of people like Steve Blank who came up with customer development, Marc Andreesen who coined the phrase product market fit, agile software development practices, lean manufacturing which is used by Toyota, lean management which was morphed off lean manufacturing.
[09:10] Eric Ries took all of that and complied it into kind of a single methodology and so he started blogging about it and then it started picking up steam. He knew Steve Blank. I think he was a student of Steve Blank. So Steve Blank encouraged him to push this forward. So he was blogging about it then he did a lot of speaking and then finally he wrote the book.
[09:30] Mike and are going to be talking about 11 topics lean startup topics and giving our thoughts on them. The first six we’re going to define because we think some people may not what they are. The last five were just going to run through them in a lightning round and kind of give our thoughts. Now the challenge here is that if you work in – let’s say you’re in a huge enterprise and you’re trying to launch a new product, well lean startup says it can apply to you.
[09:54] If you’re launching Brick and Mortar lean startup says it can apply to you. If you’re launching a bootstrap startup or a venture funded startup, lean startup tries to apply to all of those. So we are going to give one point view on each of these topics but I would never go out and say well validated learning never works or it’s a dumb idea because maybe it just doesn’t work for this specific group of people or in my specific experience.
[10:14] The first thing I want to talk about is how lean startup defines a startup. The quote is “a startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.”
[10:28] Mike: If you take a look at that exact definition then sure it can apply but I almost feel like when you start talking about startups, you’re really talking about – I guess my world is more of the software startups but it just seems so incredibly overly broad. I think that’s my big issue with it. And pretty much anything is when you’re building a new product or service, doesn’t a new product or service kind of define itself as being under extreme uncertainty. I mean how can you have a new product or service that doesn’t have a lot of uncertainty that goes along with it?
[11:02] Rob: I think that’s what the definition is saying though. I think this definition in particular is clever. I think he encompassed a lot of possibilities with this single sentence and in a way that no one had done before. I like the definition. I agree with you that it is brought by saying human institution because he’s covering his basis and saying well, it could be a nonprofit. It could be someone doing it within Proctor and Gamble or another Fortune 500 company or it could be you starting a new bar down the street.
[11:28] Lean startup principles have been applied to all of these business types and their examples given in different books on customer development and they do cover all those businesses. I think that would be my one quip. Maybe not what this definition itself, but with lean startup is that by being so broad and by trying to encompass every potential thing of anyone launching a new product, I think it actually provides less value.
[11:51] Mike: So topic number two is validated learning. The idea here is everything that a startup does should be an experiment and whether that’s marketing campaign, your ability to feature, the entire product itself. Any effort that’s not absolutely necessary for learning is wasteful and needs to be eliminated. And really what you’re trying to do here is you’re trying to ask questions about what are we trying to accomplish? How are we going to measure whether or not that was successful?
[12:18] What you’re really trying to do is make sure that when you’re doing stuff, so move the product forward that you’re making the right measurements that need to be made so that you could repeat those and scale them up and things will not fall apart on you later on because you are measuring the wrong things. You’re not making assumptions but you’re using hard data to make decisions that are going to move you forward.
[12:38] Rob: Yeah. I think the key sentence here is the effort that is not absolutely necessary for learning is waste and should be eliminated. This is an insight that I hadn’t heard. I wasn’t aware of before at lean startup and I’m pretty sure this came from lean manufacturing. I think that Eric did a really good job with this, that validated learning was it was always present in startups and that’s what a lot of the lean startup stuff is. It’s just putting a label. Its putting a name to something that already existed but that we didn’t quite know how to talk about.
[13:07] I think that maybe the number one thing that lean startup has done well is its accomplished something, it’s given us a common vocabulary for a lot of things that didn’t have names before. So take something like validated learning, problem solution fit, product market fit are two that I use all the time on the podcast. And MVP is another. All these concepts existed before lean startup but now I can say two words and most people in our world know what you’re saying. Lean startup accomplished that and I also think that validated learning as a concept and the fact that it now has a name I think for me has been helpful.
[13:43] Mike: Yeah I think one of the things you have to keep in mind when you’re thinking about validated learning is that let’s say you’re building a new marketing campaign and its going to be email marketing. Well if you don’t necessarily know what you’re doing then you’re going to have to try a bunch of things.
[13:58] The key to this validated learning piece is to figure out what your theories are, what your hypotheses are. figure out how to go about testing them. Make sure that the results that you’re getting back can be quantified and that you’re learning something from it. And anything that you’re doing that you can’t quantify or you’re not going to be able to learn from or that you are not learning from, just get rid of it.
[14:19] And the fact is that this doesn’t apply to scaling the business. this just really applies to finding out what works and what doesn’t. Once you figure that out, then you can basically blast it out to the masses, scale it up and do it very, very quickly. But this is kind of the fundamentals that you’re working on here with validated learning. You need to identify what works, what doesn’t, and then you start throwing resources at it.
[14:42] Rob: So topic number three is the build, measure, learn feedback loop. This concept basically says you should build something. You should build the minimum that you need to build in order to learn. Then you should so something and measure it. So if it’s a landing page then you launch it and you send traffic to it and you split test it or if it’s a new feature then you see how many people use and see their reactions and see whether they like it.
[15:05] Then you learn from that and you look back and build again. I like this topic. I have kind of mixed emotions about this. I literally have this exact diagram that Eric Ries uses in my notebook that I had written in like 2007. So it was before lean startup was around at all. I didn’t use build measure learn but I was thinking to myself what were the systems that I’m doing over and over? What is this cycle? And I realized I was basically building something – I think I put build, test, adjust or something like that but it’s the same concept.
[15:35] It’s like you build it and then you get someone to use it and then you adjust and tweak and come back in a circle. I’ve done it, a lot of people have done it and this is another place where I think Eric did a job of putting a label, a common label on something that already existed and that people were doing a lot I startups already. So not a new insight, maybe just a new label for it.
[15:56] Mike: Yeah I almost feel it’s a new application of that terminology because if you go into any sort of electrical engineering there’s all these feedback loops. I mean the one most people are going to be familiar with is like cruise control on a car. If you go too fast and there’s a feedback loop that says hey the car needs to slow down a little bit and if you’re going too slow there’s a feedback loop that says hey you need to speed up a little bit in order to get to that steady state speed.
[16:20] And this is really just the exact same thing. You’re saying build something, put it out there, measure, figure out what needs to be done to fix it or improve it and then go through that process again. I think the thing that Eric has done that’s really important is that he’s takeng those concepts and ideas and apply them to startups where I just don’t think that’s really been quantified or codified in terminology before.
[16:42] So our next topic is minimum viable product. The minimum viable product or MVP is the fastest way to get validated learning so you can make it through that feedback loop. You need to be able to have a product that some software or whatever your service is in place in order to get that process started because you can make all the theories in the world. You can make all the assumptions that you want and talk to all these different people.
[17:07] But until you actually have a product or a process or service in place and start implementing it, you’re not going to know what the deficiencies are. You’re not going to know how things actually workout. So just for example, let’s say that you’re trying to sell something for – you think its going to cost you $60. Well until you build it and you start going through and the process of building it and figuring out oh, you sure it only cost $60 to build one but 1 out of every 10 is a bad widget and we have to throw it away. So it actually increases your cost of production by 10%. So it’s no longer $60. Its $66.
[17:42] But until you go through that process you wouldn’t know what your defect rate is. So those are the types of things that are really important to find out but you don’t know those until you’ve built your minimum viable product.
[17:50] Rob: So minimum viable product is interesting because some people think that the MVP is as simple as putting up a landing page and figuring out if people want to buy your product. And that is like the way over simplified version of it. Really what lean startup is saying is the MVP is the minimum step you can take in the next week or two weeks to get more validated learning.
[18:12] So depending on what phase you’re at, the minimum viable product can be just a single feature or it can be just a single adjustment or it can be something that you do manually. Actually there was an example I heard the other day on Steve Blank himself who basically came up with customer development was saying that your MVP isn’t a prototype. It doesn’t have to be a prototype of what you’re trying to do. It can be a manual version of the same thing.
[18:38] And we’ve talked about this on the podcast in the past of like don’t build a whole SAAS app to do X. Go ahead and do X manually or hire a VA to do it. Send out emails manually. I mean that’s basically what you and I are doing with early access right now. We haven’t built all the trial emails and the on boarding emails unless we’re sending them manually. And that essentially is a minimum viable product and for Drip to have 20 something people using it right now but really to not have a billing engine built but I’m still billing people. And then not have trial emails going out but they’re still receiving them means that I took that minimum step to get there.
[19:41] So again, the interesting thing is I was doing this before it was named right? Before MVP, a lot of us were doing that. And so I don’t think this was some – it wasn’t a brand new concept, however him putting a title to it that we can all talk about I think is something that’s very valuable and I also think that people who weren’t doing it have started to do MVP type stuff and I think that’s helpful.
[19:37] On the flip side, this is what maybe gets people in the most trouble is your judgment of what an MVP is, putting out a crappy product and sending your entire email list to it and seeing who converts is not the right way to do it either. Right? That’s a big mistake and it can cost you a lot of money and a lot of time if you do it that way. And there’s nothing in lean startup that says don’t do that. There’s no explicit kind of warnings so people I think are making a lot of mistakes with this concept in particular.
[20:05] So I think it’s a pretty dangerous concept if you don’t have a high standard of what you need to deliver and if you don’t take it pretty seriously and really understand what an MVP is rather than read the ones in this description and then go off and think that kind of building a crappy product is enough because you can call it an MVP.
[20:21] Mike: I guess the confusion and the mistake that people make is the word product is in the name so they think oh well I have to create a version of the product that needs to do X,Y and Z and that’s how I’m going to put this out there and that’s how I’m going to be successful. And if you read the definition which from Wikipedia’s page, it says a minimum viable product is the “version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”
[20:49] Really what that can mean though is you’re just building a single feature and that’s the next version of your product because its different than the previous one. And adding this new feature is really the key to that new product and that’s what you’re testing. It’s not you’re testing the whole thing. You’re just testing this one little piece of it which is why terms like minimum viable feature have come out of lean startup because minimum viable product itself is just kind of confusing people, what constitutes a product. And as you said, that’s where people just get into trouble especially if they don’t have this minimum quality bar that they’re adhering to.
[21:23] Rob: Right. I think that’s one of the tricks with lean startup is it is quite academic. This might be one of the negatives of it. It comes out of academia which is different than actually being in the industry and building startups. So a lot of the stuff is complex, its nuanced and it’s hard to take complexity and nuance and turn that into an actual piece of code or an actual decision of what then do I build? So the nature of it being high level almost allows it to avoid taking responsibility for the actual steps you take.
[21:53] Lean startup, I mean I guess I’m going into a con here. Its not super actionable and I think that’s probably a side effect of it being created more by academics rather than people who are actively day to day launching startups. Because most of the writing, most of the books that are being written on lean startup and lean entrepreneurs and that kind of stuff are being written by people who aren’t launching startups now. For the most part they’re not as experienced as some of the people who read day to day who are just blogging about startups.
[22:20] Our next topic is innovation accounting. Innovation accounting refers to the rigorous process of defining impeccably measuring and communicating the true progress of innovation such as customer retention and usage patterns whether for startup companies, for new products or business units within established companies.
[22:38] Basically, typical accounting metrics often don’t work for startups. You have to adapt different metrics and make sure they’re not vanity metrics. So that’s the concept of innovation accounting.
[22:48] Mike: I was one of the reviewers of the Lean Analytics book by Ben Yoskovitz who was also a MicroConf speaker this year. This topic is very well covered in that book. There are tons and tons of different ways of measuring things and based on what if you’re trying to gather, what the underlying purpose of gathering that information is, I mean you can look at the same data and slice it 10 different ways and have 10 different – even 15 different conclusions that come out of that set of data just because of the types of things that you’re looking at or you’re that you’re trying to do.
[23:22] So innovation accounting I would recommend just going out and getting the Lean Analytics book to figure out how it is that you go about measuring things but I like the idea of innovation accounting because you’re not looking at these vanity metrics. You’re not looking at things that they make it feel like you’re growing your product but you’re really not.
[23:39] One of the things for example is how many people are coming to my website? People say well my product is growing I’m getting a lot more people to my website and the fact is you may not be because as you add customers to your product, if they’re coming to your website to log in then they are indirectly counting towards your statistics towards your new visitors. And that’s just not accurate at all. It’s not accurate to include those people who’ve already been to your website and are actively using your product in your website to visit your account.
[24:07] Rob: I have mixed feelings about innovation accounting. I like the concept that if you’re in a Fortune 500 company that maybe you shouldn’t be held accountable to the standard accounting principles for the first 6 months or a year because you’re looking at different metrics and that you should avoid vanity metrics. That I all agree with.
[24:24] The problem is this doesn’t help anyone who is starting, trying to bootstrap a SAAS app today. If you’re going to bootstrap a SAAS app, don’t try to understand what innovation accounting is. It’s basically an astronaut’s view of what are the key metrics that you need to look at? Like Mike said I’d recommend buying Lean Analytics and reading it but I’d also say let’s say you’re going to launch SAAS app, here’s what I would look at. Not unique visitors to website but I’d say what’s a percentage that that are converting to your email list? What’s the percentage that are converting to trial? What’s the percentage that you’re converting to paid? What’s your lifetime vale per customer and what is your return rate?
[24:59] With those five things, if you could show that to me, just those five numbers, I would have no idea about your business, I can tell you whether or not your business is doing well, whether its going to do well, whether you should drive more traffic or less traffic. So that in my opinion is the short version and that’s where a more specific laser focused resource that’s actually talking about these individual things I think could be more helpful because for bootstrappers, bootstrapping, a SAAS app, that’s what they need to know.
[25:25] What about someone with venture fund and go after a B to C app? There’s a different list. Well what is that list then? You can define innovation accounting but that doesn’t help the guy who’s sitting there trying to figure out what things do I need to look at. And if you’re in that Fortune 500 company trying to launch a new product out of Proctor and Gamble, what is the list that I need to look at because I bet you could get pretty close.
[25:45] I bet you could define a short list of things that everybody needs to know and that’s where I wish innovation accounting had actually taken that next step and gotten more specific for people who actually want real actionable answers rather than a high level definition of something.
[25:59] Mike: I think the other problem with innovation accounting is the fact that because of the way that its phrased, it makes it seem like if you’re following lean startup principles then you should be doing innovation accounting. And there’s this massive chapter in the book about innovation accounting and how to use it, how to leverage it. And the fact is depending on where you are in your business, it has completely different meaning. It has a completely different application and a scope of application in your business.
[26:28] In the early stages you’re just trying to figure out what works, what people are interested in so that your minimum viable product will actually get some traction. But when you’re much, much further on, it’s a completely different story. You’re going to be measured all these different things. As you said, when you’re first launching a SAAS app there’s like five things that you’re looking at. When you get to the point where you have hundreds of thousands or millions of dollars from revenue, you’re looking at probably 30 or 50 different things and they all mean something different.
[26:55] There’s a scale that you have to take into account from when you first get started to when you’re much further down the road and you’re trying to scale the business. I don’t think the lean startup book really covers that or explains that very well and says hey look, if you’re in your early stages, you don’t need to worry about most of this stuff. Know that it exists but just kind of ignore it for now until you get to this stage.
[27:15] Rob: Yeah I think that’s an issue. Lean startup is so big and has so many concepts but some of them are completely not relevant for bootstrappers on the web or bootstrappers doing mobile stuff and others are and there’s no real place that designates that that I know of. So you kind of get information overload with all these concepts. Maybe I should call it concept overload where you’re just trying to get your head wrapped around them and it can be more of a distraction for someone.
[27:40] If you’re really boots on the ground and you’re trying to launch something tomorrow, I would go to the Wikipedia page and I would read through these concepts and I’d listen to these podcasts and maybe read like a summary of the concepts but just getting deeper into them than that doesn’t help you take that next action of what you actually need to get launched.
[27:56] Mike: So topic number 6 is to pivot. This really is based on validated learning. It really requires somebody to take a look at the information and you need to be able to decide whether or not you’re going to pivot or whether you’re going to continue down the path you’re on. It’s a very hard thing to quantify into a book and say well if you’re in this situation, you should pivot. If you’re on this other situation, you should persevere. It’s really kind of a gut feel and I think that’s one of the things I don’t like about this is because there’s no real hard rules around it.
[28:28] I think part of the reason I went into computers because there’s 1’s and 0’s and its some very easy to define when you should do what. But when you get into other subjects like this, it can be very, very difficult to make those decisions especially because you don’t have a lot of information. You’re making a decision based on incomplete information and sometimes that’s very difficult and sometimes you’re going to make the wrong decision but most of the time it’s really just the gut feel of where you want to go and what the data is telling you.
[28:54] Rob: Yeah. I’ve heard the phrase pivot or persevere and that’s your choice at any given moment. As soon as you do that build, you measure and you learn. At that point you choose to pivot or to persevere. And this reminds me of the concept of The Dip that Seth Godin had a book called The Dip. And the number one question he’s asked about that book is when is the dip? How do I know that I’m going to make it through the dip or that it’s not a long term thing? And that’s the question I see asked about pivots.
[29:18] How do I know if I should pivot or not? And so I think that’s a challenge of a concept like this. I think the introduction of this concept I was intrigued by it. I liked that it was basically defined that you could be actually going along with a certain business model or you’re building a certain app that you expect people to use a certain way. And then when they don’t, what do you?
[29:28] I’m not sure that I had ever actually talked about wow I could take this app that’s going to be a time tracker and suddenly turn it into an invoicing app or an expense tracker instead because everybody wants to use it like that. And so the concept of a pivot, my mind was opened when I first read about it. So I do like it and I think it expands your thinking but I also think like anything, this gets over used and people are talking about starting a game.
[30:02] I think the story is that Flickr started as some game and then became a photo sharing app and they’re completely different. I totally don’t see that as a pivot. It’s more like it can be used as an excuse for yeah, we just failed at one business and we started another one under the same shell company name with the same funding and we’re going to now call it a pivot.
[30:21] So I’ve also seen I think this has been used by venture capitalists or people who are starting VC backed companies as kind of a reason or as an excuse for you being able to just abandon the idea all together and go to another direction. The pivot is supposed to be based on validated learning and that you’re only supposed to pivot if you have data pointing you in that direction. There is a gut feeling component to it but I don’t think everybody’s doing that from my observation and what I’m hearing called pivots.
[30:46] Mike: I know exactly what you’re saying. I mean you hear a lot of these VC backed companies and they pivot into some completely different direction or its kind of tangentially related but there’s no clear evidence of why they would have gone in that direction. A lot of times just the plug isn’t pulled on them because the VC’s have invested in the team not necessarily the technology or the product and they’re investing the team to say hey, we trust you guys to make the right decisions to go in the right directions that you feel are appropriate and that’s what we’re investing in. We’re not necessarily investing in technology or the software that you’re building. it’s what you guys think is best and in you guys.
[31:24] Music
[31:28] Rob: Alright, so right now we’re going to dive into the lightning around where we’re going to cover five topics and we’re not going to define them because we’re going to assume that you can either go look them up or that they’re common enough that you know what they mean. We’re basically just going to give our thoughts on what we think about them. Do we think they’re valid for bootstrappers and so on.
[31:44] So topic number seven is customer development originally developed by Steve Blank and included the umbrella of lean startup. I am a big fan of customer development. I think it’s very hard to get right but I do think there are resources out there that you can buy that have more specifics, that have those tactical things like what interview questions should I ask?
[32:02] You can look at Running Lean by Ash Maurya and you can look at coldcallingbook.net by Robert Graham who we’ve had on the show. I think both of those are exceptional resources for learning how to do in person customer development. There’s also some pretty good examples on the web of how to do email customer development. That’s something I’ve done a lot with Drip and maybe I’ll wrap it up at a later point. This may be my favorite concept in all of lean startup. This is the idea of customer development.
[32:26] Mike: I really love the idea of customer development but I also see a lot of people who are doing it wrong or just not doing it or thinking that they’re doing it when they’re really not. I think there’s a lot of misconception around how to do it right and I think one of the big issues that most people run into, when you get into customer development, it’s very easy to look back into the past and say oh I should have asked that.
[32:50] And unfortunately when you’re in the position of trying to ask the questions, you don’t always know what questions to ask. So you do the best that you can and then in retrospect, hindsight is 20-20 so it’s obvious that you should have asked a specific question because you went through this process and it failed miserably and you say oh, I didn’t realize that this was important. I should have asked that. And it’s really hard to figure out what questions you should be asking upfront.
[33:16] And the types of people who are successful are the ones who are asking those questions who are kind of insightful and I don’t know if there’s a good way to teach that. I really wish there was or I wish there was some material out there that I could find that says these are the types of questions you should ask based on these types of businesses but that’s just a giant matrix and obviously product types are changing all the time so it’s not feasible to come up with that kind of a list.
[33:37] But I do think there are probably different types of questions that people could ask or you can put together in a spreadsheet and say this is why you would ask this question and it will help you avoid this particularly situation. And then based on the type of business you’re building, you can look at those and say okay I’ll ask this and this but not that one because the end result of that is not applicable to me.
[33:57] Rob: Our next topic is problem solution fit and product market fit. After customer development, these might be my next favorite concepts. I’m a big fan. You hear me talk about them a lot on the podcast. The steps of starting with a problem that a group of people have and striving for problem solution fit meaning you’re trying to solve a problem and at a certain point you know that you’ve done that, that’s a milestone. Then the next phase you’re trying to do is you now have a product and you’re trying to find the market for that.
[34:27] So I love thinking of that as steps and I think the 2 and 3 phase idea of solving a problem and then moving onto marketing and learning during that, really reshapes the way I thought about how software products are developed when this concept was introduced.
[34:43] Mike: I really like this as well but the problem I have with it is its very difficult to do both at the same time and I would be so nice to be able to shortcut a lot of the time that you waste if you can do them both at the same time.
[34:55] Rob: Yeah. I think you’re supposed to do them in sequence. That’s my understanding. But it takes a long time. That’s why there are Audit Shark early access and the Drip early access are months long because you’re still trying to figure out how we’re really solving a problem.
[35:07] Our next topic is continuous deployment. And you remember this one? This one was a big part of lean startup early on and now it’s almost nowhere to be found. I see it on the Wikipedia page but it’s really downplayed in a lot of the places that I looked.
[35:20] Mike: I remember hearing Eric talk specifically about continuous deployment and how they would go push things into production and how its jarring as a developer to you write some code and then you check it into the repository and it just gets pushed out into production. I can see that as a developer being a little bit schizophrenic about that especially if you’re a product manager saying okay who pushed that feature out and why did they go out today? We wanted to really push that out as part of this marketing effort.
[35:49] And I think that’s one of the things that makes continuous deployment a little difficult because there’s certain types of things that you want to push out and you don’t want to immediately deploy it because you want to build a marketing buzz around it. You want to be able to solicit feedback from people and have things go out on a specific schedule.
[36:05] You launch a new feature or a new version or something like that solves this new problem and you want to tell everybody about it. But if you’re doing continuous deployment it gets pushed out there and then hopefully nobody makes a big deal out of it and you don’t lose control of the story. I think that’s why this has been downplayed a little bit.
[36:23] The other reason I think that it’s been downplayed is that it’s actually very difficult to do continuous deployment and it’s a significant engineering task and it’s not something I would probably do in most cases just because of the fact that you have to do a lot of engineering effort to be able to make it so that things can get pushed out and do all the tests such that if it fails, then you are able to automatically roll back because that’s where continuous deployment to me kind of falls on its face is because that engineering effort is so incredibly complex and difficult, I mean you’ve got enough problems just building the product and making sure that it’s what people want.
[36:58] Do you really want to add in all the complexity of creating all these unit testes and everything else? I mean it slows down the process. I think that’s where it falls short is it’s so hard. It’s so complicated. It slows down your iteration process. If you push things out and they fall in their face, you have to rip them out of production, fine go ahead and do it. Do it manually. But the idea would be if you’re pushing things out on a regular basis, hopefully you’re making things better over time and you don’t have to resort to completely ripping them out of production.
[37:27] Rob: Yeah. I think some would argue that continuous deployment is intended to speed up your cycle rather than slow it down.
[37:33] Mike: I agree that’s the intent but I don’t think that it does because as part of continuous deployment and Eric Ries specifically talked about this was writing unit tests such that it would detect whether or not let’s say you push out some new code that affects the sign up process. Well as part of that you’re going to have code in place that measures the rate of signups that you’re getting. Well if the rate of signups drops from 50 per hour to 0, then the code that you pushed out probably broke your sign up process and it needs to be rolled back.
[38:02] So you have to take those things into account when you’re pushing that out and you have to build all of those cheeks that will verify whether or not a number of signups in the past hour drops to 0 or drops by some significant margin. And that’s the other piece of continuous deployment is being able to make measurements to say is it making the product better? Is it increasing performance? And if it’s not, then roll it back. And because of all these things, it just makes things more difficult.
[38:27] Rob: I think continuous deployment is a nice theoretical idea but like you I’m not a fan of it in practice. When I first heard it I was very skeptical as a software developer. I’ve never done it myself but I have used a couple apps from two startups that were doing continuous deployment and maybe it’s just selection bias but both of the apps were really crappy like they were very buggy. These were funded startups with teams and they were doing lean startup stuff.
[38:53] There were just bugs all over the place and I was like this is really crazy. I think a big part of that is they were pushing, they were moving so fast and they were trying to really espouse the MVP and the containers deployment. So that point I kind of wrote this off. I agree with you. I think the amount of instrumentation and reporting and testing that you need to make this work is probably impractical.
[39:15] So our next topic, second to last topic is split testing. I’m not sure this is even a tenant of lean startup as much as it was included in a lot of the talks and the books and such. I’ve been split testing for 10 or 11 years and even doing the manual, the poor man split testing of modifying something from one week to the next before we had good tools to do it. But lean start did include this in their concepts of validated learning and the build measure loop.
[39:40] Mike: I think split testing is a good idea. If you have any questions about split testing, I would go to the guru of split testing which is Patrick McKenzie. Check out his blog. He has a lot to say about it. He’s got a ruby gem out there that will help an AB test. And there’s all these different frameworks out there for doing AB testing and there’s very clear research and results that show the AB testing provides measurable improvements in a business. So I don’t think there’s any question that split testing is kind of a fundamental thing that everyone should be doing whether you’re doing lean startup or not.
[40:12] Rob: Indeed and to know we just launched split testing inside Drip which I’m very excited about. I already have a test running right now on some subject lines. Our last topic for today is actionable metrics versus vanity metrics. I think it’s a valuable concept and I think it helped a lot of people when it came out that realizing that certain metrics are what he calls vanity metrics that they’re just things that are useless like page views how often times its like time onsite, really aren’t that actionable.
[40:41] Whereas actionably seeing your churn rate or your trial to paid conversion, that kind of stuff, something that’s much more actionable. I would give this concept, this idea a thumbs up.
[40:51] Mike: Yeah, this concept just talked about a lot in the Lean Analytics book that I talked about earlier. They do devote some time to figuring out what is an actionable metric versus what is not. One of the things that really comes out of that is the rate of change of something. So just knowing that your number of website visitors this month or this week is 1,000 and next week say that its 2,000 that’s not necessarily important in it of itself that you went from 1,000 to 2,000. It’s just really the rate of change over the course of that week is what she should be looking at.
[41:23] So rate of changes become very, very important when you’re talking bout action ability because let’s say that you went from 501,000 to 502,000. Well grant it you’re going up and you went up by 1,000 visitors on a weekly basis but the rate of change over the course that week with regards to how much traffic you had is almost insignificant. So those are the types of things that really become important. I think this is a very important concept.
[41:48] Rob: So we’ve covered 11 topics under the lean startup umbrella. I feel we’ve kind of scratched the surface and gotten into it a bit. Hopefully it’s been helpful if you’re listening that it gives you an idea of how we think about it from a bootstrapper’s perspective. I think we raise a lot of things that we like about lean startup. I think overall, lean startup has moved that higher understanding of a startup and thinking of it as you can’t do a blue print for it but you can start putting these words and concepts in place that make it easier to understand the moving parts of it.
[41:28] I also think we talked about some things that we don’t necessarily like about lean startup like that it’s not focused enough and that it tries to cover bootstrappers, venture backs, dry cleaners, new product launch inside a Fortune 500 company. I think that’s a real drawback to it.
[42:34] I was actually put off by the first 3 or 4 examples in the lean startup book were like Intuit and other massive companies and I almost stopped listening because I tend – in general, if it hadn’t been this book, I would’ve turned it off because at that point, I typically bailed and said this book is not going to have anything insightful for me.
[42:50] We also talked about the language feeling maybe high level and academic and that it can’t quite be laser focused and provide action for people. I also think anything that gets this big, certain people want to rebel against it and when you hear the word like MVP and pivot and these concepts that are thrown out so much, it does get a little irritating. It’s like a hit song that you hear too many times. And you kind of want it to stop.
[43:12] I think the other common criticism in lean startup is that it pulled together a lot of existing stuff, maybe some things that were already obvious and just pulled them together under one roof, I don’t think that’s necessarily a bad thing but it is lean startup itself. the concept is unique but most of the concepts underneath it were not original. But most of them existed maybe under different names before this.
[43:35] So certainly I’d love to hear your feedback as well. Feel free to send us a voicemail, email or post a comment on this episode. And you can do that by calling our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 144 | The Viability of Inbound Marketing, Challenges for Non-Technical Founders and VOIP Options for Entrepreneurs
Show Notes
- TryCelery.com – Take pre-orders
- BehaviorCon – Conference on consumer psychology
- InternshipWithRob.com
- Trak – Expense tracking for the Enterprise
- Grasshopper – Phone system for Entrepreneurs
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be talking about the viability of inbound marketing techniques, hidden challenges and non-technical founder phases and the best service provider for VoIP Line. This is Startups for the Rest of Us: Episode 144.
[00:15] Music
[00:22] 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.
[00:31] Mike: And I’m Mike.
[00:32] 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?
[00:37] Mike: We’ve got a listener who commented on episode 142 around startup validation. He pointed us to an app called trycelery.com which allows you to accept pre-orders for a product. So instead of just asking people if they would buy it or trying to put them on a mailing list, that allows you to completely accept pre-orders and it will charge them and it integrates with Stripe and everything. So looks like it might be a good way for somebody to do additional startup validation.
[01:03] Rob: That is very interesting. I could see using this as a second step after a landing page where you collect emails based on just a simple value proposition. Then a few months later once you’ve had enough emails, then trying to flush that out more with some comps and some demos and sending out and an email and then saying if you’re really interested in this, if you want to be on the early access list, you have to commit to paying.
[01:27] And then using it as a two-step rather than making this the first thing because I think if someone comes to a landing page and they read a two sentence description and then you ask them to pay, I don’t think it will work as well but I think this could be a really nice piece of that multistep arsenal of trying to find out who your true early adapters are.
[01:45] Mike: The one thing I really like about this is that because its integrated with Stripe and they charge you an additional percentage on what Stripe charges so you don’t have to pay them anything or at least it looks like you don’t have to pay anything until you’re taking those pre-orders.
[01:59] Rob: Yeah. That’s really cool. Even with an extra 2% so Stripe’s like 3% and these guys are another 2% and that’s still way cheaper than all the junk you’ll pay if you get an authorized .net account or a merchant account. Cool, so that’s at what? trycelery.com
[02:13] Mike: Yup.
[02:14] Rob: We have a bunch of iTunes reviews. We haven’t talked about them in a while. This was my favorite. I was dying. It’s by a guy named Bricksky from Australia and his review is much better than Techzing so that’s a shout out to Jason and Justin. He says “love the podcast. You guys are focused and professional but with enough personality to keep it light. Well prepared and will give you actionable info every time. Keep up the good work.”
[02:34] And then from Adam, no9to5callo in the UK, he says not just for geeks. Says I wanted to get the point across with his no9to5 nickname there. This podcast helps everyone. I am non-technical and get so many actionable points from Mike and Rob. Thanks guys. Keep it up.
[02:52] The other one is from DwebOttawa from Canada. He says simply amazing. I listen to this podcast everyday on my ride to work. I don’t think I can articulate the amount of values being provided. Rob and Mike pack a ton of useful advice, information and tips into each podcast. So thank you guys so much for the reviews and if you have not left us a five star review, we really encourage you to log into iTunes. You can search for startups and we will be in the top couple there and give us a review please. Even if you don’t do an entire written out review, a five star rating is very helpful to us. I heard you’re speaking at a conference soon?
[03:25] Mike: Yes, so in a couple of weeks at the end of August I’ll be speaking in Behavior Con that will be the August 23rd and 24th and that’s put on by Ramit Sethi he’s got a lot of interesting speakers there. He’s got BJ Fog and Michael Norton and Michael Fishman, a few others than our audience might have heard. Hiten Shah’sgoing to be there as well as Derek Halperon from socialtriggers.com
[03:48] It’s mostly a conference about how people think and why people buy things, things that make people – psychologically make the decisions that are somewhat marketing related but it will be interesting to get up there and hear what they have to say and contribute my own thoughts on it.
[04:02] Rob: For those who are interested its Behavior Con and it’s Stanford, Connecticut August 23rd and 24th.
[04:08] Mike: I hear you’re looking for an intern.
[04:11] Rob: I am. So I’m looking for like a marketing internet/growth hacker intern and basically you can work from anywhere in the world, learn what I know about growing SAS apps. So I have a job description and an application form at internshipwihtrob.com it’s basically a Google doc that I shared, I made public, linked to a video of me talking about it and give a better idea of the position. I won’t go to all the details here but it’s a pretty unique position so I’m looking for a unique person.
[04:42] I don’t expect to get that many applicants but so far I’ve gotten just a couple applicants and people are bringing their game so it’s very interesting to see the people who are interested in this.
[04:54] I mean the idea here is Drip is launching in the next 4-6 weeks and there’s a lot of marketing work to be done and I realized that I’ve done a lot of it before and I know that I can execute on it but you can learn so much doing this yourself. I can definitely use the extra help. So there is a stipend. It’s not a free internship. I am paying you something. So I feel like everybody can potentially win from an arrangement like this.
[05:21] Mike: Very cool. I have a little bit of AutoShark news and AutoShark is actively auto in about a dozen servers right now in a daily basis. So it’s pretty exciting to see its actually active in production and I’m getting some feedback from people. It’s nice to see that it’s on production servers and as I’m doing updates, everything’s updating properly. Its sending out emails at the right times and letting people know what’s going on.
[05:45] And there’s only been I think a couple of sticky points where things are just not quite running the way that they are supposed to. So those are kind of in the queue right now to be fixed but it’s nice to be able to go fix them and then everything just straightens itself out on the rest of the environment. It’s really cool to see that stuff’s working again.
[06:03] Rob: Yeah, after your two steps back week that you had a couple weeks ago where you’re like everything’s going wrong, it’s good to hear that you’re up and moving forward with this. Would you call this early access?
[06:13] Mike: I would. So right now I’m looking through the email list that I have and trying to do more identification of people who would be able to get value out of it in terms of where it is now. And I’ve also got an email campaign that you were kind enough to let me into early access for Drip and I’m adding all that stuff into Drip right now and hopefully that will be live within – maybe even by the end of the week.
[06:36] Music
[06:42] So today we’re going to be answering a bunch of listener questions. The first question we have is from Dave Ganoe and he writes – I’m going to paraphrase here but he writes this about an application, it’s a SAS app he’s putting together called get tracked.
[06:52] Its essentially for expense reporting and time tracking for companies that are under 100 employees and the employees spend a lot of their time roughly up to an hour a week submitting their expense reports. And having done expense reports I can tell you that submitting expense reports for a contractor is just a real pain in the neck. It takes forever. But it’s nice to see somebody going out and trying to address this.
[07:17] One of the things that Dave asked in his question is what is the viability of inbound marketing techniques and what price point would justify the time involved in doing some outbound or direct sales techniques?
[07:28] One of the challenges that he has is the product is very rarely going to be used by the person who’s responsible for buying it so how does he get in front of those types of people and he also says I know Rob has .net invoice but it seems a little enterprisey. Would you describe your customers as enterprises or is this mostly used by freelances? If enterprises use it, how do you sell to them?
[07:46] Rob: So .net invoice is a little enterprisey. I would describe my customers as the developers who work for those enterprises. Since .net invoice is priced at $300 they don’t need some massive PO approval from a VP somewhere. They can basically put it on a credit card. That’s typically what happens. We don’t charge enough to do enterprise sales whether it’s outbound or even some people want to do Skype chats and all that stuff and we’re not able to support that.
[08:16] If we were to do that, we could have an enterprise version that was $1,000 or $2,000 and that would then justify at least some upfront effort. Selling into enterprises is not something I do or that I really have any desire to do. You know Dave, I might recommend you go back and listen to episode 16 of this podcast. If you come to the website you can find it but it’s called selling to enterprise customers.
[08:36] The other thing I have in looking at your landing page is I’m wondering what your unique value that you offer is because there are a lot of time trackers and they could all claim the same value that you are. His headline, Dave’s headline is time wasted tracking expenses is costing you thousands. Let’s fix that.
[08:52] Mike: Not a time tracker, it’s an expense tracker.
[08:54] Rob: Or an expense tracker, sorry, I misspoke. But there are a lot of expense trackers as well. So I’d want to know – I do agree that time wasted is costing you thousands, let’s fix that. But there are a lot of other apps that could do that as well. So I’m wondering is he going to market it differently than other people are marketing or is he going to have a unique feature set or a unique way of doing it? So that would be something that I’d be interested to know right here on the landing page.
[09:17] Mike: One thing I think I would do is kind of zero in on your specific target customer a little bit more because let’s say you’re a consultant or you run a consultant company and your consultants are out there billing for their time. You don’t necessarily care whether your employee spends an hour doing an expense report on the customer’s time. You also probably don’t care if your employee does that expense report outside of the time.
[09:42] So at that point, it becomes questionable why do I even need this software? So I think you to zero in a little bit more and try and identify the type of customer that this type of software really addresses a problem or a need for because in those types of companies and I’ve worked for them before, they don’t necessarily care when you do the expenses because either the company’s getting reimbursed for the time that their employees spend or the employee is not getting reimbursed for it because they’re independent contractors or they’re employees on salary.
[10:11] So at that point it’s a question. Just why would I even pay for this? And I think that’s a question that you need to answer and identify the type of company a little bit better that would pay for this type of thing. Where is it going to become a problem? When is it that they are actually losing that $1,500 a year for every employee because of all the time wasted?
[10:30] Rob: Yeah. I think selling into the enterprise as a single founder, the product that’s basically competing with existing products that are already selling into the enterprise and already have experience doing that is going to be a real challenge because you can build a better product than them but that’s not what counts in the game. It’s knowing all those rules of enterprise sales.
[10:49] So this is tough marketing going to. I like the idea of making a really nice expense tracker, doing a better job than other people but I’m not sure the enterprise is going to really respect that. If you go in there and say yeah, mine’s much easier to use, they’re not going to care. They’re going to need more than that basically because that’s just one element of a long checklist of things you’re going to have to look at.
[11:09] Mike: The other thing I would point out is when you start looking at customers or the types of customers who would use something like this. It tends to be a feature of functionality that is bundled into like enterprise project management software. I can’t remember the name of the software that we have used but there was a product where what it did was it was intended for arranging consulting engagements and managing them through the process.
[11:32] So you could almost use a kind of like SharePoint where you’re putting documents into it and you’re communicating with the customer almost like Basecamp for consulting companies. And there was also a module in there that did expense tracking. And as a consultant, when you’re on a project, you would go in there and you would enter all your information and stuff.
[11:48] But that was all lumped in as part of that functionality. So I think that there are probably other products out there that you’re going to be competing with indirectly that just already offer this feature and functionality that they won’t even look for this type of software because they don’t need it. Its ready built into whatever their already using. And it’s hard to justify paying for something when you already have access to something for free. And maybe it’s not as good but customers have a hard time justifying buying an additional product that already does something that they have in place already.
[12:18] Rob: You know, the one other thing I noticed is in his email he said his dream customer is an engineering/construction firm with less than 100 employees. Basically, that part, if you’re really building it for engineering and construction firms then that should be on your landing page. Like you should say this is the best engineering/construction firm expense tracker in the market because that’s how you’re going to do it unique is only compete against that small sublet. That’s actually a way to win.
[12:45] Then you niched it. And that was one other suggestion I was going to give but it seems like you’re already thinking about that. You’re just not representing it well on the landing page and I think that’s something I definitely consider doing is calling out – if you are going to pick a niche, then call that niche out specifically because then if I’m in that niche then it makes me feel good like you’re actually going to have some unique features that are going to correspond to my business.
[13:04] Mike: Another question that he has is what price point justifies time involved in doing outbound or direct sales techniques. Is it $5 per employee per month or $10 and I think what’s he’s really asking is in terms of the people using it, let’s say they have 50 employees and I’m charging them $5 an employee then that’s theoretically $250 a month.
[13:25] And I think for you and I, it really depends on what that total number is going to be and you don’t necessarily know until you call them and ask well how many employees do you have? So it’s almost a crap shoot I’d say in terms of calling them and doing that outbound marketing but if you are specifically targeting the engineering or construction companies of less than 100 employees, you have to figure out what your maximum price is going to be.
[13:47] And then understand that there are going to be companies out there that are only going to pay for it for 10 employees or 15 or 20 even though may have 100 or 200 or 300 employees
[13:57] Rob: There’s a difference between outbound and just high touch sales right? High touch is when people come to you and then you nurture them and you do talk to them and you do demos and all that stuff. Outbound is truly outbound like to me, that means making phone calls and cold emails ad really going from cold leads. And with high touch sales I think you will get killed if you’re not charging at least $99 a month per account and I would try to get to $199 per account.
[14:24] And then with true outbound stuff, that’s where you need to be in the $200 to $500 a month range. And that’s why enterprise products are expensive. The stuff is not attributable cost. They’re absolutely enterprise SAS apps that are almost four figures a month. If not into four figures a month then it’s strictly excuse of all the leg work and stuff involved and making these kinds of sales.
[14:47] Mike: So Dave we hope that answers your question. Our next question is from Denny and he says hi guys I love your show and I’m super interested in starting a SAS app myself soon. I was wondering what your thoughts are on non-technical founders. I don’t know anything about coding and I’m a big fan of Dane Maxwell who teaches a method for building SAS apps for non-technical funders.
[15:03] Obviously you guys are super technical so I’d love to hear your thoughts on the challenges people will face, trying to have apps built for them rather than building them yourself. Do you have any advice for finding or working with developers? Keep up the great work. Denny.
[15:15] So I think we’ve given a lot of advice on finding developers over the years and in fact in our last podcast episode with Laura we talked a little bit about it. But in terms of the types of challenges you’re going to run into as a non-technical founder, I think the biggest one is that its going to be very difficult for you to estimate whether or not the times that you’re getting from the technical people who are implementing things for you are accurate enough or they’re reasonable.
[15:40] Something else that you’re going to have an issue with is that if you only hire one developer to work for you, you have to rely on the fact that developer is going to have to be an expert for you. You can’t spread out knowledge between 2 or 3 different people on a team who may all have insight into a particular problem.
[15:58] If you’ve got one person runs into a problem they at least have a couple of people they can ask. Whereas if you’ve only hired one person, they tend to not have other people that they can ask for help on that problem because that’s their job. That’s what they’re working on for you.
[16:09] And if you’re hiring them on an hourly basis, they may not necessarily even care how much time they send solving that problem. You have to stay in constant communication with them and find out when they’re running into problems and figure out whether there are shortcuts you can take or whether there are certain feature implantations that you can just axe from the entire product if they start to become a problem or time sync.
[16:30] Rob: Yeah, finding develops as a non-technical founder is really hard. I think it’s hard as a technical founder because development work, there’s more under the covers. There’s so much complexity that you just can’t see. Like when you hire a designer or a copywriter, we can all judge. We may have our own opinions but you can all judge by just looking at something or reading a couple paragraphs whereas code, there’s so much complexity there.
[16:53] So someone could write a working app but it might not be maintainable or it might use five year old standards or they can just easily stir you wrong. You won’t know. So my advice is try to work your network.
[17:06] To be honest, if you really are a non-technical fonder. Just anytime you’re going with someone cold ad you’ve never worked them before whether they are a designer, copywriter or anything, you’re always going to have more points of failure or potential points of failure that they’re going to be reliable, they’re going to do crappy work. So the more recommendations, that’d probably where I’d start.
[17:23] Right now I’m trying to hire a developer. It’s a challenge. It’s a lot of work and I’m either looking at code or I’m having one on my team do that and so if didn’t have that ability, there’s not really a one word or a single tactic answer to get around this challenge. It’s similar to me trying to hire an accountant or trying to hire a lawyer. You don’t really know how good they are upfront right?
[17:45] I mean all you can do is get a referral and go with them and try them out and then you’re going to know your – or many down the road whether or not they worked out because you can’t really judge – it’s not like they can give you a contract you can read through and say wow that’s a really good contract. You can’t actually judge the value of their work. Because they’re doing something that’s more complex. They’re an expert in the field that you’re not. I guess no issue answers start by trying to find out from people you know who they’ve used.
[18:08] Mike: I think one thing you might be able to do to help you out is figure out how well they explain things because if somebody – if you ask them for a code sample and then ask them to walk you through that code sample then they should be able to explain to you why it is that they made certain decisions and talk about those decisions, talk about the complexity of what it is that they were doing and explain any edge cases that they were encountering and the code that they were writing.
[18:34] Just by working through that with them, figuring out and watching how they explained it to you will give you a good sense of how well they understood what they were doing at the time. And they should be really relatively familiar with their own code sample but even if they’re not, they should be able to at least read it if they wrote the code in a well thought out and easy to understand manner to begin with. And you want to be able to find those people who can explain those things to somebody who is non-technical.
[19:00] And if you could do that, I would think that you’re probably in a much better situation than you get a code sample from somebody and they just say I don’t know what I did here. I just don’t remember. And if they can’t explain it to you well when they’re looking at that code sample then chances are good that down the road when they’re trying to explain something else to you that is more complicated, they’re not going to be able to do it then either and you’re going to run into problems and misunderstandings.
[19:22] Music
[19:26] Andrew: Hey Rob and Mike, my name’s Andrew Erickson. I’m a healthcare company and I’m actually getting into the app space now and the product space really because of you guys. Its sort of – have much employees to manage and constantly fighting for that next skill basically as a bunch of people like me, consultants trying to manage that and it’s been challenging.
[19:46] I’ve had an executive assistant for about a year but paying her about $15 $16 an hour. Recently she’s moved to another role in the company and I watched the training video for hiring a VA. I have a few good candidates now that I found on Odesk.
[20:00] My question is actually what is the best service provider for like a VoIP Line, Skype, or are there some other options that I should look into? Any help will be greatly appreciated and by the way, your wife did an awesome podcast on bootstrap with kids. Huge shout out to you guys. Thanks again.
[20:19] Rob: Okay, so Andrew’s asking about not a VoIP Line like for your house, like a physical line but I think what he’s saying is the new VA he’s going to hire will probably need to answer inbound calls and essentially be like kind of a front desk receptionist type person.
[20:33] The way I’ve heard the most people do this is using Skype because you can get essentially a US telephone number and you pay for it through Skype and you pay a monthly fee and then it rings to your Skype installation. So as long as you have Skype open and you’re online, it will right through and the person will never know that they’re calling to your Skype account. And if you have your headset ready, you can answer calls.
[20:55] That’s the way I’ve heard people do it and that’s what I’d recommend. I don’t know if there are fancier approaches or something more exotic than that but I’ve definitely known a lot of that approach.
[21:05] Mike: I would probably recommend Skype as an option as well. The other one that I can think of that might be useful is if you look at grasshopper.com, what they pitch is the entrepreneur’s phone system and it allows to have a bunch of different phone numbers. They can be local or toll free or do call forwarding and things like that.
[21:20] Essentially it allows you to configure it online and you don’t necessarily have to buy hardware and software to use their website and their tools to redirect calls and have call queues and waiting and things like that.
[21:34] So that’s probably a step up from what Skype offers. I think the only problem I’ve run into Skype on occasion is that if you’re using Skype for extended periods of time for a specific account I think you’re limited to a certain number of hours per day for a non-commercial account. I don’t know whether there’s commercial versus non-commercial accounts within Skype.
[21:52] But they basically say oh well if you use it more than X number of hours per day then essentially with happens is they cut you off for I think it’s a full 24 hours and you’re not able to use your Skype account at all if you go over that timeline.
[22:05] So that’s something I would definitely be a little bit careful of. I’ve tried to use my own Skype account for long conference calls or remote engagements and stuff like that and if you hit that limit, you’re done for the next 24 hours. So then you’re reduced to basically creating a second Skype account and kind of alternating between them.
[22:20] So Andrew I hope that answers your question. Our next one is from Keith James and he says any thoughts on an annual versus monthly pricing for a SAS startup? It seems like a no brainer to charge monthly for a SAS ad versus annual. My target price is $9.95 a month and my annual price is $49.95. There’s a lower barrier of entry and a 240% increase in revenue. What concerns me is return rate. The other concern is initial cash flow.
I bring on 200 initial seat customers at $49.95 a year, our initial users will generate $9,900. Using the monthly model it would generate $1,999 a month. This amount is fine for proof of concept. There’s barely enough to cover infrastructure cost. Thanks a lot. Keith.
[23:00] Rob: So first question is if you charge – he says $9.95, let’s just say $10 a month to make it easy. If you’re charging $10 a month, your annual price shouldn’t be $50 a month. It should be either $100 or $110. That’s kind of the standard is that you do 10 or 11 months for the annual contract. So I think you’re discounting it way, way too heavily to do an annual that’s basically 5 months of payments gets you the whole year.
[23:24] Second thing is when starting out I’ve always done monthly. I focus on monthly recurring revenue. That’s a big metric for me because I want to see that number growing every month. And if you move to annual pricing, you can definitely get a big spike in revenue but that goes away as soon as you stop marketing because you’re kind of killing that flywheel effect that a SAS app gives you that it does bring in the revenue every month.
[23:46] However, there’s a big cavvy up to this. Exactly the reason you’re mentioning it is if you sell annual upfront, you do get that big influx of cash and it will help you fund development and employees and early on you really need that money. And Jason Cohen also talked about this in his Micro Comf talk that if you get to the point where you’re actually collecting annual from everyone, then you have essentially like a negative customer acquisition cost that you can acquire an infinite number of customers because you’re spending…
[24:14] Let’s say send $100 to acquire a customer but you make $400 or $500 from them right when sign up, then you have this infinite bucket of money in with which to acquire them. So all that to say, I’ve always been a fan of monthly but I think that annual definitely has its place.
[24:34] I know some apps are doing annual only. They’re actually SAS apps and you could only do an annual plan. I would definitely consider that. I don’t think that’s out of the question. I have not done that with any of my apps to date but it is on some to-do list essentially when we have time to rewrite the marketing and redo the billing and change all that stuff. Because you have to have different trial sequences. You have to have a lot of changes from monthly to annual.
[24:55] So I would think it through. But if you’re in a position where you can do annual, I would not rule that out. I would think about doing it early on at a minimum as an option and maybe as the preferred option for people because it gets you that cash flow upfront and then it can really help you build your product.
[25:10] And then at some point you could go annual only if it’s really working out or if most people are picking monthly then you know that maybe your audience isn’t resonating with a larger upfront purchase price and they want a smaller price overtime so you can always vary to that but this is it. It really is an interesting question. I actually feel like my thoughts and I think other people’s thoughts on it are changing overtime.
[25:30] Mike: Yeah. I was going to point out the difference or the discrepancy between what he had lifted as the annual price and the fact that only comes out to the five months of revenue. The other thing I would point out is that this question becomes a little bit clearer once you get to the point where you have people coming into your funnel and you know what your customer acquisition cost is when you’re first starting out and you don’t know what those numbers are is really, really difficult to tell whether an annual plan or a monthly plan is going to be better off for you because you don’t know how much it costs you to acquire a customer.
[26:01] So you’re still kind of working out the pricing. And because of that, you may say I’m going to charge $10 a month and then you start charging people $100 for an annual plan let’s say and then you go trough and then you start finding out that its actually costing you $110 or $130 or $150 to acquire a customer.
[26:20] Well if you’re only making $100 a year from that customer and they’re canceling right after that because the service is not valuable to them, then that becomes a very, very big problem because you’re going to essentially stunt the growth of the business. And you’re going to have to increase the price point at some point along the way but you won’t know that until you’re so far in that its actually going to hurt you to do that.
[26:44] So those are the types of things that you need to take into consideration and knowing your cost of customer acquisition is a really, really important metric. And if you don’t know it then doing the annual plans can be risky. So thanks for the question Keith.
[26:57] Our next one comes from Mike Truman and he says hey Mike and rob, I have a question about email courses. I’m having trouble coming up with a subject for a course that is applicable to my business which is an online in and out board at blilo.com how closely should the subject matter of an email course be tied to what a business actually does in order to successful generate leads? Thanks have a great day. Mike.
[27:18] Rob: So what’s interesting is I don’t think your course needs to correspond with your app in order to get people to subscribe. But in order to get them to actually do a trial after they’ve gone through the mini course, there has to be some kind of tie in because as an example, blilo.com is an in-out board and the question it asks on the homepage is who’s going to be in the office today?
[27:44] So this is a very horizontal product which means that it’s kind of a challenge. You don’t really know who your demographic is per say. I guess its small business owners, medium business owners. I guess it is only with offices. So its small businesses only with offices, so maybe you think of a way to provide value like how to run a more efficient office or how to encourage more people to come into the office or why you should study some numbers on the benefits that people get when they work together in an office or maybe there is no benefit.
[28:13] Just do research on that and try to offer something around the concept of coming in versus remote work ad that kind of stuff because now actually at least keep people’s interest and even if you only do with 3 or 4 day course if you don’t have enough content at this point, just giving them some type of education and showing that you are actually an expert in the field even if you’re just researched it but you are more of an expert than they are.
[28:36] I agree with a horizontal product is more challenging than let’s say something that’s catering to dentists or only to tech companies because then you’re going to have a much better idea of what provides value for them.
[28:51] Mike: Thanks for the question Mike. Our last question is from Pralie and he says hi there, I just started listening recently and love the show. I was wondering what your thoughts are on when the right time is for a college graduate to start their own company? I graduated over a year ago and I’m worried that my student loans are going to get in the way of my plans of funding a startup in the future. Should I focus on paying off my student loans before starting my own company or do you think I’d be able to go ahead even with the debt? Thanks for the help.
[29:15] I would say the sooner you start the better. I don’t know as I would wait for paying off your student loans. I mean student loans tend to be pretty hefty and its going to talk you a long time to pay those off but I would probably also kind of caveat this with the underlying assumption that you have some sort of a revenue source and you aren’t just dipping into your savings and living off of credit cards to try and get a business off the ground.
[29:39] If you’re working or have a consulting engagement or something like that where you’re getting revenue of some kind and making a living and starting something on the side, you’re going to be in a much better position and its going to be a lot less stressful than if you try to just do everything solo.
[29:53] And since you’ve been graduated for over a year, I would guess that you’re probably working full time or at least part time at this point. So starting a business now is probably a better bet but I don’t know your full situation. The way I would lean is definitely towards starting sooner rather than later because the best time to start a business was yesterday and the best time before that was the day before and it just keeps going back. So there’s no better time to start a business than there is today.
[30:18] Rob: Yeah, I agree. Most student loan terms are like 10 years. Are you going to wait 10 years to start your business? Because in 10 years you’re probably going to be married with a mortgage. Maybe a car payment, all that kind of other stuff comes up. It only gets worst the older you get.
[30:32] So like Mike said, with showing some restrain and not just throwing it all to the wind and losing all your money or whatever, spending it all on you startup but taking a bit more conservative approach a lot like we talk about that Mike and I followed when we started ours as well as they approach – we kind of – a spouse here on the podcast, there’s no reason I can see to wait on this. I don’t think student lands should be reason to not start a business.
[30:54] Mike: So Pralie for the question.
[30:55] Music
[30:59] If you have question for us, you can call it in to our voice mail 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. You can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 143 | How To Hire Like a Bootstrapper With Special Guest Laura Roeder
Show Notes
- Rob’s email marketing web app, Drip
- Mike’s security auditing app, AuditShark
- Laura Roeder
- Social Media Marketer membership site
- Creating Fame course on personal branding
- oDesk – for hiring contractors, VAs
- Double Double (book by Cameron Herold, mentioned by Laura)
- Authentic Jobs – a good job board
- Fiverr – Hire people for small gigs for $5
- Rob’s Growth Hacker Internship
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 143.
[00:03] Music
[00:10] 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.
[00:19] Rob: And I’m Rob.
[000:19] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week Rob?
[00:24] Rob: It’s been a good week. The very first dollar came through for Drip this week.
[00:30] Mike: Congratulations. We should have like applause music or something like that.
[00:32] Rob: I know, yeah. It feels good. It feels like another milestone. I think there are 15-16 users in the system now and there’s about a third of them that are really super engaged and have already paid. So revenue is in the – I don’t know, it’s about $250 to $300 right now. That feels really good to have that down.
[00:50] And then another third is still getting setup, probably just got them onboarded in the last couple of days so they’re working on it. And then there’s another third that I’m working with. They’ve been on for a week or two but they’re still struggling to get their mini-course setup and kind of getting the time for their team to create it.
[01:06] But it’s as always been a fantastic learning experience and I love hitting milestones like this because it just keeps me and Derrick motivated to move forward because it feels like we’re making progress.
[01:18] Mike: Now are you billing people as soon as they sign up or you got like a 14 day trial period for them?
[01:22] Rob: Yeah. At this point, everything is manual and so it’s still early access. I haven’t even emailed the main list and so I’m basically working one on one with people via email and sometimes via video Skype. And once they get setup, then I monitor their account and I email them and say they are you happy with the results? Are you happy with the conversions?
[01:43] Like one guy’s been setup for three or four weeks but he’s not getting the conversions he’s looking for so he and I are kind of working out how he can improve that and it’s not until he sees value in it that I am going to bill. I email everyone before I bill them and I say hey are you getting enough value out of it to pay $49 and then I get their credit card info and do it from there.
[02:02] So it’s totally one off, totally manual. At this point I really wouldn’t have it any other way. Before we email, I have 100 or 200 people I’ll be emailing. Before we do that, that’s when I’ll need to get a trial in place and I won’t bill them upfront at least to start. I have to. I really think that they need to see some value in it before they get billed.
[02:20] Mike: Yeah. I’m working through some of the sign up code for auto-shark right now. Last week I was complaining about how everything just seemed like it fell apart and over the past seven days I’ve really gotten things – so everything’s back together again. And it actually is solid now so I don’t think things will fall apart in the way they did before.
[02:39] Part of it had to do with code merges. I found there were some code that have been merged and it broke some things so I’ve got most of that straightened out. There’s a few last minute tweaks that I need to get straightened out in terms of a sign up for the early access. I’m really close to having that all squared away and then touching base with a few people and have them sign on.
[02:58] And when to bill them is actually a question I kind of had in my mind. I was kicking it around a little bit trying to figure out do I bill them upfront or do I wait a little bit? I think I’m going to hold off of it. I’ll take their credit card information stuff as part of the sign up process because that’s already in there. But I probably won’t bill them for a couple of weeks. I’ll just kind of give them some time and let them see what they’re getting out of it, get some of the feedback that I need to make the tweaks and then touch base with them just the way you did in terms of saying hey, is it alright if we switch over starting to bill you.
[03:27] Rob: Right and that was the cool part is when I emailed folks. Most of the people who I emailed I only emailed because I knew that Drip was working for them and if they’re actively using it and they’re getting subscribers and conversions and all that. It still feels weird. It still feels weird to email someone say hey can I bill you $49 or one guy’s actually on a mid tier plan so can I bill you $149 for the next month of usage?
[03:51] And all of them, when they came back, it felt really good. They were like absolutely. This is definitely worth it. It’s like it gives you that rush of adrenalin of like we’re really doing something that works here. I’ve enjoyed this approach. I think trying to make an arbitrary trial length this early in the game or to bill people upfront when they’re basically – if they’re not doing you a favor per se but kind of. Its going to take a little more time than just signing up for a traditional service. I think that’s probably pretty mature right now.
[04:19] Music
[04:21] Today we’re going to be talking how to hire like a bootstrapper and we actually have a guest Laura Roeder. So today, Mike and I have the pleasure of having Laura Roeder on the show. She’s calling in all the way from London. So Laura we appreciate the last minute scheduling and the fact that you’re 8 or 10 hours off of us.
[0:04:40] Laura: Yes, super happy to be here. You even recorded it during the daytime for me instead of the middle of the night which is very nice.
[04:46] Rob: So Laura is an expert. She’s social media and personal brand building person. She was a 2012 MicroComf attendee and she is here today to talk about how to hire like a bootstrapper? And in typical startups that the rest of us fashion, this will be much less of an interview and more of a panel discussion as Mike and I pipe in with our experiences as well.
[0:05:07] Laura brings a unique viewpoint on this topic because she’s a non-technical person who has hired technical people. So we’re going to look at elements of how that was difficult or challenging for her. Laura has been on – she’s appeared on Mixergy twice. She’s all over the press, forbes.com, CNet, L.A. Times, fast company. She’s had a course on AppSumo. She also runs…
[05:30] Laura, correct me if I’m wrong this is where you kind of got your experience of hiring is you have a membership website called Social Media Marketer and then you have a course on its called Creating Fame which is more of a personal branding course. Is that where you got your initial experience hiring folks?
[05:47] Laura: Yeah. I have a team that helps me run the business and the business is those two courses.
[05:52] Rob: Very cool. Alright, so we have an outline that Laura’s graciously provided. We’re going to start popping through a few of these points. The first item we’re going to talk about is how hiring or outsourcing is different for a bootstrap startup versus a funded one. You want to talk a little bit about that?
[06:08] Laura: Yeah. I mean I think a lot of bootstrappers are completely and totally overwhelmed especially with how to do their first hire because traditionally when you look at hiring you look at the team you need and then you look at your budget, how much can we afford for everybody and a bootstrapper, your budget is zero.
[06:27] And you’re often thinking I know, I thought this in the beginning “well I can’t afford $60,000. I can’t even afford $30,000 to pay someone a yearly salary.” So how can I have and be one? I think the bootstrappers have to get a lot more creative in how they hire because you don’t have that. You never have $500,000 in the bank that you can just use to pay people huge salaries. You often never get to that point as a boot strap business. You’re just going a little bit by a little bit.
[06:57] Rob: Right. What’s interesting about that, I remember hearing Peldi talk about it early. He said he was questioning when to hire that first person and he said he waited until he had six months of that person’s salary in the bank before he would hire them because it just made him feel more comfortable that he wasn’t basically going to have to let somebody go so quick. So you can imagine how much slower his growth was than someone who as you said half a million or a million dollars in the bank to do it.
[07:24] Laura: I think that’s great if you can get there. I certainly have not been at that point for most my business and also if you’re starting out hiring freelancers they kind of know and it could be good motivation. We need this work to work out so we can keep the business growing and so we can keep paying more. You know?
[07:42] Rob: Right. So what? Have you had a rule of thumb for yourself or do you just – when you need to help if you have $1 more than the project then you’ll hire like freelancer?
[07:52] Laura: Yeah. I guess my only rule of thumb is just always to put money towards hiring first. I think a lot of people are willing to do things like spend a bunch of money going to conferences or buying like training various sorts but they won’t actually spend the money hiring people to do the things they’re learning at the conferences. They get so stuck in learning mode and not doing mode.
[08:16] So I haven’t had a certain amount of money in the bank or anything but I do try to say okay if I have an idea, there’s such cheap ways to get things done. If I have an idea that I know is going to grow my business, what’s the most down and dirty way that I can spend $100 even to get this idea started going?
[08:33] Rob: Right. You know the way I’ve done it for the past several years was to start by hiring essentially freelancers or contractors because there’s not such a commitment and you can hire them for a few hours a week and you can slowly ramp them up and then bring them on full time if needed. Is that how you’ve done it as well or did you kind of just plunk down and said I’m hiring someone full time from the start?
[08:54] Laura: Now I have people full time, now that I’ve been doing this for about four years but I definitely started with everyone as a part time freelancer because I couldn’t afford anymore than that. So I’ve had a few people that started part time and then have become fulltime. Now I try to hire out fulltime roles unless it truly is a onetime project. But even – we just added someone new for customer service. My company customer service is not a full time job. There’s not enough emails for eight hours a day every day.
[09:26] So we’re starting someone hourly. We’ll probably move her to flat rate part time assuming that all goes well. So if I can think that there’s going to be enough work for them, now I do full time but if its anything short of that which it often is, yeah I think starting with a smaller project is the way to go.
[09:44] Mike: I think the one thing that I hate about taking the leap from going directly to not having somebody work for you at all to hiring somebody full time for a position is that you don’t necessarily know how well that person is going to work out because you’re in the position where you’re on occasion you have to hire people who are technical and that obviously creates some challenges but it doesn’t really matter whether you’re technical or not.
[10:07] Hiring other people is just difficult. I mean you can look at all the studies and research you want and even Google has tons and tons of research which basically shows that nobody in Google knows how to really hire good people. And I’m serious about that. I mean if you look at the things that Google has published, they say flat out we don’t know how to hire good people.
[10:24] They have all these statistics that they’ve done and tried to identify who’s hired good people? Who hasn’t? And across the board, everyone is mediocre which basically you can translate that out to everybody else in the planet and say well if nobody’s good at hiring, how do you go about making sure that you do hire good people? I think the only way to really do it is to try people out. I mean you have to go down that contractor consultant route first and work with people in order to figure out whether you work well with them or not.
[10:52] Rob: I think we live in a time where this is possible and 15 years ago, I didn’t know of anyone anywhere who was trying to start a business like we have, the location independent business with a single founder who was able to find someone skilled who was willing to basically freelance and work part time. And so I just think it’s critical that people keep in mind as you’re getting started you don’t just think the old mindset of I need to hire someone 40 hours a week to do something.
[11:22] Because Laura the point you brought up about it as someone doing customer service, I agree. Even with all the businesses that I run, I still don’t have a full time customer service person. It’s been years that I’ve had these things running. So I think that’s a main takeaway of kind of this first discussion point. If someone’s not already thinking about the two benefits of being able to hire someone part time is 1) you don’t have the major commitment and 2) that you do get to try them out like Mike said, those would be the things I would try to take away from this.
[11:50] Laura: I think a little side bonus to what you’re saying that’s really interesting is that you often get more entrepreneurial people which I think is really essential for running a small lean startup. I need everyone to be entrepreneurial thinkers and the way to tap into this location, independent more freedom lifestyle without starting your own business is working for another company that has that lifestyle already. Everyone who works for me works from their own home.
[12:19] Yes they still have a somewhat boring normal job that they have to do but they can do it on their own hours. They can travel and do it from wherever so I think you attract the type of people that you want in your company too.
[12:33] Mike: Something else I found with contractors and consultants is that they’re very much the type of person who looks at specific problems and tries to find ways to solve those problems as opposed to when you get out – I’ll say it in a corporate world where people get hired and they know that they’re getting paid to be a butt in a chair and they will sit there and whether they’re being productive or not, that you’re getting paid for it.
[13:00] So they see it as basically they’re just trading off their time versus a contractor who’s brought in to actually solve a problem and that’s what they’re paid to do is they’re paid to solve the problem and yes they’re getting paid for the time that they put into that problem. But their primary goal, their primary motivation is to solve those problems.
[13:17] Rob: Let’s move on to point 2 which is to talk about the first folks that we each added to our teams, our first hires so to speak. Laura you want to kick this off?
[13:26] Laura: Yeah. When I started the business that I do now, it was just making online courses which is a very homemade thing and I didn’t need to hire a developer anything like that. It’s all very DIY. So the first person I hired was really a VA, a virtual assistant type of person who kind of helped with a little bit of everything.
[13:48] Customer service is something that I’m especially terrible at so I knew I needed someone doing that. So she did customer service. She also put on emails into our email marketing program to basic tweets and edits on wordpress website just kind of general admin help. And she was part time. She’s a stay at home mom. I found that there’s this huge un-tapped workforce. There’s all these parents out there that want part time jobs because they want to spend time with their kids.
[14:15] And that’s not a thing in the normal workforce to have any kind of part time job where you get to use your brain so she was a mom looking for a part time job and I’ll talk numbers because I know everyone always really, really wants to know. I’m pretty sure I started her out at $1,000 a month. 20 hours a week-ish flat rate.
[14:34] Rob: Nice.
[14:35] Mike: Yeah, I think one of the first people I hired came on as a contractor. I think it was hiring him at $1500 a week. He actually came to me through an agency and it was more because I needed somebody there who could do scripting at the time. I kind of got away from bringing people in like that just because it was so expensive compared to what he was getting paid from the agency. So having that middle man in there really ramped up the cost but then I switch over to using contractors.
[15:00] And the first contractors I found were through Odesk. I think I was only paying $10 or $11 an hour and I was able to essentially afford having them 30-40 hours a week and that seemed to work out pretty well but you do have to go through interviewing process to make sure that you’re getting the right people. And you need to be able to cut people loose and know that you’re making the right decision because it’s more important to have the right people than it is to just have people working for you.
[15:28] Rob: Yeah and for me it was a virtual assistant. This was probably 2007 I think after I read The Four Hour Workweek and I just had a couple small products that were ramping up and I realized that doing all the support myself and all the admin tasks just wasn’t the right way to go. I haven’t even realized that you could get hire people for a few hours a week around the world and it was a big light that came on for me after reading that book.
[15:53] Hourly rate was probably $5 or $6 an hour. I think they were in the Philippines. I don’t even remember at this point. I worked with them for a year or two and they’ve moved on and I’ve since found a number of virtual assistants and developers and designers like Mike said mostly on Odesk these days.
[16:09] I think something for folks to think about, if you’re at the point where I guess I feel like people wait a little too long to hire that first VA. I mean I wished I had done it earlier. I think there’s a longer learning curve than a lot of people think when you hire someone because you have to learn how to be a good delegator not to micromanage, not to throw a fit if someone doesn’t do it exactly the way you want it or how well you want it to be done.
[16:35] And so that takes time and if you want until the very last minute and you’re totally overwhelmed that then you hire someone then you now have this 1-3 month kind of learning period that is tough to do if you have this crunch time going on. But I think that hiring a virtual assistant earlier especially if its variable. I didn’t hire someone for 20 or 30 hours a week. It was more of an as needed basis which can be real benefit for you if you don’t have the money. I was in a situation where I didn’t have much money that I wanted to spend on someone on a monthly basis.
[17:06] Laura: I agree that people wait way, way,way too long and people get really overwhelmed by what the training process is going to be like but it’s one of those things that you’re just putting off the inevitable. I mean if you want to grow your business you’re going to have to do it sooner or later and I think it’s one of the top shortcuts for making a business more successful adding on other people.
[17:29] The training is really not – all the tools for screen sharing and recording what you’re doing and Google docs, I mean just the basic stuff, it actually makes I think a lot easier once you just force yourself to do it.
[17:43] Mike: I think sometimes it’s just a mental hurdle of trying to figure out what source of things you can hand off to somebody or hire somebody for. And there’s lots of things that people do on a daily basis or a weekly basis that they don’t even think about sending that off to somebody else or hiring somebody to do that for them. They don’t do the mental calculations of how much time it takes them to do X when they could pay somebody $10 an hour to do it for them. And they’re saving themselves that much time to either spend with their family or to do other things that are going to move their business forward.
[18:13] I think that’s a main thing that I see people doing or the main mistake that I see is people aren’t doing those calculations to figure out where they’re actually adding value to the business and where they’re basically just spending time building themselves a job.
[18:28] Laura: You know, something that really hit me on that topic, this guy Cameron Herold who I really admire, he has a business book called Double Double. He said go through all of your tasks and weight yourself at how good you are at them and the highest is let’s say E for excellence. And he said the lowest is I for incompetent and for some reason that really got me.
[18:51] I’m like I went through and I said where am I actually incompetent at doing something because we do tasks that we actually are literally incompetent at. We could just barely figure out how to do them and it really illuminates like why am I spending my time doing something that I’m actually incompetent at? I’m going to screw up my business.
[19:10] Rob: Something that I’ve taken to do is about a couple times a month I would go through my to-do list and I look at items that I’ve continued to push off that I have kind of a mental block against doing and I try to figure out if I have someone on my team who can do that or if I can hire someone to do that group of tasks?
[19:29] Because if I have a big chunk of them that I’m continually kind of skipping over then know that it’s just not ideal that I actually handle them. And whether it’s because I feel I’m incompetent at them like you said or whether I just don’t really have the desire to do them, those things sticking around on the list and not getting done typically isn’t advantageous. I either hire someone or I just mark them off the list and I say these don’t need to be done. They’re not important enough and that’s why I’ve been skipping.
[19:54] So we’ve talked about why someone should hire perhaps a virtual assistant earlier than they think and lets talk about some of the best ways to find help. And whether that is a virtual assistant or a developer or designer, we know that traditional job boards are not going to be the source for what we’re looking for because as bootstrappers we tend to just have to grow it slowly, organically, find people to work hourly and be flexible and work with us.
[20:17] So Laura maybe you can give us some insights on how you’ve done in the past? What’s worked for you and what hasn’t?
[20:23] Laura: Odesk has already been mentioned. That’s the really obvious one but I actually don’t realize I kind of had it in my head that Odesk was for people overseas like a lot of people in the Philippines and in India. I was a little behind the times on my Odesk. For this customer service role, we wanted someone in America and there are tons of Americans on Odesk working for $8 to $20 an hour and there’s plenty of Americans that are super psyched to get a work from home job, a few extra hours a week $10 or $15 an hour.
[20:57] Odesk goes way beyond even what I realized it was great for, beyond just developers but admin people, customer service people so I definitely love Odesk. If you’re going for a true fulltime person or even a true part time person, authentic jobs has been amazing for me. I found really, really good talent there and just posting to my own network always gets good people. So posting on my social media accounts, posting to my email newsletter, we always get people that way as well.
[21:24] Rob: Very nice. I have not had heard of authentic jobs. I’m looking at it now. I will be referring this later. Yeah, I’ve been n Odesk. I mean everyone on this podcast knows that Mike and I hire a lot of people through Odesk. I actually put together a course on hiring VA’s if anyone’s curious. That’s at startupvacourse.com but I recommend Odesk throughout that.
[21:42] I had tried bestjobs.ph I was on the Manila Craigslist, eLance, rentacoder, guru.com and there were all these sites and this is back really before Odesk came into the picture. And I tried all those and I had mixed results and you’ll still get mixed results even with Odesk there’s still a large hiring process that has to take place but in general I just haven’t found a better source of people especially the kind of hires we’re looking for which is kind of not a lot of hours per week and maybe some flexibility in how much they’re working as well as I love Odesk’s project management stuff – maybe not project management but kind of the time tracking, the work diary aspect of it.
[22:24] Mike: I mean like you I’m still a big fan of what you can get off Odesk and its primarily because you can see what people are working on and making sure especially if you’ve never met them or talked to them on the phone, you can see what they’re working on and making sure that they’re on track.
[22:40] Lately I’ve actually gone down the road of hiring people through my personal network. I’ve got two different people right now who are working for me. One of them’s putting in about 20 to 25 hours a week. The other one is putting in between 10 and 20 and both of them are hired through people I knew or a friend of a friend type of thing. And they’re both working out extremely well so I think that those personal introductions or if you know somebody, even if you just reached out to people you’ve worked with in the past, it seems to me like that is an exceptional way to get really, really talented people because you already have people who are essentially vouching for their skills and vouching for their abilities as somebody who gets things done.
[23:23] Laura: I just remembered. I also have actually used Fiverr which is kind of weird but I found people to do just really random tasks. Fiverr has a lot of really scary scammy stuff on it but one that I did – I wanted a list of all the Facebook pages for local chamber of commerce’s to do Facebook ads on. I paid someone $5. They gave me a really good list and the recently for a blog because design has been a hard thing for me to hire. It’s one of those where we have intermittent need. We don’t have ongoing need but when we need it, we need it. So we don’t have a designer on the team.
[24:00] And we have a blog post and our editor for our blogs are like “oh it would be really cool if we had a graphic that looked exactly like this to illustrate what we’re saying in this post.” So we went to Fiverr to have someone make a graphic and that worked out really well.
[24:14] Rob: Yeah, that’s a good one. I’ve actually used Fiverr quite a bit as well. I really like the thought of using your personal network. I don’t know that I’ve really done that much. I think I’ve done it with one hire but I have an item right now on my to-do list. I’m basically going to start looking for a marketing intern for Drip and HitTail, someone to help out with a lot of the tasks that are kind of sitting on my plate right now.
[24:36] My first points that I’m going to look at before I post to authentic jobs or go to Odesk is I’ll probably tweet it out. I’ll mention on the podcast and see what I get from there because Mike as you said, it seems like not only do you get people who maybe understand your situation a little more but you just have a higher likelihood even if you only get a couple of people who are interested, such a higher likelyhood that they’re actually going to be a fit for the position.
[25:00] Laura: I think especially for an intern, it’s so great to go to your network because a fan would actually do a really great job as an intern. My old project manager for my business, when I first hired her, I actually could not wrap my head around hiring a project manager for my business. It just seemed like an insane idea so I kind of talked myself down and thought okay maybe I could get a project management intern which doesn’t really make sense for project management.
[25:25] But I put the listing out there and I got an email back from someone who had taken my courses, was working on starting her own business and my community and she said well I have a lot of experience in production and project management. I’m not really a typical intern but I’d really love to learn from you and work with your company and then she ended up becoming fulltime and playing a huge role in the growth of the company.
[25:47] Rob: Yeah and that’s great because she already kind of knew your deal. She’d taken your courses. She knows how you work and knows the kind of projects that you work on and I think that’s a big benefit. I think I’m going to take it in stages of I’m going to work the network first and then only if that doesn’t work then I’ll explore everything else. And kind of go too to the masses so to speak.
[26:07] I’m interested to hear and I’m sure the listeners are too. Just a brief description of what your team looks like. How many folks do you have working for you? Is everybody part time, full time? Are they distributed around the world?
[26:18] Laura: Yeah. So they are distributed around the U.S. and Buenos Aires currently. So we have a full time project manager and that’s what someone would call operations, basically runs the day to day of the business. We have a full time content manager and she also does social media because content marketing is how I market my business. So she managers our newsletter and our blog and our internal newsletter and managers our social media posting and our social media schedule, basically our content marketing strategy.
[26:51] We also have a full time developer/tech admin so he does everything from writing custom wordpress plug-ins to the really boring stuff like loading up our emails in Infusion Soft and doing all the super boring Infusion Soft technical stuff. We also have the newest person on the team is a full time copy writer/data person which is a bit of an odd combo but it’s all under that marketing umbrella.
[27:20] So she writes copy for a blog posts, also marketing copy of emails and stuff like that ad she also does data analysis of which promotions are working. She does Facebook ads, analyzes which Facebook ads are working. Definitely a small team. You end up with those positions where people do a random mish-mash of stuff. And then we have part time customer service and next we’ll be adding on an SEO intern to help with some of our kind of overflow ground work type of SEO tasks.
[27:51] Rob: Nice. What I like about your description is you have the copywriter/data person and you’re right, that is such a random assortment but I found the exact same thing that when you’re working on such a small team that if you find someone who is good at something and you hired them for a specific thing and you start giving them more random odds and ends and they’re good at it and they execute it and they enjoy it, you want to put these kind of bizarre job titles that you never have in a big corporate environment.
[28:18] But if the person is happy, they’re doing good work and it works for you and helps the company then it’s like why not? There has to be that flexibility.
[28:26] Laura: Yeah and I’m a huge believer in the idea that whatever people love the most is where they’re going to do their best work. So I’m constantly looking at what people enjoy and what they don’t and trying to give them more tasks they enjoy and see if it makes sense to move around the stuff that’s not as much fun for them.
[28:44] Rob: Let’s talk a little bit about your hiring process, writing a job description, that kind of stuff.
[28:50] Laura: The best tip in the world, I learned this from Ramit Sethi is to do a form the people have to fill out instead of sending in a resume. So in that form you ask them questions related to the job. So when I was hiring a project manager I asked her questions like two people have this conflict, how do you handle it? You need to mange scheduling this. Like what’s your strategy? What’s your plan of attack?
[29:15] Don’t let people send in resumes. Don’t let people send in cover letters. They can link to a resume as one of your questions, that puts the onus on the applicant instead of putting the onus on you to dig through hundreds of thousands of resumes that which is definitely the worst and most painful part of hiring. So most people will never make it through your initial survey. So you filter out tons of people there.
[29:40] And then just reading the survey answers, you actually get a really good idea of who you want to talk to. So by the time you get to the interview stage, it’s very few people. I’ve even have positions where I’ve only interviewed – this is a bit unorthodox I guess but I’ve had positions where I’ve read the answers, interviewed just one person, felt like they were it and then I just went ahead and hire them.
[30:00] Rob: Yeah. That’s a really good tip. That isn’t something I’ve done and I’ll probably think of doing it on this round as I look for this intern. Something related and I think I don’t remember who I took this from. I think it’s probably Dan Andrews from the lifestyle of business podcast. I asked for a two minute video of them explaining – I’ll explain the job and say why you’re a fit or I have a couple questions they should answer.
[30:23] And it’s like you said, that eliminates a lot of people in a good way because I want someone who’s willing to – depending on the job of course. If it’s a developer I may not ask for that. But if its someone who I’m going to be interacting with and who I need maybe to be a good writer or to have certain skills, then I will absolutely ask them to sit in front of your webcam and just give me a two minute spiel.
[30:45] I will also record typically in my job descriptions, I will link out to a video of me like a one minute video of me talking about here’s who I am getting an idea of a little bit of personality and here are some projects that I’m working on and stuff that you’ll probably be involved in. I found that that some people don’t like that. Some people are kind of like whatever. They’re put off by that but they’re not a good fit for what I’m looking for.
[31:09] Mike: One of the things that I find is a lot more important than the skill set is just the ability to work with somebody. The survey questions that you talked about, the video that Rob you talked about, those tend to be really good for filtering out people who aren’t going to be a good – for lack of a better way to put it, a cultural fit. I don’t think that’s quite the term that I would probably use most of the time.
[31:31] But you really want to be able to find people who are going to follow directions and do exactly what it is that you want them to do rather than go off in the left field and just kind of do their own thing or do things that they think are going to be helpful but are not really in line with the vision of what it is that you’re trying to accomplish. And just finding those people who can do the right is a lot more important than people who may spend the least amount of time doing something but if they’re not doing the things that are right or that need to be done then it’s not nearly as helpful.
[32:02] Because then they’ve gotta go back and do it over again or you’ve got to fix it for them and those types of things just create problems and friction and if you can avoid those types of frictions even if you’re paying a little bit more to have somebody spend more time on it, I think you’re in a much better position than to have somebody who’s fantastic in a particular job that doesn’t quite always do the things that are need to be done or do the error checking that needs to be handled and those types of things.
[32:27] Laura: Well I find it interesting that you bring up – why don’t you like that word culture?
[32:31] Mike: I don’t like the world culture because its kind of hard I think to have a culture when you don’t really have an office or nobody’s meeting each other. I think that’s more than anything else. It’s not that culture is the wrong word. It feels awkward when you’re not in an office with people. Culture is not the word that I think of as a way to describe it.
[32:51] Laura: I bring that up because I actually had a huge mindset shifts in believing that my company does have a culture. Because I used to feel like you did and I thought well a culture – because when you read those articles, how to improve your company culture they say put a ping pong table and a break room. That’s going to be so much fun.
[33:11] And I never felt like it applied to a virtual company but I kind of realized whatever word you like to use for it, every company does have their own – your philosophy, your beliefs, how you do business, how you interact your personality, my company does have a culture. And like you said finding people who fit in with that culture is really, really important. I totally agree. It’s even more important than their skills.
[33:36] And I actually took my business a lot more seriously when I thought yeah, I do have a culture and my culture is awesome and my company is a great place to work and there are a lot of people that are working jobs they don’t like that would love to work for an awesome company like mine where people are nice to each other which is a lot more than you can say than a lot of jobs. So I actually love the idea of having a company culture and thinking about how that applies for a virtual company.
[33:59] Mike: I don’t think that it’s wrong. it’s just that the word feels awkward to me and maybe it’s just the stage that I’m at and you’re a little bit ahead of where I am mentally in that respect.
[34:08] Rob: What I like about what Laura just said is basically to find the best people you’re going to need to actually do a reasonable job of selling your company in the job description. You can’t just be like the old guard. You see the big whatever, the big banks or credit card companies and they have these job descriptions that are just horrendous.
[34:28] You read the job posting and its like I feel like I’m applying to work for the government or like I’m signing up to go to prison. It just really doesn’t sound like fun. That’s something I typically – if you’ve never written a job description before, I would say forget everything you have ever learned about any job you ever applied for. Throw them out because that is not the way that you as a bootstrapper want to hire your first, second or third employee or freelancer.
[34:54] You want to convey a sense of something that what you’re doing is exciting. It’s interesting because that’s how you’re going to find the people that are going to jive with kind of the small company culture whatever word you want to use for it. So yeah, I think that’s something that the people should take away from this. Let’s look at our last point which is micromanaging. Laura you want to talk to us about why micro managing makes hiring pointless?
[35:19] Laura: Yes. Micromanaging is the worst spin of working with other people. It’s so bad because it really makes all that work that you’ve spent money on kind of useless because you’re just doing it again yourself. I think most of us have been micromanaged.
[35:38] I remember I used to work as a designer and I understand that attitude of why am I going to spend a lot of time on this? You’re just going to redo my work? Because that’s how I felt. I felt my boss would just come and redo everything I did her own way. And you really are training your employees not to try hard. Because they know that you’re going to come do their work over again and it’s just a huge waste of time.
[36:03] I’ve heard about people doing things like reading every email that one of their employees sends out before they’re allowed to actually send it live. It’s just a huge waste of time. Why would even hire someone to do it if you’re going to take your own time to read every single thing? Most of us have been micromanaged by others and they’ve trained us to be micro mangers so I think getting rid of this habit is a big key for success for running an effective team.
[36:29] Rob: Yeah there’s an expression. Its building a $10,000 fence around a $1,000 piece of property and the idea is you’re basically misusing resources. So if you’re going to hire someone and then you’re going to read all their emails before they’re sent out, you’re right. You shouldn’t hire them. I think that for the first week or two that I hire someone, I am vigilant about what they’re doing. I mean you have to make sure things are going right.
[36:53] It’s obvious that if you have that much of a need for control then either you’re not ready to hire someone or you have some really bad habits that you have to unlearn before you’re going to be ready to do.
[37:03] Laura: I think one of the biggest things is trust. A lot of people struggle with how much do you trust your employees? How much do you trust your freelancers? And it’s definitely something everyone has to figure out for themselves with what you feel comfortable with. I air on an immense amount of trust. I figure if people are going to steal from me or screw things up on purpose, I obviously did such a poor job of predicting that.
[37:31] It would be totally unexpected if that were to ever happen. So to base everything around hedging for that not happening, I would just rather give people full trust from the beginning and it allows them to do better work.
[37:42] Mike: Part of that is your trust in yourself that you made a good hiring decision because you have to just accept that you made this hiring decision and you’re putting them in charge of thing so that you don’t have to be that person making I totally agree with all of that. But what I mean by listening to people is that if you’re those decisions.
[37:57] I mean that’s what you hired them for. You hired somebody to make decisions on your behalf and you need to trust yourself that you made a good hiring decision that they’re going to make the right decisions. And there’s going to be occasions that they won’t make the same decisions that you would’ve. It doesn’t mean that its wrong or that you need to go through and redo their work.
[38:14] What you really need to do is make a conscious effort to never go back and redo somebody’s work because I think that just creates some sort of friction between you and the person you hired because they will get to a point where they say everything I do my managers is just going to redo it anyway so why should I bother to do a good job?
[38:31] Laura: Mike I think that is so important. I think that’s really the key what you said that they’re going to make different decisions than you’re going to make. I think that’s why a lot of good people go bad in hiring. That’s why a lot of good people micromanage because they say they’re willing to let go but they still want everything to be their preference.
[38:53] And your way is not the only right way. That’s why you hired someone else. So I think seeing that difference between okay what’s really important to you, what’s a real guiding value and philosophy and strategy of how you want to run your company versus what’s just your personal preference that actually doesn’t matter so much and someone else’s personal preference is just fine. Just let them do it.
[39:12] Music
[39:15] Rob: So to recap, we’ve covered how to hire like a bootstrapper for today. The first thing we talked about was how hiring and outsourcing is different for a bootstrap startup. Then we talked about the first folks we added to our team and next we talked about the best sources that we’ve used to find help, the websites that we’ve used. Fourth, we talked about the hiring process and a little bit about writing a job description and then lastly we touched on micromanaging.
[39:38] So Laura, if people want to get in touch with you, where would be the best place for that?
[39:43] Laura: You can find me on twitter as @lkr or find me @lkrsocialmedia.com.
[39:51] Rob: So yeah, Laura thanks again for taking the time to come to the podcast and help share your experience of hiring like a bootstrapper.
[39:57] Laura: That was fun. Thanks for having me as a guest.
[40:00] Rob: Yeah, absolutely.
[40:01] Music
[40:03] Rob: 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 in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 142 | Does Startup Validation Work?
Show Notes
- Dan Norris’ Blog Article on Startup Validation
- My Analytics
- Dominic Patmore of Pilifter.com
- The Lean Startup
- Inform.ly
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be talking about whether or not startup validation works. This is Startups for the Rest of Us: Episode 142.
[00:09] Music
[00:17] 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.
[00:26] Mike: And I’m Mike.
[00:27] 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?
[00:31] Mike: I got an email from KISSmetrics regarding the app they develop called My Analytics. It allows you to take a look at all your Google Analytics data on your iPhone. Have you seen this yet?
[00:41] Rob: I saw the app. I had an early beta version of that, and it was pretty stripped down at the time. It looked cool but it didn’t do much. Is it pretty cool?
[00:50] Mike: I mean it’s probably pretty similar to what you saw. I mean it does allow you to see at least the basics and stuff. What I liked was it allows you to go back and compare to some of your data from yesterday or the current week against previous data points that they kind of hard code in. So you don’t have a lot options in terms of saying well I want to compare three days ago versus 14 days ago or something like that.
[01:12] Some of those data points are hardcoded in. So you’ve got options for yesterday, this week and then you can go back either one week or two weeks etc. But you can’t just do like a date range or something like that and compare those. But it does allow you to do at least some minimal comparisons and pull the data right up on your iPhone, which I didn’t have a way to do that before.
[01:33] Rob: Yeah. It looks really nice. The screenshots looked nice and it’s free.
[01:37] Mike: Yup.
[01:37] Rob: No fee to use it. Pretty cool. We got an email from Dominic Patmore and he’s at Pilifter.com. He says I’m been listening to Startups for the Rest of Us since December. It’s comforting to know I’m not the only one seeking to create and maintain small businesses. I wanted to say that your advice helped me help another entrepreneur for making a common mistake. I met with him yesterday and he was explaining his mobile app, which he felt was heading to version 2.0. And his aim was to get venture funding and get bought out.
[02:04] However, when I asked him how many users he had, he said zero. But said he had a number of interviewees who would be willing to pay him. And then he gets to how we become involved. He says hearing your voice in my head, I told him that the best thing would be to go back to those users and get them to pony up on a bet release. My reasoning was that if they so loved the idea, what would they pay to see it go to version 2, 3 or 4. If there’s no one, then maybe it would be better to back to see if the solution is actually addressing a real need.
[02:33] This was in a TechHub space. I think like a co-working space. And there was another developer next to us that jumped in to confirm what I’d said. Thanks to you, hopefully, I was able to steer someone away from putting more money into building something for no audience. Thanks again and keep up the great work. So thanks for writing in Dominic. I loved hearing stories. It’s kind of like second generation. We didn’t directly help someone but it’s like an indirect relationship.
[02:52] Mike: Very cool.
[02:53] Rob: The only other thing is Drip continues to move along. We have 11 early access customers. They’re 8 or 9 of them that are actually active. It’s getting to the point where we have enough people in there that it’s hard to tell what everyone is doing now. But we’re moving forward and keep getting emails about people wanting to use this. So that’s good validation for me.
[03:13] And we did push a big feature live today and that’s going to help with on boarding. And it basically allows people to easily create – it does something no other email app does. It allows you to do one click and have this whole template for an email sequences spit out and then you just kind of fill in the blanks. It’s a neat features and it’s finally out. And then we’re working on split testing next, which is really the last major feature we’re going to implement before launching to the world. So we’re about a month out. Every week the early access users grow and so I’m excited to move forward.
[03:41] Mike: That’s cool. It’s great to hear that you’re moving forward. Personally, for AuditShark, I feel like I’m moving backwards cause things are just going sideways.
[03:48] Rob: Is that right. What’s the problem?
[03:49] Mike: It’s not just even one thing. Like if it was just one thing I can deal with it, maybe two or three it would be all right. But it just seems like all these things that are moving in all different directions all at once right now. It just feels like nothing is going right. For example like the automated upgrade system for all the different things that I had in place that used to working now things are just not working for whatever reason. So whenever I go to do a deployment, basically the entire system stops functioning. And then I had a system of sending emails so that when audits would run, you’d get emails from them. That’s not working anymore.
[04:24] It’s hard to get to the bottom of all of it because there’s so many different, you know, I called them dependencies for a lack of a better way to put it. But all this different things that I didn’t necessarily write that I don’t fully understand how they work. So debugging them and troubleshooting them just takes forever.
[04:39] Rob: Yeah. That’s a real bummer. So its stuff that developers who are still working for you wrote or is it past developers?
[04:45] Mike: Well some of it is libraries. So for example, there’s a scheduler library that is supposed to run things on a scheduled basis. And when it fails, I don’t really get any feedback about why it’s failing or whether or not its continuing to run and it’s just like throwing exceptions in the middle of it.
[05:00] So, I still have to dig into it and try and figure out what’s going on. Like I said it’s all this different moving parts. They’re all in the air and trying to figure them out is taxing to say the least.
[05:11] Rob: And the bummer is you’re like you’re in early access and so you’re trying to manage that process as well as this technical side.
[05:17] Mike: Right.
[05:18] Rob: I mean it underscores how many things you have to juggle as a software entrepreneur that wouldn’t have to juggle if you were launching say an information product or just a new blog or something that relies more on content. You’re not going to tend to hit all these snags that we do, cause software is very complex.
[05:35] Mike: Right.
[05:36] Music
[05:38] Mike: This week’s episode is kind of inspired by a blog post that Dan Norris wrote about whether startup validation is legitimate or not. You know he’s got some issues with Eric Ries’ book called The Lean Startup. You know you look at the startup community and generally, I’m kind of paraphrasing and over generalizing here. But the startup community generally says if you read this book and do what it says you’re generally going to be successful. But there are a lot of startups out there who’ve tried this approach and just failed miserably. And the question is does that mean it doesn’t work. And Dan has got a plenty lengthy blog article where he’s basically calling out and saying this stuff I tried this and I tried this and I tried this and this stuff just doesn’t work.
[06:21] Rob: Right. He gives a bunch of numbers. How he send out surveys and he gives you exact percentages. Shows the press coverage that he got and talks through how many people he get to sign up for a launch list and all that. So it’s a nice in-depth piece. We’ll obviously link it up on the show notes. But the title is “Is Startup Validation BS?” So, we want to kind of talk through with those.
[06:40] I have to be honest, my views on the whole Lean thing are constantly evolving. I’m still critical of people in a movement who are doing a lot of teaching but they’re not launching startups. In any field, there are academics who are studying and researching and then there are people on the ground who are actually doing, and there needs to be collaboration between those two sides.
[07:01] But the startup space has never really been that way. Academics have always tended to be behind. Like the MBA programs tend to be behind where the actual founders are. Maybe the Lean Startup movement is a diverging of that. And we are going to fit the model that psychology and medicine, computer science, you know those fields have fit for years. But its still a challenge to feel like someone with their feet on the ground who knows the tactics that work and the ones that don’t work to kind of hear this movement that I definitely think has positive points.
[07:33] But to hear some people take it on as like the gospel or the way to do it and that if you do this, you’d be successful; if you don’t do it, you’ll fail type thing. That’s where I say like my views on Lean are evolving. I’m not pro Lean or against Lean. I love some of the tenets of it. And I think other parts of it are questionable and I don’t do them in my own startups.
[07:52] Mike: I think one of the things that comes up in my mind is that there are a lot of these classic mistakes that you can make when launching a product that have absolutely nothing to do with startup validation. And although, you’ve gone through the process of validating your ideas, it doesn’t necessarily mean that you’re still doing the right things. Back in episode 121, we’d talked about seven catastrophically common launch mistakes.
[08:15] And you go through that list and you look at those and even if you validated your startup ideas, if you start going through and you commit all of these launch mistakes, it doesn’t mean you’re going to be successful with your products. I mean it’s very difficult to be successful when you’re shooting your foot every time you try to take a step.
[08:30] Rob: If you think about building a successful product as kind of this triangle or this three-legged stool and you need product as one of the legs. You need market as another and you need execution as the third. And so you can build an amazing product, but if it doesn’t actually solve a problem that anyone needs you’re going to fail period. If use Lean Startup or you use another method to validate it upfront then hopefully you have found a problem that actually needs solving.
[08:58] And then you actually need to find a market that you can market to. So that’s the second part of it. Then you need to actually execute well. In other words, don’t make the common startup launch mistakes, execution mistakes, marketing mistakes. So there’s a lot of elements that go into it that validation just says hopefully it says you have a good chance of people actually wanting this problem solved, and hopefully the solution that you’re looking at is going to solve it.
[09:24] But that’s how I view it. I don’t think you can get to a point of 99% certainty just by doing pre-validation. You know it get you above 5% certainty we used to get to. Maybe it gets you to 60% to 70% that if you execute really well on both the product and the marketing side, don’t make a bunch of common mistakes then you have a pretty good chance of success.
[09:46] Mike: Yeah. I mean I think it just points out the fact that there are no guarantees and that’s really what it boils down to. Even if you do all the right things, you’re not necessarily going to be successful. There’s always this asteroid that can come out of left field and blow your startup away. But even accepting that you can go through this process, try to validate your idea and then still fail at it because just not enough people are interested in buying whatever it is you have to offer.
[10:08] So one of the things that I wanted to point out was that even assuming that you have a very large mailing list, that’s kind of a classic assumption is that if you get a large mailing list you’re going to launch, you’re going to get lots of customers very very quickly. And I don’t believe that’s the case. I mean if you have 4,000 people on a mailing list, if you have 1% conversion rate that will get you 40 customers or 20 customers at a half percent conversion rate.
[10:34] I think that’s not true. I mean there’s some fallacies associated with trying to assume that having a large mailing list is going to equate to a large number of customers. And part of that is because of your conversion process. You have to be putting in good calls to action. You have to be telling them exactly what it is that you’re offering, why it solves their problem, how it solves their problem, how much money its going to save them, how much its going to be worth to them.
[10:58] You can’t just blast this out there to a giant mailing list and expect all these people are going to buy your product on day one even if they said they would originally. You really have to educate them about what the product is going to do for them and how it’s going to benefit them. You know blasting out this email is not enough.
[11:15] Rob: I don’t think Dan made, I don’t think he just sent out kind of a random email and said hey buy the product. I don’t recall if I was on the launch list for his original product which is called Informly. But he’s a good content marketer. He’s a good copywriter and he executes pretty well on this stuff. So I wish I knew a little more in depth. That’s actually one thing. His post, I like the way he formed it. I like the way he gives a lot of data. But he doesn’t really talk about what he did to turn people into paying customers.
[11:44] So some questions that come into my head are “Did he launch with a single launch email?” You know did he build up this list of 1,000 or 2,000 people and then just send them a list and say here’s the product, here are the benefits, come and check it out. Or, did he do a long sequence. You know I typically do a four email sequence during launch. I also typically email between 6 and 12 weeks. You know if you’re working on a product for 8 months, I would probably touch base with them every couple of months during that time with progress update to build anticipation and to actually see the response from that.
[12:16] If no one emails you back then it’s kind of not a dead list but it’s people who are not really interested in what you have. But if you get 20 response with people saying this looks fantastic. I can’t wait to get in. Then that’s a whole other story, right. I think the other thing that comes to mind is that Dan has a decent personal brand. So he has a podcast and email newsletter of 5500 people. He has a lot going on. So I found that sign ups from my personal brand audience don’t typically results in trials or sales of my software.
[12:47] I mean, Mike, we have the podcast. I have the blog. We have MicroConf. We have Micropreneur Academy. All that huge footprint and it is a pretty sizeable footprint, I would say I have 10s of HitTail customers out of – there are four figures of HitTail paying customer, and I have literally in the 10s. I don’t even think they’re a 100 people from my personal brand audience who signed up.
[13:10] So if Dan’s list was seeded with a lot of people from his own audience and not from the exact target audience who would actually need this, then that could have been another issue with having – cause he had a reasonable size list. I think it was a thousand. Actually, that’s another question. He mentioned that he has a 1000 person beta list and a 1200 launch list.
[13:30] Do you know what that means? Cause I’ve never separated those two. I think that you should all have them as one 2200 person list and you should pick out a handful of beta testers from that who can run through it. And everyone else is just given basically the early bird the kind of pre-launch discount to come use the app.
[13:47] Mike: I think that what he meant by that is that he had a 1000 people sign up for the beta over the course of three months and go through it. And then there were another 1200 people that entered their email address to be notified of the launch. I mean I’m kind of in your boat. I’m not real clear what he meant by that. But I got the impression that he kept two separate lists. He drew the line in the sand at some point and said okay. Everyone before this point is going to be a member of the beta. Everyone after this point is going to be notified of when the launch actually happens.
[14:17] Rob: Got it. That makes a lot more sense. So, that would be something I would have done differently then. I’m presuming that during the beta that perhaps it was free or he had a free plan or something like that. And that’s one of the catastrophically common mistakes we talked about. He did mention a free plan in the post. He had 4,000 free users and only 15 converted to pay. And that’s the problem with free plans is you give people an alternative. So even if they need their problem solved, if you give them a kind of way to half solve it then they would tend not to want to pay for it.
[14:48] Mike: One of the things that Dan points out is that he went through and did some customer development and started asking people questions about surveys. And one of the things that strike me is that when you’re listening to people who aren’t paying you money, its not going to get you anywhere. Cause nobody wants to hurt your feelings about what your product is. And everyone is going to tell this is a great idea. I would pay for that.
[15:09] But the fact is until you ask them for money, there’s this barrier to entry. If they’re willing to give you the money then you’re probably going in the right direction. But if they’re not willing to cut you a check or give you a credit card then you’re probably on the wrong track or you’re talking to the wrong person. And my inclination tends to be that you’re probably talking to the wrong person as opposed to you’re on the wrong track with it.
[15:33] Because you can usually talk to those people and say, “If you’re not willing to give me a credit card, why is it that you’re not willing to?” It could very well be that it’s not that big of pain point for me. And that’s the hurdle you have to overcome. If you can’t overcome that hurdle then make sure that you are, or you’re talking to the wrong person and you need to figure out how you get to talking to those right people.
[15:54] Because until you do, you’re not going to really find out what their pain point is. You’re talking to people who may have ancillary pain point but it’s not the one you’re trying to solve. You know you’re marketing messages are getting confused, you’re talking to the wrong people, and you’ll never going to get anywhere when you do that.
[16:10] Rob: I don’t think I feel as strongly as you do about having people pay you money upfront. I mean if you look at what we both done with Drip and AuditShark. I have a list put together of emails and I’ve talked to people about the potential price of what that might be. And I’ve shown them the potential features and the potential value proposition and there’s a lot of enthusiasm. And there are people wanting to get into the early access.
[16:34] When I mention the price it will be after the trial, some people have said that’s too expensive and then you let them go. Basically saying that’s fine. I’m not a good fit. But others, you know, they haven’t written me a check yet and they haven’t put their credit card number into the app yet, but I don’t think you need to go that far. I think in an ideal world, you would. But I just don’t think that’s feasible when you’re doing kind of a larger launch like this and you’re trying to get thousands of people on the list.
[17:02] I think the best practice that I would lean towards maybe – you know, the way I look at it is those first 10 customers kind of the people that I interviewed and got on the list in order to validate the idea enough to start coding. Those people I would consider saying all right would you send me a check or would you give me a credit card number.
[17:20] Mike: I totally agree with all of that. But what I mean by listening to people is that if you’re asking them questions like what would make you pay for this? And they say well if you build feature X and then you go off and build it for them. Then they say okay, now I’ll give you a credit card. You’ve solved that particular problem for them but you haven’t necessarily solved a problem that is the same for a lot of different people.
[17:46] Really what I meant by trying to figure out who’s paying you money versus who isn’t is when you start listening to people who aren’t pay you money and you listen to too many of them, then you’re not necessarily solving any one person’s problem or a group of people who all have the same problem. You’re solving these individual problems for different people and you’re not necessarily solving the same problem for lots of different people.
[18:06] Rob: Yeah. That totally make sense. And that’s where that problem solution fit and then product market fit need to be in sequence. Because if you try to go sell to a bunch of people before you’ve solved their major pain point that people are willing to pay for, you’re doing things out of order and you get scattered. As far as I know Dan is not a developer, so I think he was outsourcing development. You can’t just move fast enough unless you have a whole team of people. You can’t move fast enough to hit multiple markets and solve multiple problems at once. And so that could potentially be something that impacted him here.
[18:37] Mike: I think we’ve talked a little bit before about asking for credit card numbers upfront. I just kind of want to emphasize the point a little bit. It’s really more of – I’d call it more of a psychological barrier than anything else. Because when you’re trying to convert people from a free plan into a paid plan, or you’re trying to convince them that after signing up for the product that’s when they should give you the credit card after like a 14 or 30 day trial or something like that.
[19:02] Basically, what you’re doing is you’re putting another artificial barrier in there for them to continue using the product. And really this is a big mistake and the reason why like I said is rooted more in psychology. And I’ll use an analogy here. If you look at enrollment plans for a 401(k) plans, you’ll find that the participation rate is commonly more than 90% were automatic enrollment is isued. And that’s very synonymous with asking for a credit card upfront.
[19:27] If you look at companies where they only have – where has the opposite where you have to actively try to enroll in it, you have to go to the HR department say I’d like to sign up for this. The enrollment after six months I think the statistic is 26% to 43% after six months. And that’s a huge difference. I mean that’s almost four times the difference between them. So what you’re really doing here is you’re trying to give the user value and show them the benefits and not have them do anything extra to maintain those benefits. Your software shouldn’t be any different.
[20:00] And stop asking them if it’s okay for them to continue receiving the benefits of your software. They’ve already made the decision to sign up, so put that in as part of the barrier to making that decision and couple them together so they don’t have to make another one down the road.
[20:13] Rob: Yeah. I think that’s a part of execution and I think its not the only way you can do it, but it’s definitely the rule of thumb that when I’m in doubt ask for a credit card upfront. I think another thing as I was looking through Dan’s blog post I saw I think it might have pivoted too soon. It looks like Informly was launched maybe it was six weeks before he pivoted into something.
[20:32] And as I thought back I realized when I acquired HitTail after I re-launched it, it already solved the problem. And I took me five months even with the marketing knowledge that I have, it took me five months to really learn how to market and how to find the people that really needed this product. And that doesn’t even include the problem solution portion. While I don’t think its going to take five months for everyone, I was willing to be at five months full time and that’s what I was focused on aside from you know there was a couple other smaller task I was doing.
[21:06] But in general I was doing it was pretty much five months full time of my time to really get HitTail where it started to scale. It was growing slowly during that time. But if you expect something to take off fast in six weeks, and you have a free plan and you’re not asking for credit card upfront, and you’re not forcing people to make a decision, and you’re not trying convert them into a paying customer then its likely that even if you have built something good or almost good enough that you’re not going to convert people.
[21:30] I actually have a friend of mine who’s in the mastermind group. He said, he wrote me an email and said I’d tried the content marketing version of Informly and the product itself was pretty rough. So meaning that the product execution wasn’t where it needed to be for this person to pay. And then he said there was zero effort made to convert me into a paying customer. I didn’t get any emails. I didn’t calls to action. There was no credit card upfront. Basically it was some classic mistakes that we see in the startup space.
[21:59] So again, the point of this podcast is not to sit here and point out all the things that Dan did wrong cause that’s not that helpful. I think what we’re trying to say is in light of whether startup validation works or not, it’s a really hard question to answer. But it’s keeping in mind that it’s not just about validating an idea, it’s about validation really talks about the product, right. Does it solve someone’s problem? Everything else the marketing and then the actual execution is another thing entirely.
[22:26] And if you don’t execute really well on that stuff then you can have all the validation in the world but the product itself still might not work. It may work but it may not work as fast as you want it.
[22:35] Mike: We’d mentioned this in the past but it was the long, slow SAAS ramp of death from the CEO of Constant Contact. She spoke at the Business of Software Conference this past year. And that’s just accurate as all heck. I mean it takes a long time to get to where you want. And there are certain things that will give you a step function increase and there’s other things that will give you this very very minimal increase that they work and they work well. But because of the fact that it takes so long to get customers until you achieved this massive scale, those things are not going to measurably move the needle in very very small time slices.
[23:11] Rob: And that’s why SAAS is so brutal, right. And that’s why we talked about having small wins where you do the one time software download. You do the WordPress plug-in or you do the Mobile app or maybe you do the info product or the training course, the e-book. Because things are things that you can kind of get out of the door. They don’t require a ton of support and you can get early wins to build your confidence. So that you can then later take the long slug of actually building the SAAS app, which as we’re finding more and more it takes months if not years to really grow it into a sizeable business.
[23:44] Mike: You know one of the things that Dan mentioned was that coverage in Tech Press doesn’t work. If you’re looking for press coverage to get your customers, that’s probably not going to help very well. But it will give your product and your websites some validation. It will give us some SEO juice. But I don’t think that the traffic that you get in some those types of sources is going to convert into paying customers very quickly.
[24:05] I mean it’s great for those back links. It’s great for the SEO. But in terms of getting targeted traffic, I mean basically what you’re ending up with is that all these people who are interested in new startups and new technologies. They’re going to come check it out and they may sign up. But they’re not necessarily really interested. It’s almost like saying hey check out this tech demo. And you send it out to Reddit and people are going to come and they’re going to get this massive spike of traffic. But they’re not going to stick around because that’s not part of their job. It wasn’t a problem they were trying to solve to begin with. They were just interested in something to use as a diversion for their daily life.
[24:42] Rob: Remember when I got quoted in the – was it The Wall Street Journal?
[24:44] Mike: Yeah.
[24:45] Rob: That resulted as best as I can tell because they didn’t actually send a direct link. It was just a mention. But that resulted in right around seven paying customers for HitTail.
[24:53] Mike: That’s awesome.
[24:55] Rob: Which is a rounding error. It’s completely inconsequential. I’m not saying press doesn’t work. I have heard of businesses. It was kind of like iOS keyword tool and analytic tool for the iOS app store. And they got mentioned on Tech Crunch. And they got $25,000 in recurring revenue based on that mention. That basically built their business. So yes, it can happen if your audience is heavily heavily aligned with that press outfit.
[25:22] But I’ve heard several entrepreneurs talked about, and I’m the same way talked about – I would rather be on Life Hacker or for me it’s like SEO Moz Blog]than I would like to be in the New York Times because those first two are so much closer to my audience. It’s like getting the small tech audience. And by small, you know, tens of thousands of people is infinitely more valuable in getting hundreds of thousands or millions from the general public basically or the general press.
[25:50] Now, Dan didn’t get, you know, he wasn’t on Good Morning America. He was on Mashable, and The Next Web, This Week In Startups, Shoe String and some other startup related stuff. So they were reasonably targeted. They were at least in the tech space. And I don’t know how many sign ups he got. I guess he said he has zero paid users. See, that’s a problem though. In the post, he said I had zero paid users from those traffic sources.
[26:13] Now if he was already launched then you can tell that but if you aren’t launched then you really want to know just how many email addresses did you get. Because getting from that email to the paid customer then depends on your execution and your ability to close those sales. It doesn’t depend on just the validation piece of it.
[26:30] Music
[26:33] Mike: One of the things that I really liked about Dan’s blog post is that he showed some results from his targeted surveys. And he showed the number of people who had said yes, I would pay for this or no or possibly pay for this. And then he showed percentages of how those things stack up. And the one thing that struck me about the survey was that numbers were I’ll say fairly low. I mean it looks like it was less than 100 people who were surveyed as part of this.
[27:00] I don’t think that going and asking a hundred people or less than a hundred people is a bad way to go. But I think you also have to keep in mind that when you’re asking less than a 100 people and saying would you pay for this, yes or no. People are going to tend to lean towards “Yes, I would pay for this” or “maybe” so if you start combining the yeses with the maybes then you’d end with this number that is I’ll say artificially inflated.
[27:25] Because possibly or the maybes you can’t count them one way or the other. I mean maybe you can split them down the middle, but still you’re just kind of guessing. I feel like survey should kind of guide your views and test of your assumptions. But you also have to be very very cautious about the conclusions you draw from some of these responses. If people are paying for it, then that helps out a little bit.
[27:46] Because if they’re paying for the product then any new features that they’re requesting, those are things that are going to keep them. Versus people who are not paying for the product, you really need to find what their problem solution fit is to get them and convert them into a paying customer. And testing some of those assumptions would be helpful, but you have to figure out exactly what the pain point is that you’re solving. And I feel like that that’s what the survey should be for. And it looks to me like – I’ll say that the surveys were a little bit squishy in terms of what the surveys were asking.
[28:16] Rob: Yeah. And for the record, this is when Dan pivoted from Informly which was an analytic aggregator and he pivoted into a content marketing analytics app. And I actually loved this idea to be honest cause we’re doing content marketing with HitTail and I’m working on it for Drip. And frankly, it is hard to track. Google analytic does not do a very good job of that.
[28:35] So I would absolutely pay for something that was easy to set up and that worked. You know when I looked at Dan’s kind of record of people who paid for it. He said that 22% which is like 17 people said that they would pay for it. And then only three people signed up. One cancel and then two weren’t using it. That’s where you basically hit the pavement and you email every one of these people and say, why didn’t you sign up. What doesn’t’ it do. What kept you from doing it?
[29:00] Because I think that that one was a winner. I really do. It’s my personal opinion so it’s not worth very much. But I would pay for something that helped me do a better job of tracking content marketing than Google analytics does. And so, at that point, I wouldn’t have stopped. I would have continued with the pursuit of emailing everyone. Finding out if I had not communicated the value proposition properly.
[29:21] Meaning that if I only got three sign ups out of this whole list then perhaps my positioning or the description, my headlines, you know the value I was going to offer wasn’t good enough or the product itself wasn’t good enough. It wasn’t solving their problem yet. And then figure out what to do. What to iterate on in order to get to the point where I was solving one of those things. Personally, like I said I think this is a problem worth solving the content marketing analytics thing.
[29:48] And I don’t know of a smaller inexpensive SAAS app that does it. I’m sure there’s $500 a month packages that do it but there’s no one in the startup space that’s doing it.
[29:58] Mike: So what are your thoughts on Dan’s comments on about building the MVP? He says that it’s a lot harder than it sounds.
[30:03] Rob: I think he has a valid point. He basically talked about how Eric Ries talks about building a minimum viable product and kind of talks about that its easy or implies that it’s easy or maybe that just has come to be known as getting a MVP you can do on the weekend and then iterate on it. And that’s the thing. If you take that very literally then maybe you do release before it’s a solid product. And maybe your failure on the product side is because you released too early.
[30:28] So, yes, I actually think he has a very valid point here that it’s very hard to know whether an MVP is good enough. To be honest, I think this is why you have to let a few people in at a time. And you have to find people who when you talk about the single problem that you are going to solve, and there should be only one when you start. When you talk about their problems, it’s the people whose eyes light up or who replied to your email when you send them and they’re really excited.
[30:55] And then you say okay, Mr. Person#1 I’m going to let you in and you’re my first early access customer. Try the app. Does it suck? Is it good? Tell me what it needs to do? Then let Person#2 in. Once you’ve built all Person#1 features. And to do this, it requires a lot of time and it requires a lot of iteration. And it requires quite a bit of patience as well as the ability to tell someone you know I’m not going to go in that direction. That I’m not going to build features that you want. That you’re not my ideal customer.
[31:25] So it’s not as simple like Dan says it’s not as simple as a lot of people expect this whole building the MVP and then iterating on it. It’s not as simple as building up a big list, throwing everybody at it and then iterating, because by that time, you’ve burned to your list now. You had a 2000 person launch list and you send them all there. But if the product didn’t solve the problem then poof you’re done. You have to start over.
[31:46] And that’s where I think really trickling it out very slowly which is the way that I’m doing with Drip right now. After a couple of months of basically having a fully functional MVP, we still only have 10 active people on the system. Because we want to build up those features that these people really need before letting in that next group.
[32:04] Mike: Yeah. I totally agreed. I mean this is probably the most frustrating part about it. And I feel like Lean Startup, the book itself really glosses over this fact that it’s such an iterative process and its time consuming. That’s the part that I think is so frustrating. It’s just so time consuming to work with individual customers in a way that in no way, shape, or form, scales. And developers want to get, they’re like the code is done. It works. Let me just throw it out there. And I don’t have to worry about bugs in the product.
[32:35] Maybe you don’t. Maybe everything is functionally complete. But if it doesn’t do what people expect or what they needed to do then it doesn’t really matter. And you need to somehow get through that process and take that step back and work through things slowly with people. You make sure that you’re solving the broader problems. And once you do it then you can throw it out there. But until you get to that point, it’s very difficult to be able to do that because as you said you’ll burn through your list very quickly and then you’ve got to start over.
[33:05] To me I think that’s probably the frustration that a lot of people find is when they try to build an MVP and they say it’s working. Let me throw it out to people and try to get as many customers as I can as quickly as possible. It doesn’t really work that way. And I don’t think I’ve ever really seen it and explained to say hey you really need to work through this slowly as opposed to just throwing it out there.
[33:26] Rob: And I think in Dan’s defense that’s the point he’s raising. Is that you read the Lean Startup book. You follow what the kind of Lean Startup movement and the folks who are teaching and it’s very high levels and it’s academic. So they’ve never said the things we are seeing right now in this podcast. They never say titrate it out. They never say build the MVP; have a few people using it. You know exactly the steps we’ve just laid out because a lot of them are not actively on the grounds developing products.
[33:52] And that’s okay. It’s not as tactical as it might need to be for someone like Dan who isn’t an experienced startup founder. He probably hasn’t launched a startup like a software product before. When he reads something that is as high level as Lean Startup, he still needs much more detailed guidance. And frankly, I don’t now where you go to get that. I mean I think that’s why we started the podcast. That’s why we have the academy. That’s why we have the MicroConf is to provide that kind of education.
[34:19] Not just in the Lean Startup space but just in general, for software founders who want more detailed actionable step by step stuff. And there are certainly courses out there on Udemy and that kind of stuff. But there’s no real single place that I know of where you can say all right, I’ve read the Lean Startup. Now how do I actually implement the Lean Startup? And I think Dan kind of took some hard knocks himself basically learning that, right.
[34:42] He learned step by step that parts of Lean Startup are harder than they might appear or harder than they were presented in the book. I mean I got to really thank Dan for putting this blog post together, for doing the experiments, for putting all the detail in here, and basically for raising the issues so that we can discuss it intelligently on the podcast. Cause I think this raises the level of dialogue about the whole topic. You know both of us; we wanted to thank Dan for putting this post together for sure.
[35:09] Mike: Yeah. Definitely hats off to Dan. I mean if you look at all the different things that have been written about the Lean Startup, I mean there’s all this stuff that says it’s great. You do this. You do that. Everything is hunky-dory. The reality of the situation is once you start putting feet on the ground it’s not that simple. And it never is. I mean when you’re trying to go from a book to reality. There’s a difference between theory and reality. So going through it and having a – I don’t want to say it’s an alternate point of view.
[35:36] But a lot of the things that Dan expressed I mean some of them are points that I share and some are frustrations that I share in looking at the Lean Startup because it’s not that simple. And it tries to portray it as being a, I don’t want to say a step by step guide. But they’re like if you just these things and pivot a little bit and take into account what your customers are saying or what your potential customers are saying and pivot as quickly as possible and iterate everything is fine.
[36:03] And it is just not that simple. And it just glosses over all of the details and all of the tactics that you actually need to execute on. And I feel like its just too high level in many cases to be applicable to not all startups, because I think that there’s definitely pieces of it that apply to very very many of them. But it’s just not tactical enough or provides you enough information to be able to decide when what you’re doing is completely off the rails from what they recommend.
[36:32] But at the same time, that doesn’t mean you’re doing the wrong things. There are no hard guidelines in there for when you should listen to it and when you should ignore it.
[36:38] Rob: Yeah. As I’ve said from the start, my views on Lean are certainly evolving. And I think there’s a lot of good that can come out of it and there’s some good high level information. There’s also that lack of detail you’d mentioned. And then there are some things that I do think that are questionable or have not worked in my experience at all. So if you’re interested in checking out Dan’s app, it’s at inform.ly and he’s basically pivoting to something that I think he’s now having success with and it’s beautiful client report for freelancer and web agencies.
[37:07] So inform.ly connects to Google analytics and other apps and then it provides a monthly report that you can use as a freelancer or web industry to keep your clients happy. So we definitely wish Dan best of luck with this product moving forward. You know we hope he continues to update us on his blog at thedannorris.com.
[37:26] Music
[37:29] Mike: And if you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or you can email it to us at question questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups or by RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 141.5 | MicroConf Europe Ticket Announcement
Show Notes
Transcript
[00:00] Rob: So this is our extra special episode of Startups For The Rest Of Us 141.5 in which Mike and I tell you that there are only a couple of days left before we do the pre-launch for MicroConf Europe. And MicroConf Europe happens this October in Prague. We are going to have a bunch of awesome speakers that we had in Vegas including Mike and myself, Patrick McKenzie, better known as Patty11 on the Internet. We’ll have Peldi. Peldi from Balsamiq. And Dave Collins from Software Promotions.
[00:30]And so it’s just a couple days left. We don’t actually have that many tickets left to be honest even in the pre-launch. I think we…What did we sell out in like 51 hours or something for the Vegas one this year?
[00:40]Mike: Yup
[00:41] Rob: So I could easily see selling out in a matter of days. So if you are at all interested in going to MicroConf Europe. Which is October 5-6 in Prague. You want to head over to microconfeurope.com and get your name on that early bird list because that’s really going to be probably your last chance to get a ticket.
[00:58] Mike: Yeah, and just a reminder that the MicroConf in Prague is going to be a little bit smaller than Vegas, so don’t get your expectations up for having a larger conference. We are intentionally keeping it small. And again as Rob pointed out, I mean, we’re expecting to sell out rather quickly. So, make sure you are on that list because that’s probably the only way that you are going to be able to hear about it. Just go over to MicroConfEurope.com and that will take you over to the MicroConf website. And just enter in your email address at the top of the page. And we’ll notify you next week when the tickets go on sale.
[01:27] Rob: Thanks for listening. We’ll see you next time.
Episode 141 | The 5 Elements of Effective Thinking (and How to Apply Them to Your Startup)
Show Notes
- Rob’s Startup VA Course
- Rob’s email marketing app, Drip
- Mike’s security auditing app, AuditShark
- Book: The 5 Elements of Effective Thinking
- The 5 elements:
- Understand Deeply
- Make Mistakes
- Raise Questions
- Follow the Flow of Ideas
- Master Change
Transcript
[00:01] Mike: This is Startups for the Rest of Us: Episode 141.
[00:03] Music
[00:11] 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.
[00:20] Rob: And I’m Rob.
[00:20] Mike: 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?
[00:25] Rob: I’m pretty fired up. After having kind of a rough month in June with some ads not working and just feeling not like I was making progress with Drip. I’ve made a lot of progress in the last couple of weeks. A lot of good things are going on. So first is the VA course that I’d mentioned. Its startupvacourse.com. I just past the 100 student mark.
[00:44] It’s just a nice milestone and it feels good and I’m getting a lot of positive feedback. People are putting five star ratings into the Udemy. It feels good to launch something that’s fairly small and contained. Unlike these projects you and I are working on that take months and/or years to complete. It’s like getting the VA course out there. It just feels good to publish and to ship.
[01:04] So if you haven’t checked it out, it’s startupvacourse.com. And my other update is that Drip now has five active early access customers who are using it. Have it installed. And then I’m adding two more. I have 2 more log-ins I’m shipping out tomorrow. So my hope is to be between 7 and 10 by next week.
[01:24] And we also nailed down the final features for our prelaunch, which it looks like it’s going to be between three and five weeks from today. I will know almost to the day by the time we record next week. And so it feels good. Every piece of development is laid out and prep for the launch. I got to be honest. Drip feels like a real app now, like I’m using it daily.
[01:43] I’m in there looking at stats. I’m starting to migrate more and more of my lists into it. I think I have four mail Drip accounts across all the stuff that I do including the micropreneur stuff. I think I’m going to start moving some of them into Drip.
[01:58] Mike: That’s cool. It’s always nice to get to the point where you’re actually using your own product, especially if it applies to you in any way shape or form. You’re right. I mean it does give you that feeling that it is a real product. I mean I got AuditShark up and running on one of the servers. Actually, I have several servers but the one that I’m primarily looking at is the server that I use and host over at Rackspace.
[02:18] So I have it up and running there. And I’m looking at the stats and stuff that are coming in the reports. It’s nice seeing that information. But I wish that I’ve gotten a lot more accomplished this past week. Some other things have been moving on. My developers have been kind of plotting forward at the meantime. And I’d talked to one of them and they came back and said “Hey, is there anyway to do this, this and this.” I was like, “No. But I can add it in if you really need it.”
[02:38] We started talking through it and it looks like I got more work to do there. But the things that he proposed are a lot more extra work that other people and customers are not going to want to do. So I’m going to have to do some more backend code. But I’m not going to kind of delay anything. It’s just I’ve been sick so I haven’t made any real progress on my side.
[02:55] Rob: Right. That’s the balance too, right. It’s like if you’re a single founder with no contractors or employees then when you get sick and you’re down, nothing happens. You can’t response to email. It’s a real bummer. So that’s where having at least some help can help really keep your business going. And you know like you and I have actual developers who are helping so that your business can actually move forward in your development process even though you were probably laid up in bed for a few days.
[03:19] Music
[03:22] Rob: This week we have the five elements of effective thinking and how to apply them to your startup. So this is based on a book that I listened to last week. It’s called The Five Elements of Effective Thinking. I will link you to it in Amazon on the show notes. But it’s two mathematicians who got together and looked at how people think, how they analyze, how they learn. And they put all their thoughts into this book.
[03:46] And what’s nice about the book is it’s not that long. They kind of boiled it down. They kept it short. So it’s about 3–3.5 hours of audio, which is less than half of a normal book length. And so today, we’re going to be looking at these five elements. And so let’s dive into this. The first element of effective thinking is to understand deeply. The idea here is not to face complex issues head on but to break them into component parts and to understand those more simple underlying ideas deeply.
[04:17] So the examples that were given in the book are you have to understand basic math before you can start working with Algebra. You have to understand Algebra before calculus. If you try to teach someone calculus and they didn’t have an understanding of basic addition and subtraction and those underlying simple concepts, they’re probably not going to be able to grasp it.
[04:36] What the authors talked about is about breaking things down that no major scientists look at complex problems and try to attack them head on. They actually look for simpler versions of the problem. Well this can help us think more effectively. We also want to relate this back to startups and to launching a product and software and that kind of stuff.
[04:54] And so the idea here and how I see it, how it relates to building an app is breaking your app down into the minimum features you need. So you don’t try to attack the whole app at once. But you launch one piece. You let people in. you build that minimum viable thing that people can use to get value out of it and you expand based on what you learn from them.
[05:11] So you don’t attack the whole complicated at once, you start small. The other thing I thought of is like with the marketing plan. A lot of people I see get overwhelmed. They say how do I mark up my app and how do I drive traffic. Well that’s a huge question. It’s very complex and it’s very big. But if you break that down and you instead just put together a bulleted list like a Google doc spreadsheet and you attack these things. You prioritize them. You attack them one at a time. You’ve broken them down in their components ideas and it’s a lot easier to get started and not be overwhelmed by the complexity of the issues you’re facing.
[05:42] Mike: I think one of the other side of this that, I don’t know if the authors went into this or not, but when you start breaking down a complex problem into much smaller chunks then it makes it easier for you to tackle those in terms of your motivation. Cause if you start looking at this blank slate that you got some problems and there’s this blank slate that says there’s all this different things that you can do. You really don’t have any good place to start.
[06:06] So it can be very very overwhelming and you just back off from it and you procrastinate or you don’t do it or you do all the things that are associated, or related to your business that don’t necessarily move you forward with solving those problems. You know in some ways it’s a morale issue but in some ways its productivity as well.
[06:23] But if you understand the complexity of the problem and you are able to break it down and simplify it into much smaller chunks, then that helps you to bypass those I call them mental issues and actually move forward on it.
[06:34] Rob: Yeah. And that’s actually a good led into the second part of understanding deeply and that’s to choose small wins. So this relates to taking a complex problem and breaking it down into simple underlying ideas, but more specifically choosing small wins. What does that look like? The example the authors gave was the moon landing. That John F. Kennedy said we’re going to land on the moon in this decade.
[06:56] They didn’t put two guys in a spaceship and shoot them into space and try to get them to land in the moon. The first thing they did was shoot a rocket, first they just try to get out of the orbit. And they shoot further up and then they actually shoot something right on the moon surface. It was like going super fast like 5,000 miles an hour or something when it hit. It might even have been faster. And it’s just boom. Hit the moon really hard.
[07:16] But they knew that each of those was an incremental step. They choose those small wins. Very incremental. And it took like 12 or 15 flights before they actually got up there. You know got someone safely landed on the moon. It’s a very complex problem that these brilliant scientists who were doing something no one had ever done in history that they broke down into small wins.
[07:38] To put this in context of launching an app, building software, doing a startup, think about instead of tackling something large and wanting to build long term recurring revenue with the big SAS app, think of building a small win. Like an add-on or WordPress plug-in or a Drupal plug-in. A single feature app, mobile app. Something small that you can launch and learn how to market.
[08:02] You know you and I have even talked way back about being an affiliate marketer to learn the ropes before you build your own products. Because being an affiliate marketer, you can learn. you’ll have a small wins doing that. You can learn the marketing side before you have to dive in head first and attack what is a really complex problem. Which is trying to build something people want, launch that, market it, support it. Just handle all those elements at once.
[08:25] If you break it down and you get some small wins along the way, you’ll just have so much more confidence in your ability to execute as you move forward. So the second element of effective thinking is to make mistakes. We’ve talked a lot about how failure is a stop along your road to success. And the authors basically say the same thing in the book.
[08:43] They say the mistakes are critical part of learning. That effective failure is a critical part. You must learn from your failures. So when you fail, you look back. You asked how you can improve the next outcome. I think what we’ve said on this podcast a lot is that there’s no replacement for real world experience. You can listen to us. You can listen to Mike and I talk. You can read all the blogs that you want.
[09:04] But until you actually launch an app and you start to fail, that’s the only time that you’re going to know a tiny percentage of what it takes to actually do it. And so I like something the authors pointed out in this book. They said think that for any large task you’re going to accomplish, that you’re going to have nine failures and then one success. So that when you do fail that first time when you’re trying to do it that you’re 10% of the way there.
[09:26] And that’s a really good way to manage your expectations so that you don’t crash and burn. We talked a lot about motivation and how you need to maintain that motivation and not get disappointed when you launch your first app and it doesn’t work or when you blow $1500 on ad words and it doesn’t work and all the other stuff. We’ve talked about what you and I have done. And thinking long term, playing long ball and thinking “wow, it’s going to takes me nine failures.” I actually think it’s a pretty good rule of thumb.
[09:54] Mike: I think though an important piece of thinking that if you fail the first time, you’re 10% of the way there. The thing to keep in mind is that when you get to that success it takes you exponentially further forward than those failures do. Those failures do move you forward but they don’t necessarily give you that step function increase that the success will. But once you hit that success, it’s going to count for a lot more than those failures. And it will move you forward and it’s very motivational to be able to do that.
[10:21] Rob: Yeah. That’s a good point. I agree with you. That failures are more likely incremental whereas a big success can be a step function that gets you up there. So the second part of making mistakes is to think about iterating on failure to fill in your gaps. So basically fix what’s broken and then move on and fail again. The examples they gave were things like Hemmingway. He rewrote the last page of Farewell to Arms 39 times.
[10:49] I was thinking about this and how this relates to things I’d been doing for the past decade. I started looking back to the features and tweaks and bugs that we’ve been working on with Drip over the past several months. And I think we’ve closed like 80 different features, tweaks or bugs even in the past couple of months. And that’s total iteration.
[11:07] A bunch of these were things that we came up. A bunch of these were things that early access customers have come up with. And that’s it. I mean as good as the product was when we launch it or when we start letting people use it, there’s just so much iteration that’s required.
[11:22] Mike: Yeah. I totally agree. I mean even with AuditShark I’ve had to back paddle in a bunch different cases, where like I went down this path and things were working fine. But then you start adding, try to scale it up a little bit and try to use it beyond what it was initially envisioned for and then things just fall apart. And then there’s been cases where we just have to go back and just completely rewrite giant sections of code because it wasn’t going to work.
[11:46] And of course that puts you behind, but at the same time you’ve made those missteps. And you know figuring out what those missteps are allows you to go in the right direction that will take you monumentally further.
[11:59] Rob: Yeah. As I was listening to this book I thought of what you should ask yourself is what’s the minimum thing I could build to get you out there, and then ask yourself the question, why does this suck and how can I improve it. So I’ve coined this thing “Rob’s, why does this suck test”. And I’ve started actually asking myself that as I’ve been using a couple of apps that I’m working on.
[12:16] And it’s really helpful to put it in terms of it’s just a very blunt questions to ask. And it’s helpful to put in terms of like “what’s the biggest thing that we can improve now to make this more useful to the people who need it, to make it provide more value to them?” The third element of effective thinking is to raise questions. The authors say never act like you know more than you do.
[12:39] If you’re in doubt say that you’re in doubt and asked someone who knows. Doubt is actually a sign of strength rather than weakness contrary to what society says. When we watched election debates, anyone who has any doubt or anyone who shows any signs of changing their mind or anything like that, it seemed to be some big flaw. What they’re actually saying is being able to doubt your beliefs and being able to take other people’s thoughts and opinions truly to take them into account and allow them to change you is actually a sign of someone who is active learner and someone who is going to move things forward instead of keeping things stagnant like they have been for so long.
[13:19] Mike: One of the things that this reminds me of is the fact that there’s a lot of entrepreneurs out there who have sort of a control freak aspects to everything about their product. They have to know everything that’s going on. They have to either write the code or do all the marketing and everything else. And it just makes me sit there and think you don’t necessarily need to know all that stuff.
[13:38] And having doubt about different things and not fully understanding all the inner workings of everything is not necessarily a bad thing. It also reminds me of the story that Joel Spolsky has on his blog about him pitching VBA for excel to Bill Gates. And he had this giant specs that he’d written over the course of weeks or months or whatever. And he went in there and Bill Gates basically shredded it.
[14:01] I mean he just ripped apart from beginning to end, walked through it and then at the end of it he’s like how do we know all this stuff is going to work with all the dates. And because Joel had put so much time and effort into the spec and understood it thoroughly, he was able to answer that question and say “well, there is one case where there is going to be a problem but I think we can work around that.”
[14:20] And he had a pretty good answer for that. In that case, he knew all the itty-bitty details about what he was doing. But he didn’t necessarily need to know for example how VBA was going to fit into Word or any other applications that Microsoft was shipping. And he didn’t need to. But when Bill Gates was looking at it from his perspective, he is the person in charge. He’s the one who’s trying to figure out whether Joel knows enough about what he’s doing to be able to trust him to make the right decision.
[14:49] And in that particular case, Joel showed yes I know exactly what I’m talking about because I’ve spent the time and effort into this. I’m neck deep in it. And even though Bill Gates didn’t know it, he was able to see that Joel did and was able to look at that and say, “Ah, I can trust him to make the right decisions. I can back off from this. I can focus my attention on other people cause I can trust him to make the right decisions.”
[15:08] Rob: The second part of raising question is to be aware of the source of your beliefs. And the authors talked a lot about our built-in biases. And how by looking at what you belief and why you belief that, you have such a better method for identifying those biases and figuring out, it’s kind of know yourself type thing. Cause once you know yourself you’re able to much better manage what you do and how you do it.
[15:35] I started thinking of a few questions, different beliefs that people in our industry probably have. So think about these questions for yourself. Like who told you that happiness depends on working for 40 years and then retiring. Who taught us is raising funding or starting a multi-million dollar company. Can you be successful if you’re a single founder with no employees making several hundred thousands dollars a year?
[15:56] If your answer is yes or no, ask yourself who told you that. Why do you believe that? What are the underlying assumptions that you’re making to answer all those questions. Here’s another actually I thought of cause it seems to be, it’s a strangely polarizing thing. But does SEO always work? Is it a big scam? Why do you believe that? Why do you belief what you belief about SEO?
[16:16] Cause I’ve mentioned it to some people. And it’s funny cause there’s like a visceral reaction thinking that SEO only cause of black hat stuff. And I’m just curious where you heard that. Being aware of that and raising these questions in yourself when you have such a positive or such a negative reaction to something is just one more way to manage your direction and to wind up in a place where you aren’t sitting there unhappy because you follow these beliefs that someone else taught you that you never questioned.
[16:45] And I think this actually relates back to building apps as well and building software. Because if you’re following this path, and whether its the lean startup methodology or whether you’re listening to Mike and I or whether you’re following any type of methodology, always think about why you believe that and who told it to you. And if their goals and the way they do things are in line with you. Or if it’s a venture capitalist are saying something but you want to be a single founder who’s bootstrapping, you’re goals are not in line. And so you probably don’t want to listen to their advice.
[17:15] Mike: You know Jason Cohen had a great section on one of his talks from the business software a couple of years ago that kind of segmented different, I’ll say leaders in the entrepreneur community against one another. Basically saying that 37 Signals has their view. Fog Creek Software has a different view. If you talked to like Angels or VC they have a slightly different view as well. And they can give you advice that’s just diametrically opposed from each other. But it doesn’t necessarily mean that any of them are wrong.
[17:43] What’s happening is the advice that they’re giving you is correct for their situation and the way that they view the world. And as long as you understand that where that advice comes from is in some ways bias by the people who are giving that advice in figuring out whether or not your views lined up with theirs. It will help you figure out how much stock you should put in that person’s advice or whether it’s just not applicable to your situation at all.
[18:09] Rob: The fourth element of effective thinking is to follow the flow of ideas. The authors talked about looking backwards to see where ideas come from and looking forward to see where they’re headed. What I really loved about this is they talk about how ideas are almost always evolutionary rather than some big leap. They talked about Edison and how he invented the light bulb. And he just didn’t come up with that out of thin air.
[18:32] There were a bunch of other people working on it. There were people who tried other experiments. And then he tried how many hundreds or thousands of different experiment until he got it. If you think about the iPhone, you think about how that evolved from the Newton in what the late 80s and early 90s. Then they tried to build iPad internally. They built iPad prototypes in like 2003 that didn’t work. Then they come out with an iPod touch and then they add the phone to it and then they built an iPad. And then it’s just like on and on. These things are evolutionary.
[19:00] And so the thought was don’t try to go out there and build something that’s completely new. But think about building things that are extensions, variations, or applications of existing ideas. I think this is a really good exercise if you’re trying to come up with ideas for startup is to follow this flow of ideas. So let me give you a few examples. I mentioned three things: extensions, variations and applications.
[19:25] An extension of an idea in the startup space could be a really small like an add-on to Freshbooks or SalesForce or Basecamp or QuickBooks, a WordPress plug-in, something that extends an existing piece. So it’s not some brand new fancy idea but it’s just something that adds value to an existing user base. A variation could be let’s say there’s QuickBooks out there that serves all small business. Well what about QuickBooks online for freelancers, for dog walkers, for plumbers and so on.
[19:54] And then in terms of taking something and applying it to a new niche or a new application take a random technology. You could take QR codes. You could take Near Field Communication or NFC. You could take mobile apps and you say how could this be applied to the problems that any niche has like freelancers, dog walkers or plumbers, etc.? And so, using this as a thought experiment and a brainstorming experiment, you can sit down with a pen and paper. And just think of all kinds of extensions, variations and applications, new applications of existing software, of existing technologies, and think of how they can be mixed and remixed to help just get your mind flowing in terms of thinking of new ideas.
[20:38] Obviously, you need to focus on how these solve a problem. Don’t just come up with random ideas and think that that’s going to be something that you can market. We have to come back to the problem that they solve and you need to validate that and stuff. But a lot of folks that we talked to have problems they get stuck in the idea phase. And this is one way to kind of break that loose is to follow that flow of ideas.
[20:58] Mike: One other thing that you can do to apply this to your own business is to take a look at your product, and try and figure out where it’s going and the different milestones that you need to hit to basically take it in that direction. Because as you are building up, if you’re building up a product portfolio or if you’re building up a single product to start competing with larger product, there’s certain milestones and things that are going to be necessary to have in place in order to make your product able to compete with those other products.
[21:26] So if you look at, as you just mentioned, if you’re going to take QuickBooks online and you’re going to create it for freelancers. Well what are you going to need to be able to do that? And you can kind of sketch that out. But if you have this long term vision of being able to compete with QuickBooks for small businesses, then you’re going to want to be able to tackle that freelancer niche, tackle the plumber’s niche, dog walker.
[21:49] And try and figure out how many of those different things that you can kind of hop to and what sorts of features are going to overlap with all of those. Because chances are, really good that there’s a lot of those things where the functions of the software are very very similar for all those different niches. But then you take those and you just simply morph the marketing collateral a little bit in order to reach those people.
[22:14] You do the SEO that needs to be done. And eventually you get to a point where you’ve done enough work on the product itself, such that it solves all of those problems. But you just need to be able to present them to the different groups of people in ways that make sense to them.
[22:26] Rob: And the fifth element of effective thinking is to master change. The authors say that you basically need to master the first four elements that we’ve already discussed, and actually implement them in your life in order to change how you think and learn. And so, they go into a long discussion about not being afraid to change. Again coming back to the politician example, they talked about how if a politician changes their vote over the course of 20 years or changes their stance on something; it’s view as this big negative thing.
[22:57] But they’re saying in order to be an effective thinker that you have to be open to that. That you should follow changing opinions and passions. That you need to let old ideas crumble fast especially in technology in our space. And you need to be willing to change in the phase of compelling evidence. They give an example of Einstein spending months of work on a single theory. And he received like a letter from another professor somewhere who had said I just proved why your approach can’t possibly prove this theory. There’s no way to do it.
[23:31] And Einstein basically just took all the months of work and he tossed them and he took a whole new approach to it. He actually solved it in a manner of days. But he was wiling to not sit there and question and say that guy is wrong or all this months of work is kind of the sunk cost fallacy, right. All of this is leading toward something. He was able to be wiling to change in the face of that compelling evidence that a professor had sent him.
[23:55] Relating it back to software and startups. There’s always going to be stuff that’s changing. It changes really fast. The technology changes fast, the approaches, how much we’re learning about things like even four or five years ago no one was talking about split testing in the startup space. No one was talking about email marketing. It’s just something that’s come up over the past couple of years.
[24:13] So if you still hold the old mindset of “Well, I don’t do split testing. Only info marketers do that. I don’t do email. Only spammers do that.” then you’re going to miss out. You need to let these ideas crumble fast, roll with the punches and basically keep up with the space or else you’re going to get left behind.
[24:29] Mike: I don’t think it’s necessarily all about letting some of the old ideas crumble quickly. It’s more about being able to do things that are uncomfortable to you, because as you said there is a certain amount of fondness that we have for the old way of doing things. So there’s certain comfortability that we have with doing things the way that we’re currently doing. And it’s a lot easier to point to somebody else’s work. And say well I spent 3, 4, 8 months of my life working out these theories. And I’m fairly confident that they’re correct.
[24:59] So I’m not going to put any stock in your proof that you just sent or this little note that says that the way that I’m doing it is incorrect. I’m going to keep going down this path because I’m so ingrained in it. I know what I’m talking about. And if you’re willing to back off from that and be able to look at different points of view and pursue them down their logical course, then you will be a better thinker for it.
[25:20] As long as you’re not afraid to take those turns or back up a little bit and maybe give credibility to other people and say, “Hey, maybe I am doing the wrong thing or maybe I should be doing this other things.” Even though they’re uncomfortable, it will make you a better thinker.
[25:34] Rob: And the last element of this, your point no. 5, which is to master change. They talked a lot about how experts in any field are often performing a different task than the rest of us. So the example they gave was a pro tennis player. They said if you put someone on the court, who’s never played tennis. When the ball is hit to them, they’re basically looking at the ball and trying to watch it into the racket. That they can’t estimate where that ball is going to be.
[26:00] But that a professional tennis player that as soon as they go the ball go over the net, they can tell based on the spin, based on the velocity, based on the angle they actually know where it’s going to hit. And so they’re running to it right as it heads over the net. And I’ve actually talked to professional baseball players and college football players my brother used to play with.
[26:20] And they talked about the same thing about seeing as soon as the quarterback would release the ball, they know exactly in their head if they had to slow down or speed up. The best receivers and the best outfielders can see that. It’s not about actually watching it into your hands. It’s about knowing right away when its release based on the spin and everything where it’s going to be.
[26:38] And so they’re basically through expertise and repetition, they’re performing an entirely different task than the rest of us would be if we were doing that same task. And so taking that and extending it in our world of startups and software. Like instead of memorizing facts, you need to understand something very deeply. You have to become a master in things.
[26:57] The more experience you have in any particular field or doing any particular task, then the more frameworks you can apply to it and the faster you can learn new concepts in that space. And so that’s where, you know, if you’re consuming on a superficial level a lot of educational stuff and you’re not actually doing anything then you’re not going to be able to become a master.
[27:16] And you’re never going to hit that level where as soon as the ball gets hit off you can see what your paid acquisition is going to do, or how your contact marketing is going to go, or the little tweaks you need to make to your SEO to make things work, or the costumer development you need to do in order to get people using your app. And so it’s all a learning process.
[27:35] But the idea here is to go deep and to actually understand things deeply so that you can become a master of at least a small element to it and then expand out from there. Because the superficial understanding will always leave you essentially watching the ball into your racket.
[27:49] Mike: This reminds me about a lot of the previous discussion that we had about whether you should become a generalist and learn a lot of things at kind of a shallow level, or whether you should learn several things at a very very deep level and essentially try to outperform all the other people who are kind of dabbling in that.
[28:08] And obviously, at the end of the discussion, we kind of came to the conclusion and talk about the fact that you are much better of going really far down and deep into certain topics. As oppose to trying to round out the things that you don’t necessarily a lot of experience at. So you invest the time and effort to become mediocre at it just like everyone else which really doesn’t buy you a lot.
[28:30] You’re much better off become an extreme expert in certain facets of your career as oppose to trying to shore up your weaknesses and deficiencies.
[28:42] Rob: Right. It’s like following your strength rather than shoring up your weaknesses.
[28:44] Mike: Yup. That’s exactly right.
[28:46] Rob: And this all comes back around. It comes back to simplifying and going for early wins, because if you have a huge problem to attack, you can’t possibly become a master in that. It will take you years to do it. But if you pick a single tiny thing like I’m just going to learn online marketing, or I’m just going to learn customer development, or I’m just going to learn how to code right now. You’ve broken it down into a small enough thing that you can choose some small wins.
[29:09] You can actually become kind of an expert at that. And you can go deep so you can then move on to that next thing and add it to your tool belt. So there’s this balance here, right. You don’t want to become the jack of all trades. You don’t want to have 20 things you’re trying to do. But you may need as a founder you may need four or five really deep core skills that you have to be an expert at, and then you can outsource the rest.
[29:32] So to recap. The five elements of effective thinking are: 1. To understand deeply; 2. To make mistakes; 3. To raise questions; 4. To follow the flow of ideas; and 5. To master change.
[29:47] Music
[29:49] Rob: If you have question for us, call our voice mail number at 888-801-9690 or you email us at question questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or by RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 140 | Gorilla Fighting 101, Cost of Creating Content, Selling to Offline Customers and More Listener Questions
Show Notes
- Zapier
- 3D Virtual Tabletop
- The Ultimate Sales Machine by Chet Holmes
- MailChimp
- Constant Contact
- Drip
- HitTail
- ThemeForest
- MicroConf Europe
- Clickity.io
- SendGrid
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be talking about fighting with gorillas, the cost of writing articles, selling to offline customers, and answering more listener’s question. This is Startups for the Rest of Us: Episode 140.
[00:13] Music
[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.
[00:29] Mike: And I’m Mike.
[00:30] 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?
[00:36] Mike: I am recording totally in the dark, quite literally in the dark. There is no light on. So our dishwasher went out last week, so I had to rip it out and have the guys take it away. Unfortunately, whoever owned the house before us wired the lights from my office in the basement to the dishwasher upstairs.
[00:52] Rob: That’s not good. So they’re out right now, until you replace it?
[00:55] Mike: Yeah. And it’s funny cause all my other outlets and stuff work. It’s just the lights that don’t work right now. Having fun in the dark.
[01:01] Rob: Yes. It sounds like it. I have mentioned a couple of episodes ago I launched my startup VA course, the course on how to hire a VA for your startup. And I finally have a domain name. Its startupvacourse.com and that just go to my Udemy landing page. So, if folks are interested in that, getting more details that I’ve recorded an hour video, packed all the information all the questions that I’ve ever received on this topic into one hour video.
[01:27] It have audio transcript, a job description, sample VA training Screencast, the whole deal. So it’s all DRM free. It’s downloadable. And it’s typically $99 but if you’re a podcast listener and you want to partake, go to startupvacourse.com, and use coupon code podcast and you’d get $20 off. And I’ll leave that coupon code off just probably for the next week and then shut it down.
[01:48] But it feels really good to finally launch that. I mention I had a goal of launching three in 2013. I paired that down since Drip still hasn’t launched and I plan to launch before MicroConf. I’m thinking that I’d probably try to do one more video course towards the end of the year once Drip is out.
[02:05] Mike: Cool. I’ve got AuditShark up to 350 security checkpoints now. So, we’re working some issues we discovered with our signup process. But once those are straighten out which I’m hoping will only be a couple more days, we’ll start rolling out to new costumers. My goal is to put anywhere between one or four customers on each week for the foreseeable future until I feel like all the signup issues and things like that are kind of worked out and go from there.
[02:32] Rob: Wow. Congratulations man. So you’re in early access then. You’re really diving in and getting folks using it.
[02:37] Mike: Yup. Finally at that point.
[02:39] Rob: That feels good. Yeah. Is this Windows or Linux?
[02:42] Mike: All of the security points so far are for Windows, but the system does work for Linux. So if you had Linux machine and you knew what you wanted to run on those, I would say it’s almost in some ways like you’re running cron jobs from remote servers and then pulling back that data to a central location. You know it would be done through SSH from my servers into somebody else’s. It is cross-platform. It’s just that in order to access Linux machine, it’s only through SSH right now. I don’t have a native agent.
[03:09] Rob: Got it. Speaking of early access, Drip now has four early access customers, paying customers using the system. There are five with log-ins but only four have actually installed it. Every person we get on board we learned more and more. And right now, Derek, the developer is just cranking through like mad, cranking through all the feature editions. There are almost no bugs, right. Everything is working. We tested thoroughly. Derek’s code is solid.
[03:36] But it’s just all this little tweaks that you need to get one more thing. You know encourage someone to push this button to activate everything or have an arrow that goes here, a better help video or a better this or a better that. So that’s what we’re doing. It’s really honing, trying to, like you trying to get one and four new people using it a week now. It’s a good learning experience and I look forward to kind of getting it out into more people’s hands.
[03:59] Mike: Yeah. It’s funny that as you’re adding people in, you’re getting in all this feature requests. The person that I hired to build all these control points for me, as he was going through and building them, he would ask me questions about how can you do this or how can you do that. He’s picked it up really really well. But there are some things that he was trying to do that he just couldn’t do it and we have to add features in order to allow him to do those things easily.
[04:23] So that’s been something that’s been holding things up a little bit. We’ve deployed some new code update for him. He’s just downloaded him and run through and implemented with the new set of instructions that I gave him. And so far those things seemed to be working well. But you’re right. There’s all this additional feature requests that come in as you’re putting somebody into the system and having them to use different parts of the products and exercise it and say well, this doesn’t work or – it would be nice if this did something slightly different because the way it does, it now just doesn’t work for me.
[04:51] Rob: That’s where it’s important to have good early access customers and people who you trust their opinion and that you can actually either tell them, you know what, we’re not going to build that and have them not throw a fit or realize that a lot of the suggestions that you get if you do have good early access people you are going to going want to build.
[05:06] And so, I think probably 80% to 90% of what’s been requested of us, we build. And it’s because all of my people who are in there right now are other founders and they all have good products. They have good product knowledge, and they aren’t just asking for kind of ridiculous. You know, you can get some people in there who just want everything custom and everything to totally apply to them. That’s obviously a danger when you only have a handful of customers using it because you don’t know really what to build yet.
[05:28] I wanted to update folks on my inbox zero trials. I did get past that road block. I think I had 29 emails when I came back to it. And with the help of suggestion from Rafael Durda who’s a long time academy member and MicroConf attendee. He pointed me to Zapier and I can’t believe I didn’t think of it. But zapier.com it’s basically if this then that for business. So you can set up this recipe to interact between different apps.
[05:59] So with just an handful of clicks, no code, I was able to take any new thread in Gmail that I label with a certain label and it automatically goes into my to my Trello to-do list, so really cool. So now I’m able to do that automatically as needed. And at this point, I still am. I think I’m about a month into inbox zero. And as of now, I literally have zero emails in my inbox and I’d been able to keep that up really well. So, thanks to Rafael for that suggestion.
[06:26] And the other thing I wanted to mention is that same week Wade from Zapier. He is a co-founder. He emailed me. And he said they’re in need of dot net contractor or two to do a bunch of integration like exchange and Dynamics and BizTalk. So I know there’s a lot of dot net folks listening to the podcast. If you’re interested in doing some contract work for Zapier, they’re a funded startup and they definitely have money to spend if you want to dive in some SDK’s. You can just email at wade@zapier.com and let him know that Mike and I sent you.
[06:57] Mike: One of our other listeners named Tommy wrote in. Remember when I was talking about how I had some signs up around my office that says focus on them.
[07:03] Rob: Yup.
[07:04] Mike: There’s a web app that he pointed me to that was developed by a friend of his called FocusBell, which you go to this site and you can just plug in a number and it will ring a bell after that number of minutes. It’s very similar to something you might find as iPhone app or something like. But you can use it as a web app and it will just ding in the background of your machine whenever that time expires.
[07:25] Rob: How cool. So instead of needing a sign, you just get a web app. Awesome. So I saw on Facebook you’re learning to fly.
[07:31] Mike: Yes. I went to my first day of flight school today.
[07:33] Rob: How cool. Have you been thinking about it for a while?
[07:35] Mike: I’ve actually been thinking about it for, I don’t know, probably 10-12 years at this point. One of my instructors in college was a pilot. And he had like a timeshare for a plane near the college. And he took a couple of students here and there but I never got a chance to actually go with him. It’s really cheap to get your pilot license up in upstate New York.
[07:55] So after I moved away, I was like I don’t really have time and just various things came up. And my wife remembered from years and years ago that I had always kind of wanted to do some flying. So, for Father’s Day, she bought me a groupon to go to a flight school for a day. So I went there today and had my first flight. They let me take off and everything and it was a lot of fun.
[08:16] Rob: Very cool man. Congratulations on getting that started.
[08:19] Music
[08:21] Mike: So, today we’re going to be answering a bunch of listener’s question. The first one we’re going to answer is from Brendon Duncan. And you might remember Brendon. We talked about him a little bit on a previous podcast. He had that application that it was called 3D Virtual Tabletop. That was basically for Dungeons and Dragons player where it was on your iPad or your Android tablet and it would show a map and you can zoom in and import different images and things like that.
[08:46] He wrote back in to us for some advice and he said he’s released their product in its early stages. So, it’s really more of a demo than a proper product. And he’d like to do some more things with it. But it’s going to cost him some time and money in order to upgrade some of the software tools. And it’s going to cost him really thousand of dollars that he’d really rather not spend if he can help it. He can work around it if he needs to but it’s going to cost him a lot of time to do that. So, right now, he doesn’t havea lot of direct competition in the mobile space, but he knows that some of the bigger players in the industry are going to be heading their soon. So he’s really trying to get the scoop on them before they have a presence there.
[09:19] So what he’s thinking is doing some sort of a crowd funding and he also thinks that that would be some great publicity. And he says my issue is at this stage I don’t know how much each customer is going to cost me for hosting the back end, because he’d like to kind of turn it into a SAS app. And he says I’d like to experiment with a few different ways and or levels to charge them to find out what works. A successful crowd funding campaign could be a disaster if I have thousands of new costumers that I’m making a loss on. On the other hand, if I mention the price in the crowd funding campaign and it’s too high, it will probably fail. I have enough users at the moment to experiment with. But if I just stick with them and don’t try to go big now, I worry about my competitor gaining market leadership in the mobile space like they have in the PC space right now. What sort of things should I consider when I’m making this decision?
[09:58] Rob: My initial thought is that I really like the idea of crowd finding since it is B2C and since it is for gamers, role playing gamers in particular those things tend to do really well on crowd funding sites especially Kickstarter. I’m actually, I’m a closet Kickstarterer. I fund a lot of things. I fund 10 or 12 things in the last six months. I don’t know. I really like what’s going on in that site. So. I’m familiar with what’s there and this would fit in well.
[10:25] The question mark in my head with this question is he says my issue is I don’t know much each customer is going to cost me for hosting, like hosting on the backend. I’m assuming he’s going to build a SAS portion of it. And in my mind like unless you have a super resource intensive app, something that does thing like not only just in real time but is like getting bombarded with incoming analytics data. Every time a page loads on a customer site you get a ping like HitTail does. Unless you have that the cost of hosting each user is almost negligible.
[10:58] So, I’ve read through is email that if you get any indication that it’s going to be anything more than just create, read, update, delete SAS app where you’re putting stuff in and out of the database. I mean if you just tracking some character and tracking some movement and rendering some stuff, I don’t feel like this is going to be any type of extensive expense to host someone.
[11:17] Mike: Yeah. I did not get that sense from him. The only thing I can think of is that maybe he wants to be able to track all the different moves that somebody makes on a map. And I’m just completely speculating here, but he might want to be able to do it such that somebody can network several iPads together through his Cloud application. And then you could basically have like a game master managing all the things, moving all the things like moving the monsters in the PC around and then each of the character he’ll say make your move. You can move up to three spaces or five spaces or whatever. And then they moved and it updates on everybody’s iPad all at once.
[11:51] So that to me says that maybe it’s a little bit more than I might think but those things aren’t going to be used at all time. There might be five or six people connected in a particular game at any given time and I don’t know what the subscription kind of look like. But I can’t imagine that is that resource intensive especially if you’re doing it like with the REST API or something like that, where you just don’t need to worry about maintaining state across all of these different things because it’s just held in the database.
[12:17] Rob: Right. So I think at this point, you and I don’t have enough information to really comment on that piece. And that’s kind of a critical piece to this because my inclination based on what he said is that, yes, he should do crowd funding. And that its not going to high per user cost to host them. Now at the same time, I don’t think you should give people a lifetime access when they do the Kickstarter. It should probably be a one-year subscription at a discounted rate.
[12:40] You know, Brendon, if you’re doubting how much this is going to cost, I would find a web developer and explain to them what you’re trying to do, and they should be able to give you an idea of like “that’s a piece of cake or wow you’re going to need 20 Amazon ec2 instances to handle that.” And that will at least get you one step closer to knowing how much you should try to charge for the different Kickstarter levels.
[12:59] I also wouldn’t be concerned. You know, you say on the other hand, if you mention a price in a crowd funding campaign and it’s too high, it will probably fail. Well, then it fails. It’s a crowd funding campaign. There’s no real downside to doing that. I mean it’s a bummer if it fails but if you need a certain amount of money for people to use your app and to pay for you app for a year then you need that much money. Don’t undersell yourself and don’t sell a bunch of lifetime membership or even annual memberships way under market and then get six months end and not have the funds to do the hosting.
[13:32] So I would definitely be careful there and I would not be afraid to charge what you’re worth. You know what I’m saying. Like software developers in general tend to want to under price their stuff cause they don’t feel as worth as much as it really is. And so that’s just my sentiment based on the five paragraphs you have here. But I think it’d be a great Kickstarter campaign. I’d probably fund it myself even though I’m not playing D&D these days. I don’t see a real red flag or a reason not to do that. You see some of these RPG’s and other related things getting way overfunded and I think you have the potential to do that.
[14:06] Mike: Something else that jumps to mind is that if seems like if you’re building the infrastructure to actually do some of this stuff, you could probably build either an API or something along those lines kind of in the front end of it. And then use that API to build that prototypes for customers. And by prototype, I really mean something that emulates what customer behavior would be. And then essentially what you’re building is a piece of software that’s going to sit out there, and do some load testing on your system to make sure that you know how much its going to cost you and you know how much of a load it can handle.
[14:41] So you’re basically just building a simulator that helps you gauge that type of activity, what it does, how much you should charge for it, etc. I don’t think that’s uncalled for. The question I have in my mind is kind of what order you do that in, because obviously you don’t want to spend a lot of time and effort and money doing that upfront. It seems like you’re in this catch 22 where you need the money in order to be able to do that stuff and that’s where the crowd funding campaign comes in. But until you’ve done the prototype you don’t know how much to ask for in the crowd funding. So maybe you take the risk and you buy the tools and then you do the crowd funding campaign. I guess that piece is a little tricky.
[15:16] Rob: And I do think he has an advantage cause he’d already released what he says is a tech demo but he sold a thousand copies at 99¢. So he does have a user based. Maybe you could cobble together a test over a weekend to try to get a vague idea even if you get within 50% of what the load would be, that would give you a better idea. The tech demo is also really cool because if you do Kickstarter, you can put together a video demo pretty easily. You can point people to download the existing apps. They can see you for real. It builds more confidence. I mean you are a step ahead of 80% of the kickstarters that I see because you actually have a working app that does something. It’s not just kind of some diagrams and drawing at this point.
[15:55] Mike: So, Brendon, thanks for the question. I hope that helps. Our next question comes from Greg. He says, “Hi, Mike and Rob. I’m a huge fan of you guys. I’ve been listening for quite a while now. I’m getting close to launching my SAS app with a partner. We’re trying to line up some writers for long tail article generation. How much should I be expecting to pay per article for some decent but not great writing around the 500 word mark? Thanks for your time. Keep up the awesome work. Greg”
[16:16] Rob: Well this is a pretty subjective question for sure. You said decent but not great writing. I mean I know people who for 500 words who pay $50 or a $100 but I would call that exceptional writing. It’s a viral content. And then on the super low end, you can get articles for $3 to $5 but they’re pretty bad. Cobbled together I’ll say maybe by a non-native speaker. So I think the sweet spot what you’re probably looking at is between $10 and $20 for 500 words article. And yes, I know you can get them for $7 or $8. You may be able to find them there.
[16:53] But it’s just all that balance of how many people can you find that can generate enough content in your timeframe with enough quality, the quality that you don’t have to go through and edit it. You want to make sure that you’re not spending a bunch of time. If you pay $5 but you have to edit all the articles then you just wasted time. I would rather pay $15 and not have to edit a single one.
[17:12] Mike: One of the things I would do is because going through and reading this can be somewhat time consuming, hire a VA who is a native English speaker and have them vet the article. So send the same articles to like three or four different writers and have them put the articles together. And then have your VA go through and read them, and kind of basically have the VA judge them and kind of figure out which one of those three or four writer is the best writer and then continue to use that, and established essentially a relationship with those writers so that you can leverage them going forward.
[17:44] Otherwise, if you go to a website where they’re basically just hiring all these different writers and you don’t necessarily get the same one every time, then you can run into issues where one time you get a fantastic article for $12 or $13 and then the next time its complete garbage and you have to have it rewritten. By establishing those relationships, you help smooth out those fluctuations from one request to the next. So Greg, I hope that helps.
[18:06] Our next question is from Rick. And he says “Hi, Rob and Mike. Avid listener of the show from London and I think you provide tremendous value to the listeners. Keep it up. I’ve had a modest exit from a brick and mortar turned internet play three years. Now, I’m on to the next project full time which will be a SAS play to a specific niche and I expect the market in play to be 90% high touch offline. I have two questions. First is what tactics would you suggest in contacting and selling the SAS product to offline clients? And the second question is, in terms of pricing on value, the ongoing cost to me will be minimal but the value provided is high to the client. When competition enters the market they may use penetration pricing. How would you suggest addressing this so my clients wouldn’t switch? Thanks a lot. Rick.”
[18:44] Rob: The first thing I would do is read The Ultimate Sales Machine by Chet Holmes, and he covers a bunch of offline marketing techniques that I would use almost to the letter if I were to go with offline marketing. It’s going to be postcards, direct mail and some direct email and some cold calling. Those are probably the three or four that I would use. But I would do them in a sequence like Chet Holmes describes in The Ultimate Sales Machine. And it involves finding a list of your dream customers, putting them together, and targeting them over time with essentially a campaign and not just doing this just one off stuff that most people do.
[19:20] The second question was regarding pricing on value. He said the ongoing cost is minimal. Well, the ongoing cost to almost every SAS app is minimal. I mean it can be a $1 per user or less. So that’s very common. You’re concern about competition entering the marketing so this penetration pricing. You know, I wouldn’t even worry about it now. I wouldn’t address it at this point. I think you need to get in. When competition enters, you can worry about it at that point.
[19:43] But if you’re truly going into a vertical niche and you have a SAS app, if you get a head start with people and you become the brand name in that vertical, and you get people using your app and they’re happy with it, most people don’t want to switch SAS apps. I have a bunch of SAS app. I mean I probably spend a couple of thousands a month on across all the businesses in terms of all the SAS apps that we use. I have never once gone out and change because someone dropped the price, a competitor have a lower price.
[20:13] Because the switching cost it’s too painful. It’s too expensive, right. Because I value my time, I value my people’s time. And it’s not just two hours of signing up for another app. It’s relearning that. It’s knowing that it probably has bugs. It’s why is it so much cheaper. The support probably sucks. The app probably isn’t as good, all these things. So I would be much much less concerned about a competitor coming in and trying to go cheaper at this point. Because by the time that happens, you’re going to be so far ahead of them. And hopefully have tens of thousands of dollars a month in revenue that you’re going to know the space much better than them and you’re going to just be a better marketer. So that’s the attack I would take.
[20:52] Mike: Yeah. What he said. There’s really nothing I can add to that so I’m just not even going to bother. So, Rick, I hope that helps you out. Next one comes from Seth. And he says “First, I wanted to thank you for your inspiration, your resources and the motivation you give to micropreneur community. I had a question about dealing with guilt. Like everyone I’m always surfing the web looking for ideas and getting inspired by things I found. One of the things that I’m always feeling guilty about is copying an idea. I tried to rationalize that I could do I better. But I guess I have a fear of being labeled a knockoff artist. At this point, I’m feeling I shouldn’t surf the web anymore for fear of finding a business idea that I’m thinking of that someone has already done. Am I alone here? Thanks. Seth.”
[21:30] Seth, I don’t always, I wouldn’t worry about it. I mean the fact of the matter is that almost virtually every single idea that you come up with, somebody else will have had it at some point. I can think of any number of ideas that I’ve had in the past where either I didn’t pursue them or I half-heartedly pursued them and then somebody else comes out with something that was either just as good or maybe quite as good but they did a much better job marketing it than I did.
[21:54] So I’ll be honest. I really wouldn’t worry about feeling guilty about copying somebody else’s idea. What I would be concerned about is if you look at somebody’s idea and you literally mimic it. You know complete from copying their entire website, their design, their layout, their marketing plan and then feature for feature their entire product. That’s what I’d probably be a little bit leery of doing.
[22:14] But if you look at somebody’s idea and it looks like a good idea but they’re just not doing very good with the execution, and that could be the marketing execution or that could be product execution. If you feel like you can do better then you shouldn’t feel guilty about providing your customers with a better experience than somebody else’s. I mean that’s what you really need to focus on is: are you proving better value to the customers than this competitor.
[22:39] So what if you are have idea Seth? It doesn’t matter. What matter is: are you are providing value, are you providing good value? I think it really comes down to, are you plagiarizing their site. Are you stealing their intellectual property? And if you’re not doing those things, I don’t see any reason why you should feel guilty about it.
[22:55] Rob: Yeah. Guilt is an interesting way to put it. Because if you’re feeling guilty about it, it either means you’re too hard on yourself or you care a little bit too much about what other people think about you. Would you say that MailChimp copied Constant Contact because Constant Contact was the first email newsletter management system? And MailChimp when it started was very very similar. They didn’t even niche it down. They didn’t really had their unique thing of hey it’s a Mail Chimp and they were going after startups.
[23:22] But really they’re very similar and yet none of us say MailChimps just knocked off all the other email providers, Aweber and Constant Contact that came before them. I agree with Mike. If you take someone’s design or if you a screen by screen knock off that sucks. But if you offer a similar value proposition and either you out market them or your app is better or you just have some unique variation of it, whether that is a niche or just being somehow different, then I don’t see that as being a big deal.
[23:49] Mike: So Seth, we hope that helps you get through that guilt and actually move forward to taking one of your ideas to the next level. Our next question is from Steph. And he says, “Hi, guys. Love the show. I’m taking notes like fiend and I’m doing my best to execute daily on your sage advice. I’m a graphic designer, illustrator and storyteller. And I’d love to know your take on the most compelling arguments to be made for having great design and branding in business. Many small companies don’t see the value in design and choose to cut corners. What problems and pain points does great design solve? Clear communication, consistent messaging and enhance customer experience spring to mind. How many more design specific considerations can add value to a company’s bottom-line. Thanks so much guys. Steph”
[24:27] So Steph, here are my thoughts on it. As a small business great design and branding does very very little for you. And the reason I think that, and you kind of alluded to this in your question, is that a lot of small businesses don’t see the value in it. And I personally don’t see it either. You know you have to focus on what problems you’re solving for the customers. And that’s really to kind of get your foot in the door with the costumers.
[24:49] You’re trying to establish enough of a customer based to just get you through those critical time periods, where you need to figure out whether or not your ideas is going to fly and whether or not you’re going to be able to turn it into a real business. And if you can’t then it could be a couple of different problems. One of which could be okay that niche is just way too small to support a big business.
[25:10] At which point, branding and brand recognition really doesn’t make a difference. Because the people looking for that solution they don’t care what it looks like as long as it works. As long it solves their problem. And it’s not like you’re going to have a lot of competitors in that particular space anyway. On the other side, when you get into a position where you’re starter to get larger costumers, you’re starting to establish yourself in an area.
[25:33] And you’re starting to grow the business to the point that you multiple employees or you’re getting millions, tens and millions of revenue, that’s the point in which branding and messaging starts to provide that extra value. Because then people they’ll see a flyer or they’re see an advertisement on a webpage and then two or three or four months later they’ll see a similar one and they’ll associate it with that company.
[25:55] But until you get to that point till you have a big enough foot print I’ll say it doesn’t really make a difference. And I think that’s probably why you’re seeing this from a lot of small businesses that they don’t care about their branding and messaging because they’re small enough that it actually doesn’t matter. At least that’s my opinion on it.
[26:10] Rob: Yeah. I think there are a couple of components here. There’s design of the product. There’s branding and then the third is messaging. I think messaging is critical. To me, that’s also the same as positioning. It’s if you look at the 10 headlines that I tested when I put up a Drip landing page, I was trying to hone the messaging. And that is figuring out what message resonates with people who are visiting this page. What message resonates with a customers that I want to reach and that I think are going to get the most value out of Drip.
[26:40] I think that is absolutely crucial and probably more important than the other two combined. I think for small startup launching design can be useful. I think it’s helpful when people hit a landing page that is gorgeous or hit a website that’s gorgeous, they instantly think these guys have more funding or these guys are legit or these guys know how to build a product. I bet it’s good. They give you the benefit of a doubt.
[27:01] Now you actually still have to build a good product that provides value to people. But it gives you that instant 3 second test of I kind of have confidence. It starts you up on the right foot that these guys are doing a good job if the design is good. With that said, I also see early stage founders getting caught up, especially first timers, spending months trying to figure out what logo to get. And they go on 99 designs and spend four weeks doing something.
[27:25] But I’ve said it before I don’t even do logos. I literally when I acquired HitTail I told the designer when he was redesigning the site, just pick a good font and put HitTail on the upper left. I literally don’t want to spend anytime thinking about it. I did the same with Drip. Both times the designers couldn’t stand it and they did some little tweak. They put a font and then put a little tail or a little drip of water or something to kind of make it a unique thing, and I actually really like those.
[27:48] But I spend zero time thinking about that. And so there is a balance here. You can go overboard especially if you’re just trying to get something out the door. If you’re in a small niche and its your first one and you’re trying to get it off the ground, you need to pay less attention to design than I think you might think you need to. So pay less attention to fancy logos and hardcore design and don’t blow ten grand on some amazing design and idea you just had.
[28:13] You need to vet it first using the $7 template from ThemeForest. And once you vetted that, maybe consider spending a couple of grand on a nice design. But get that affirmation first, the confirmation I should say, before you just start blowing a bunch of money on a great design. Now there is a caveat. If you’re in the design space then yes you need a great design. Cause designers are going to pick it apart. They’re not going to use crappy design, etc. etc.
[28:37] But the further away from the design space you go, the further away from the technical space you go, the less well designed or the less gorgeous your app needs to get traction. And the thing is once you do get traction, once you do have paying customers, once you have several thousands a month in revenue, it’s so much easier to go back and improve the design and then bring it to the next level. But if you spend all that time and money upfront, and the thing never takes off then you basically wasted a bunch of time.
[28:59] The third point that Steph brought up was branding. And if he means branding like having a logo and having a unified look across all your ads and your website and all that stuff, I’m not really a big proponent of that, especially not with bootstraps startups, especially not people operating in niches. If you can do it, great. But I would never spend a spare moment that I could be spending on actually getting costumers to pay me money. I would never spend that time worrying about having this big unified brand because frankly I never seen a brand to pay the bills. It’s always actually selling to costumer that does that.
[29:32] Mike: Yes. Just to point out the messaging component that Steph had pointed to was great design solves clear communication, consistent messaging and enhance customer experience, which are all things you really can’t measure anyway. But the clear communication, you can get around that with words. Consistent messaging, again words. You don’t need to have as Rob just said a great looking logo. You don’t even need to have a logo. You basically need to make sure that you’re addressing people’s pain point and telling them what the problem are that you solve. But you know as Rob also said, when you’re in the design space, you have to have good design because people aren’t going to trust you as a designer if you’re doing that.
[30:08] Rob: I don’t want someone to write in and say you’re saying design is completely underrated or that you don’t need to do it at all. Because I do get emails with links to landing pages and if they’re crap and people are running away from it or complaining or saying this look unprofessional then yes. You need to rise to a minimum bar that resonates with the people you’re trying to hit. But that minimum can be accomplished again by $7 on ThemeForest landing page rather than trying to cobble something yourself together or using KickOffLabs or LaunchRock.
[30:37] I mean any of these have good enough design to sell ticket to MicroConf Europe as an example, like we didn’t hire a designer to put together a landing page. We use a LaunchRock and just drew one up and put a nice image around it and that’s been good enough and we’ve gotten several hundred emails from that. So think about what’s good enough for your audience.
[30:56] Mike: So Steph, thanks for the question. Our final question comes from Andy at clickity.io. And he says, “I’d been listening to your podcast while driving work over the last few months. I think they’re great and very relevant to us. It’s incredible how apt they are sometimes. Both Drip and AuditShark had released teething problems and so did we. In fact, ours was worst. We pulled our new product completely as we realized they just wasn’t fully featured enough to be able to sell it and providing support might have been too hard.
[31:20] Now, we’re reconsidering our options. You always hear release early and I guess part of the reason for that is so that you can find out quickly how far you are off from having a fully featured product. It can turn out to be very demotivating. I have a few questions. We’re a bootstrap startup on full time jobs. We have a few costumers on our current products but not enough. As it’s a tool that can be used in many different situation, it’s difficult to market it and find costumers. Should we try and find vertical markets or perhaps accept that it’s never going to be the hundreds of costumers we need?
[31:47] Can you see any vertical niches for this product? We’d been on the market for six months. The other options we’d been considering is building something that complements our existing offering more rather than a separate products which our pulled product was. What if there’s new product idea would go up against a major player in the market. Should we fear patents that they might hold? We’re both developers so there’s a tendency to lets build more instead of lets market more. Any inspiration is great appreciated. Andy”
[32:11] Rob: So clickity.io the headlines says easy email delivery testing. And then the subtext says Clickity helps you test the most important part of your site/app outbound email. Protect your business from the embarrassment from a broken email system. I don’t know what this app does. I don’t know if this is SendGrid or if this is something different. So, I think the problem is exactly what Andy said it’s a tool that can be used in many different situations so it’s difficult to market it and find costumers.
[32:37] My advice would be find one of those situations. Pick one, pick the one that’s most dire, pick the one that has the largest audience, pick the one that has the largest audience that you can reach and that is willing to pay for this. And then no matter what your app can do, nobody cares. Just pick that problem and put all your marketing, all of your positioning, all of your branding, all of your messaging around that single problem and start there.
[33:02] And if you dive into that for three months and you run ads or you do SEO or you change your entire whole homepage to focus on that, you get costumer to comes and still nobody buys, then yes I would rethink maybe this whole idea isn’t going to fly. But at this point, this doesn’t show me what pain point this solves at all. And to be honest, I don’t exactly understand though. I haven’t click past the homepage. But I should have an idea on the homepage of the value proposition that you offer.
[33:26] And easy email delivery testing. It makes me think are you testing whether my emails can be delivered. So how does that work? If I’m using MailChimp it will test it or if only I have my SMB server. I mean there are a lot of details here that I think need to be focused on this landing page. And once that happens, I would probably air on the side of not building more cause Andy said they’re developers. They’re going to tend to lean that way. And so I would first look at trying to find an audience for this.
[33:55] Mike: So I thought the exact same thing as you. Is it SendGrid? Is it something else? And when I saw easy email delivery testing my first thought was maybe they’re testing how these emails come up in somebody’s browsers or how they come up in different email clients or something along those lines. And I started clicking around and just based on the homepage alone, I’d probably would just walk away and say I have no idea what this does and is not worth my time and investment if they can’t tell me on the homepage.
[34:23] With that said, I clicked over the API screen and the API screen says integrate emails into your unit test, which to me sounds like a great value proposition. That needs to be on the homepage. I mean that’s perfect. That’s exactly the type of problem that you want to pitch to people and say we do unit testing on emails. So when you send an email to somebody we’re able to go into this fake mailboxes and do all the testing to make sure that your emails are actually getting sent, that they’re showing up, that their right URLs are going into them, those URLs are clickable, etc.
[34:56] This API screen, that’s your tagline. Integrate emails into your unit test. That needs to be on the homepage. I would just take that and run with it. Cause it seems like to me and I’ve gone through this with AuditShark that’s one of the few things that I can’t unit test. I have no idea how to go through and unit test something like that. Could I build something? Sure. Am I going to? Probably not. And the reason I’m not going to is because it’s not worth my time and effort to do it.
[35:18] However, you apparently have a product that can do and I would harp on that and go to your customer base and market to the people who want to do unit testing for emails. None of this stuff is on that homepage. Even looking at the homepage now, after seeing that, it still doesn’t speak to me that it solves that particular problem. Rework your marketing strategy. That would be my advice.
[35:42] Rob: I’m really glad you found that. I haven’t seen it and I agree that’s a great value prop. I also think you should be way developer focused then. I think the headline Mike said could easily go on the homepage and it should say for developers all over this site. Because I didn’t realize that this was a technical tool for developer. Use the jargon that we all use so that people know that wow this is built by developers for developers. And don’t use that phrase cause it’s super cheesy.
[36:05] Even if it say easy email delivery testing for developers then it instantly clues me of like I’m a coder and how is this going to help. So unit test like that’s something that a non-developer is not going to really know what that means. So put that smack that on your homepage, so that when someone comes and they know they’re speaking directly to me and maybe even have that, your code snippet. Don’t be afraid to have code snippets on the homepage.
[36:28] You may want to go and look at stripe.com and see how they’re positioning themselves. Cause they’re basically a payment gateway for developers. And right on the homepage you see for developers. You see some code. You can change the language of the code and rerender it. There’s a lot of stuff there that shows you hat they know how to make things easy for developers. I agree. I think that’s got to be the first market that you hit.
[36:50] Mike: So Andy, I hope that helps. Definitely give us an update and let us know how you do. But I would recommend against folding. You definitely needed more of your marketing to tell people the problem that you’re solving for them.
[37:01] Music
[37:04] Mike: And if you have question for us, you can call it in to our voice mail number at 1-888-801-9690 or you can email it to us at question questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 139 | 6 Questions You Should Ask In Your Customer Development Survey
Show Notes
- Mike’s Altiris Training website
- Drip email marketing software for startups
- Trello
- Google Docs Surveys
[00:00] Mike: This is Startups for the Rest of Us: Episode 139.
[00:03] Music
[00:12]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.
[00:19] Rob: And I’m Rob.
[00:20] Mike: 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?
[00:24] Rob: Sound the trumpets. Sound the alarms. If we had a cheesy clap audience sound I would put it right here. There are two real customers using Drip as of now. We got them online this week.
[00:36] Mike: I’m impressed.
[00:37] Rob: Yeah. It feels really good. I didn’t realize what a milestone this would be. But getting them on it, using it, actually seeing the excitement as I did a video Skype earlier with one of them and he was really excited. Actually, it’s a small company called Ambassador – getambassador.com. They have five or six employees and he was like everyone in the office was just stirring cause we haven’t collected this many email and right away we were stoked about it.
[00:59] And it was just this really good feeling. He’s like yeah I really see the potential here and how easy it was to set up. So, it was a lot of positive. You kind of need that positive feedback to keep going, you know. You write code in the basement for too long and it just feels like is somebody going to like this even though you’re getting all the good signals, so that felt great. The other customer #. 1, it was Brennan Dunn with Planscope.
[01:20] And he got it up right away and also didn’t run into any issues. So, it feels good. We have two – no, we have three more scheduled to get on in the next probably seven days. We’ll see how that pans out. We’re working through this early access list and then we’ll, you know, we still have quite a few features, and they’re coming in now that people are actually using the app. Excited to actually do the launch to the early bird list.
[01:41] I’d say it’s a couple of months out to be honest. But we are making progress. It’s not a stagnant couple of months. It’s a moving very quickly trying to implement everything and improving the product the whole time a couple of months.
[01:52] Mike: I’ve discovered that I need to carve out some time to my Altiris training site to convert it from a subscription pricing model into more of a static pricing model. But it’s so low on the priority list right now. I just don’t have time. So it’s going to probably sit there for several months while it’s just kind of eeking out some revenue but not nearly as much as it could. The lifetime value is a lot lower for people than I’d like it to be.
[02:17] I know that I could charge more on a static model, cause people are only sticking around for maybe two or three or four months. I’ve had some people stick around for as long as seven or eight. But I haven’t really generated any new content. So, basically, they’re paying a subscription fee for something that realistically they can get through most of the content in less than a month. And there’s people who just stick around and keep paying it because they don’t want to yank out the credit card or whatever and go through the cancellation process.
[02:41] But then there’s other people who will get in. They’ll use it for a couple of hours or a couple of days and then they’re done. They don’t even need to pay for it at that point. So, I kind of step back and evaluate it a little bit and said okay if I convert this over and I just charge a flat rate of like 499 or 799 or something like that then I can just hand them the videos. They can keep them. Then I don’t have to host them and do all this other things and the lifetime value essentially increases at that point. But it’s a matter of taking the time to do that, and right now, I just don’t have the time.
[03:10] Rob: Yeah. I think that’s a really good move actually. Give them a big zip file of everything. The other thing you could think about is to upload them to youtome.com. It will probably take you 1 to 2 hours to do that. The advantage there is youtome has a lot of people looking for stuff. I don’t know if they’re searching for Altiris. But you know my course on – video course on how to hire a VA for startups is on youtome. I’m already am seeing a few sales from people who weren’t on my list.
[03:36] It could be an option. But it’s like you said if you don’t have time then all of that is just talk. And that’s a tough part about having multiple products like this is you do get spread too thin. And even when you have something that you build and you feel like it’s been automated. As soon as you hit a bump in the road like this, you know, if you lose Google rankings or your advertising stops working or a VA quits on you or any of these things, suddenly it’s not automated. And it’s like you have to carve out that time to go back and fix those things.
[04:03] Mike: But it’s sitting there in the back of my mind. At some point, I have to go do this and it’s a matter of going to do it. Because if I do that then I can actually go to a lot of partners and a lot of the Altiris partners and pitch it to them and say, you get to resale this to your customers. And it’s very much product based as oppose to a subscription when they come in and they may use it for a little while. It’d much easier to give it to them as am one off and not have to worry about that ongoing subscription.
[04:28] Rob: You know, what you can do that would probably be fast is to have someone build just a landing page. Kind of may be a longer form landing page and then use Gumroad cause it’s a really simple way to integrate with Stripe, and just give them a zip file. That would probably be the least friction way. I bet that would be a lot faster than any other method. Cause I like that idea of just doing a big bulk payment. I think you’ll make more using that method.
[04:59] Mike: So what else is up with you?
[05:01] Rob: Well, I have two other things. I wanted to update folks on Inbox Zero that I’ve been doing with Gmail and Trello. It has been working quite well and then I fell off the wagon two days ago as we started getting people using Drip. Just a bunch of stuff came up. So, right now, I have 19 messages in my inbox and I’m now going to have to go through and either ply to all of them or get them into Trello. So, this is probably my first big hurdle with that.
[05:26] And we’ll see if we make it through or if I punt and give up on Inbox Zero for good. And the last thing is it’s an email from a listener. His name is Jerome Samuels. He says, “Hi, Mike and Rob. I wanted to drop you a line to let you know that I’m almost ready to official launch my SAS app. It’s at goalreports.com. I could not have gotten this far without all your startups for the rest of us advice. I started listening to your podcast religiously in July of 2012, and in September of 2012, I decided to get going with building my app. I’m a nontechnical founder but a domain expert in soccer coaching. Thanks again for all the advice. I could not have done it without you. Jerome Samuels” So thank you very much for writing in Jerome.
[06:01] Mike: Yeah. Thanks Jerome. It sounds like we got a lot of feedback from people who are nontechnical these days too.
[06:06] Rob: The audience has grown into that and I didn’t expect that when we first launched it, the podcast. But there’s definitely – I mean if I were to put a number on it, I would say it’s 30%.
[06:14] Music
[06:18] Rob: Today, we’re talking about the anatomy of customer development survey. And so, this episode is based on a question from Richard Steer. And he says, “Hi, Rob and Mike. Love the show. Thanks for sharing and being transparent. I’m interested in the survey that Rob ran for Drip. Love the marketing segmenting nugget. If you have a link to the survey you run that would really help me as I’m struggling with mine. Thanks.”
[06:40] And the survey he’s asking about I mentioned, you know, it was probably four or five episode ago. So, Drip is my email marketing app. We’re going to be launching it in the next month or two. We have a landing page at getdrip.com. And at a certain point, I was trying to figure out where we actually building something that was providing value for the people on our launch list. But I just wanted to confirm it cause I was starting to doubt it after talking with a lot of people.
[07:04] So, we have about 1400 on the launch list on that point and I sent out a survey. I asked them six questions. I got a lot of good data out of it. And so, I didn’t really go through those questions on the update a couple of episodes ago. But we’re going to take today and kind of dig into what Mike and I think makes a good survey and then a couple of things about what not to ask. And this is all during customer development. We’re going to couch it as that.
[07:27] So, it’s during that time before you’ve launched a product, when you’re still trying to figure out what you should build to solve the problem at hand. We’re going to touch on six maybe seven question types that you should ask, and I’m going to try to keep them generic. Obviously, I have the survey sitting here in front of me that I asked about my app. But I’m going to try to make it generic so it applies to yours. Before we start talking about specific questions, first thing I think you should have at the top of the survey and you can easily use Wufoo for something like or Gravity Forms if you have WordPress site.
[07:57] Myself, I love the Google Docs survey. It just puts it into a Google spreadsheet and allows easy manipulation of everything. So that’s what I used for this. The first thing you should have at the top of the survey is a big thank you for those taking the time to give us your thoughts basically, right? That their answers will really help you etc., etc. I use stuff like your feedback totally blows us away and it’s going to make this an awesome product and that kind of stuff. Either way, you just want to make it so that it’s heartfelt and it doesn’t sound like some stiff automated thing of like thank you for your survey response.
[08:26] So after you have that, after you have that big kind of thank you at the top. This is a survey I put together. I haven’t tested it, you know, split tested it or anything like that. But I did send it out to my list and I got really good feedback and results. I got lot of responses and that’s going to depend on your list. So, I’m not claiming that this is somehow the definitive customer development survey. But what I am claiming is that what I learned from doing this and some of the good decision and bad decisions I made, I think it’d be carried over to your survey as well.
[08:54] First question that I asked is “What problem do you really hope product name will fix?” And I actually said, “What email marketing problem do you really hope Drip will fix?” and then I gave them four or five radio buttons. And I asked very specific questions. It was some high level issue that I hope Drip would help them with and then I gave them an other radio button that had a text box and they could fill it in. So I can get some ideas.
[09:18] You want to keep this small. You don’t want to have 10 options and you also want to ask the most pertinent. I mean you’re really asking, what is the # 1 problem that you want to fix. Now, some people wrote other and then said all of the above and that’s fine. I kind of disregarded those ones because I don’t want people who want everything, cause I can’t build everything on this list. The three things I asked about were: Do you want more website conversion? Do you want more sales leads? Do you want better email workflow or are you just curious about Drip or other?
[09:48] And those options were awesome. Like it totally broke down who was interested in Drip. You know 20% of the people said they were just curious and that really help me to basically eliminate them from my analysis.
[10:01] Mike: Yeah. That’s really important is being able to eliminate people as potential customers. And most people think that I want to get everybody as a customer. But the fact is you really need to filter out those people who are either just kicking the tires or are going to give you feedback that’s going to take you in the wrong decision because they’re not going to pay for it anyway. So you have to be really careful about who you’re directing these at.
[10:22] Another thing I want to point out is that what Rob is talking about in terms of what he did for the Drip survey, was he was asking them what email marketing problem do you really hope Drip will fix. And this is assuming, and you have to understand that this makes an underlying assumption that they already understand what the product is. If you’re putting out a survey to get feedback about an idea of something, you’re trying to solicit information from them about what problems they have versus what problem are they hoping to solve.
[10:53] So, there’s a very subtle difference and distinction between the two. On Rob’s side, he had this fundamental assumption that he’s helping them with an email marketing problem, specifically what kind of email marketing problem do they have. Whereas if you’re trying to solicit information about a product you’re interested in developing, you want to solicit a little bit more information in either one of two things. Either you approach it the way Rob did or you let them know upfront. Here’s the problem and here’s the solution that I have come up with that I think would solve that problem, and here are my questions to you about that.
[11:24] Rob: That’s a really good point. I’m glad you brought that up. I have specifically already emailed this list with at least two updates about what Drip is, what it’s going to do, some of the basic value props, screenshot, that kind of stuff. I’m not saying everyone read them. But I assume there was a certain level of education about what Drip is and what it does. That’s right. You should keep that in mind as you’re hearing what I’ve asked in this survey because there is some education.
[11:48] It was a landing page that has quite a bit of information and then I given them information via email. So, they are quasi-educated consumer. So, the next question that I asked folks is I said, “Is there anything else that product name needs in order to be invaluable for you?” And with this one, I have four choices and I asked about some very specific features that we are considering developing. So, the first question was about their pain point. What do you want more of?
[12:16] The second one is about some very specific features that I was debating and hearing from people one on one request, but trying to figure out how many people feel this way. So for me, it was option #1 was I love your cool pop-up opt-in form. #2 was split testing of emails and sequences. #3 was analytics and conversion tracking. And #4 was other. And, of course, I got a lot in other. But that really told me a lot of people wanted some pretty complex stuff. Again, those folks I had to kind of eliminate from the analysis of this question because we’re not able to build a lot of complex stuff right now.
[12:46] Mike: And the interesting thing about what Rob just said is he basically asked what the problem was that they were having. And then the second thing was what features are you interested in. And if you basically do some quick math between those things, you can – you know just take the option from the first question, the option from the second question and multiply them together, add them up. And you can figure out essentially the largest segment of your audience that is interested in that specific thing.
[13:12] And that’s part of why the survey is so helpful. Because it allows you to understand what people are most interested in. So, that you can concentrate on that first and then you can move on to the second thing and then on to the third thing, but assuming that those things are all related. And that they’re going to fit in with the greater feature setup of your product. The primary thing that you need to do is figure out what to concentrate on first. And a lot of times, you just don’t have a gut feel for them.
[13:36] Getting this feedback is just absolutely critical in order for you to prioritize things. Because there are so many things on your plate to build the products that you need to figure out what it is the people want the most.
[13:46] Rob: Question # 3 was “Which competitor do you currently use?” So, I set out MailChimp, Campaign Monitor, Constant Contact, none and other. And what was nice is I was looking to figure out how many are we going to need to integrate with if in fact people don’t want to leave their existing competitor. And there was a big cluster on a couple of these and so it kind of made easier for us. I think that asking about what competitor they’re using and including none, and sometimes including Excel and sometimes including pen and paper, I think all of those are competitors to your app. And knowing that is a pretty invaluable lesson.
[14:23] Mike: Another way of asking this type of question is just leave it open-ended. You don’t give them the options. You just say what other email marketing apps do you currently use? It will do a little bit of marketing research for you because you know that they’re probably using something else. And that they’ll tell you if they are because they’re going to know that off the top of their head. And there are going to be things that they’d probably tell you that you’d never heard off before.
[14:45] They may not say Constant Contact. They may say some other email capture program. But if that hasn’t come up on that radar, you might want to take a look and figure out why are they using that. Are there a lot of people who are using this based on the people who come back from that survey? And it can give us a little bit more insight into not just what people are using but why they might be using it.
[15:07] Rob: Yeah. That’s a good point. And you had mentioned offline that in an AuditShark survey you had asked what other like server software do you currently pay for and just put a big open text area there. I think that can be invaluable as well. I think I’m a little further down the line. You had sent that out months ago. But I’m further down the line. I wanted to be more specific. I didn’t just want to broad range of things. I was asking them specifically to figure out what to integrate with. But I also think that your question could be really important as you’re trying to kind of feel out what it is that people are using.
[15:38] Mike: The specific question I asked was “Do you currently use any services for monitoring your web server. If so, which ones and why?” And part of that was to understand what other things people are using but in some ways that gives you price points that they’re already comfortable paying. So that was helpful to me because it helps me in figuring out what I should be charging. Because if somebody else’s is already paying for New Relic for example. New Relic is not a cheap solution. But if they’re already paying for it and they’re interested in AuditShark, and they’re looking to fill out the survey and provide me with that information then chances are that I could probably get away with charging something along those lines.
[16:17] So, it can help you in terms of price points. It can also help you in terms of understanding why is it they currently pay for those solutions? So then you can integrate that information back into your marketing collateral and say “Well, you’re interested in New Relic because you want high up time. AuditShark can help you do that and here are the reasons that it can do it and here is how it does it.”
[16:36] Rob: The next question asked which question # 4 was “Are you planning to continue using your exiting product type as long as product name integrates with it?” So mine was are you planning to continue using your existing email marketing app as long as Drip integrates with it. Not everyone needs to ask this question because it’s not relevant. But Drip can potentially be seen as add on to something like MailChimp or Constant Contact.
[17:00] I didn’t know how many people plan on staying with their MailChimp account and how many people just wanted to wholesale runaway from Mail Chimp and come to Drip. And my answers, the first one is “Yup, if I can get the benefit of Drip and ensure that every subscriber is also added to my existing list, I’m all for it.” And the other answer was “No way. I’m looking to cut bait and run to Drip with arms open wide.”
[17:21] And frankly, the vast majority wants to get the benefit of Drip and ensure every subscriber is also added to their existing list. And obviously, it’s really good for me to know. It shows that, one, that people probably will like their existing providers or just have that confidence in their existing providers. They already know the features and they don’t want to go to the headache of moving. But there was a chunk of people who also did want to move in. So that means, at some point, we’re going to have to implement enough features that we can essentially not replace everything in a MailChimp or Constant Contact.
[17:49] But we know that we’re going to need broadcast emails as an example, which is something that really Drip doesn’t need by itself. But to replace a MailChimp you have to have something like broadcast emails. So, again, this isn’t necessarily a question everyone needs to ask. But given what I knew and what I’d been hearing this is how I was able to clarify that in my mind and actually put some data to the numbers. I should have mentioned this earlier. But I had about 1400 on the list when I emailed and I got over 300 responses.
[18:17] And so a really good response rate in my opinion. And as a result, the data it’s pretty clean and it’s pretty clear and indicative of what I think what the majority wanted.
[18:25] Mike: Yeah. I like that you asked this question. Cause it is important to understand whether or not people are looking to just outright switch from some other products, or whether they just want some sort of integration, or they’re looking at your product as an add on not necessarily a replacement for other things that they’re already using. Because in some ways they set up expectation for you because they’re expecting to be able to completely move off say MailChimp for example
[18:50] Then they’re going to expect that a lot of the features that are in MailChimp are also going to be in Drip. And when they sign up for it, they’re going to be extremely disappointed when that’s not the case because that’s not what you were building. You were not building a replacement for MailChimp.
[19:01] Rob: Right. And I bet that on our marketing side, we’re going to add that verbiage. We are not a replacement for MailChimp or Constant Contact. We are an add-on. I mean that’s probably how – when we launched, I bet I’ll have that verbiage somewhere on there. Some the next question that I asked was “How do you spend your days?” The options I gave were running a startup/software company, email marketing, online marketing and other. And with this one, I was trying to figure out which role – chose which of the options above.
[19:34] I wanted to figure out which role really wanted the split testing, which role really wanted more leads versus more website conversions. And this was infinitely helpful because I know where to reach these certain demographics. I have reached in to some of them and not others. Actually, the more I dug into the data – there were a lot of folks who would say like other. It’d say 9 to 5 and looking to launch, a startup type thing. So, I was able to put even more of them into that software/startup company bucket. I definitely think I almost didn’t ask this question. I didn’t do it till the end. And I think this is one thing I would put on every survey I ask for now on. Because it just allows you to see the responses that are really going to matter to you.
[20:15] Mike: Because you need to know who it is that’s answering your survey. Because if you’re just getting this generic answers from people – it can be kind of hard to figure out sort of role they play in the company that they’re responding from. So, if they’re not the decision maker, for example, then their answers aren’t going to make a world of difference than if they’re the startup founder. And they are the ones who are calling the shots, and they’re the ones who are saying what they do and they pay for it. So, you want to give a little bit more credibility to the people who were cutting the checks versus the people who are just doing the marketing or essentially carrying out the needs of the company.
[20:48] Rob: So the sixth and final question that I asked was your email. And I put in quotes, if you’re interested in early access. This was surprising. 85% of the people who fill out the survey put their email in there. Now, I already have their email, right? Cause I just emailed them. But what this allowed me to do is now I have a full view of what that person with that email actually needed. So, I can go back and say okay Drip is going to focus on website conversion first rather than the other options that I named because the vast majority wanted that.
[21:19] Then we already have, in terms of the features asked about, we already have a pop-up form. And we’re going to do split testing. We already have analytics. So, I could group those together. We already have a MailChimp integration. So slowly I can just by sorting and copying and pasting and I could figure out my early early bird list. I very well may do a three-layer launch. Right now, I’m dealing one on one with early access customers.
[21:40] Then I may do a group of this early early bird or pre-early bird list, which are the group of people who answered basically all inline with everything we’re already doing with Drip and are very much in line with it. They’re going to be the most likely to use Drip, get value out of it, and most likely to convert. You know, they answered all the question inline with what we’re doing with Drip. And so, I might just launch to them and get them in and then work on some features for them and then do the final launch to the entire list, which would obviously convert less.
[22:11] You know that way I’m not trying to manage everyone coming in at once with a bunch of future request. Cause what you’re going to do is you’re going to get folks in who really want a bunch of complex workflow or other features that you really don’t want to build. And there’s a lot of noise when that happens. And if I can keep it to my core audience of people who really know what Drip is, what it’s about, and know that it provide value for them based on these responses, it will be an easier time for that few months building something that really helps this people out.
[22:41] Mike: Yeah. I did the exact same thing when I was putting together the survey for AuditShark. When you asked people for their email address you can take that into account and segment your early access list into several different groups of people. One of the things that people just kind of assume is that in the early access it’s going to be everybody all at once or you’re going to be allowed along with all the other early access people, but that’s not necessarily the case.
[23:05] What you’re going to go is you’re going to have to phase your early access to separate out the people who are going to be interested in the features that you have available when those features are available. So if you’re interested in feature 1 and you got that implemented now, you let those people know. And then if you got feature 2 that people have comment to your list and they’ve gone through that survey and say “hey, I’m interested in feature 2 and that’s the most important thing to me.” You let them in. It’s kind of a phase 2, maybe a month later when you actually got that feature ready.
[23:35] So, you don’t just open up the flag gate to your early access list all at once. You’d phase them in over time and you do that based on things that they said that they were interested in.
[23:44] Rob: The seventh question that you may want to consider asking, and that several people wrote me directly and said you should have included, is you might want to include an open text field just for more comments and other suggestions. I didn’t do it on purpose. I actually didn’t want other comments and suggestion. I really want these very specific answers to these very specific questions. And that’s the point that I’m at. We’re focused. We’re moving forward. We’re building very specific feature.
[24:08] So to get a slew of just new feature ideas about email marketing it’s not necessarily something that I want. Now I did get some emails with some interesting thoughts and interesting suggestion. Almost none of them were that new. And I still have to parse through them. You know, there are things that we’re pretty much are already looking at. We’ve already considered. At the same time, there were several people who replied and let me know, hey, you should have included it. So you may want to include it.
[24:31] Mike: As Rob said earlier. I mean this is the not end all be all of the things you should ask. You definitely want to ask things that are pertinent to the applications that you’re building or that you’re interested in building. I mean for AuditShark one of the questions I asked was “What are the two primary concerns you will have about this type of service?” And I asked that because I wanted to know what objections people would have to somebody to somebody coming in and auditing their servers and pulling security information from their servers.
[24:57] And I was very clear upfront in the survey and I say this will pipe data from your machine out into the cloud. And I wanted to know if that was going to raise objections. And if so, how would I address those in the marketing material cause I’m going to have to address them at some point. I’m not going to be talking to everybody upfront and explaining to them in explicit detail with my voice and experience saying this is what I’ll do and this is how I’m going to handle it. Because I need to know that I can convince people from a website that I’m going to do all of these things and help protect their data.
[25:28] Rob: Very nice. I really like that question actually. I think that can be very useful for a lot of people. So, the last thing I’ll note about the survey – well there’s two things I guess. The last one is after they took the survey they get a confirmation page. And Google’s default text is it’s kind of lame. It’s generic. It says something like your request has been submitted and that’s not interesting. So add some personality to it. I said thanks a million for taking the time to let us know how you’d like to use Drip. We’ll be in touch as launch approaches.
[25:54] It’s nothing fancy. But at least it lets them know that you’re really going to listen to them. And I think the other thing I wanted to say is with every email I’ve sent to this list including the survey one, I’m receiving 20 or 30 replies and lot of people asking to be on the early access list. And that’s to me a good sign. I think that if you’re sending this out and no one is responding then either your list is not primed. Your list is not the right target audience or you’re just doing something a little off with your marketing. So keep that in mind as you move forward and maybe make adjustments if folks aren’t responding to it.
[26:26] Mike: So, we’ve talked about the things that you should be doing and should be asking. What are some of the things they should not ask?
[26:32] Rob: The first thing I think of to never ask is here’s this list of features we have in mind, go ahead and rank them or here’s a list of features we have in mind, rank them all on a 1 to 10 basis. That’s asking a lot of people. You’re going to get so many fewer responses if you ask a question like that.
[26:51] Mike: I think the other problem with that sort of question is that you’re asking them to rank all of these things, and they may put something at the bottom because it’s completely irrelevant to them. It has nothing to do with how important it is. It’s completely immaterial to them. A lot of this that you use for this types of thing, it kind of forces them to choose each of those things. So, you have to be really clear about that.
[27:11] Rob: I think correlated to this one is don’t ask anything that takes anything more than a checkbox or a quick note.
[27:18] Mike: Yeah. That’s a really good point too. Because there are some thing that they’re going to know off the top of their head. So, it’s okay to ask some open-ended questions where they’re going to have something to say about it or they’re going to list off a couple of products that they currently use. But is very very different to ask them, you know start asking opinions. And if you can focus what your question is and focus it down on yes/no and start validating the assumptions, that’s what you’re really interested in.
[27:45] And that’s why you run this survey cause they’re validating your assumptions. If you start making things too open-ended, it’s really hard to do that. Because then you’ll have to start sifting through the data. And it’s not always clear cut whether or not somebody means X or Y when they start expounding upon their ideas.
[28:01] Rob: Yeah. That’s a good point. The broader your questions are, the more time it takes and the less accuracy you have in these surveys. And so all my questions are pretty specific because I had one on one conversation with at least 30 people, whether it was conversation via email some are via Skype and some are on at MicroConf. And I had all these ideas and thoughts and different features ideas and value propositions. And I was trying to nail down of those which specifically does my launch list want the most. And that’s why I was able to be so specific.
[28:30] So, open-ended question while they can be dangerous, it is totally I think reasonable to put an open text box. They’re not required at the bottom like we said, right? To have that kind of comment thing so people can give other thoughts. But make that kind of that main part of your survey, that you’re grabbing data from, you don’t know enough of your product if you’re asking questions like that. The next thing what not to ask is you shouldn’t be asking about you or your product. You should be asking about their preferences.
[28:59] And so a question like tell me what competitors you see for this product. You’re asking people to think hard, potentially do some research. I’m not a fan of that question. What I prefer is tell me what competitor you are using? It’s a really easy question to answer or what have you used in the past. Something like that. It’s so fast. It allows people to not have to feel burden like they have to really rack their brain for these answers.
[29:27] Mike: The last thing you need to keep in my mind about what not to ask is don’t ask about features you’re not planning to build for months for years. And a corollary to that is don’t ask about things that you don’t immediately need to know, because if you’re not going to act on that information in the very near future then essentially it’s irrelevant. You’re asking them something for the sake of asking them not because you’re going to use the data. You really want to ask them things that are going to be relevant to you and that you can act on.
[29:52] Rob: So to recap. Six questions you probably want to ask in a customer development survey are: 1. What problem do you really hope product name will fix? 2. Anything else product name needs in order for it to be invaluable to you? 3. Which competitor do you currently use? 4. Are you planning to continue using your existing product type as long as product name integrates with it? 5. How do you spend your days? 6. Your email if you’re interested in early access? And no. 7 is a maybe and that’s an open text field for comments.
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