Show Notes
- Question from Bootstrapped.fm Episode 23
- Pipedrive
- Comment on episode 154 from Paul Murray about selling to restaurants
- Brian Casel, founder of Restaurant Engine
- OptInMonster and Drip
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I will be discussing advice for selling a startup, how to handle your metrics in those very early days of a SaaS app and when we think an idea is interesting enough to pursue. This is Startups for the Rest of Us: Episode 160.
[00:15] Music
[00:23] 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.
[00:32] Mike: And I’m Mike.
[00:33] 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?
[00:38] Mike: I finally fixed a bug that’s been plaguing my policy developer for a couple of weeks now. It’s basically in the synchronization code between his stuff and the cloud. When we poured everything over from visual studio 2010 to 2012, there were a couple of things in the ND framework model that got lost and the time stamp was one of them. So stuff was getting sent up to the servers and then it just wasn’t coming back down.
[01:02] Rob: Yeah, that’s a bummer. Those kind of bugs are brutal.
[01:05] Mike: Yeah, it was really weird because he would do stuff and then he would save it and he would leave and then you come back the next day and then it would be gone and he couldn’t figure out why.
[01:13] Rob: We’ve had a number of little tweaks like that to make as well. Probably the last 10 days have been pretty tough of working on Drip. They’re these tiny little crisis that keep coming up that we have to handle in real time. And Monday morning at 2 in the morning we got an alert that there was something wrong with our email sending and one domain had been blocked and there was just all the stuff so we wound up getting on it pretty early in the morning on Monday and dealt with it and got it handled and got all the emails on and everything.
[01:43] But this real time stuff of actually needing to make sure that emails are sent and having things working real time is a big deal. It has been a semi-catastrophic week. It’s felt like that. No one noticed and we didn’t have down time and we didn’t have outages or anything like that but there’s just been a lot of stress. That’s what comes whit the recurring revenue and the hosted service and the need for high up time.
[02:04] Mike: Yeah, that’s one of the down sides to the whole SaaS model is just the fact that when something goes wrong, you have to get there and try and fix it before customers notice. Just this past week, we redesigned the entire back end storage system primarily so that we could write better reports and we’ve gotten some complaints that the reports were a little bit slow. So right now the reports are just lighting fast but when we’re first putting them in, there were some issues where not everything was being processed correctly so some of the reports just never got generated. And of course I had to go look at the schedule of when people have different things scheduled and say okay well, who’s going to be affected by this? Was there any data that was lost or was there any data that didn’t make it in or wasn’t saved properly then we’re going to have to account for. So that does kind of suck. But in your case it’s a little different because you’ve got data constantly coming into the system. Right?
[02:54] Rob: Right. And we have so many people. We have enough people using it now that there’s pretty much always someone inside the app either a paying customer or a trial user. We’re not in the tens of users anymore. Once you hit triple digits there’s people all around the world basically able to use it and so it’s a lot of work. I come back to the whole thing of like don’t build a SaaS app as your first app. We “know what we’re doing” I’ve built these before and we know what the up time requirements are it’s still a lot of effort in these early days because we’re working with such a small team. We’re just prioritizing features high and trying to get as much stability in everything in this we can.
[03:33] And truthfully I think the silver lining on this is that when we had database performance issues, it totally sucked for about four days and then we got it upgraded to something that should last, a server that would last us for a year and then we wrote a bunch of queries. It’s good that it feels like it’s kind of fixed for good or at least for the time being and the same thing with the one last week like we’re going to diversify. This thing that got blocked, we only had one domain where we’re sending trough and now we’re going to have dozen or more domains and so if anything else gets blocked, we’ll always have that backup which was a plan we were going to do anyway but now it really gave us the impetus to jump on and do it quickly.
[04:08] Mike: Cool.
[04:09] Music
[04:13] Rob: Today we’re going to be running through a slew of listener questions and comments trying to play catch-up for the past couple of months. Our first question comes from – he actually has an anonymous question. He says I’m one of three equal partners in a Saas app that is less than a year old but its gained significant traction. It has more than 75 recurring paying customers and its growing and the average plan is about $30 a month so it’s in the $2,000 to $2,500 a month range. As promising and valuable as the product and all of its assets are, our partnership is not so promising. Personality clashes, lack of focus and location issues, there’s like a 14 hour time difference with one of the partners, these have all been a big deal and they’re beginning to discuss their options.
[04:55] He says one partner might buy two of us out. Two partners might buy me out or we might seek a third party buyer for the whole thing. So he has three questions and let’s take this one at a time. He says if selling the business as a whole to a third party buyer, how do we go about putting a value or asking price on the business. How do we factor in revenue level, software assets, marketing side assets domain authority etcetera? Second question is if my two partners will be buying out my 33% stake, how should I go about putting a value on that aside from whatever we determine the value of the business to be. Would my personal contribution factor into this? And then the third question is there such a thing as a business evaluation consultant or some kind of independent appraiser to help us figure out a fair selling price?
[05:39] Mike: So my take on this is you could go out and find a business evaluation consultant but it would probably cost you a significant amount of money because they’re going to have to do a lot of digging to get you an accurate value for that. And the more time and effort they put into it, the closer the evaluation is probably going to be to accurate but at the same time it’s also going to cost you more money. At the end of the day, the evaluation is only really what somebody’s going to actually pay for it. In terms of selling a business off, those are some really tough questions. I think that there’s definitely – I guess sense of ownership over a lot of the assets and you’re definitely going to probably place a significant amount of value on it that isn’t necessarily going to carry over to what the business is actually worth.
[06:24] I think that’s really common because if you go out onto Flippa for example and you look for websites or apps that are for sale, there’s lots of people out there who are asking prices that are way, way too high for what the app is actually bringing in for revenue and they put such a high value on it because they’re trying to recoup some of the costs of their time and investment and it typically doesn’t work out. People aren’t necessarily willing to pay that. Now your situation may be a little different if your partners are buying you out. I think if you’re trying to sell the entire business to a third party, that third party is not going to care how much time and effort you’ve put into it. They’re going to care about what is the value of this business? What are they going to be able to do with it after they take it over?
[07:03] If it’s your partners by you out, you basically have probably more leverage in that scenario to say look, I’ve put in all this time and effort and I want to be compensated for it because it was a partnership. And if they’re buying you out because the partnership is not working out between the three of you, that’s a different story than you going to them and saying I want out. So I think that you could probably get more money from it from your partners than you would if you went out in the open market but I don’t know what those numbers would actually look like.
[07:32] Rob: If I were in your shoes I probably would look for someone to appraise this and I know some third party folks who are basically online business brokers, they’re reputable. These guys actually know what they’re doing and they know how to deal with Saas apps and e-commerce websites and kind of the stuff that we’d be dealing in. So that would probably be my at worst, that would be my first shot is to talk to this guy and I bet that’d be $500 or $1,000 to get a pretty in depth appraisal from him.
[08:01] Mike: That’s it? Really?
[08:02] Rob: Yeah. Because all you’re going to have to do is provide him with revenue and profit and expenses and that kind of stuff and he’s just going to be able to look at it and run the numbers because he sells multiple businesses a week. I mean really turns them over. So he knows the multiples and how to set prices on businesses that sell. Right? So he does all this for his clients and takes a cut of the sale. He’s just very knowledgeable. So it’s not a process that’s going to take him 20 or 30 hours to value it. And especially it’s not going to be a huge evaluation because it $2,000 or $2,500 a month. Let’s say it did $100,000 a month, that’s a whole different story. You need to be very accurate. There’s a lot going on, tons of transactions coming through, a lot more expenses. But at this simple level at a pretty low revenue rate, I bet that he’d be able to pop off fairly accurate quote almost with just a shared Google doc and 15 minutes of looking at it. And then if you want him to go more in depth, certainly that would cost a little bit of money.
[08:58] So that might be where I start. Now Mike’s point about the Flippa evaluation versus your internal evaluation, that is definitely true because if you go to the open market with this thing, you’re going to less than if you’re selling it someone who knows and trusts you and knows the code and know the business has potential and all of your partners know that. Right? So there’s potentially a premium that they would pay because they just have such intimacy with the app and they know that you guys are taking great care of it. I think the answer to kind of all your questions is to try to find a third party to appraise this and then in my opinion I would first try to sell it to one of the other partners before going to the open market. I just think that’s probably the best outcome. It’s always a tough position to be in. It’s a bummer the partnership didn’t work out and frankly we wish you the best of luck in figuring out.
[09:42] Music
[09:45] Our second question is actually from a podcast. It’s from bootstrap.fm which is Ian Landsman and Andrey Butov’s podcast and Andrey had asked this question several episodes ago. It’s episode 23 of bootstrap.fm and I think we’ll probably just play that right here.
[10:02] Andrey: I’ve been looking at various marketing techniques and trying to grab some of the low hanging fruit, that’s low hanging fruit for me because I haven’t done any of this stuff on the past SEO, all that stuff, AB testing and what not. And it does look like although this advice Saas stuff kind of already lives at the level where the app is liquid enough like there’s a flowing stream of users whether they’re being retained or not, it doesn’t matter. But there’s churn right? Sort of like all the strategies like AB testing and price AB testing and click tracking and SEO and all this stuff that you get to play with is only really liable at that level.
[0:10:47] And then when you’re at the beginning where you have like one sign up and three days and then maybe a couple of it, there’s another sign up later on, maybe a couple days, none of this stuff works yet. You can’t play any of these games. You kind of either have to wait for it or you have to find some other alternative games to play at that level of your app. So if there’s any gurus out there, Rob Walling, Amy Hoy, Patrick McKenzie, whoever is thinking about this stuff and giving advice, optimization for SaaS apps and all that stuff, I’d like to see more content on the early days. And early days doesn’t mean like I opened it up to 1,000 beta testers and 500 of them signed up so now it’s early but you already have churn. I’m talking about like 3 participants and like 10 visitors as a day.
[11:31] Mike: So I think that this is probably a common problem. I don’t necessarily know that I have a lot of great solutions for it. One that I‘m looking into is using – there’s a couple different ways you can do it. You can do it using Trello to kind of move people through what you sales pipeline is because if you get somebody who signs up, the first thing you want to do is you want to make sure that you reach out to them and talk to them. And for your first 50-100 customers, you’re going to probably do a lot of hand holding. So you need to make sure that you reach out to them individually, get them on boarded in whatever way its meaningful because this is not going to scale – it doesn’t necessarily have to either because you can talk to them individually when you’ve only got one person signing up ever 3 or 4 days, that’s not a big deal.
[12:12] So one way is to put the person into Trello and essentially set it up so that you’ve got people moving through a funnel where you’re saying okay, well they initially signed up and then the next swim lane is they’re using the product, are they actively using it, yes or no. Those are the types of things that you want to figure out from them and then you touch base on them and get their feedback, figure out how they feel about it. Is it solving their problem? You do want to have those early conversations to figure out what exactly their problem is and whether or not your application is going to be able to help them with it. If you can get them on the phone, that will definitely help you out.
[12:43] Another option that you can do which does the same type of thing is to sign up for something like Pipedrive where you’re just basically moving people through a swim lane of options and you would manually loop them through until you get them to the point that they’re paying for the product. I think that the strategy is extremely helpful when you’re still in that early beta when you’ve got probably less than 50 customers because you probably don’t have the volume that as you said there was a lot of those sales marketing strategies that simply don’t work until you get to scale.
[13:14] Rob: Yeah, but it’s a lot that’s in line with what you just said. My big thought is at this point you have to have to do things that don’t scale. You have to do a lot of things that don’t scale. It’s going to be basically one on one attention and its going to be almost high touch sales at this point. So like you said, the phone, email, personal emails to the folks, finding out why they’re using it, why they’re not. You recall I had this slow launch that was 90+ days for Drip. And that was basically communicating with and then on boarding like our first 15 paying customers, maybe 20. Now the amount of time that I spent with those customers absolutely wouldn’t scale and it would not be worth it based on the lifetime value of those customers but that’s not what I’m getting out of it. I’m not helping them in order to make that few hundred dollars that I’m going to gather for them.
[14:03] I was helping them use the app and get on boarded so I can find out what issues they were running into so that I could then build an engine that scaled because in this early days I’m manually turning the crank. I’m manually turning that hamster wheel. There’s nothing that’s going to be able to serve a lot of people at that point. So I like to think of it like if I you had a product on Amazon and so people started giving you star ratings, you wouldn’t want to look at them in aggregate yet because when there’s only three reviewers, and if you get a 1, 3 and 5 star, that averages to a 3 star. But that’s not important data. What you want to do is you want to ask the 5 star why they got so much value out of your product and what else you could do to offer the and who they are and how they found you and all that stuff.
[14:43] Then you want to ask the 1 star why they didn’t get the value out of it and then you want to ask the 3 star. All individually, you can’t look an aggregate yet because there just isn’t enough data. So it’s the same thing with your Saas app. You can’t just look at churn rate because your churn rate might be 40% in the first month which it doesn’t even compute. Right? That means like your customer lifetime is 2 ½ months long and it just doesn’t make any sense. So I think at this point, I’d do a ton of hand holding and then the very first thing that I do once you’ve actually publicly launched is that you need to drive more traffic. You can’t optimize unit you have more people in that funnel.
[15:20] And hopefully if you’re a marketer and you have traffic strategies, you can get there in 30 to 60 days to where there’s actually four digits of traffic and certain percentage of people signing up and you can start getting some metrics. If you are still learning marketing it could take you 4 to 6 months just to get to the point where you have enough traffic that you could even think about the optimization strategies like split testing and price split testing and all the stuff that Andrey mentioned in his question. During this time, you really have to pay attention and focus on boarding and focus on what works one on one and how you can then build that into the UI of your app that basically walks them through setup and then a sequence of emails that goes out to them over the trial process and that’s when you’re trying to scale your individual effort that you put in early on.
[16:07] But if you don’t get that learning done where you are doing the high touch part, then you just don’t know enough of exactly what you need to put in the app to get them to their first successful experience with your app.
[16:17] Mike: Something else that I kind of forgot to mention was that when you’re doing this, when you’re working with those people individually, one of the things you have to be able to see is whether or not they’re using your app. And there’s tools out there that you can – there are subscriptions services out there that you can use to help you find this out. But a lot of times you just want to know are they logging in? When is the last time they logged in? And those are very, very simple things that you can just slap a log message into a database to say each person logged in whatever time and then just run a sequel query to say okay well has so and so logged in the past three days or the past seven days?
[16:51] Then before you go talk to them you say hey I noticed that you haven’t logged in three days or since you created your account. Is there a reason why? Is there something I can help you out with? And essentially what you’re doing is you are customizing that person’s experience and then you can take the emails and stuff that you’re sending them, extract them out and then send them out later in an automated fashion once you do get to that scale. But initially you just need to get those interactions going and learn from them to help figure what needs to go into future emails.
[17:21] Rob: Right. And this applies to a SaaS app where you’re actually charging a reasonable amount of money. If you’re selling a mobile app that’s 99 cents apiece, then this doesn’t apply. And if you’re selling a onetime piece of downloadable software even for several hundred dollars doesn’t necessarily apply. This is a common question and there’s obviously no one answer to it. We’ve sat here and given a lot of suggestions but I’m glad Andrey brought it up because I bet it’s more common than we think and I don’t think that those really early days are necessarily addressed that well when we’re talking about a lot of the optimization approaches we do.
[17:50] Alright, so our next question is actually a comment and its from episode 154, its from the comments section on the blog and Paul Murray was referring back to a question that we answered during that episode about someone who is going to try to market to the restaurant industry. And Paul says I spent four months earlier this year on successfully selling mobile web and marketing services to restaurants. Granted you don’t plan on selling this, but might get the nail on the head when he said restaurants are technologically oversee and I was selling products and services that are easy to demonstrate the need for yet so many restaurant owners had their head in the sand when it comes to technology. If you’re going to be planning to sell products to help a restaurant with their back end systems, I can only imagine how hard it might be. Seriously, after my experience earlier this year, I vowed I would never ever try to sell anything to the restaurants again.
[18:40] So that was Paul’s take. Brian Casel has had a different experience with this, a more positive one. You can check out his website at casjam.com and he has a podcast called bootstrap web where he talks a little bit about his product for restaurant engines.
[18:54] Mike: On episode 151 Rick wrote in and said he’d received an email from wpbeginner.com this week that had mentioned a service for building an email list in WordPress. He said that the product was from optinmonster.com and wanted to know if Rob could explain how Drip is different than Optinmonster.
[19:12] Rob: Sure. Optinmonster is actually really cool if you go check out optinmonster.com they basically have an email capture form that is similar to Drip. A couple main differences is 1) Optinmonster is WordPress plug-in so you have to be running WordPress site to use it. The other thing is Optinmonster is a piece of code that you download. It’s a zip file. You install it in WordPress and then you can configure some stuff. But you host everything yourself whereas Drip is software as a service. So it’s a little snippet of JavaScript. You can install it on any website and we capture those emails.
[19:43] Optinmonster is just the capture form whereas Drip captures the emails. We help you setup an email mini-course. We will build your course for you if you have content that we can use in the course and we have a whole email editing interface and we have the email scheduling and you can split test emails in our system. I mean on and on, we’re basically the back end. We provide conversions when people from your list convert to paying customers and we’re starting to put some behavioral and work flow stuff in kind of the emails to say if someone does this then I’ll move into this list or whatever. So we are like an actual whole email provider whereas Optinmonster is just that front in form.
[20:30] Our next question came in via email from David Debour. He’s asking about when we think an idea is interesting enough to pursue. And he says first of all, thank you for all the content you create on your blog and podcast. I’ve been following you for about three years and it’s valuable to know there are others also on this path and to hear a voice opposite the Silicon Valley startup circus. I noticed that you’re working on a few new projects and I’m wondering at what moment do you think an idea is interesting enough to pursue? As solo entrepreneurs we have limited time so I can imagine you did not jump into a project unless you believe it can reach certain goals. For example, a specific revenue target. When is a project worth it in your perspective?
[21:09] Mike: I think that you have the answer to that right in there. Is it going to be able to hit certain revenue goals? And that I think applies more to the products that you’re developing if there’s just a project that you want to work on, you don’t necessarily care about monetizing it then it’s a completely different story. When you set out to meet a very specific revenue target and typically it’s a minimum revenue target and you do the research on it to figure out is it realistic to be able to hit this particular revenue target? And if you feel like it is, you start going down that path and crank it out.
[21:39] I think the challenge is sometimes in finding out or figuring out how to justify what those numbers you feel like they should be. So if you think that an idea is going to be worth $20,000 a month, well how do you know that that’s going to be it? Well you can take what you expect to be able to charge for it. You got to talk to people. You need to make sure that they’re willing to pay what you once charged them and just do the math on it and try and figure out how many people you think would actually be using the service.
[22:06] From there, it’s just kind of a matter of extrapolating to say will you meet that revenue target and how quickly are you going to be able to meet the revenue target because that’s the other side of it is given enough time, you can probably scale any given business but you need to be able to reach out to those people and get them on boarded in a reasonable amount of time. If it’s going to take you 10 years to get to 1,000 customers, it might not be worth it. But you also have to remember that as time goes on, you’re going to be able to learn enough that will allow you to scale your marketing efforts and maybe you only sign on 10 people the first year within that 9th or 10th year you might be signing on 200, 300, 400 people a year.
[22:43] Those are things to take into consideration but some of it’s about drive, some of it’s about how much money you want to make and some of its about how much of that you’ve done in the past. So if your previous efforts were getting you let’s say $1,000 a month then your next revenue target is going to be more than that. Typically most people don’t go after a project that is going to make less than their previous ones.
[23:08] Rob: I think there are probably a few different aspects of play into this. I think revenue is one of them and I think revenue is a way that we measure things. Right? Measuring if it’s a larger idea that we’re going after. But I actually think that a project becomes interesting to me if I know that I’m going to learn a lot from it because learning is something that excites me and kind of expanding my knowledge base and going into realms that I haven’t gotten into before something that I need consonantly. So if you are like that as well, I think that should play a factor into whether an idea is interesting and it shouldn’t just be about revenue.
[23:45] I think the other component is feasibility like is this idea feasible for you to build? And I think a bunch of questions you can ask yourself is if you go back to episodes 133 and 134 we did a founder test and we did a product test. Those questions actually plan to how interesting an idea is for me because if I’m not the right person to build this or the idea just doesn’t really pass the product test very well, it becomes a lot less interesting to me because the risk goes way up and the change that I will invest a year of my time and a lot of money and that it won’t work out goes up. So that becomes less interesting.
[24:22] Our next question is about starter apps and it comes via MicroConf attendee Rich Buggy and he basically says I’ve noticed a changed in the bootstrap startup community over the last few years when Rob started promoting the Micropreneur approach, it was about finding small niches and building an income for multiple smaller products. These days, it seems the greater focus on building a single product that can generate $20,000 to $50,000 a month with just you and a VA or two. Typically the developer does the surrounded topic or technology they’re passionate about, something that’s causing them a problem or something they’ve previously worked with and he listed a bunch of examples Brandon Dunn, Nathan Barry, Patrick McKenzie, Brecht Palombo, Rob Walling.
[24:59] Around this time last year I started building a big app. At that time it ticked all the boxes for a good product but it wasn’t in an area that I had passion for. I’ve since stopped developing for a number of reasons I won’t go into. I’d love to hear your opinion on building what I’m calling a starter app versus going after a large product that you are more passionate about or experience with. The starter app obviously carries a much lower risk if it fails but its offset by a much lower reward if it succeeds. By contrast, a larger app carries a much greater reward but you’re typically a more crowded market and it can take six or more months working on the side to get ready.
[25:30] So that we’re mostly on the same page, I’m defining a starter app is something that is the first product you’ve released on your own, can be built and released within 2-4 weeks after hours of development. It’s limited revenue opportunity maybe $2,000 a month. It’s being built so you complete the process of building releasing and running a product and you’ll either flip it in 12 months and move on to something larger or you’ll keep it to supplement income rather than replace it. And for a larger application, I’m thinking of products which scale similar to Drip, live cycle email platforms shopping carts landing page platforms.
[26:01] Mike: Well I think what he described says a starter app is really in many ways the Micropreneur approach. What you started doing, you built a couple of small apps and gradually grew larger apps out of those. So maybe you had one that did $500 a month, another one that did $750 and as you stack these things up, they supplemented your entire income and that kind of became known as the Micropreneur approach. But I think we kind of talked about a little bit previously on this episode where if you start building larger and larger apps over time it’s like your natural inclination is to build something bigger than the previous thing that you’ve built.
[26:40] And part of the reason for that is because you just get more comfortable doing those types of things. You get more accustomed to the different things that you’ve learned about how to put together a mailing list or how to interact with customers or just in general how to sell software online. So it seems to me like this starter app is really just an extension that entire process.
[27:00] Rob: Yeah I’d agree with that and there are several points which made some where he talked about a seeming change in the bootstrap startup community but I don’t know that there has been a change. When I came out and talked about the portfolio approach and the Micropreneur approach of just having multiple small apps and going up the stair step of starting with 500 a month and like you said building up, no one else was talking about that. So I don’t know that there’s as much of a change as that has always been my approach the way I came up and not a lot of other people have done that as far as I know.
[27:30] These days, there is a focus or there are a lot of people talking about building that single product but I think there always have been. The only reason I’m doing it and I’ve talked about is because that’s because what I’m doing now but I would still say that if you’re getting started now, that the portfolio approach, the small stair step approach is the way to go. Some people are talking about info products today a lot more than they used to be. I don’t think – I mean that’s not really how I came up. I came up doing software and web apps and that kind of stuff. I did write my book and launched the academy at some point but I was already there by the time I got there.
[28:05] I have no issue with info products but if that’s not your thing, then don’t think that you have to do that. Don’t be talked into doing that if you do in fact kind of build your empire using SaaS or just smaller websites and smaller ideas. But I think the analogy that keeps coming to mind is there’s college ball. There’s the minor leagues. There’s the major leagues. Don’t feel like you need to jump into the majors because other people are talking about playing in the major leagues. Work your way up there. There’s so much that needs to be learned in terms of marketing experience and in terms of perhaps self confidence, that was an issue of mine and an issue of other folks I know, just having the confidence that you can actually do this and that this is going to work for you and that you can pull it off.
[28:47] All these things are answered slowly over time if you take the time to attack smaller ideas and build them up over time. That’s not to say you don’t have to be excited or passionate about that idea. You don’t have to pick a niche for electricians or for line men or for people getting married if you’re not interested in those niches. You can just pack smaller ideas in niches that maybe you’re interested in.
[29:09] Mike: I think your analogy of college ball and going pro and that type of a sports analogy is very true and it helps people understand that let’s say I wanted to go and be a professional basketball player for example. There’s no way I would just walk up to an NBA team and say hey I’d like to try out. I would really need to practice a lot and get comfortable with all the different aspects of the game and running a business is really not any different and a starter app is a very, very good way to get comfortable with the basics of the game of running a business.
[29:42] Rob: Right. And if we look at the examples that Rich mentioned, you look at Brandon Dunn, he had basically come up through consulting. I would imagine he’s a freelancer at one point and you learn business and marketing skills. Then he hired folks, started a consulting from and he was running like a 10 person consulting firm when he started looking at doing products. So he essentially came up through college ball and the minor through the consulting angle but he had learned a lot from I imagined other mentors and he also had a lot of business and marketing skills that he had packed up from consulting.
[30:12] Nathan Barry launched multiple apps. I think he had an iPad app that was fairly successful. He had multiple other apps that he launched before diving into kind of these larger app ideas and he still not – he doesn’t have a really big app that does a ton of money. He’s still working towards that so he’s kind of working his way up too. Patrick McKenzie, bingo card creator. Right? That started tiny. I think he made a few thousand dollars the first year. Talk about a tiny niche that he grew. Then leveled up to Saas with appointment reminder. Brecht Palombo he has this one app that is distressedpro.com where he’s selling information but it’s kind of like a membership website. From what I understand, that had small beginnings and he learned a lot along the way.
[30:53] Now he was also heavily experienced in marketing and sales because he had run essentially a real estate brokerage and so he already had a lot of knowledge that us as developers would not have by nature. And he came up through college ball and the minor through being a real estate broker and knowing how to close deals and knowing how to talk to people on the phone and close sales. Everybody you mentioned, just because we’re doing the larger ideas now it doesn’t mean that five years ago we weren’t working in small ideas and just trying to figure ourselves out. That’s where I think people typically need to start unless you really are an outlier.
[31:27] There are certainly people who start with the SaaS app and they’re really good or they get lucky or combination of those things and suddenly they have an app doing $40,000 a month after couple of years and that’s great for them. It’s just not the typical situation that I see. Alright, and our final question for the day is from Fredrik Sandabert and he attended MicroConf Europe. He had a question about launching a SaaS app nationally in a non-English country versus globally with different language options.
[31:56] He says I know that Patrick McKenzie has mentioned this a couple of times, I think one of the times was whether someone should do a bingo card creator for Australia as they apparently have radically different rules on how the game works that his bingo card creator doesn’t meet. And at the same time, I know that other people have created clones of SaaS apps you think that would’ve worked out that are not working out. Lastly, my own SaaS app net biljett he says it’s a site aggregating Swedish events like concerts and stuff. There are several of those that have already been launched and all of them have been miserable failures. The thing with mine is that the user can create alerts for interesting things. So they can say they like jazz in Stockholm and then they can get alerts.
[32:34] This is somewhat interesting and it’s related to this topic because it’s not really possible to see as anything other than kind of a locally national thing in Sweden. At MicroConf, somebody told me that Apple tried doing that in iTunes and that it crashed and burned because the data is awful and it’s a mess getting things to work together in the world of events and ticketing.
[32:57] Mike: The basic question is that what sort of criteria do you use to figure out whether or not you can take something that is for English versus going global with it in non-English countries like what sort of criteria can you use when is it a good idea, when is it not and how could you make it work?
[33:16] Rob: Okay, so there’s two points I’d like to make. The first thing is if you have launched an app in the United States or in an English speaking country and you’ve had success with it, a lot of people localize too early. They try to put in other languages way too early. That’s only semi-related to this question but I would encourage you to really fish in your own pond for a lot longer than you think necessary and that your issues with growing your app have nothing to do with it being localized into other languages because that’s a huge waste of time for six months or a year saying well I need to grow the market so I’m going to add a German translation of it. But if you can’t support the app in German, you can’t sell the app in German then it’s really not that helpful.
[33:59] The second thing is I think you have to look at market size and I think you have to realize that if it’s a B-B app versus a B-C because the Swedish events app that he mentions is really more B-C and so could that feasibly work in Sweden? Well sure. Because there’s enough consumers there to make it work. It’s not the typical play that we talk about where we’re going to get actual income. You know he’s probably going to have to either get venues to pay for advertising or there’s going to be a weaker revenue model say than just subscription billing but there’s enough of a market there to do it.
[34:33] However, if you try to go into Sweden and sell to dog groomers or electrical contractors, my guess is that there may not be enough of those to make it a viable market. So I think market size is another big factor you have to play into especially in smaller countries where you language is only spoken in that country and it’s not spoken in other markets around the world.
[34:55] Mike: I think your comment about people trying to go global, create local versions of their apps in other languages was dead on. I mean it’s very difficult to believe that most people who would be listening to this podcast would have completely saturated their own market to the point that they have no choice but to go to a foreign language in order to make something succeed or to grow their product.
[35:17] I totally agree with you about the fact that you have to look at the market size itself and whether or not the market there is going to support that. And then the revenue model is something else. I don’t think it’s any different than launching something in English as it is in launching it in German or Swedish or anything like that. Is the market there big enough for that type of app? You can probably make some generalizations about a particular type of app from a successful one and another market.
[35:45] So let’s say that there’s an English version of something and you want to take that into your local market. Find out what kind of statistics you can find out about them before trying to do that. I mean are they being successful at it? Are they reaching people? How many customers do they have? And some of those things are going to be really difficult to figure out. You could also call them up and ask. I mean a lot of companies if you – I actually had a conversation earlier today where I said how many people do you have using this application? They gave me a ball park number so just give them a call or shoot them an email and say hey, I want to know before signing up for this that I trust that you guys are able to handle this. What other similar customers do you have? How big are the customers that are using it etc? And you can get a ballpark idea of how well they’re doing just from these types of answers.
[36:30] And then you extrapolate that and say okay well in the US market let’s say that you’ve asked that of an English speaking company there’s 300 million people in the US, let’s say that there’s 50 million people in your country just divided by 6, you can get ball park numbers. I think the demographics are definitely going to going to be a little bit different from country to country but you could probably guess a general idea of what sorts of revenue numbers you can probably be looking at based on those things.
[36:56] Rob: Right. And I also think looking at the marketing channel as well because if someone in the US is using a specific SEO tactic and Google is 90% of the market whereas in your market, Google is only 50% then you have to think about that a little bit or someone’s using a lot of Facebook ads and Facebook just isn’t in your country then that is – the market size doesn’t help if you can’t reach them through a channel that the other folks are also using. So there’s obviously a lot of complexity to this question but I hope that will lend some insight. Thanks for asking that Fredrik.
[37:26] Music
[37:29] Mike: 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 159 | Business of Software 2013
Show Notes
- Business of Software Conference
- Steve Pavlina: Get More Done in Less Time
- Steve Pavlina: Productivity
- Steve Pavlina’s Ultimate guide to productivity
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 159.
[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.
[00:18] Rob: And I’m Rob.
[00:19] 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?
[00:23] Rob: The word is I’m one week past the public launch of Drip and it feels like a lot has happened during that time. Basically last Wednesday we launched the last 1,300-1,400 people on the email list and then it went live with the world. It feels like a good milestone. However, the day that I sent out the emails or about the day before, we started having some performance issues. I think we talked briefly about them on the last podcast and so I couldn’t relish in the victory of the launch because I was basically having to go in and like disable reports for people who had higher volume accounts which are our best customers frankly. It’s the people with the most traffic we’re seeing the most emails. So that is bittersweet.
[01:02] But within two days we went to a new server, got a new AWS instance with an outrageous amount of RAM, moved the database over the middle of the night on Friday night. And at that moment, everything came back up and it was super fast. That was when it was literally 1 AM Saturday morning, that’s when I finally had like the victory rush of we’re done, we’re launched and stable. And then I popped off this quote today to Derek and he thought this was fantastic when my app is unstable, I’m unstable and I’d like to put that in a t-shirt at some point.
[01:37] Mike: Very nice. Well it’s nice to be able to have those performance problems and then you already have the customer signed up and be able to turn around and invest in a matter of infrastructure for that but it kind of sucks that you have to go through all the stress and effort of moving everything over just because you end up with those performance issues.
[01:54] Rob: Yeah. I agree. I mean it’s this balance right? Because the server we moves to is going to amortize out over the course of a year, it’s going to be between $400 and $500 a month for the database server. That’s what we need to sustain growth, what I expect the growth to be over the next year and I wouldn’t have wanted that six months ago. That would’ve saved us all the headache but we would’ve just been dropping tons of cash along the way. This is now the second server we’ve upgraded to. I think this is the beauty of these kind of pay as you go models. You can scale up pretty easily. You just have to have that 20 minutes of shut down time where as long as your database is small enough because it’s only 2 or 3 gigs still, you only need 20 minutes to do it. And if you can get to it quick and you have an agile team, this is the startup way. Right?
[02:39] If I was at a big enterprise, I would’ve just dropped the coin six months ago and gotten a 68 gig instance for the database but it’s just not something I want you to – you want to spend when you have zero customers using it but it’s totally worth it when you have a couple hundred people actively pounding on this thing.
[02:54] Mike: Well, I’m testing out a new task prioritization strategy. So I’ve had so many things coming in like – I think I’m like most people where I tend to use my email box as – I tend to use Gmail as kind of a task list. I try to keep it under 20 or 30 things but lately it started to grow and become a little bit more unwieldy and getting into that inbox zero has just not been feasible lately. So what I started doing was I picked up a couple of eBooks. They were written by Steve Pavlina. We’ll link to his blog on the show notes.
[03:28] One of the books that I picked up was some advice on productivity and one of the things that I took out of that book was he actually sets up a system so that he has A tasks, B tasks and C tasks. And anything that’s an A task is stuff that will generate some sort of return or still be usable in five years. And anything that’s a B task will have like a life expectancy of two years. And then anything that’s a C task the benefits are going to be no more than 90 days in the future. So anything that’s like paying bills or doing invoicing or sending out receipts and things like that. Those are all C tasks. They need to be done but they’re not necessarily important and they are not going to benefit you 90 days down the road really. I mean obviously you’ve got to pay your bills and stuff versus things like working on your core products or building marketing material and things like that, those could be B or even A level tasks.
[04:19] And he actually suggest that you spend at least 50% of your time on A level tasks and no more than I think around 20% of your time on your C tasks and then everything else kind of gets shuffled in with the B tasks. So at a bare minimum, you’re spending at least four hours a day on you’re A level task. At most you’re spending you’re a 1 ½ on your C level task and then any left over time gets allocated to your B task. And it seems that I kind of supported out my task list according to that strategy and I’m kind of working through it right now and it seems like it might actually work out because I could take a look at anything that’s a C level task. My very first thought is can I send this to somebody else to do?
[04:59] Rob: Yeah, that’s a nice way to do it. I’m actually intrigued by this because what I have is a queue in Trello that pretty much are my tasks and I just have a single queue and I keep it in order and I try to go down that queue as best as I can. And then of course stuff gets assigned to me in FogBugz for support and stuff gets emailed to me in Gmail. So I really do have three queens that I’m trying to merge and manage and I try to get everything into Trello prioritized and that handle it but I don’t like killing 20% of my time just trying to manage the queue. So sometimes of course you just go into email and delete a bunch of stuff and reply quickly without adding it into Trello.
[05:39] So I like the idea of having an A and a B and maybe a C because then those tasks that I’m always prioritizing at the bottom that never get done, a lot of my probably B and C tasks are on there, you actually give yourself permission to go work on them. Right? These are less important tasks but they do need to get done at some point. What I’m wondering is what tool are you using to manage this? Are you putting everything in a spreadsheet or is there a better way because you still have an email inbox with 20 things in it. How do you know what’s an A, B and C?
[06:10] Mike: Well I haven’t really gone through my list of emails yet but I’ve basically been keeping track of a list of what I classify as my A, B and C tasks and some of the emails in my mailbox map back to these. So for example I have pay bills on here. I have send work to one of my contractors, that’s a B level task because it’s more important that I keep him busy because the things that he’s working on are going to contribute to the business in the future and they will have that impact down the road.
[06:38] And then there’s things like soliciting more users for Audit Shark, validating and testing some of the Audit Shark code and working on that core engine I’ve classified as A level tasks. A lot of the emails are in my mailbox mapped back to those high level things. It’s not like I’m going through my email box right now and just saying this is an A level email, this is a B level email or something like that. I’m keeping track of things separately on an index card because I tend to use a lot of index cards just to keep track of things that I have to do that I need to do today for example. And what I did was I just mapped out a bunch of things that I have on my list of things to do and I just put A, B or C next to each of them.
[07:13] Rob: Got it. So for you, it seems like a shorter term thing because that’s not going to work for tasks or like some weeks or months to have them on index cards right? Because then you’re going to write it all the time?
[07:23] Mike: I mean in a lot of times what I’ll do is I’ll throw a bunch of tasks on an index card and my goal is to get through that entire index card and then I just throw it away and that’s the whole point of having an index card because you want to get through. It tends to be a short enough list because you can only fit so much stuff on an index card that it helps you knock those things out. And if you absolutely need to, you can take things from one index card and copy them onto another and put them on the top of the list or something that but I try to avoid doing that if I can.
[07:50] Rob: I did that for a while. I didn’t like it. I felt like a lot of wasted time. It was hard to reprioritize. Like I said, when Trello started and I started using it, I’ve been sold and I’ve been using it since. I have maintained inbox zero. I got to inbox zero right before going to Europe and then I was gone for a month I came back to hundreds and hundreds of emails and I’m down. I think I’m at inbox 5 as of the start of this recording. I’m pretty close to there and I do either – I am able to get most of the things into Trello. What’s nice is that Trello now has an email address unique for your board. So in Gmail I can just hit forward and I list it as the contact name is Trello and so I type in Trello and hit send and it goes into at the top of my Trello board.
[08:32] So then when I go into Trello to look at stuff, I’m able to reprioritize things and then basically I have to go back into Gmail and find it. I mean that’s where the kludge part comes in. I’m using these two systems to manage that single thing but for me so far it’s working. I do think there’s a better way. The better way I think would be to make a cross between Gmail and Trello. Right? Make a plug-in where you can reorder things in your Gmail inbox and add notes and add things just like Trello but do it to Gmail emails right there. You can add metadata and reorder so that they’re not just sort of by date. That’s what I think the best option would be.
[09:09] Mike: Switch over to using something like FogBugz or some other sort of “bug tracking” tool or customer support tool where like you send and receive all your emails out of there and that allows you to add in all those notes. But that’s a total hack as well.
[09:22] Rob: It is. But I can see that working. I wanted to call out a website called beamcalculations.co.uk. This is a long time listener and a guy who read my book and implemented a lot of the stuff that we talked about. His name is Kevin Taylor and he’s at beamcalcs on Twitter. He said Rob Walling, the site I have beamcalculations.co.uk after reading your book, it’s been live since September 25th and it’s had 16 sales. Great. Thanks to you. So just wanted to kind of call him out as a nice success story, someone who was able to launch and he’s certainly not going to retire off this effort but it’s that stair step approach. It’s getting something out there, getting people to use it, getting your feet wet and getting some experience marketing and actually getting a few dollars in your back account. And once you get that feeling, it’s addictive. Like launching is addictive. And so getting this site out, that will lead to his next idea and his next one and they tend to get bigger over time so congratulations to Kevin on launching.
[10:20] Music
[10:23] Mike: Since you were out during the middle of Business Of Software, I figured we’d go over some of the takeaways form Business Of Software this year.
[10:30] Rob: So you’ve broken it up into you have the hallway track and then you have a few speakers that you took away quite a few things from it sounds like. So why don’t you lead us through that?
[10:39] Mike: The first one was the hallway track and this is just randomly talking to people in the hall and various conversations whether you’re sitting down at lunch or you sit down in the amphitheater and talk to somebody next to you, I was talking I believe it was Brett Palumbo who was telling me that one o the things that he’s found is that when he’s trying and to contact people, the best way that he’s found is to use LinkedIn.
[11:04] Within LinkedIn, you can send direct messages to people. I apologize if I misquoted the numbers and stuff but I believe it was something in an excess of 70% or 80% in terms of the open rate and response rate was something along the lines of 50% for people who are receiving those emails which I think is a far cry from what you would typically get if you’re just cold emailing people or sending out marketing newsletter and things like that.
[11:27] Rob: Well the interesting thing here is you have the social graph so you’re probably tied to this person either directly or at a second level or a third level connection so it’s not a super cold email. There might be a little bit of warmth there and I’d be interested to hear more detail about this maybe I’ll drop Brett an email. But I’m curious to hear how you do this and don’t come off as spammy or solicity or just out of the blue salesy type thing. I know that there’s a balance here and I’m sure you can get there. I’m just curious what the lessons learned are there.
[11:55] Mike: Yeah. I mean we talked a little bit about that and it was more about when you’re first reaching out to somebody you don’t necessarily say hey I’ve got this product to sell you or that I think you might be interested in. It seemed like the best way to reach out to people was to ask them questions like hey I noticed that you’re listed over here or you’re involved in this organization. I’d love to have a conversation about and talk to you a little bit about it or something along those lines.
[12:16] Rob: Very cool.
[12:17] Mike: So the next one was from Rita Gunther and it was very interesting because Rita’s talk seemed very reminiscent of Clayton Christiansen’s. One of the things that Clayton talks a lot about is disruptive technologies and how companies that are large tend to be attacked from underneath by the smaller companies because they’re not really paying attention to them or it’s a very disruptive technology and they don’t feel like it’s going to be relevant in their space. He kind of relates that back to the story of IBM how they were initially selling these giant mainframe computers and then switched over to mini computers while all their competitors went out of business because they spun up this new division in this completely different part of the country.
[12:58] And a lot of the things that she talked about was how to identify some of the markets that are right for new competitors and she said basically find companies that have hostages, not customers because those are the people who are locked in and the only reason they haven’t gone to find another provider is because they can’t.
[13:15] Rob: Yeah, I’ve talked to a few people who are interested in Drip, some guys I know and they’ve talked about some larger enterprise marketing software that they’re using. They’re saying that they’re basically not able to sign up without a one year contract that they are essentially hostages for a year. That even if they just want to try it out, I mean you get a two week trial or a three week trial. But after that, you either pay for a year or you can’t use the software.
[13:38] I know sales force is like that and I think the larger enterprise like hub spots that is all annual and I understand that it’s better for their business for their retention and everything but it really does make your customers at some point start to turn against you. You see these companies early on where they have big fans and I think sales force signups have both been in that situation. Intuit was like that when they already had their tax offer. That was really good and everybody loved it. And then at a certain point it feels like they’re just trying to milk money out of you and they have you locked into their ecosystem.
[14:08] So I like the way of thinking about that. If you spot a company or an industry, everybody’s a hostage. I think credit card processing, payment gateways and all that stuff definitely was like that and Stripe came in and said everybody’s a hostage, how can we improve that? I like this approach.
[14:24] Mike: The credit card companies is the one that she specifically called out because nobody really likes dealing with those companies but they kind of have to because they really just don’t have any other choice. And as you said, until Stripe came along and then all these other payment providers came out and started offering other types of solutions so you don’t necessarily need to have a payment gateway anymore.
[14:43] Something else that she talked about was in identifying some of these markets is if the bosses at these companies have a tendency to say one of three things, either 1) I don’t want any surprises. 2) Don’t bring me bad news or 3) Don’t bring me a problem unless you have a solution. Because a lot of times, those are the types of companies especially for number 3 if the boss says I don’t want to hear about problems unless you have a solution for it. Well, if you have a company that can come in underneath them and basically get the from down low like from below their price point or something along those lines, if you don’t have a solution for that, then what will happen is there’s that sort of culture in that company, nobody’s going to bring it to the boss’s attention that it’s going to be a problem for them because they don’t have a solution. So if the boss has kind of made that mandate, nobody’s going to approach him until its way too late and you basically already done the damage to them.
[15:34] Rob: So how would you know that about a company? You’ve had to get some type of anecdotal evidence or you’d have to have some type of business relationship with them at your day job and realize how screwed up they were and then kind of go on the side and build a product to compete with them.
[15:46] Mike: Well I think you can do it a couple different ways. I mean 1) you could certainly probably glean some of that information out of just the way that they do business and I think some of that would trickle down into their customer service but definitely talking to former employees would probably be just kind of a no brainer to me. I mean if you can find some ex-employees of the company and kind of ask them questions about that especially if your already looking at going after a particular market and you happen to run into one of them and you start asking them questions like that and say hey, how did you analyze your competitors and what source of things did they do internally and how it was operated.
[16:24] I almost feel like the larger companies that you suffer some back lash like you were saying before about sales force and some of these other companies where they’re really locking in their customers I sort of suspected it in some ways their internals of the organization are probably run very similarly where it’s just very heavy handed from the top. And you’re expected to follow orders not necessarily be nimble. It’s like they want you to do what you’re told to do and not necessarily think out of the box because they’re trying to drive revenue in a way that they know how versus look for alternatives and other solutions.
[16:57] Rob: I think there’s that part where you can over optimize your funnel or you can over optimize your retention and you try to push the churn down for typically its reason of going public or trying to please share holders or investors often find that founders don’t want to do this kind of stuff. But you hit a point where in my opinion you can just push it too far and that’s when you start pissing off customers and there starts being this movement away from you and that’s where competitors can sneak into a market, identifying companies who have hit that point are good markets for us to enter.
[17:31] Mike: The next person I took a bunch of notes from was Dan Siroker from Optimizely. And he essentially had five different lessons that he wanted people to take away from his talk. And the first one was defining quantifiable success because if you’re not familiar with Optimizely, it’s essentially an AB testing tool for your website and the first lesson was defining quantifiable success. If you’re running any sort of test, you want to understand what are the success measures? How are you going to know whether or not a particular test was successful? And some of that with AB testing just comes in terms of knowing whether a test is statistically significant or not.
[18:05] The second lesson was that less is more. And if you reduce the number of choices the people have, then you can get a lot more return on the choices that you’ve made to implement. So there are several examples that he put out there where for example the checkout process, what people would do is they would rip out all the site navigation. Some people take this for granted that oh, that seems like a no brainer but then there’s other people who look at that and say oh, I wouldn’t have known that would’ve given me a 17% increase in my conversion rate for example. He made sure to call out some things like that.
[18:37] The third lesson he brought was that words matter and he showed several different examples where he was putting different types of text on buttons and asking the audience to kind of weight their opinion on what they thought would do better. There were a lot of people in the audience I mean I would probably say it was 60% or 70% who were wrong on most of these. That was something else that was very interesting as well because words really do matter and he was able to statistically show that there were certain types of words that would show up on buttons that would have a huge increase in the number of click throughs.
[19:10] And in addition to that depending on the audience for example if somebody was a new visitor for the website one set of text might convert better versus somebody who is coming in from a mailing list or had purchased before a different set of text would have a much better conversion rate.
[19:25] Rob: You know, this stuff can get complicated and I think that if you are sitting her listening to this and you’re kind of licking your chop because you have a successful business and you’re looking to squeeze another few percentage points out of it then this kind of – its advanced testing and analytics is what it is. This type of stuff is awesome. If you’re just getting started and you have 1,000 or 2,000 uniques to your website or you’re still building your product, then don’t worry about this yet. I mean AB testing is far off for you at this point and certainly these high, high end ultra optimizations as I would say.
[19:59] Because yeah, if you have traffic let’s say you have a million uniques a month, then it is absolutely worth optimizing every button for like you said, the traffic source like actually changing the text on buttons for traffic source. Amazon.com does this. Google does this. I mean those high volume scaled sites certainly it’s worth it for them. But I advice a listener to not go down the rabbit hole of worrying about stuff prematurely. Basically it’s kind of like premature optimization in that sense.
[20:28] With that said, if you do have a successful business, you have something that’s maybe allowed you to quit your job and you haven’t gone through a round of optimization of tweaking words, of testing different approaches, of reducing choices kind of following the things that Dan talked about in this talk, it can do pretty amazing things for you very quickly. Double digit jumps in conversion rates. Double digit jumps in sales. Even just having someone that you trust come and do a 10 minute screen cast review of your on boarding process and walking through that can give you 20 different ideas to implement and could dramatically increase the number of people that actually use your app.
[21:05] We’ve gone through this already 2 or 3 times with Drip. And one of the big reasons is because we’re emailing that mailing list with several thousand people who I knew were going to come and hit these pages, the pages just some weren’t converting and a lot of people weren’t on boarding early on. There were a lot of questions and so we’ve already gone through their reduced choices as you’re trying to get setup. And I have a lot of different options for getting setup and now it’s basically widdled down to like 2 ½ options. There’s a lot of value to be add here.
[21:33] Mike: The last two pieces of advice that Dan had had is seeking the global maximum because a lot of people have a tendency when they’re doing AB testing to tweak little things as opposed to doing wholesale changes to a page or to a site for example just because it’s so much more difficult to figure out what piece of that redesign for example impacted the conversion rates or was it just one thing? Obviously a lot of things changed. It’s very difficult to pin it down to exactly what it was. But you may very well be missing out on a lot of sales for example if you don’t do this and you end up with a local maximum for your click through rates because you’ve got all these things who are kind of leading you down a path to an overall 8% increase and conversions but if you do the complete site redesign then you may very well find that something completely different could give you 20% lift instead of just an 8%. But it is a huge risk if you start doing those things.
[22:26] Rob: Yeah. You also need a lot of traffic to do that. I’ve only had one site that I’ve ever been able to actually test two very different versions of a page and not just test them against on another but tweak both of them and do essentially multi varied testing over time and actually raise both of their conversion rates and then seeing which one went out. And that’s how you’d find the global maximum. But it is 1) super time intensive and 2) you need a lot of traffic or else it just takes too long. So there’s another thing I’d say save for later unless you do have a lot of traffic coming your way.
[22:59] Mike: The last lesson that we had to share was just start doing AB testing say which as Rob just said you really do need to have a lot of traffic in order to make this worth it. I mean part of Optimizely was really built out of things that were learned from the campaign trail from Obama’s 2008 campaign towards the white house. So there’s a lot of examples from the book that Dan points out. He gave a copy of his AB testing book to everybody in the audience which has a lot of the examples from that campaign and from various other things that they’ve seen and other companies that they’ve worked with. But you’re right. You do need a lot of traffic in order to be able to do some of these things.
[23:39] Someone else I took a lot of information from was Scott from Atlassian. There were several different things that he put out there one of which was internally when they’re developing features, I thought it was really interesting that what they do is they create customer personas with very specific attributes and goals and job titles for those customer personas to help the team understand how the software is going to be used out in the wild. So you’re not just building feature X. You’re building feature X that is going to be used by I don’t know, Sally in accounting who’s job title is CPA for the company or something or maybe she’s a CFO and she’s going to be the one who’s going to be used in this particular feature so she needs to be able to understand it and needs to relate directly to her job. Whereas Dan who’s over in the marketing department is completely not going to care about that feature but it’s going to help Sally which will indirectly help him.
[24:30] Another thing that they do to help keep the team not just interested but on the same page is to explain why those features are useful rather than how great those features are at a technical level because it’s really important to end user that those features work and help them do their jobs. They don’t necessarily care about how technically challenging it was to implement or how much goes under the covers. They want to know what helps them do.
[24:57] Rob: Benefits, not features right?
[24:58] Mike: Yeah. Benefits, not features. Something I found really interesting that Scott said was that he felt like at least 50% of the people there at the conference should go back to the office and fire someone. He said that everyone knows there’s someone they shouldn’t keep but they do because they don’t want to confront the problem. It was interesting that somebody would put that out there in a way that that they did.
[25:18] Rob: Yeah. There’s a book called Fire Someone Today. And I haven’t read it but I’ve had it recommended to me and it’s the same premise is that you should fired someone because you’re not facing up to something. I would think of it as like letting someone go who’s underperforming. But it’s like if you’ve grown to 10 people and you’ve never let anyone go, have you really hired that well or I can see his point that maybe you’re just ignoring the facts that are in front of you seems probably less allocable to me.
[25:42] Mike: There were several reasons that he pointed out why you might want to let someone go and one of them was they were a bad culture fit, bad performance was another one but he also commented that sometimes the company just grows past people. I think this really heavily applies more to Atlassian than a lot of other companies just because at this point Atlassian is I think 700 or 800 employees. And 10 years ago they were just a couple of guys working on a product.
[26:06] And it’s a very different company when you’ve got 10 people versus 100 people or very close to 1,000 people. And somebody who is there in the first year, the second year, they may have been very, very comfortable leading a team that was only 5 or 6 people but then you get into that problem where some people, if you’re just not cut out to be in a company that has grown to the point that it is, then maybe it’s time for you to either move on or to move to a different role inside of the company and that’s something else that he commented.
[26:36] He’s like just because they’re not a good fit for their current role anymore doesn’t mean you can’t look elsewhere inside the company. There may be other things that they can do and they will certainly be appreciative of that fact but nobody really wants to come to their boss and say hey look, I’m really not a good fit for this company anymore. They’re going to go out and look for another job before they start doing it.
[26:53] Rob: There’s a book called What Got You Here Won’t Get You There. And it applies more to growing a company as a founder and the skills that got you here and the marketing approaches and all that. If you’ve 10X then it won’t take you to the next 10x. You have to change your tactics. But I think that applies equally to growing an organization.
[27:12] Mike: Yeah. I said that it’s a very different culture when people are getting hired without the founder’s involvement because the culture in the early days very much revolves around the founders. And then once the founders are no longer doing all of the hiring, that’s at the point where you have to have core values for the company and things like that where you have to have written down what your culture is for the company in order to be able to scale that out to other people.
[27:36] Something Scott had talked about was he said in terms of pricing you get eaten from below, not from above which kind of related to Rita’s talk about how to find markets that are right to be plundered. What he did was he looked around some of the other companies that were selling similar types of software and he realized that their software was actually priced significantly higher than their competitors. So what he did was he essentially looked around and said okay, well how can we combat this? How can we fight this sort of a pricing strategy that could ultimately be your down fall?
[28:09] And what they ended up doing was they created these very small team packages for people and they sold easily six figures worth of software within a couple weeks and all that money I’ve donated to charity so it wasn’t necessarily about the money for them. But it was just interesting how in demand that software was based on the small team sizes. There’s an extra free for like 5 or 10 people. I think its $5 or $10 or something like that.
[28:35] Rob: I think they do Jura this way or they do a bundle of Jura which is their issued tracker with something else. And like you said, it’s like thousands of dollars of tools but they’re basically trying to eat up the market. They’re almost going freeman basically. I guess it’s on premise so it’s like $10 and you just bought a license to it for up to 5 or 10 people. They’re just trying to destroy the lower end market because that’s not what their bread and butter is. And I’ll say it gives them a competitive advantage because it allows them to get people on board with their tool and then as that company grows and then hopefully they’ll be more likely to use Atlassian stuff rather than start with some Saas competitor who just up sprouted and has a couple million funding who’s also trying to take that same market share from them.
[29:19] Mike: Two other points that Scott had made were both about how to price your offerings because they do have a hosted solution and they do have an on premise solution that they give. The point that he made was that when you sell something that is more valuable over time, use a subscription model. And if you sell something, it becomes less valuable over time, get your money upfront.
[29:39] Rob: Do you have examples of something that becomes more valuable versus less valuable? Did he bring up any?
[29:42] Mike: He didn’t specifically but think about this for example, a bug tracking system. If you have a bug tracking system, over time that gets more valuable to the customer because over time, as you add hundreds of bugs or thousands of bugs and cases in there, you don’t necessarily want to lose all that history. So moving to another product at that point, that product that you’re currently on becomes more valuable to you because it has all of that history.
[30:08] Now if you look at something like an eBook, you’re essentially delivering all the value upfront as the person learns from that and consumes it. There’s not really anything else. So getting your money upfront is obviously the natural course for that. I don’t know if we necessarily think about those types of things when we are putting together the offerings, the easiest way to explain that.
[30:30] Rob: Perfect. Those are good examples. So in terms of BOS, you’ve gone every year for the past 3 or 4 years. Do you feel like it’s changed for you or are you still getting the same value out of it that you always have?
[30:41] Mike: It was really high for a little while and then it dropped down a little bit and I think it started to pick back up again.
[30:45] Rob: Got it. So this year was perhaps better than last year.
[30:48] Mike: I would definitely say that this year is better than last year. And I think that part of that was just because the arrangement of the talks and stuff were – they had this back at the seaport hotel so there’s the amphitheater.
[31:00] Rob: It’s also smaller now right?
[31:01] Mike: Yeah, they cut a bunch of people from it. They didn’t sell nearly as many tickets this year as they did last year. I think last year they sold round 450 people. I think this year was around 350. So it’s definitely smaller but it didn’t necessarily feel any smaller this year than it did last year.
[31:17] Rob: That’s interesting. Yeah, because you and I have had some conversations about selling a few more MicroConf tickets like maybe 20 more than last year. Then just growing a little bit and allowing us some flexibility to keep increasing the value of the conference and my gut is that it’s not going to change the feel of it. But the first year I went to BOS it was 200 or 225 people and so for it to be 450, that’s a very different conference.
[31:44] Mike: Yeah, definitely. It just felt different last year to this year. I felt like this year’s conference probably delivered more value than last year’s conference.
[31:52] Rob: That’s good. I haven’t been for the last two years. This year was because I was in Europe. Last year I just opted not to go because the year before, I hadn’t gotten very much out of the conference. I mean it was disappointing. I’ve always been like BOS has always been my number one conference. Three years ago was a little less than two years ago. It wasn’t as good as they wanted it to be so I haven’t gone. Sounds like it has potentially reverted course in terms of the fact that it’s smaller now. I do think that the hallway conversations are probably going to be the bulk of the value and I just need to come to grips with that that I’m basically using it as a reunion to see a bunch of MicroConf Vegas people halfway through the year and that’s okay but I’ll probably focus on that rather on than on the sessions.
[32:34] The sessions and the speakers that they’ve had are for such large companies like hub spot’s going public, Atlassian is has 700 employees. It’s very different than what it was 3 or 4 years ago for someone like me who never plans to go there, go to that level of having a company that large, I’ll go for the hallway track and meet up with people who I know from MicroConf.
[32:55] Mike: That was another interesting thing that I found is there were probably about 30 people there that I knew from MicroConf or like the Micropreneur Academy. So there were a lot of hallway discussions about various things that people were working on or things that we learned or different techniques. And it wasn’t so much focused on the talks and what we were getting out of them as it was like the other things we were doing. So it was very much as you said kind of a mini reunion halfway through the year.
[33:21] Rob: Yeah and that’s a nice way to do it. What’s cool is you get in those conversations and you say what are you up to? How’s Audit Shark doing or what’s working for you with your product? And then someone says I did this crazy campaign on whatever and you’re like I totally need to try that or someone said hey, I had a marketing idea for you and its integrated with so and so, it worked for me. Those are the tips that will make a difference in your business.
[33:42] Mike: I think the last one that I want to bring up is from Greg Bagas and I apologize because I know he listens to this show so if butchered your last name, I’m sorry. He had a very good talk that and something happened I’ve never seen a Business Of Software before but he gave his talk and it was on entrepreneurs and depression. It was related to his struggles with ADHD and being bipolar, he got a standing ovation at the end of it. I’ve never seen anyone at Business Of Software get a standing ovation before. it was a very heartfelt talk and it brought to light I think a lot of issues that most people just don’t talk about in the entrepreneur community because building a business is hard and there’s a lot of struggles that people go through. And for the most part you tend to be alone.
[34:23] If you have employees it’s not like you’re going to talk to your employees about certain things and who else are you going to talk to about them? It was very interesting to hear about his story and have somebody get out there and talk about that particular topic.
[34:37] Rob: Yeah. Bravo to Greg. The video has already been released to the public if you go to businessofsoftware.com it should be somewhere around there. I think sharing a story like that is a really big deal and I think it’s helpful for a lot of people. This issue is coming up more and more. I don’t think it’s going away. These are successful and failed founders I’m talking about very real things that come up in the struggles of just starting a company. I think it’s helpful and I also – there have literally been suicides of venture funded founders who the pressure just gets to them or the stress just activates something in them and this is not something that I guess is uncommon and is kind of coming to light.
[35:15] Talk to Sherry about it quite a bit, my wife, she’s a PhD in psychology and she has talked to a few founders who are experiencing this kind of stuff and she’s actually interested in the topic and we at one point talked about her doing some research and doing a talk on it. So I think there’s more to be said on this topic and I really appreciate Greg for kind of bringing it into light and sharing it in such personal way because I’m sure as I said it resonates with a lot of us.
[35:38] Music
[35:42] If you have question for us, call our voice mail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups 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 158 | The Reunion Show
Show Notes
- Drip (Rob’s app)
- AuditShark (Mike’s app)
- Drip “About” Page
- Bootstrapped with Kids Podcast
- HitTail (Rob’s other app)
- Customer Analytcs/Retention Apps
- Numa Group (Rob’s company)
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I talk about HitTail, Audit Shark and the goings on of the last five weeks. This is Startups for the Rest of Us: Episode 158.
[00:11] Music
[00:19] 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. Mike, what’s the word this week? I haven’t talked to you for almost a month.
[00:38] Mike: I replaced you on the podcast for a little while.
[00:39] Rob: I could tell. I was a little concerned. Dave did such a good job I was thinking uh oh, I might be out of a job. I might need to start and go solo or start my own podcast because yeah, I liked the episodes you guys cranked out.
[00:50] Mike: I hope the listeners did too. I hope they enjoyed a little break from you.
[00:54] Rob: Yeah. So obviously the reason I was gone was for MicroConf Europe. You and I were out of town for a week and then I stuck around for another three weeks with my family. I wanted to work about a half hour a day was my plan. Seven days a week, get up, check email, do some stuff just to make sure I kept up with it. I wound up working about an hour every three days and with the internet connectivity the way it was which was mediocre which was a very rejuvenating month and I got a lot of thinking done, I did come back.
[01:27] We launched Drip to about 1500 people while I was in Italy in October and now it’s kind of cool to see that go on. I would get the emails and then just I wanted to work through the launch list before I got back and that was kind of the only way to do it. I don’t want to be launching in November and December because we know everything calms down during that time. So how about you? Any new updates?
[01:50] Mike: Well, last night as a matter of fact I finally got the Linux support fully functional in the new UI. I’ve been kind of…
[01:58] Rob: You’re talking about Audit Shark.
[01:59] Mike: Since we cut over to the new UI there was a lot of things that just little stuff here and there is like oh I don’t know if this works or I don’t know if that works and so I was just kind of going through everything, making sure that everything still works and for the most part I mean my paying customer is still happy and has made more than one payment than this point so it’s good.
[02:18] Rob: I love that my paying customer.
[02:20] Mike: But I have had conversations with the other people who have signed on and I think I mentioned it on the last episode that we’ve got a concrete list of things that we’re working towards and trying to get those things resolved and out the door. So I’m working on certain things. My developer is working on other things and we’re kind of meeting in the middle because fortunately the things we’re working on are separate from one another and one of the things I was working on was making sure that the Linux support was working end to end. And I finally got that working again. It does work because I do have Linux policies because I’ve got the third guy who’s working for me, he’s building all the Linux stuff. I’m basically making sure that it works in the in the UI and the other developer I have is working on reporting.
[03:02] Rob: Linux is a pretty key piece right? For in terms of the early access customers or the beta list, the mailing list you had. When you’ve asked people, there may even be more interest in Linux support than you have in Windows support is that right?
[03:15] Mike: Yeah. It’s leaps and bounds ahead of Windows actually. There’s a bunch of people who have both Windows and Linux and they’re basically waiting around and saying well, let me know when you’ve got Linux support in there and then I’m willing to kind of take a look and move forward with it but if it’s just Windows I don’t necessarily care right now. And then there’s a lot of people who just have Linux.
[03:35] Rob: Yes, it sucks because you don’t want to be writing a bunch of code right now. What you want to be doing is getting people in early access and marketing and ramping up and basically you want to get to 1.0 as soon as possible so that you can slow down. You’re obviously always going to be building features but it’s like building Linux support is a big endeavor. And so are you at the point where it done and tested or is it kind of like right now we have 2 or 3 weeks to work out the kings basically.
[04:02] Mike: It’s a hard question to answer because there are other several different sides of it so there’s as I said I’ve got one person who’s working on just reporting and one of the things that’s come up is that people want to be able to see – if I run a report now, I want to be able to compare my current results versus my previous results very, very easily and they want to see where things have regressed. So there’s something going in called a regression report and that’s got to be built like currently things are just being stored using a back end blob storage. So there’s not a good way to compare things from one set of audit results to the next, so that’s one piece that’s being built in with the reports and then another one is being able to compare things over date ranges as well.
[04:47] So they basically want to see a priority on the 400 to 600 plus things that are in there now that we’re examining on their servers and they say I need you to prioritize these for me because that would be more valuable to me because right now, we’d basically just say here’s the information. Here’s what’s okay. Here’s what’s not okay but we don’t prioritize it for it. There’s this piece that needs to go in on the reports to be able to show them that prioritization and then in the back end policies, my other developer has to go in and basically assign the priorities to everything.
[05:17] So there’s the two different things that are kind of moving at the same time and then the third piece that I’m working on is basically making sure that the Linux stuff runs end to end which it hasn’t been until last night. So now that’s running, once some of the priority stuff goes in which will have to be done on Linux as well, then the reporting side goes into it and its just kind of like all three things are coming together all at the same time. And once those three things are in place, then it would provide I think the value that it really needs to because I’m going to have the same question marks from people who are using it on Windows as they are in Linux because they’re going to want those things to be prioritized. They’re going to want to be able to see regression reports.
[05:53] And I actually had an in depth conversation with one person who said this information that you’re providing me is awesome but his problem was around the fact that he didn’t want to have to go in every single day and try to remember what was different from one day to the next, what he really wanted he’s just like I just want a daily email that says have things gone off the rails? But it’s called the everything’s okay alarm and it will continue to sound while everything is okay. So basically just a daily email that says hey, nothing’s changed today. Between yesterday and today, nothing has changed. You just haven’t gotten any worse. Not better, but things have just not gotten any worse.
[06:26] Rob: Yeah.
[06:27] Mike: Somebody told me specifically they were like that’s awesome. That’s exactly what I need. And if I had that, it’s like after seeing that for about two weeks or so, I’d probably turn it off knowing that you would let me know if things got worse and he’s like as soon as I decided to turn that off, that’s when I would be willing to pay.
[06:44] Rob: Nice. And this person you were talking is an early access customer is that right?
[06:46] Mike: Yes.
[06:47] Rob: Not a customer but a user, but he’s basically saying that’s what I need in order to pay you. Very good. One feature at a time. It’s like you implement one thing for one customer and then they’ll pay and that will get you this other group of customers and maybe it’s a handful and then you just branch out slowly and it’s just kind of knocking these things off the list that allows you to get a bigger and bigger market. It’s like right now you’ve solved the problem for one person and just slowly over the course of weeks and months you’ll be able to expand that market. So what’s your timeline like? Let’s say like next week do you think you will have enough done that you’ll have another paying customer? I mean what does it look like for you over the next month or two?
[07:30] Mike: The reporting stuff should be going in this week. Now, whether the data is there or on the policies to be able to do the prioritizations and things, I don’t know that yet. I have to touch with the guy who’s working on that and just kind of verify that he’s working in that direction. There’s some things that need to go in his policy builder to help him enable that or to help enable that for him to make it easier so I have another person who’s working on that side of things who he’s supposed to be doing that tomorrow or it might be done within the next day or two after that.
[07:59] So realistically if I had to guess, I’d probably say it’s going to be another 2 or 3 weeks before all of that stuff is completely ready but it will be done in bits and pieces between now and then. So I think that the reporting stuff will be done either tomorrow or the day after. The policy builder stuff hopefully will be done maybe tomorrow or the day after and once then he’s done with that then the policies can be updated. But even after that, the people who I hand this off to, they’re still going to need time to get comfortable with it, take a look at the reports and then make their decisions off of that. And that might take in the first email, it might take 2 or 3 weeks of them getting the emails and reports to be able to say okay yeah, I’m comfortable with this
[08:36] Rob: Right. And that’s that free trial period right? You’ll just be running it manually. But once they actually start using it, they don’t pay you the first day. You give them time to try it out. Like I was saying when I was doing the manual onboard and with Drip, I was giving people as long as they needed to feel confident that Drip was basically making them money, that it was saving them time and making them money. And so some people had six week trials. It was just completely arbitrary but I only had 15 people trialing in and I was manually emailing everybody individually. I was watching all of their accounts. I was watching the number of subscribers, the number of conversions that were coming in.
[09:13] And then at a certain point it was obvious. Someone had like $400 or $500 in conversions come in in 3 ½ weeks. And so I emailed them and said do you feel like this is worth it? And they said yeah. So that’s the nice part about doing manual on-boarding although its time intensive, it allows you to get a feel for how long it takes people. You’re going to be able to look at it based on the complexity of their setup, based on their knowledge, based on how much time they have, you’ll have an idea of like huh, people can actually get value out of this in two weeks and so your trial should be two weeks or maybe it will be 30 days. But whatever it is because right you probably don’t know how long your trial should be. You could take a guess but you don’t really know because you don’t have enough experience.
[09:51] Mike: It’s not even that I don’t have the experience. The problem is that I’ll on board somebody and I’ll ask them a question would you pay for this and let’s say if it had this feature and this feature, then I would pay for it and it’s like okay well then I have to go off and build that feature and make sure that works and it might take 2, 3, 4 weeks to do that. And then once I’ve done that, you’re adding 2, 3, 4 weeks in there. It’s hard to judge at that point. I just don’t – I don’t have the data. I don’t have enough throughput through the pipeline of new customers that are being on boarded to be able to make those determinations in 3 or 4 months I think that will be a completely different story but I have no idea right now. I just can’t answer it.
[10:29] Rob: Right. You’re in the midst of what I’ve started calling the slow launch and this is basically the fact that I had customer zero on boarded onto Drip in April and we are going public tomorrow and it’s not early November. So what happens in that 6 or 7 months span, well, we were doing manual on boarding. We were building features per request just like you said where it would say are you willing to pay for this? It’d say no, I need XYZ feature, we would go build that. And slowly getting one paying customer at a time and then launching to 300, it was exhilarating and it got I don’t know, 50 or 100 trials in the door and then we saw how many converted and you just build from there.
[11:12] I think we have a luxury because we don’t have a venture funded board at our back saying you have to move faster. You have to hire faster. You have to grow faster. Now it could also be detrimental if we’re not super motivated to get things done but frankly if you have a launch list or you have customers who are interested in it, the best thing you can do is implement the features they need before you try to get them into a trial because otherwise you dump them into this trial, you get them on boarded and then poof, they’re like there’s not a value here. And then you have to go build a bunch of stuff and come back to them.
[11:43] I actually think you maximize conversion rates by doing this, this slow launch over time and letting in groups of people, working with them manually figuring out what they want, what they need, implementing it then you let in another 10% or 15% of your list seeing what happens with them. For me it’s been a huge learning experience to learn more about the customers at Drip, the people who it works for and who it doesn’t, the people who really understand it from day one and the people who need more education.
[12:09] Mike: The other thing is and I’m sure Drip is a little bit different than what I’ve got to deal with. One of the guys who had come to me and started talking to me about early access has 70 servers. Of course that falls in kind of like the enterprise space for my product because there’s at least $2,500 a month probably for just that one customer so I went back to my developer and I’m like can we even do this right now and he’s like no.
[12:36] Rob: Yeah, too much volume.
[12:38] Mike: Because things need to be re-architected in the background so as part of this reporting process that he’s working on, that stuff is going to be taken care of as well which is kind of nice to see but a lot of questions and stuff you had to answer about scaling up.
[12:50] Rob: Sure. Yeah, we actually are seeing scaling issues as well. We’re real time analytics. We have every time someone visits your website we got a ping back and we insert a record in the database because we have to be able to track referees of all the new visitors. We’ve tracked every time the popup widget opens to collect an email and we offer all that data up in the app and so we have already upgraded kind of the database hosting twice and we’re in the process of doing it the third time to fix some reports that are starting to get slow for people.
[13:23] The real time stuff which is a massive data collection like you’re doing and like actually HitTail and Drip both do it, it’s kind of a pain but I also think it’s a nice barrier to entry because a lot of folks is not just some simple crud Saas app that someone can build and then host on a shared server. It really takes some expertise to keep this thing running.
[13:45] Mike: Yeah I know what you’re talking about there. I’ve already gotten some complaints about some of the reports in there as well. These reports are slow and I’m like yeah, I know but I’m getting a couple of megs worth of data from just on audit and it’s like okay, well you throw 5-10 machines in there and it becomes a lot of data very, very quickly.
[14:05] Rob: Right. So I guess to wrap up kind of a Drip update, like I said, we launched – it was somewhere between 1200 and 1500 more people during October and then we are launching to the final basically the last 3rd of the list today. And then by the time this podcast airs, Drip will be live. You’ll be able to go to getdrip.com and basically see the tour and signup for a plan just like anyone else for a free trial. So that feels good. It feels good to finally hit that point although it is a bit anti climactic because we already have paying customers, revenue. Last month was a recurring revenue was up to $1,000 over the previous month and it’s on pace to do that again this month and so we’re already launched in my mind. The public launch is more of a formality at this point. The amount of recurring revenue that we’ve had while we are in early access, it will be several months until we basically duplicate that until we get that much revenue doubled.
[15:10] So about two weeks ago we launched to a group of about 600 on the list and it was before that, we had basically nothing. All we had was a signup page, a signup and a login page and then you can get it and the app was fully done but there was no marketing website. And about two weeks ago we got just a shell marketing website up and it was like an about page privacy policy, terms and service FAQ, just a couple things. And some of it was lorem ipsum and some of it wasn’t finished. I mean it was kind of up there and I didn’t link to any of it. I really just linked to a pricing page where they could sign up. But the pricing page did have footer links to some of those pages.
[15:44] I specifically called that out in the emails and said look this stuff isn’t done but you can poke around if you want. Right away, we started getting emails that are about page was lorem ipsum and some guy tweeted me saying is this serious? I’m going to cancel my trial because your about page isn’t done. And we probably got 4 or 5 emails within a week of people who were flipping out about the about page. It was crazy. It was all lorem ipsum texts. It was our images, the actual images but it’s at getDrip.com/about if you want to check it out. I was totally surprised and the fact that it wasn’t just one person really was indicative to me that people wanted to find out who was behind it or something. There was some desire to see this about page and for it not to just be plain text.
[16:28] Mike: Yeah. That’s kind of crazy. I don’t even know what to make of that.
[16:31] Rob: It makes sense now that it happened but I never would have expected it. I mean if the privacy policy in terms of service for lorem ipsum, they weren’t but if they were, I bet no one would’ve cared.
[16:40] Mike: Well, speaking of adding new content to the website, I implemented that content strategy that Brett Palombo from the bootstrap with kids podcast had talked about on air and Patrick McKenzie had also talked to me about over – I think it was last week I put more than 400 pages of content live on the website that’s all generated from the policies that were executed on people’s machines.
[17:03] Rob: Very nice. Have you seen any results from it yet?
[17:05] Mike: Yeah, Google hasn’t indexed it yet so still kind of waiting for that to happen and then once it does, it will be interesting to see what sort of traffic it generates. I don’t necessarily have very high expectations for it. They’re very, very specific things that if people were searching for those, then great. And maybe they would sign up. I just don’t know. I don’t have a good sense of whether or not those people would come to the site and say oh, well I’m not going to have to do these things on my servers anymore because they may just be doing them as one off things and they just don’t need to do them again. I want to see how it goes. I want to see what sort of traffic comes in but I have to wait for Google to index it because they just haven’t done it yet.
[17:43] Rob: Sure. You can certainly keep an eye on it. I mean you’re going to want a call to action at the bottom of everyone. I would also if you don’t already have the Drip widget installed, I think that will be a nice way to connect with people is to collect their email address because the idea of someone stumbling on it and signing right up for a trial is probably not going to happen that often. But if they’re at least interested in that topic and you can stay in touch with them over time and use your nice auto responder sequence you’ve already created in Drip, that’s certainly a good way to nurture those leads and stay in touch with them. I think that will be a better converting source than trying to get them to sign up for a trial on the spot.
[18:18] Mike: Yeah. Drip is already installed there and it’s already available so when you go to those different policies and the different items that are on there, they do show up right away, the Drip courses down there so they could sign up for it. But yeah, I totally agree with that. I don’t see any reason why that wouldn’t at least help.
[18:34] Rob: Sure, very cool. I did some more investigation and kind of had been watching HitTail over the past month since we last discussed it. Our last update we talked about how Google was going to 100% not provided and I think they’re in the 80% or 90% at this point. what I noticed is that Google at least in the US is about 67% of US search traffic and what’s funny is that HitTail is still doing quite well on the other 33% like it’s using AOL and Bing and Yahoo and kind of the other market.
[19:08] And so there have been some customers who their key word suggestions through HitTail have decreased substantially and that’s a bummer obviously. If they had 95% Google traffic, there’s not much to be done there. But at the same time it hasn’t been as much of an Armageddon as I had imagined. There still is room for there to be keyword suggestions. I mean if you think about it, no one is going to have this data and every single keyword you have now is worth so much more than it was a month ago when it was abundant.
[19:40] Dave Collins talked about that in MicroConf Europe just about how valuable, how hard keyword data is going to be to come by. And so it’s that funny thing of like a tool like HitTail or long tail pro or market samurai, it may take a hit with the not provided stuff. It can still be as or more valuable than any other resource you have because you don’t even have that data in your Google analytics anymore. That’s not the end of the world. I thought HitTail wasn’t going to make it and at this point, it doesn’t seem like that like it seems it’s going to stick around.
[20:13] Mike: So here’s a question for you. You said that when you were on boarding people you were kind of watching to see what they were doing. Did you have dashboards built into your application to monitor I guess user activity and overall user health or did you put that onto another application that you subscribed to?
[20:33] Rob: Are you saying like how often they logged in or something?
[20:37] Mike: Yeah, things like that. So did they perform a certain act? Did they perform a certain action or when was the last time they logged in? Have they sent on a campaign, that kind of stuff?
[20:47] Rob: Right. So we talked about using a service like intercom.io or customer.io or one of those retention services that allows you to have insight into what folks are doing, the further we looked into it, the more I realized that we wanted to just look at our database. It was literally some select queries to figure out what people are doing. Basically we have a last log in date. We also have a number of logins like a quantity of log in for every person and so I can see if they’re active and I can see when they last logged in.
[21:18] And then just by doing a select count from campaigns, you can see if they’ve activated a campaign. We did write some code to go like hit their URL and figure out if they’ve installed a java script. We look in the database to see if they’ve created a goal. There’s there steps someone needs to completely to basically get the full on boarded part of Drip that we can get that all from our own database. We don’t need any type of real instrumentation to do that. And I think if we did need instrumentation I would probably have just built it myself. Again, the further we got, the more I realized well I’m going to have to sink my data and all my customer stuff with an external system. And every time we add, edit, delete something, we need to call out and do that. That just seemed like more trouble than it was worth when we can kind of just run an ad hoc query and get that info out.
[22:03] I do have a dash board. I do have an admin area where it shows me a bunch of checkmarks, who’s done what? Who hasn’t done what? And those people of course get different emails. We have this whole custom email course during their trial that sends them different things at different times based on what they have and haven’t done and it tries to help them get on boarded. And it doesn’t just push it off on to them either. It doesn’t say go do this. It actually says please rely to this and we’ll be in touch. Please reply to this. We’ll do it for you. We’ll walk you through it, that kind of stuff. I’m assuming you’re asking because you’re at the point with Audit Shark that you’re looking at options?
[22:37] Mike: Yeah. I mean I’ve looked at the ones that you have mentioned came across, Woopra and Totango. It’s funny because they all saw a slightly different problem and none of them really solves the problem that I was actually looking to solve. So I can kind mash things together but some ways I’m kind of leaning towards building my own dashboard like you were talking about. It’s just like I don’t want to have to add that to the engineering plea. You know what I mean?
[23:05] Rob: Yeah. No, I hear that. It is when its building new features or building basically that’s instrumentation, it makes it tough. I think it took us less than four hours to do it because it was – I can hack that together with literally some sequel queries that just display on a white background on the dash board. So it’s not like a ton of – unless you have a ton of stuff you need to instrument, it’s not that hard to get this done. Sending the emails is, that’s not trivial. Well actually to be honest, sending the emails isn’t. It’s a big case right? If they’re on this day and they’ve done this, then send this email. The hard part and the part that took longer than the development was writing all the emails.
[23:47] Mike: Yeah. And I’ve already started working on the emails themselves. It’s just the kind of matter of deciding how those things are going to get sent out and how they’re going to get triggered.
[23:55] Rob: Yeah and that was where – here’s what I did. I put together a spread sheet and I looked all the cases and all the days of what people could do on what point and where we wanted it to be and I mapped out how many emails needed to be sent and I gave them all names and then I went off and I wrote all of them and it probably, that process of mapping it out and writing them probably took me 12 hours. It was tremendously time intensive.
[24:22] And then once I had that mapped out, I showed it to the developer, to Derek and he was basically yeah, I can get these to send out based on these cases that you said in like two hours because its literally select this, check if they’ve done that. If I haven’t, send them this variation of it. It didn’t take him very long. So the mechanism of sending the email again is not, I don’t think it’s that intense and I think trying to do it internally, I don’t know, it seemed to work for us.
[24:49] Mike: And I’ve looked at that as well. I don’t think that sending the emails would be that difficult. I’ve got about a third of them written. I think there’s a list of about 15 or 20 that I wrote down different situations whereas like I want an email to be sent out if this happens or for example when they first get their first set of audit results, I want to send them an email and say hey, just letting you know you got first audit results and explain them a little bit and walk them through what the next step of the process is and if they have any questions, to get in touch with me.
[25:16] There’s obviously the other side of it which is the dashboard information is like has this been sent to them? Has this situation occurred for such and such customer and then being able to take those events and just kind of throw them into a database or something like that and be able to report on them. But as you said, I mean I can throw those into my own database and then just report on them. It’s just a matter of the engineering time and effort needed to build those reports. And I‘m kind of leaning towards taking my other developer and putting him on that stuff. I haven’t made a solid decision yet.
[25:48] Rob: Yeah. That makes sense. I think what I found with kind of the backend admin stuff, the reporting like you’re talking about is that figuring out what I want and then kind of specking it out is as much time as to just write it. Since our app is in rails and I don’t code proficiently in rails, it does make sense for me to give it a lot of thought and speck it out and everything. But if it was in a language I knew I would probably at least with Drip, I would probably sit down and hack it out myself. That’s what I did with HitTail when I needed any type of reporting I would just write the sequel and execute it myself.
[26:24] The Numa group which is my little company that has Drip and HitTail and all the other stuff, I was up to five people. Did I tell you that? Not employees because it said W2 versus 1099 was it, really matter but in essence it was five almost full time people including myself and I feel like I should be kicked out of the Micropreneur club for that.
[26:45] Mike: I think the Micropreneur route is more about bootstrapping it yourself than it is about the actual size.
[26:51] Rob: Yeah. I think its bootstrapping. I think it’s also freedom. Like I had again five people including myself so its four folks but I still didn’t need to be anywhere at any given time unless someone ran into an issue, I didn’t need to be online 9-5 on Skype or something like that. I didn’t need to go into an office and see folks. So the freedom aspect that I enjoy was still in place. And to be fair, I mean one guy is Derek – him and I have now worked together for well, about a year and a half I guess. I enjoy hanging out with him. We hang out outside of work. We’re friends.
[27:26] One of them is my support guy. It’s Andy. He does support for the academy and for HitTail and now for Drip. So he’s kind of autonomous unless he has a question he’s just rolling. He’s in another country all together so he’s just rolling and stuff. And then I had the growth hacker intern who I talked about hiring a few months ago and he’s only here for 90 days. He’s a three month internship so he’s leaving at the end of November. And then the other guy was a rails developer we hired through Odesk and he was with us for about maybe 6 or 8 weeks and he got a ton of stuff done. He
[27:59] Actually got caught up and really got Drip to 1.0 like between he and Derek he kind of gave us just enough of a boost to get – now I have a service side API, a JavaScript API, a bunch of reports I needed, just some little things that I felt like weren’t getting done quick enough. And I was planning to keep him around but he was good. He just wasn’t fantastic like he didn’t quite fit perfectly with the team. And so once he had completed his stuff, he was just a little too much work to speck things out and Derek had to spend a little more time going through his code than I would’ve liked. So we did decide to let him go.
[28:35] So now we’re down. It’s down to just me and derrick and Andy again along with contractors, contractors who just kind of work on an ad hoc basis. It feels good. It feels good to slim down for the holidays I’ll say needing to be online lesson handle the fires that come up less. It’s good.
[28:53] Mike: See, part of my version to kicking you out of the Micropreneur club with five people is because I’m currently five as well.
[29:00] Rob: Nice. It all comes out. It is funny. Its funny how you – you get there slowly and it doesn’t feel weird and you know everybody and you hire them slowly and to say you’re five people sounds big. I mean two years ago I would’ve said holy Toledo I don’t want to be working with five people. But I know now a lot of Micropreneur that are MicroConf attendees or bootstrappers from the academy or just folks we know who were solopreneurs for a while and just over time, as you hire people and they’re really good, it doesn’t make any sense not to bring them on full time especially if they’re good and they can be autonomous and you can just kind of roll with it and you get way more done and they’re really valuable to you like the thought of not hiring someone simply for a principal reason because you want to be that true solopreneur, it stopped making sense to me maybe a year or two ago.
[29:55] Mike: Yeah. I totally agree. I mean I realized a while back that the whole single founder moniker is more of I guess a rallying cry against angel and VC funding than anything else. It wasn’t necessarily that you can do everything yourself. It’s just that you can certainly start a business yourself and do a lot of things but in order to make something that extends beyond you, it’s very difficult to do it alone but that doesn’t mean you can’t be the person in charge of everything and kind of manage it all pieces and that’s kind what I’ve backed up off at the moment. it’s just like I’m managing all these individual pieces and kind of putting them together towards this greater goal and everybody’s managing their own work and I’m just managing the interactions between them at this point. But it’s no longer just me.
[30:38] Rob: Right. I always took you single founder moniker that you didn’t want cofounders, not that you wouldn’t hire people. But that it’s you didn’t – you wanted to kind of do the initial founder part yourself.
[30:49] Mike: Yeah. It is. I‘ve had people get confused though so…
[30:54] Rob: That makes sense. You know, this is actually a good time to bring up a question. I’ve received I know – you may have as well. It’s interesting that you and I are attacking larger product ideas. And so someone listening to this might think back to our very first episode where we talk about attacking these super tiny niches, making $1,000, $2,000, $3,000 per app and just cutting your teeth at it and getting some successes under your belt and then kind of scaling up or even just compiling 3 or 4 of those smaller earning apps and being able to quit your job.
[31:30] And I’m kind of moving away from that you would say. Now that I have a couple employees, now that I don’t really have any small apps, I’ve started divesting myself with my really small apps because at this point, they are more trouble than they’re worth because one hour spent building Drip is worth 10 times what was spent building some old B to C app that I had lying around. And so it’s important to clarify that old approach still works. I still see people doing it. I still see people having a lot of success in those niche markets, making a couple grand a month and building their skill set and doing the stair step approach that we talked about.
[32:07] You don’t need to go big. Don’t go – I mean if you’re a first time founder, don’t go build an app like Drip. Drip is in an incredibly competitive market. There’s so many email startups right now. They’re venture funded. There’s all types of stuff going into them. There’s money coming in. The reason I’m attacking it is very specifically because I have the money. I have the experience. I have what, 10-15 successful apps under my belt. I’ve been solo now, full time not consulting for four years. Four years before I brought anyone on full time. So all of that works and you can be totally happy and have a lot of freedom under that model.
[32:44] The fact that you and I have now decided to tackle larger projects that are more – they just take a lot longer to get off the ground. They’re more difficult but they have a larger market space, it’s not something I would advice for a first timer but it is the next logical step for myself and wanting to be challenged and learn and grow. Me doing another app that makes $5,000 a month or $10,000 a month, it just isn’t that interesting anymore because I’ve done it enough that you have to constantly carve yourself out of those new challenges. Have you thought about this at all? Have you been asked that?
[33:20] Mike: A little bit here and there. I’ve heard where you and I are clearly not going after those types of things and it’s not that we’re no longer going after those smaller markets because it doesn’t work. It’s just that our level of experience with those things and the types of thing that we’re interested in doing have kind grown beyond that. It’s not to say there’s anything wrong with them or there’s anything wrong with them or anything wrong with that approach because I agree. I totally think this still works. Especially when you get into things like you’re building and I’m building where it takes lot of effort and expertise to be able to do those things and if you don’t have the experience building a team and putting out good products and building a business, it’s a lot harder to build it from the ground up when you have no experience.
[34:06] I ran into a guy probably less than a month ago who wanted to build a two sided market place for an application. He’d never built an app before. His partners have never done it and he really didn’t necessarily know what he was doing and he was going against venture funded companies and he wanted to bootstrap and I was just like no, this is a bad idea 10 times over. Several other people talked to him and basically told him the same thing. Fortunately he took it the right way and it wasn’t like oh, you guys are just bashing me. It’s like maybe I’ve miscalculated this, maybe I really should take a step back and think about this because they’re going to fumble me and I’m going to waste 2, 3, 4 years of my life doing something that is ultimately not going to be successful because they’ve got the money and they’ve got the backing and I just can’t compete in that particular market because I don’t have the experience.
[34:54] Music
[34:57] 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 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 157 | How to get started with info products and WordPress plugins
Show Notes
- Pinterest Plugin
- Getting started building WordPress plugins
- Appointment Reminder
- Authority by Nathan Barry
- Convert Kit
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 157.
[00:04] 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.
[00:18] Dave: And I’m Dave.
[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Dave?
[00:24] Dave: I’m doing very well again Mike. Thanks for having me back.
[00:26] Mike: I had mentioned to the listeners several weeks ago that one of the things I was doing for Audit Shark was going out and submitting it to a bunch of different application directories where they do announcements for web based startups and new applications that are out there like beta list and things like that. And a few people had emailed into the show asking whether I would share that list, I already went through and shared it with them.
[00:50] But one of our listeners named Robert Gram who’s been at MicroConf, he went through and he actually created a much bigger list than I had. We’ll link to it in the show notes but if anyone’s interested in taking a look at that, it’s over at whitetailsoftware.com and I said we’ll link it in the show notes. He’s got a list of I think between 40 and 50 different websites that you can go to. But I did want to make sure that I shared that with people.
[01:11] Music
[01:14] Today we’re going to be talking about plug-ins and info products versus SaaS products and primarily about how to get started with a plug-in or an info product and kind of contrasting it to a SaaS application a little bit. When you’re looking at these sorts of things, plug-ins and info products versus SaaS products versus SaaS is really just a tradeoff that you’re making. There’s a lot of different tradeoffs that you’re looking at when you decide to go for an info product or a plug-in and it’s just important to be aware what some of those differences are.
[01:41] The first one is the speed to market. With each of these types of products, the plug-ins and info products, they tend to be fast to market versus a SaaS application which it can take you a long time to get to market. Dave, you’ve got a couple of WordPress plug-ins right?
[01:55] Dave: That’s correct. Yeah. I have AWPCP and business directory plug-in and I also have an info product too about how to buy websites and I would definitely say that compared to the time required to develop a full product even in MVP mode, getting something like an info product out is actually much, much faster especially when it’s an area of expertise that you already have.
[02:18] Mike: So really what you’re saying here is that in terms of the different types of products, there’s a sliding scale where with an info product it can be very, very fast to get to market. and then with a plug-in it will take you a little bit longer. But the with a full blown SaaS application it can take you substantially longer possibly even exponentially longer.
[02:36] Dave: That’s right. Depends on how complex that SaaS product is, if you have something that was as involved as Drip, I mean how long has Rob been developing that? That’s gone on for a long time compared to the fact that he was able to collect a bunch of articles and put them together for start small, stay small and in a comparatively smaller amount of time creates something that he could sell immediately and provide a great deal of value and get customers for.
[03:04] Mike: So another thing to keep in mind is revenue sustainability and with info products and plug-ins you get little to no revenue sustainability and that’s really about monthly recurring income versus a SaaS application where you can get that monthly recurring income occasionally depending on whether you’ve got these annual plans or not, you may have to deal with it on an annual basis. But the idea is you’ve got this recurring income much higher price points to deal with versus the info products and plug-ins. Now what about marketing complexity? I know with your different plug-ins you’ve got a lot of different modules that you sell with those. What are your thoughts on the marketing complexity?
[03:43] Dave: It’s something that would go basically from info product to plug-in to SaaS in terms of from simplest to most complex here. So when you talk about an info product, an info product is very much narrowly focused on a highly defined problem. So that might be something like a guide to web application design or it might be how can I charge more as freelancer? I mean there’s a very specific problem and that one info product is going to provide a very specific answer to it.
[04:13] When you move up the scale to plug-ins, initially that plug-in is probably going to be very focused on something that is more simple. But with my plug-ins for example, the applicability of that particular plug-in depends very much on what kind of site that it’s installed in. So for business directories, somebody might be using it in kind of a yelp capacity where they’re trying to make a site that’s all about ratings. And another one might actually be trying to make yellow pages where it’s actually more important to show locations in directories.
[04:45] So I have different modules that you can add on, one that specifically supports ratings and one that specifically supports maps. So you kind of morph the core product depending on what it is you’re looking to do based on the customer’s target need there. And then you can go up a whole other level beyond than when you get into SaaS applications where you have much more general problems to solve.
[05:09] So if you’re talking about something like in Mailchimp it might be as simple as well I just want to collect email addresses and send out blasts to them and then later on it might be well now I need to segment this list and say okay, I want you to send this particular email to this sub segmented list or maybe I want to AB test emails across the list. And I want to try out one version of it to say 10% of my list and I want to try out another version to another 10% and then whichever one did better I want to send that to the remaining 80%. And that’s something that is definitely a much more complex news case than just sort of collecting emails on the first place.
[05:49] Mike: One of the things that you just talked about, it kind of overlaps in feature complexity as well because as you said, something like Mailchimp might have all this different used case scenarios and that goes into the feature complexity. When I was talking about marketing complexity, what I was kind of getting at was that when you’re faced with marketing complexity, it is substantially easier to explain to somebody what you’re offering is if you know exactly what that type of person is going to be. Because if you solve a very, very specific problem, so say you’re solving 2+2 well, the answer’s going to be 4 but you’re trying to explain that to people in a way that they’re going to understand. Versus if you’re trying to explain and you’ve got all these different variables in place, all these different people who might be using the product. Maybe you’ve got designers and developers, managers, things like that.
[06:36] When you’ve got all these different moving parts, it can be very difficult to explain to people what your position is because you don’t necessarily know who’s visiting the site at the time so you have to essentially multiply the full print of your website. You have to talk to different types of people and in different ways and that’s really what I was getting at with the marketing complexity which I think the feature complexity also factors into this. As you get more features, you seem like you just naturally end up with more marketing complexity because of that.
[07:07] Dave: Absolutely. Some of the stuff that you’re talking about, you’re right. I jumped right into the feature complexity thing here and didn’t really talk about that marketing aspect. If you have something that is addressing the needs of various kinds of audiences like I’m thinking of appointment reminder or Patrick McKenzie, he’s got a lot of different kinds of audiences he’s trying to target this thing to, one of which is like medical professionals but you might also do it to massage therapists. Now that’s an entirely different set of keywords he’s got to target different landing pages, different messages, possibly different pain points to make it sound like you really understand their particularly niche.
[07:45] He’s going to have to cater those pages in a very specific way so that the massage therapist feel like yes, I really know that this person gets my problem here. I want to buy their product. That is definitely going to be much harder than if you have a very simple e-product or eBook where you’re saying okay I want to tell you how to raise your prices as a freelancer. That’s a very easy marketing thing by comparison.
[08:07] Mike: And the terminology can very well be different between some of those different fields as well. That also adds to the challenges. So just keep in mind that there’s a lot of these challenges that you’re going to have to deal with depending on how complex the offering is. Something else that factors into is the operational requirements. And by operational requirements I’m really talking about how much it takes for you in terms of your resources and your support cost and things like that to maintain the business operating.
[08:35] So for something like an info product, let’s say that your website goes down. Well, if you have an info product, who does that affect? It doesn’t really affect your customers because they’ve already purchased the product and they have already received it so they don’t have to come to your website. It will affect the people who are coming to your website to buy it but if they can’t get to your website at all, then they’re not quite your customer yet and sure they have a problem with that but the person who that ultimately affects is you.
[09:02] Now with a SaaS application, if you were hosting an application for customer whether it’s infrastructure related or just ancillary to their core business, it can still be a problem for them because you have to make sure that website and that application are up and running at all times. So you have to install monitoring services, you probably want at least a little bit of redundancy. You have to make sure you’re doing backups and all this additional operational things. And that’s in addition to the support burden that you’re going to bear which is going to be medium to very high for a SaaS application and low to medium for an info product or a plug-in of any kind.
[09:37] Dave: Absolutely. There’s definitely a higher stress level when you have a software service application because of that.
[09:44] Mike: Definitely. And as I said before, the one thing that really factors in to that is how tightly integrated into your customer’s business is your product? If it’s quarter operation, if they need your product in order to do business then obviously your support cost and your operational requirements are going to skyrocket. You’re going to have to have a lot more redundancy and a lot more things in place than if it’s just something where they go into your product maybe at the end of the day or once a week or something like that.
[10:14] Dave: Absolutely. Very different, yeah.
[10:16] Mike: So next we’re going to talk about if you’ve taken a look at these tradeoffs. So you’ve decided that you want to go down the road of building a plug-in of some kind. Dave, you’ve got some experience building plug-ins. How would somebody go about learning word press development? Especially where do they get started with that?
[10:33] Dave: Well that’s a great question. First I’d like to say this is not the only type of plug-in that somebody could actually do. There are other ecosystems but I think WordPress is probably one of the most commercially viable and hottest economically that you can really tap into right now. There just seems to be a lot of energy and money in the community as a whole. So it’s probably a good place to focus your time if you’re going to do a plug-in of any kind.
[10:59] But when you get started, there’s tons and tons of tutorials and examples and how to write a WordPress plug-in that have been written at this point that just Goggleing something like how do I write a WordPress plug-in is probably going to get you a million results right off the bat. Starting from that, you can then go to the WordPress codex, codex at wordpress.org and get the basics of what are the things in the WordPress API that are important? How do I actually apply the calls in the API into my plug-in here? What are some architectural considerations that I need to have for a plug-in? And then going with that, you can also look at WordPress best practices, that’s another great thing you can Google for. You could spend easily two weeks on just two activities right there.
[11:49] Mike: That’s a good number to know too. Roughly two weeks for just that. I mean how long would it take you start to finish if you – let’s say I started today. How long would it take me to be able to get the basic knowledge to create just a very simple plug-in?
[12:02] Dave: Obviously that’s going to vary quite a bit on the person who is writing that plug-in. If you have somebody who’s a senior developer coming from a background that allows you to understand PHP very rapidly, so if you’ve been doing C, C++ Java Python and Ruby to a lesser extent or just PHP directly, you can understand the syntax very quickly then you’re going to be able to be productive quite fast.
[12:28] If you’re not as technical, if you’re not as facile on one of those languages right there, it might take you a little bit longer and that’s going to be very much dependent on your learning style. If I were to say how long would it take a senior developer who knew these things in advance to actually come up to speed on the WordPress API and be able to write some very basic stuff in a plug-in, I would say you can do that in under two weeks.
[12:53] Mike: Okay. So when you’re talking about going to look in through these API’s and best practices and the wordpress.org repository, there’s also additional information you can get from those places, not just the technical side of things, but you can also find some underserved niches and abandoned plug-ins there as well right?
[13:11] Dave: Yeah. In fact several people have asked me I’d like to do a WordPress plug-in. You did these particularly WordPress plug-ins for classifieds and business directories. How can I find something that I can serve as well? And one thing that found is that by going and just researching wordpress.org you’d go in there and type a search on something that you might be interested in or something that you might think okay, well if I was building a WordPress site and I wanted to add an events manager or I wanted to add classifieds or a business directory or I wanted to be able to manage RSS feeds, these are just things I’m pulling off the top of my head.
[13:51] But that sort of stuff you can find out what plug-ins exist in there and taking a look at those, you could see well when was the last time it was updated? Is the support forum something that looks like people are posting but the authors aren’t really responding? If you look at this plug-in and there’s a lot of people that are posting on the support forum, that indicates that there’s certainly some level of popularity for it but depending on how the author is responding maybe that plug-in is not doing a good job of supporting it.
[14:17] So you can go through the WordPress repository there to actually find some good ideas and then once you got an idea there, another possibility is that you could actually bootstrap your plug-in development by actually forking an existing plug-in on wordpress.org since everything that goes into wordpress.org is under GPL version 2 licensing, you are actually allowed to grab somebody’s source code lock, stock and barrel and start from scratch on that particular plug-in if you wanted to. There are pluses and minuses to that and you might incur the wrath of the author doing so. But in some cases I know for example there’s competitor to business directory. The guy actually started his directory plug-in using an older kind of abandoned listing plug-in for an address book. So that’s certainly a viable way to go about it as well.
[15:07] Mike: Now you mentioned that everything that goes up on wordpress.org is covered by the GPL. I mean how can you go about building a business? Are there specific business models that you can put together for this plug-ins? It wouldn’t seem like you can sell your WordPress plug-ins directly from there but you could have three plug-ins that lead to premium module or something along those lines. What other sorts of business models could people be looking at or entertain as possibilities for WordPress plug-ins that they’re creating?
[15:36] Dave: Well, turns out there’s four that I can think of that are viable business models. Now like you said, wordpress.org, they’re very strict about you can’t sell anything through there. In fact if you directly have a link on there that isn’t something like a donate, it tends to frown on that. But they’re okay if you like point to a site that says okay, here’s the professional version of the plug-in on so and so site and you can buy it there. But you know, you kind of have to keep it sort of moderated I guess is the way to put it.
[16:08] But the four business models that I know of from other plug-ins are things like premium offering, so you have the free plug-in in the repository and then off on an external site you offer a pro upgrade. So the plug-in that I can think of does this as the Pinterest pin it plug-in by Phil Dirkson. Another one would be the premium add on model and that’s exactly what my business directory does. So you get the core plug-in in wordpress.org and then you can buy add-ons to it, it’s not really an upgrade to the core plug-in so much as it is just things that enhance the functionality to it and then there’s a number of things that you can add on to it.
[16:47] There are some where the plug-in itself is actually sort of gateway to a SaaS product. So HitTail is a great example of this where there’s a WordPress plug-in that goes on to your site that actually does your keyword tracking and then that feeds that data back to HitTail and then HitTail will give you further suggestions based on what that WordPress plug-in is collecting. So it’s not so much that the plug-in itself is making revenue but it’s enhancing an external SaaS site to basically give you another channel of customers.
[17:16] And then the fourth model is where people actually offer paid support for the plug-in. So you get it, you download it for free from wordpress.org but the level of the plug-in might be complex enough that you really need some help in actually setting it up, configuring it, maybe skinning it, that sort of activity is paid for directly on a site. Gravity forms is an example of a plug-in that does that.
[17:42] Mike: So we’ve talked a little bit about some of the different tradeoffs. We’ve talked about how to learn and how to do WordPress plug-in development and a little bit about where to get some ideas and some of the business models that you can put behind those ideas. Most that we’ve talked about so far relates directly to WordPress and plug-in development. The other side of it is info products and people might be wondering where do I get an idea for an info product that would be marketable. I think this is where a lot of people really underestimate their own capabilities. Anyone with a career as a professional developer has something that they can teach somebody and charge for. Pretty much everybody and I can almost guarantee that.
[18:19] For example you Dave, you could easily put together a book on WordPress development. You don’t have to be an expert and that’s the part where I think that people kind of struggle with is like oh, I’m not an expert. The fact is you don’t have to be an expert in order to teach people what you know. Typically if you’ve been working in a particular field or a particular area, you tend to have a lot more knowledge than the average developer about whatever that specific field is. What other sorts of examples can you think of?
[18:48] Dave: Oh, well there’s two great examples of guys that I met at MicroConf. There’s Nathan Barry, he’s got a couple of different eBooks out there that I’m aware of. One is a book on app design and another one is about a web design guide. Clearly these are both areas of expertise of Nathan’s that he’s acquired as a developer over the years and he just simply took the time to write it down and share his knowledge and experience.
[19:14] Same thing with Brandon Dunn and his freelancer’s business guide. It’s basically a guide that solves a very specific problem that freelancers commonly have and that is how much did I charge for what it is I do and if I’m charging already, how can I raise y rates to get better income out of my livelihood? And these questions are things that all freelancers have and certainly Brandon himself struggled directly with but he just took the time to write it down, think about it very thoroughly. I think he spoke with a number of freelancers to get additional input from outside of his own spear of influence and he created this great product that is selling quite well based on his experience.
[19:53] And he certainly wasn’t an expert on it before he started that guide. I spoke with him about it. He knew a little bit about it from his own experience but mostly it was about him being willing to research it and come up with something that he could teach to others in a clear and concise manner, that’s what made it a valuable product.
[20:11] Mike: So that’s one of the ways that you could do it. Another way you can do it is to just find something that you think is interesting and you want to learn about and want to be able to share that information. So for example one of the things that I have an interest in from years and years ago is robotics and partially because I’ve done assembly language programming and done hardware and software interface and I’ve always found it kind of fascinating. But that might be something where if I decided that in the future oh, I kind of want to learn a little bit more about this and maybe build an information product or an eBook about how to do it, maybe I’d put together something on how to interface with the raspberry pie or something like that.
[20:46] And I think something like that would probably do reasonably well and their chances are really good because somebody else has already done something similar and if you haven’t, just look around, feel free to rip off that idea. If you have the inclination and the interest, you can definitely learn enough about a particular topic that you can share that information and charge for it.
[21:08] Dave: I’ve seen the same sort of thing that sort of plays over and over again as like the beginner’s guide to whatever or how I learned X in Y days. There’s lots of people that have gone out that say how I figured out Ruby for the first time or how I went and learn robotics from scratch not knowing anything about electronics. Those sorts of guides seem to be very popular. So even if you didn’t know something, you could write a guide that was kind of following that theme on a subject that you’re interested in and then approach it as a complete novice and basically record your experience along the way with the intent of making an info product out of it.
[21:46] Mike: Yeah and again, this isn’t about pitching or positioning yourself as an expert in the field. It’s really about positioning yourself as somebody who is capable of teaching other people. And as long as you have a message that you can put together that’s clear and people can easily understand it, people are going to be willing to pay for it. And that leads to another point which is when people are looking around for information on the internet, you’re sure they can go and find free information all over the place.
[22:15] I mean if you want to start a business for example, there’s tons and tons of free information out there but there are still people who go out and buy books on how to build a company and how to build a startup and why did they do that? And it’s because that information is complied in a way that is easy for them to consume and has theoretically been have a lot of people look at it and provide feedback and get it to a quality level that’s acceptable for general consumption. Don’t be afraid to put a price on any sort of info product that you’ve put together.
[22:43] Dave: So speaking of pieces and info product I want to share an idea that Nathan Barry actually did and it was part of his talk at MicroConf. He has essentially one product and that’s his various eBooks. But in addition to the eBook, he added on additional let’s call them value services here. So he’s got the eBook itself and then he’s also got an audio version of the eBook and then he’s also got product videos that go with it and some additional resources and instead of just offering the eBook by itself, he’s offered the things at various priced tiers.
[23:21] So you’ve got sort of the value driven eBook for just the people that want the bare bones and then somebody wants a little bit more, they get the eBook with the audio and some screen cast that go along with that. And then for somebody who wants sort like the Grandpre package, they get the audio book, the eBook, the screen cast and all the additional resources that go along with that and they’ve got this great set of price points where you can really actually increase the overall value of what it is you’re offering. So even if you started with an info product, you can actually increase the value as you’re going along by finding ways to create these value adds to it.
[24:01] Mike: Another way to do that is through a simple licensing trick and I think that Patrick McKenzie was the first one that I saw to do this but I know that Nathan Barry does this as well. But essentially it’s charging more for the same products for a slightly different license that allows them to distribute the products within their company. So with Patrick McKenzie, he has an email course where I think he doubled the price if you want to download it and put it on an internal company server and share it with the people in the company. Otherwise you just get like a single license for one person. It’s almost like buying multiple copies of the book for everybody in the company.
[24:38] Well, with that other license you can download the stuff, host it on an internal company server and then anybody in the company can view it. All it is a simple please use this license if you’re going to save it to an internal server and make it freely available for everybody in the company. So that’s definitely another way that you can drive the price point up without doing a heck of a lot of extra work. So let’s talk about how do you go about delivering these types of products? What sorts of methods have you used in the past to distribute like your WordPress plug-ins and your book for example.
[25:21] Dave: Well for me, obviously being a WordPress guy, WordPress was sort of a natural fit for the sites that that I’m actually distributing them on. So I have WordPress based sites that I use WordPress plug-ins that are shopping carts and digital download managers and even in the case of my website buyers guide, there as PDF delivery plug-in on there that I added to that. And then I also added on affiliate programs to those as well. So those are all things that are managed through WordPress plug-ins. You drop them in, configure it a little bit, throw a theme on it and you’ve got yourself kind of a website in a box sort of minimal effort. But that’s certainly not the only thing that you can do. What are some things that you’ve actually done or seen other people do Mike?
[25:56] Mike: For my Altiris training site, I have it integrated into Wistia and I’m just taking credit cards and sending them through stripe. And then once they’ve paid for it, then they get access to the rest of the site and they can view the videos. But other things that I’ve seen people use are Gumroad for example, e-junkie is another one. And then fetchapp and pulley are two others that are similar in that they basically allow you to take your content. You upload it and they will handle a lot of the front end shopping cart so that you don’t have to. And then some of them are monthly fees, some of them just charge you for hosting files or they’ll take a percentage of the sales.
[26:35] So there’s a lot of different services out there that will do it for you if you don’t want to go down the road of setting up your own WordPress site or integrating into stripe. Gumroad is one that I’ve heard a lot more and more lately. But again, there’s a lot of different options out there for people.
[26:48] Dave: Sure, you can also publish it on amazon.com directly if you wanted to. I know a few people that have tried that route as well.
[26:55] Mike: Yeah. I forgot about that. Amazon has their own digital publishing services. So if you wanted to go the route of actually having a physical book, they have an on demand print service that you can use. There’s other publishers other than Amazon that have an on demand model as well.
[27:11] Dave: Right.
[27:12] Mike: I think the last thing we want to talk about today is what source of limitations are you placing on yourself by going down the road of an info product or plug-in?
[27:21] Dave: Well, I think the one thing that is the most limiting of going either those routes is that because you are not going to a recurring revenue model right away that you’re constantly in this I’ve got to keep selling it mode. So you’re always going out there every month starting from scratch and having to dig up customers again. Sometimes in some cases you can resell some things to your customers but it’s not like everybody that was a customer last month can be sold to again this month. So that can be kind of grind and ultimately I think that tends to limit the amount of revenue that you can pull out of one of these things on a long term basis
[28:02] Mike: Yeah. And that goes back to the business model itself. It just makes things more difficult when you’re selling any product that is not recurring because you’re essentially starting from ground zero every single month. I mean you’re always starting at zero. It can become a grind after a while. Especially if you haven’t an automated a lot of your marketing efforts. That can be somewhat challenging. I would also think that for different products especially in the info product space, you will probably run into – I’ll say a cap on the maximum revenue that you can pull in from any given product because eventually you would saturate that market.
[28:36] Dave: Yeah, I think it’s not just market saturation you have to be concerned about but I think info products, let’s call it an expiration date on them because whatever it is that you wrote about it, unless it’s like something truly ever green like you write it now and it’s going to be good for the next 10 years I’ve not seen info products that don’t have to be occasionally refreshed like for example my website buyers guide, it’s a couple years old at this point. I probably ought to go in and actually get current screen shorts of Flippa here but I haven’t done that. So that’s something that’s definitely getting a little stale on that book.
[29:10] Mike: That’s definitely a main issue that you have to be aware of for info products they may very well have a shelf life. I can think of a lot of books. That I purchased in the past where I look at them now and even though it may have seemed evergreen at the time, things have changed enough that they are not necessarily as relevant anymore. So that’s definitely an interesting point to me.
[29:30] Dave: I mean that’s going to be true regardless of the kind of product that you have. I think it’s just very, very poignant on info products. The applicability of that product to a given market not taking into account saturation is definitely going to decay over time whereas if you’re still providing value with a SaaS application, as long as you continue to deliver that value on day 1, day 365, day 730, it’s not going to be as difficult.
[29:58] Mike: Well, cool. So I hope that this has given listeners a good idea of what the advantages and tradeoffs of going for a plug-in or an info product versus a SaaS product. One thing that I think has become more mainstream is to build an info product upfront before you build a SaaS product so that you can get a lot more in depth knowledge about a particular market and then use that as a launching point to build a SaaS product around where that info product is.
[30:28] One of the people that I’ve seen kind of leverage this technique and probably the one I’ve seen leverage it the best is Nathan Barry with his authority book where it’s a book on self publishing and he uses a lot of the ideas from publishing his first two books and he uses that information and shares it with people in his book called Authority. Then he also has a software product called convert kit which is also aimed at people who are doing self publishing. So essentially what he’s doing is he’s creating an overlapping market where he’s got an info product that kind of leads into a SaaS application and then I think that Brandon Dunn also does this with some of his products around plant scope and his info product double your freelancing rate.
[31:13] Dave: Absolutely. Yes he does.
[31:16] Mike: I’ll say it’s starting to become a trend. It is certainly not a bad trend to follow. If you can get an info product out there very, very quickly and the use that to learn enough about a particularly market or use it to gage interest in that particularly market, you can leverage that information to build a SaaS app around it or you can use it as a determining factor to decide not to build a SaaS app because again, building that SaaS app is going to be a very major investment of time, energy and resources and it may not be worth it. And just building that info product could be enough to tell you whether or not it’s going to be worth it or not.
[31:51] Dave: Absolutely and in fact just building that info product does a couple of things. I mean it allows you to sort of dip your toes into the water of how do I market this thing? How do I handle the sales? Are there support issues I’ve got to deal with? I mean sort of like baby steps to the real thing. Right? Where you’re actually getting experience in running this whole business from end to end. In addition I know that Nathan and Brandon both built their launch lists for plant scope and convert kit using their eBooks as a way to get people’s emails for their future products. So not only are you building that product, but you’re also building an audience to sell a product to.
[32:32] Mike: Yeah, that’s absolutely right. And this is in some ways kind of mirrors what Rob and I have discussed in the past about a latter approach where you build these smaller products that enable you to learn the things that you need to be able to make larger products successful.
[32:47] Dave: Yeah, definitely.
[32:48] Music
[32:51] Mike: I think that pretty much wraps this up for our discussion on plug-ins and info product. If you have question or a comment, you can call it in to our voice mail number at 1-888-801-9690 or 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 156 | Leveraging Services to Increase Cash Flow using a Hybrid SaaS Model
Show Notes
- AWPCP
- Business Directory Plugin
- How to Buy a Website – An eBook by Dave Rodenbaugh
- Built From Ideas
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 156.
[00:04] Music
[00:11] Mike: 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.
[00:19] Mike: I’m Mike.
[00:20] Dave: And I’m Dave.
[00:21] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How are you doing this week, Dave?
[00:26] Dave: I’m doing pretty good Mike. How about yourself?
[00:29] Mike: Not too bad. Rob is touring Europe at the moment. So post MicroConf Europe, Rob and his family decided they were going to spend some time in Europe and we got almost enough episodes recorded in advance of his trip to cover. Dave I’ve invited you on to kind of bridge that gap a little bit, so why don’t you tell the listeners a little bit about yourself and why you were entitled to be here I’ll say.
[00:56] Dave: My name’s Dave Rodenbaugh. I’m a long time member of the Micropreneur Academy which Rob and Mike run of course. And I’ve launched a few products using what I’ve actually learned in there. Right now I am currently running two WordPress plugins. One is called AWPCP which stands for Another WordPress Classifieds Plugin and this is way for WordPress sites to add on classifieds into their content easily and quickly. I also run one for business directories, same kind of deal which allows people to add yelp like features or yellow pages directories to their current content. And since content just came these days, everybody wants something new and different on their sites.
[01:38] I also wrote an eBook about buying websites on Flippa which I think is actually been mentioned already in the podcast a couple of times and this is a means for bootstrapping your own business without having to build it yourself and that’s on howtobuyawebsite.org. So I’ve been bootstrapping my businesses for about three years now and I have an alter ego as a software consultant and enterprise java land. I haven’t quite weaned myself off that yet but it’s certainly my goal to do that. Rob, specifically told me that I needed to be off of consulting by next MicroConf although I don’t know exactly what the punishment is going to be. I’m trying to shoot for that right now. We’ll see how it goes.
[02:21] Very excited to fill in here this week for Rob. Those are quite some big shoes literally and metaphorically to fill. I mean have you actually seen Rob’s shoe size? I’ll try to be a good sidekick for you this round though Mike. I can’t promise my jokes are any better though.
[02:35] Mike: I’ll go into the typical updates that I usually give. The first on is for AuditShark. I’ve on boarded a couple of new users over the past couple weeks and had some direction conversations with them, trying to get to the root of what’s stopping them from paying for the products. Just doing the typical customer development stuff. And right now primarily looks like reporting is the issue. So they’re looking for some very specific reports that need to integrate into their workflow of how they’re going to use the product and how they’re going to integrate it in into their business. So it’s nice to see that the things that they’re asking for are all on the roadmap but the downside is those things that they’re asking for are on the roadmap. They’re just not quite done yet.
[03:13] I did manage to get the entire tutorial mechanism that Peldi had commented needed to be in place back at MicroConf Europe. I got that into the product. So that’s there now and people can use that and it actually looks really, really sleek. And by the time this episode goes live, I’ll be at the business software conference and I know a bunch of people who are going to be there, also be really good to touch base with those guys again.
[03:39] And then the last thing is that Corey Maass from thebirdy.com he’s launched a new venture aimed at helping people who have more money than time to get their products off the ground. He has a website that he’s put together called builtfromideas.com and it aims to put products from conception to MVP status in about four weeks. Obviously there’s a charge for this. It’s not like he’s doing it for free but it’s essentially a new consulting business that he’s putting together and it sounds like a great concept. I’m really interested in hearing how well it turns out because I talked to a lot of people who definitely have more money than time.
[04:11] And this could very well be a way for them to get a solid developer in place who they talk to, have the discussions with and kind of convey their ideas and bat it back and forth and really collaborate on it as opposed to the traditional true outsourcing model where you hand everything off and hope that what you give back is what you need to succeed with that product.
[04:32] Dave: That sounds pretty cool.
[04:33] Music
[04:36] Mike: So for today’s episode, last year at the Business of Software Conference Gail Goodman had talked about the long slow SaaS ramp of death and we’ve mention it a couple of times. But today we’re going to talk about some ways that you can short circuit that ramp. This is inspired by a blog post that somebody tweeted to me. We’re going to go through this blog post and talk a little bit about how you can jumpstart your SaaS business to bridge that cash flow gap.
[05:00] So within this article it talks about having a certain number of customers and trying to get the six figures whit it. If you just look at the raw numbers, if you have 200 customers each paying about $50 a month then you’ll have about $10,000 a month in revenue which gives you about $200,000 a year plus around $20,000 for yearly expenses, you can almost brute force your way to 200 customers with phone calls, trade shows, meet ups, cold call and that kind of thing. The problem is that getting there can be a painfully long and slow growth curve even if you do brute force that number.
[05:30] Brute forcing it, it can get you there faster but it is still going to take you a while. It could still take you months, upwards of 6, 10, 12 months in order to get to that point until you are self sufficient. So Dave, why don’t you talk a little bit about the basic cash flow problem?
[05:46] Dave: Well sure. The cash flow problem that you have in any sort of software service business is that let’s say you have a business where you’re making $30 a month for a customer and let’s just also say for the sake of argument that your lifetime value of that customer is basically two years worth of revenue. So that’s like $720 worth of revenue that you’re going to get out of them. You’re only getting that in chunks of $30 a month at a time. So what you fundamentally have here is a cash flow issue. All the value of that customer is really locked up in the future of the service that you’re providing to them.
[06:29] Now, there are some ways to shortcut that, in fact this is one of the things that Jason Cohen had mentioned at the last MicroConf and that is to have an annual plan. So you say okay, if you buy a year’s worth of this service upfront, I’ll discount it a month or two months out of there. So instead of paying $360 maybe you’re only paying $300 and you get the entire month. That helps you build some cash up front and it also give the customer a discount so it’s sort of win-win for both of you.
[07:00] The problem is not every customer of yours is going to take advantage of this and still you’re going to have this cash flow problem one way or the other. You might be able to get a little extra cash out of it but you still have the challenge of trying to get new people on board to your service and you got to get them through the sales cycle and you’ve got to convince them of the value proposition and you’ve got to have compelling marketing.
[07:22] So all of that becomes a real drag on your business. It’s really hard to keep expanding your business and adding new features and things like that. If you simply don’t have the cash to pay for it upfront. So one of the things that we’d like to talk about today is how the hybrid model, what we’re calling the hybrid model can solve this cash flow problem.
[07:43] Mike: One of the issues with getting started there that you kind eluded to was the fact that when you are trying to acquire these customers even if you’re not brute forcing it, if you’re doing some of the traditional marketing efforts, you incur some sort of cost to acquire these customers and hopefully you don’t have a very high cost of acquisition for these customers but it still does cost money to acquire them. And that’s part of the cash flow problem as well because that factors into how quickly you can acquire customers because if it cost you $50 to acquire a customer and it takes you a year to make $50 from them, then you can only land so many customers before you’re broke.
[08:24] Then you have to gather money from your existing customer base and once you’ve done that then you can put it towards acquiring more customers. Especially with a Saas model, getting people with an annual plan will help overcome that. But as Dave said, you can’t get everybody on an annual plan.
[08:40] Dave: Sure. it’s even a little worse than that Mike because if you’re having to factor expenses into this whole thing, cash flow is even a bigger problem because it tends to mean that you’re going to emphasize your free channels of acquisition over your paid channels or you may not even have the option to do the paid channels because you simply don’t have enough cash on hand to go and figure out okay, well if I ran this ad words campaign, will I actually be able to pay that back if it’s costing me $25 a click on these ad words key words, am I going to be able to get enough customers out of that? I mean there’s some testing that has to go on during this process of ramping your SaaS app. Right?
[09:22] Mike: Yeah, definitely. I think that’s actually one of the things that pushes people away from doing any sort of paid acquisition is the fact that you don’t know if you’re going to get your money back. And even if you are reasonably sure that you’re going to get your money back, the question is how long is it going to take for you to get your money back?
[09:39] And that’s a very hard question to answer especially when our your cost for acquiring those customers tends to be high and you’re looking at you revenue the following month and let’s say you laid out $2,000 to $4,000 to do some paid acquisition. In the next month you showed increase in revenue of $300 or $500 or something like that and you look at that and said well, I’m not going to get my money back for another six months so I can’t even afford to do more paid acquisition next month. Even though just looking at those numbers you can tell that it would benefit you in the long run but you just don’t have the cash to be able to do that sort of thing. Does this kind of imply that there’s something fundamentally wrong with SaaS?
[10:18] Dave: Well, no. It turns out of course that there’s not. SaaS is just very, very hard to get things started up in a smooth and running fashion. Right? I think the term that Rob likes to use and the term that was thrown around in Gail Goodman’s talk was the fact that this is a flywheel. A flywheel is something that doesn’t just spin up very quickly or spin down very quickly. It’s slow, it’s heavy and once you start it moving, it tends to keep moving at that same speed. So the problem is you’ve got to dump enough time and energy to get that flywheel cranking to start with in order to get your cash coming out on the other side and that’s the hard part of the SaaS right?
[11:01] Mike: Definitely. So one of the things you can do to overcome that inertia problem with the SaaS flywheel is actually to add services and one of the things that I think is very common early on when you have a SaaS business is that it can be very difficult for your potential customers to understand the value of that service especially if you’re not laying it out very clearly for them.
[11:24] How many people are actually reading the marketing collateral that you’re putting together on our website? I get a lot of people coming to my website that clearly they’re not reading the FAQ and they end up on the chat widget and start asking questions that the people who are manning that chat widget are trained to read the FAQ and try their best to answer people’s questions. And it’s amazing the number of people who come through and will look at that and either send emails directly into through the support page or go to the chat widget and start asking the same questions that already appear on the FAQ.
[11:57] Dave: Absolutely. Something else that takes a while to get that slide wheel running is the fact that just getting your messaging and your value propositions right so that it aligns with the problem that the customer has on the first place, that’s a very iterative thing. I remember just listening on this podcast with Rob talking about Drip. All the various things that he had to go through in order to find the right channel to acquire his customers.
[12:23] He started out with some deal on Appsumo but even he said at the time that was sort of one time test to find out if that was actually a good channel of acquisition or not and I think the conclusion that he came to was that it wasn’t. But it certainly cost him a good amount of money to go out there and get that setup and sell all of those things on Appsumo because you don’t get 100% of that revenue right back.
[12:47] So in order to come up with an effective key word campaign, what you really need to do is you need to make sure that you’ve got catchy titles and something that really clicks with the customer’s pain. And you’re not going to get that right out of the gate. I mean you have to refine that each time. So you put something on ad words, you test that out, you see if your customers respond to it and if they don’t then you have to go back and tweak and you don’t really know exactly how long that’s going to take for you to come up with the exact message that’s going to resonate with your customer. So that costs time and it costs money.
[13:23] Mike: Yeah. I think one of the things that resonates with a lot of people especially over the last two MicroConfs where Rob has given his talk about what he did with HitTail was just how long it took for him to get to the point where he really felt like he got his messaging correct and I mean he basically laid it out in a chart and you said here’s the part where I was learning. And basically the growth graph is almost flat and then here’s where I was building and it starts to rise a little bit and then here’s where he was scaling and that process took him a very, very long time.
[13:55] I mean a lot of people come out of the gate, they launch a Saas business and they think that it’s going to be successful very, very quickly and the fact is it turns out that’s really not the case. And it doesn’t matter how large your mailing list is. It doesn’t matter how well qualified that list is. It depends a lot on time and that’s just kind of the nature of the beast because even if you do have a large mailing list you get a lot of people who signed in, they won’t necessarily stick around. They’re going to be basing their opinions off of the initial messaging and unless you nail it right out of the gate, the chances are good that they’re not going to stick around for a long period of time. And that process as you said, it’s very iterative.
[13:34] So let’s start talking about some of the benefits of offering a hybrid model. A hybrid Saas solution gives you long term recurring revenue while the services will help bridge the cash flow gap. And in some ways those services are acting as consulting income but there is a very big differentiator between value added services and consulting and more specifically that is the rate at which you’re charging people. You want the customer to be thinking really, really inexpensive but highly optimized outsourcing. That’s what you want them to think and that’s how you essentially need to present it to them.
[15:06] And these services that you’re offering can drive a lot more value for individual customers in the short term for three very important reasons. The first one is it’s more cost effective for the customer than hiring as consulting. The second is this offering can be customized on the fly without having to write code. And when you’re writing an application, it’s always expensive to write code. That’s why everybody or at least most people design their products first, do mockups, things like that. It’s a lot easier to change things in design phase than it is after you’ve already written a code.
[15:36] So if a customer says hey I need you to do XYZ, the software may not do that but that’s okay because if you have the capability to kind of build it on the fly then it doesn’t matter. And the third thing is that it reduces the risk of the customer for investing their time, money and effort into learning your product but not get in the desired results. If you’re working alongside of them, it gives you a lot of flexibility and a lot of leeway to get them the information and the data they need along with the results that they need without writing the code or relying on the products to do all of those things which it may not have the capabilities to do just yet.
[16:11] Dave: So Mike, in the discussions that I saw from MicroConf Europe I heard somebody mentioned something about a concierge service. Is that what you’re talking about here?
[16:19] Mike: I don’t think so. So in MicroConf Europe there was a lot of discussion about a concierge service and I almost see that concierge service is a fancy way of saying human assistant on boarding. You eventually do things for free for the customers to get them on boarded because you know that the lifetime value for those customers is going to be high enough to justify the initial labor cost but you want to be able to get them on board and you’re trying to decrease the barriers to that entry so that you can start getting their feedback and leveraging their monthly payments.
[16:50] And obviously at scale, this doesn’t work. But early on you need to get them on boarded and get them pass the painful parts of the on boarding process while you iron out those wrinkles. Offering services along with your product is completely different than a concierge service because you’re charging people for the value of the human labor that you’re providing not necessarily the service itself. Obviously you’re going to charge them for whatever your service is but you’re charging them specifically for the services that you’re offering and you can price these based on value.
[17:20] Presumably you’re working with these customers hand in hand because you’re trying to jumpstart their business a bit by leveraging the product you’ve build and it does give you that immediate cash flow but more importantly than that, it gives you knowledge of exactly how they need to integrate your product into their business processes. So it lets you get that inside view that you would probably not have if they just signed for your service and were paying you $50 or$100 a month because you’re working hand in hand with them. You’re going to get that inside view of exactly how it integrates with their processes, what tools do they use, how they’re using the data and it gives you insights that you would not normally be able to get.
[17:58] Dave: I get it. Okay, yes. So as it turns out this is actually something that without really knowing what the terminology was that I kind of ended up migrating my two WordPress plugins to among the way. I had a number of customers that were always begging for I would need to have feature X or I really wish that your produce could just do Y. And I kind of push them off a lot of the time and I said hey, why don’t you go to Odesk and hire a developer on there. We’re really working on the features that are going on and the plugin right now and I don’t have time to do this.
[18:35] And eventually I realized that was just dumb. I mean I’m turning down things that people really want to see in the plugin. When I kept hearing the same feature over and over and over I realized I really needed to either put that into the plugin myself or have them sort guide what that feature was so it was something that was valuable to them. So I started adding what I sort of called it was the custom feature model. But basically it goes like this. Somebody is working with the classified or the business directory plugin and they come to me and they say yeah, I really want feature X, doesn’t really matter what feature X is.
[19:08] And then I say okay, well here’s what’s it going to take to add in feature X. And that feature is something that would be generally useful to the plugin and something that would be useful to the community as a whole so everybody who’s using classifies would want that or everybody who’s using a business directory would probably want that. And then we go back and forth. We get it to their liking. We go back and forth in this interactive process, once we agree upon what the feature is actually going to be, we’ll integrate it into the main plugin itself and then we’ll release that so that they have access to it indefinitely for the future for all their upgrades. And the rest of the community gets a cool new feature added on without them having to do anything about that.
[19:50] So it’s definitely been pretty successful in the plugins that I’ve run so far, I probably do about four figures of revenue of just this custom staff that’s being added onto the plugin in addition to the regular product sales that I’m doing as well.
[20:05] Mike: So when you’re having people do that, are there requests that you deny as well? There’s two different sides of this I think. One is you’re essentially taking feature request from people and charging them for building those things because they need them now. They need them probably on a timeline. So there’s also a flipside to this and that’s the fact that not every request that comes in is something that you can just arbitrarily say yes to. I mean you also have to kind of draw the line some place and say there are certain requests that people are going to make that I just can’t do. Right?
[20:36] Dave: Oh my god, yes of course. So I get probably about 50% of them I put in sort of the outlandish category.
[20:43] Mike: 50% really?
[20:45] Dave: Yeah. It’s really that high. I’ll get people coming in and they’ll say hey, can you do like this whole site customization for me? No, I’m not going to build all these features around the plugin that are for your site for example. Some of them could be some very weirded requests. Once I sort of cut out these outlandish ones there, then I can fine tune that a bit and say look, is this feature that you’re asking for something that somebody else in the community might also want? It doesn’t necessarily have to be something that everybody could use but at least try to think of it, is this something that at least maybe 10% of my other customers could probably use. And then if that’s the case, I’ll try to include it.
[21:20] Mike: I mean that’s just saying that you can double your business overnight by accepting this outlandish request.
[21:26] Dave: Well, but actually it’s another problem and that is a scalability issue. So I have a limited number of develops that work with me on these plugin and if I were to start engaging them and say okay I want you to work on this outlandish site request over here where the guy wants everything purple on his site. Well that guy, once he’s engaged in all that work, he’s not available to do somebody else’s totally reasonable feature request or it might be that outlandish feature request is something that’s going to take him like two weeks of his time to customize for this whole site because it’s very elaborate and it’s very detailed.
[22:01] Well that’s two weeks of opportunity cost that I’m losing and I can’t really use him for priority support request. I can’t use him to build additional features into the plugin that I might want to put in there that are on my long term road map. I can’t use him to do other customer requests that actually aren’t outlandish and might only take a day or two. And trying to get a new developer trained up on that code base is something that takes time and if I can’t keep a developer busy all the time then he’s going to wander off and not going to be available for that.
[22:31] So I have to balance the availability, the cost and the utility really of what it is they’re asking for and see if it’s something that kind of benefits everybody across the board as opposed to just benefit just them in particular.
[22:45] Mike: I also think there’s a bigger problem there in that if you go through this massive undertaking for somebody else, realistically you then have to support whatever those changes and modifications are for this other customer and they’re going to have some expectation of when you come out with a new version of the plugin that they’re going to have access to all those features so then you’re on the hook for supporting them moving forward and it’s really just not cost effective to support them ‘til the end of time even if they are paying 20% of the cost of the plugin at that point.
[23:17] Dave: Right. Absolutely and in fact that’s another policy that have is whatever feature somebody asks for, it’s something that I roll into the main plugin and that’s just really good sense so that if they want to upgrade in the future, they automatically can do so without worrying about whether I took that out or – and I don’t have to worry about okay, I’ve got this custom branch over here that I built for Bob. Did I put all of the bug fixes into Bob’s branch that I put into the trunk? I don’t want to deal with that particularly when you’ve got dozens and dozens of customers that are asking for custom stuff. You really just kind of want one main development branch and everything is in there so that you can support that in a reasonable way for everybody.
[23:58] Mike: So before the podcast you had mentioned that copy hackers also does this to some extent as well. Right?
[24:04] Dave: Absolutely. There’s actually a slightly different model though. They’re doing product sales directly on their websites. It’s eBooks about how to do amazing things on getting copy that converts and ways to write that are more compelling than when you might just do it off the cuff for example. And when you make a product sale with them, you end up getting added to an auto responder email list and then copy hackers will send you emails about here’s a tip for this and here’s a trick for that and hey did you know this?
[24:37] And then during that auto responder series you’ll eventually get something that says hey, by the way we’ve got custom consulting services that allow you to do things like advanced copywriting seminars, here’s a way that you can get a site review from us. So these are definitely very high end high touch semi-consulting kind of services here but it’s clearly a very substantial part of their business model because they’ve got this auto responder series that’s built around trying to get you to buy these things at the end. So I’m sure that Joanna Wiebe and company are getting some serious benefit out of this.
[25:15] Mike: So those are some great ways to take the products that you have put out there and essentially start bringing in more services income because of those products. One of the things that I’ve been looking at is how I can do that with AuditShark. And I came up with a short list of things I kind of wanted to go through them with you. And just kind of discuss what sorts of things fall under the concierge category versus which ones fall under the service category. And remember the concierge is essentially assisting the customers with on boarding versus services which is an going up sell that you’re essentially charging them for labor and the value that you are providing for them.
[25:52] Dave: Sure.
[25:53] Mike: So the first couple that I have is installing the AuditShark agent. Seems pretty clear I could offer that as a service and I know that there are companies out there that will charge for setup and installation. But it seems to me this falls more under the concierge service. Do you think I should charge for that or no?
[26:10] Dave: Well this actually reminds me of a quote that’s in Gail Goodman’s Business of Software talk and that is the number one way to get the customer to stay is to get them successful early. So installing the AuditShark agent is absolutely a core piece of your software offering. If they have trouble installing that, would they get any benefit out of your product?
[26:31] Mike: No, not at all. In fact, if they don’t install it, they get zero benefit.
[26:35] Dave: Yeah, exactly. I mean there’s definitely some things that you want to smooth out and make as clear and as easy to use as possible. I remember that quote from Patrick McKenzie at I think it was the second MicroConf. He said you want to script the first five minutes of your application like the invasion of Normandy. This is definitely one of those things is that you want to make your installation of the AuditShark agent the absolutely smoothest possible.
[27:03] But when you’re first starting out, you don’t know where people are going to struggle with that. So this is a great example of early on to make it a concierge service you install it, you get to learn where those problems are in the installation and then you can use that knowledge later to do that scripting of the invasion of Normandy thing like Patrick says.
[27:24] Mike: Right. So the next one was a consultation on the product capabilities and what it can do and how they should be using it. Concierge or service?
[27:34] Dave: I think that one should probably be concierge and once you kind of figure out what product capability they’re asking about the most, this is something that you can probably make a web page out of. So when somebody asks you about that, maybe you can start up an auto responder series and give them the top five things that everybody’s been asking about the product capabilities in that auto responder.
[27:57] Mike: I was almost thinking a webinar actually, free webinar about what it can do for them, how can they specifically solve certain problems that they may be having or don’t even necessarily know that they have.
[28:07] Dave: So you’re thinking it’s more of this is before they’ve really bought the thing as opposed to after.
[28:14] Mike: Well, I think it should be moved to before. So what I find is obviously there’s the tutorials and stuff once you get into the product but before that, people might have questions about how would I use this? How would I integrate this into my business? So I think in some it’s really just educating them about what the product does and why it does the things that it’s doing. So in some ways I think that there are certain information that would be presented after they purchased and there’s other information about that would be presented before they purchased. And I think before, it’s really about what problems it’s solving and then afterwards it’s about how to do that with the products. And when I came up with this, it was really about after they have purchased.
[28:54] Dave: Yeah, that totally sounds like a concierge thing. It was educational that that seems like something that you want to give away.
[29:00] Mike: So the next one was a consultation on what the customer should be doing security wise. So essentially have a discussion about for example how many servers they have, what type of servers they are, what they’re doing today, what they might want to be considering doing in the future, how AuditShark can kind of play into that, what are your thoughts on that?
[29:18] Dave: I think you can go either way on this one but I’m going to lean towards concierge because AuditShark is early enough in its lifecycle that you might actually find this space of customer’s engagement to be actually very educational for you and find things that AuditShark might be missing as key or core features. So probably I would say concierge.
[29:44] Mike: The next one is building custom policies for customers where if they have specific requirements that need to be met, an ISO standard for example or specific things in PCI or the SAQ’s compliance, something along those lines that they need. What do you think? Where does that fall? Would that be under service or would that be under concierge or does that depend a lot on how much effort it takes?
[30:03] Dave: I would say this is something that you might keep in your back pocket as a customer could say hey, I’m really interested in AuditShark and I’d like to sign up for two years but I need the small change to a custom policy and then you look at it, it actually is really a small change. So that kind of thing you might do as a concierge to sort of land the customer but if a customer comes to you and says I need this totally complex custom policy that you’ve never done before, that feels like kind of service thing like it’s an add on to an overall product that they might be getting there. I would say it would very much depend on the situation and the customer’s request.
[30:43] Mike: So it seems like in cases like this, it might be a little difficult to put together something along those lines of a standard offering to say it’s going to cost $300 per X because there’s such a variable time commitment on our sides to be able to do that and in addition it may be something that depending on what it is that they’re specifically asking for, maybe something that could be integrated into the product or maybe something that’s completely custom for that. And maybe that falls under two different packages, one where there’s a lower cost if it gets integrated into the product or a higher cost if it’s more of direct consulting engagement.
[31:16] Dave: Yeah, something like that. I would say that this is going to be one of those things that you’re going to go through and figure out how much time is required to build a custom policy. And it might be that you come to this number it says it always takes two hours to build a custom policy of average complexity. And so if that’s the case then you can sort of put a standard price on it. But if it’s anything like when I add features to the plugin, when somebody asks for something, I never know whether it’s a 2 hour change or an 18 hour change. That’s something that my developers usually have to come back and tell me.
[31:49] So I can’t really put standard prices on those features and I think you will know after you’ve done say half a dozen custom policies as to whether you can offer that as a standard thing or you have to kind of estimate it on a per customer basis.
[32:03] Mike: I can do ball park estimates based on just the operating system or the type of application as to whether it would be 80 hours or 120. It typically tends to be one of those two numbers. It depends exactly on what the operating system is and how complicated the benchmark is that they’re trying to have implemented. Something else is reporting I think that when most Saas applications launch, initially they have very, very little reporting. What are your thoughts on where reporting falls into this thing?
[32:31] Dave: You know, based on my experience with reporting and the enterprise java space and previous to that C and C++ reports are almost always so accustomed to whoever that customer needs to find out whatever magic metrics they’re trying to get to that this absolutely positively feels like a service that you would what to as a value added thing. It’s going to be kind of time consuming. It’s going to be customer specific but at the same time it’s going to build high value for them and make them want to use your product that much more. So I wouldn’t do that as concierge for sure.
[33:04] Mike: But aren’t some of those reports that are being built, aren’t they the type of things that other customers would want? If you have a standard SaaS app application there are going to be different types of reports that could be generally useful to everybody. I mean well, aren’t there going to be situations where you’re going to go to those customers and have to make a judgment call and say well, I don’t want to charge you this full amount because this is going to be generally useful to everybody.
[33:28] Dave: Early on the in the product here, I presume that you don’t have any reports built into AuditShark at this point because of where you’re at in the app is that right?
[33:35] Mike: I have one.
[33:36] Dave: Well, yeah, I mean this early in the product probably don’t know what reports the customers are dying to have. So you might say hey you know what, I’ll split the cost of this report with you to build it here but it’s going to be pretty substantial. If you don’t have this report in your application, I just don’t want to get your service at all. That might be something where you say alright, I’ll build it and I will get your business after that.
[34:00] But I think it’s going to be on a case by case basis. it’s going to really depend on the report. If it’s a very elaborate specific report that that customer is probably the only one that will ever want that, well that would definitely be a service. If it’s a generally useful report and it’s something that you were planning on adding anyway, maybe throw it in just to sweeten the deal for the customer or maybe you split the cost with them, I don’t know. I think it’s going to depend.
[34:26] Mike: Part of the reason why I’m going through some of these is to give you guys some ideas about the different things that you can do in your application whether or not you should be charging for them. Another one I came up with was analyzing reports and providing situational base recommendations. And that’s very clearly a service because you are not only looking at a report that is specific to a customer but you’re then providing them recommendations based on the output of that report. So again that’s very much a consulting arrangement.
[34:55] And then the last one was providing remediation services and for AuditShark when it identifies something that’s wrong, the customer right now has to go fix it. I could theoretically automate the remediation but I don’t want to because there are a lot of considerations around that. For example what if something goes wrong, who’s responsible for that, what happens if the machine reboots in the middle of the day? There’s all this scheduling and what happens if something goes wrong and it needs to be rolled back. Is that something that’s possible with the product?
[35:23] There’s a lot of problems with doing that stuff in an automated fashion and it seems to me that making that into a service offering is a very much a value add for the customer and I can charge them based on for example the number of things that I’m fixing. And at that point, the real key to the value proposition here is that I’m essentially rewriting what they’re being charge for. So no longer am I saying give me $50 or $75 an hour and I will work for you for that time period. I’m saying here’s a fixed unit of work which may take 5 minutes, it may take 5 hours but you’re getting a set cost for it.
[36:01] That’s kind of the ideal situation to be in when you’re trying to offer services to people because you’re going to be able to know what your cost are for the time period that you’re talking but you’re no longer billing directly for the hours that you’re working. You’re charging based on the value that you’re providing with the customer, not the time that you’re providing the customer.
[36:20] Dave: Absolutely. In fact your remediation services remind me of exactly what Rob does with HitTail and the article writing service. Wouldn’t you agree?
[36:29] Mike: Totally, yes it definitely does.
[36:30] Dave: Yeah. I mean that was something that Rob didn’t have right away and eventually he realized that was the one thing everybody really wanted after they got these long tail key words is a way to take advantage of that with Google SCO and having that service that wrote the articles for you was a great way to do that. So you might have the side remediation service consulting thing.
[36:51] Mike: Yeah and that’s something I‘ve had a hard time pricing. Some of them are very, very quick to do but there’s also potential for things to go horribly wrong. So I’ve been a little bit gun shy in terms of moving forward with this piece of it. I mean I’m reasonably confident of my own abilities to look at things and say yes or no, this could have major effects on somebody’s systems. But there’s always that possibility I mean whenever you reboot a machine, you never necessarily know what other things have been done on it aside from the changes that you’ve made that a reboot is going to cause those things to service.
[37:24] Dave: Yeah, totally agree. That’s definitely something that you want to have humans involved with. So be very careful there.
[37:31] Mike: So we talked a lot about the cash flow problem with SaaS and some of the benefits that a hybrid model can bring to the table and resolving some of those issues. But where does this hybrid services model really fall down? There’s got to be places where adding services into the mix just simply doesn’t work.
[37:47] Dave: Yeah. I can speak a little bit from experience on this here. One of the places that it really doesn’t scale in my plugin is there’s a point at which I have to balance features that I want to add versus features that customers want to add. And sometimes it’s very easy to thread those two together because I’m just not getting very many customer requests. But like the past few months I got swamped with all these customer requests and so my developers are constantly filling and estimating these particularly client requests and they’re not doing other things that I’ve been trying to push the roadmap along for the plugin or to do releases or other things.
[38:25] And I’m spending more time managing those customer projects instead of going and doing things like training a new support guy or witting documentation for the website or doing marketing or promotion or working on other projects. When you’re working on something like this, you kind of start it out without the intention of it scaling but at some point you get so many requests for it that it stops being able to scale even in a manual manner anymore.
[38:52] You have to kind of setup back and say is this something I want to keep doing? Do I want to expand it by adding another person who’s dealing just with these requests now or do I want to just stop offering it all together and say I have enough customers that I don’t need this to generate my revenue anymore. I want to focus on something else. So that’s definitely something that the plugin have struggled with and continue to struggle with.
[39:16] Mike: Does that give you justification to raise the price of some of that custom work?
[39:20] Dave: it probably does but there’s definitely price points which the customers will simply say that’s not something I’m willing to pay for anymore. I mean I’ve already seen that one. If somebody comes to me with one of the outlandish requests early on my modus operandi was to basically come back to them and say alright, that’s going to be doable but it’s going to cost you $1500. And for the most part, the customers got the hint at that point and said oh well, okay that’s too expensive. I’m not going to do it.
[39:46] Somebody actually took me up on that one time so what the hell was their problem. Once they called my bluff I had to actually go and do it. So that was a good three months of custom work that followed having to suffer through that because there was definitely a lot of back and forth and iteration and I said to myself no, I’m never going to do that again. You really have to be careful about what you wish for there. Raising the prices isn’t always the solution.
[40:13] Mike: Yeah I’ve been at situations like that myself where I gave somebody a price thinking they’re definitely going to say no and then they said yes and I’m like oh shoot. Now I actually have to go do this. But it sort of makes up for it because they’re paying you really well but sometimes the headaches are not just worth the money.
[40:29] Dave: Totally not worth the money.
[40:32] Mike: I think one of the really nice things that this article that we’re looking at as roadmap for this podcast pointed out was that in the early days of the product, think of the services side as a life support or plan B for your SaaS app, I really like that way of thinking of this.
[40:47] Dave: Yeah, that is nice. It certainly does help you get pass that cash flow gap right away which is a major problem for sure.
[40:55] Mike: So to kind of recap a little bit, we’ve talked about the cash flow problem. We’ve talked about some of the benefits of the hybrid model and how there are differences between a concierge service and the paid value add services that you’re offering. Again it’s just very important to keep in mind that there’s a difference between services that you’re offering to on board people which is the concierge side of things versus the services that you are charging them additional money for.
[41:22] And that could be product customizations, it can be analysis of reports. It can be custom pieces of the product that you’re building. There’s a lot of different ways you can provide value with your products to the customers without resorting to writing additional software. Again, this falls very much under the services umbrella and people definitely understand services. With the new SaaS app sometimes it’s difficult for people to understand those.
[41:45] Dave: And the one thing I’d like to close with is that in Gail’s Business of Software talk, another thing that she sort of closed it up what was you don’t really own the gas pedal on word of mouth. The best gas pedal is a great experience and in this particular case, if you do a product and service hybrid you’re going to be giving people that great experience early on so that’s really going to help drive the growth of your business quite a bit.
[42:10] Mike: That’s a great way to wrap it up. 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 155 | Six Key Takeaways from MicroConf Europe 2013
Show Notes
The takeaways:
- Community & Relationships
- Concierge
- Email (both drip and lifecycle)
- Staying emotionally healthy and keeping your family intact
- Hyper-automation (how many tools Peldi uses)
- Paid acquisition
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be talking about our takeaways from on MicroConf Europe 2013. This is Startups for the Rest of Us: Episode 155.
[00:10] Music
[00:18] 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.
[00:27] Mike: And I’m Mike.
[00:28] 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?
[00:32] Mike: Well MicroConf Europe is over. I had a great time. I think a lot of the attendees did as well but what’s your takeaways?
[00:38] Rob: My takeaways are get to bed early because you came in at 3 AM one night and 2 AM the next. Boy there’s a lot of good takeaways about concierge services and email and staying emotionally and relationally healthy. I think before we get into that, that was a little overview of MicroConf Europe. This is our first year European conference. We’ve done MicroConf three times in Las Vegas but here we did it in Prague in the Czech Republic. We had 120 attendees and speakers from 27 different countries.
[01:05] If you’re listening and you’re interested in more detail about what went on at MicroConf Europe we have a page set up, it’s microconfeuroperecap.com and special thanks to Christoph Engelhardt. He has attended a couple of MicroConfs now and he takes super in depth notes. And microconfeuroperecap.com basically just redirects to a page on his blog where he as painstakingly taken detailed notes about every talk at MicroConf Europe so thanks again to him.
[01:36] Mike: One of the interesting things we did this year at MicroConf was we added a lot more tear downs and we actually modified a little bit of Peldi was here so he’s a big UI expert. He did what we called a UI teardown which was really kind of nice. It was more or less looking at the user experience and making sure that when somebody goes to an application versus the website that they are able to look through, understand what sorts of mistakes that they might make. And really for the enveloper of the products, make sure that they have an understanding of what things they can do to encourage the user statistic around and kind of move them through the application without overwhelming them or confusing them.
[02:14] Rob: Right. If you haven’t heard of tear downs or wonder what they are, it’s basically one of our speakers who tends to be an expert in a certain thing, so Patrick McKenzie is an example expert in copy writing and conversion optimization and so he would stand up in front of the stage and for about 20-30 minutes people could call out their own marketing website. And some of them are just landing pages, some are full Saas or mobile marketing websites and then he would give his thoughts.
[02:40] He would ask questions about it. He asked questions about the product and try to reword things in the way that he thought would work better for that audience. He basically just would go through it and give feedback. So in the past we’ve done one a day at MicroConf and this time we did two kind of shorter ones and we had Dave Collins from software promotions, Mike you did one, Patrick McKenzie did one and then as you said Peldi did some UX teardowns which were cool. He just sprung that on us.
[03:09] I asked him to do teardowns and then he said he’d like to do UX teardowns because he is a UX guy. Peldi’s again behind Balsamiq which is mockup software and he understands a lot about usability. And so it was the first public demonstration of Audit Shark. So we only had one volunteer for UX tear down. So to fill time I volunteered Audit Shark. One of my key points in the conference was show of hands, who wants to see a UX teardown of Audit Shark and there was a ton of people raised their hand. It was really cool. They really wanted to see it. People are curious.
[03:42] Mike: Yeah. That was kind of neat. And it was funny because I think that part of the reason we only got one volunteer was because nobody want to be responsible for the rest of the group not seeing Audit Shark.
[03:52] Rob: Yeah. How did it feel to have it up there to have Peldi talking about it and then to have 120 eyes on with still early software?
[04:01] Mike: I felt fine with it. I mean there’s a lot of things that I know that are still going into it so he was talking about how he got a little confused. He wasn’t quite sure what to do. And as I said there’s this overly that’s going into it that will walk people through the application because that’s an area that during on boarding right now I am walking people through the application. But because all that’s a little bit unclear I don’t want to have to do that forever so I’m doing it manually now and individually but I don’t want to have to do that forever and long term I just can’t. So in order to scale it up that’s how I’m addressing the situation but Peldi obviously noticed that right away.
[04:36] There were some other things that he had that were actually really good feedback. So for example on the page where it lists your account information, at the top there’s information about how to cancel your account. He’s like no, no put that way at the bottom that’s the least important thing. You don’t want that highlighted to people. Honestly, it just never crossed my mind. That’s like that’s a really good point. So I put it way down at the bottom and kind of out of the way a little bit. So if somebody wants to cancel they still can.
[05:04] And I took several other notes about things that need to change or move around a little bit because he pointed out some places in the UI where there are certain menu options that look a little bit redundant and I can understand how those things look redundant, they’re not but that’s obviously not the fault of the person who’s looking at the application. It’s my fault for not labeling them better and coming up with a better way to present them.
[05:24] Rob: Right. Very good. One other thing that was a highlight for me and it was meeting Dan and Ian from Lifestyle Business Podcast or Tropical MBA as it’s now called. We have never met those guys and I hang out with Ian one night and then had diner and discussions with Dan and Ian two other nights. It’s so cool to kind of know people remotely, to listen to their podcast. Dan’s been on our podcast. I’ve been on his and it just – when you sit down with someone in there, they’re just like they are on air and they’re super smart and they’re getting stuff done and we have the four of us just sat and talk because we have so much in common in terms of audience and what we’re trying to do and kind of mission and all that stuff. And so that was absolutely one of the other highlights for me is the hallway track. That was my hallway track this time was hanging out with those guys.
[06:14] Mike: I totally agree. As you mentioned the hallway track it was funny because in talking to different people about the conference and trying to get feedback and they’re like oh, I love being able to talk to all these other people and not that the conference isn’t good and speaker’s good because people don’t want to hurt our feelings about saying that talking to other people is where a lot of the value of the conference is. And I don’t take offense in that in any way, shape or form because I totally agree that is where a lot of the value of MicroConf is it’s not just the speakers, it’s not just some of the content. It is meeting the people who are doing the same things that you are and that’s where a lot of the value of the conference is as well.
[06:54] Rob: Yeah. I think that leads right into our first takeaway which is all about community and or relationships. And one of the key goals of the conference we stood up at the very beginning and introduced ourselves and then we said we want you to take way at least three action items that you can implement in the next week and we want you to takeaway three relationships. And not relationships like oh hello, my name is Rob what’s yours? But relationships like I’m going to keep in touch with you.
[07:19] Because when kind of the fire and the excitement and the motivation that you take away from MicroConf fades which it will over the next several weeks or several months you need someone there to kind of reignite that or to keep you going and whether that means finding a mastermind group which many people came up to me and said they had found people in their country or neighboring country that they were going to start a mastermind group with or whether it just means staying in touch and be email and kind of keeping each other accountable, I think honestly that is at least as valuable if not more than the actual speaker tack. Having the speakers is just an excuse for us all to get together in the hallway. I think Ted Pitt said that the first MicroConf and it holds true every time.
[08:02] Mike: Yeah. I agree. I mean I had a lot of people came up to me and said they had also already scheduled mastermind groups as well and I had some people asking me how I run the mastermind group that I’m in. You have your own mastermind groups and I have one that I’m in. I think that yours and mine are pretty similar because I got a lot of feedback from you about how to put things together and how it should generally work. But yeah, there’s a lot of people who just – some people just never even heard of a mastermind group or what it is or what it does so we talked about that a little bit. What are some of the values, just kind of how to run and how to work it and what sort of benefits you really get out of it.
[08:36] Rob: Yeah, one of the first things within the first half hour of the conference, somebody came up and said its great meeting the other attendees but I want to know who’s here, like can I get an attendee list and I’d love to know who’s here for my country? Because like I said we have 27contires and people naturally do want to find other folks. I mean there were people here from the same city, there were several people from Stockholm, several people from Prague who didn’t know each other and one of them laughed said yeah it took two Americans to fly halfway across the world to bring me and someone who lives like a mile from me together even though we have this common bond. So that type of thing is powerful and that’s the other thing that outlasts just a list of tactics that you get from talks.
[09:17] Mike: Yeah and that being one of them come up to me afterwards and said kind of the same thing but he ran into somebody that he went to high school with and hadn’t seen in 20 years and they live in the same city now which is hundreds of miles away from where they grew up. They landed right next to each other and had no idea and you’re right. It really took us flying across the ocean to kind of bring them together again and now they’re putting together a mastermind group.
[09:40] Rob: Second takeaway that I think you and I both realized it was a theme, and that’s the neat part about these conferences is we come together and there’s no theme. We don’t tell the speakers specifically what to talk about and a theme always emerges. And this year it seemed like something that a number of speakers touched on and talked about moving into is the idea of concierge. This is in terms of getting someone on boarded with a new application and the idea of concierge is you do a lot for them. I would say you do it all for them. In some cases you will.
[10:16] But it’s basically having a non-scalable somewhat manual labor intensive front end in order to get someone to the point where they’re getting value out of your application. So one example is with Drip we offer a free concierge service where – Drip is email marketing software and if you have blog posts or an eBook and you provide us with access to that, we will build your five day mini course out of that content.
[10:44] The other one I can think of is just if you have a JavaScript snippet, little tag that people need to install, one way to do concierge is just to install it for them for free. And if you have any type of lifetime value these are no brainer things especially if you have a tier one support person who can help with that.
[11:02] Mike: Yeah. I mean one of the things that I looked at – and when people are setting up Audit Shark for example in order to get any value out of the software at all they have to install the agent and if they don’t do that then they’re just not going to renew, they’re not going to pay for it because they aren’t getting any value out of it. It’s clearly not working for them. And I think there’s a lot of applications where you can look at that kind of thing and say okay, how can I create an outreach program to people who’ve signed up but are clearly not using the product yet?
[11:27] Because even for a web based Saas app you can tell if somebody is engaged with the product or not and reach out to them and try and figure out what is it that’s holding them back? And in my case for Audit Shark if they haven’t installed the agent or they didn’t take time to do it, I can say hey I can do this for you or I can go through some of these results kind of do some hand holding as you said. Maybe it scales, maybe it doesn’t but if you’re in the early phase that could really help give you a kick start.
[11:54] Rob: Absolutely and you know I recall saying a few episodes ago that I think this is a trend that we’re going to be seeing. It’s not only this concierge during on boarding but its software plus services. It’s Audit Shark finding that your server has security issues and then offering to actually manually remediate those for you, plan that’s included with your normal subscription is that you get instructions on how to remediate them and then for an additional charge you can come in and fix that for them.
[12:25] And same thing with Drip, we have the free version if you have content and if you don’t have any content we do have a $1,000 package where we have a professional email copywriter, write yours from scratch, interviews you and does the whole deal from scratch. And so this is the way to go up market. It’s the way to have a little bit higher price points to provide more value and rise above the den of competition. There’s so much competition in so many of these SaaS niches now because everybody’s kind of moving into the space that kicking it up a notch using some type of non-scalable thing is the way that I think you can stand out and actually build a successful business really quickly.
[13:02] Mike: I think another topic that really came up was leveraging email and obviously Drip kind of falls into that category but life cycle emails and outreach program to people who are not actively engaged in your products to kind of help bring them on board any sort of in-app emails where if based on what customers are dong or not doing you reach out them, try and help them along, give them more information or just reach out to them and say hey, I noticed that you’re not using this. Would you like to – do you need some help? What can I do for you?
[13:32] And because they’re already signed on it’s more or less an effort to cut your churn at that point as well. It’s not cold calling. Its they obviously signed up for the service and I think that you’d get a much better response in many of those cases especially if the product is going to provide value for them.
[13:47] Rob: Yeah. There’s so many touch points along the way where you can provide a prospect or customer with information, with something valuable, education that keeps them kind of engaged or involved with your product. I think Patrick McKenzie summarized it well in his talk. He basically said there’s Drip emails and there’s live cycle emails. I think of it like Drip emails are marketing. Right? It’s prospect stuff. So that’s before someone has signed up for a trial.
[14:17] As soon as someone signs up for a trial, it turns into live cycle emails and that’s where you’re educating more about your product, how to use it, how to get setup, how to get on boarded, answering specific questions they have about it. You’re still educating them but it’s not nearly as much as in the Drip sequence. And then once they become a customer, you can follow-up with lifecycle emails after that so it’s kind of three separate phases of email sending. I mean we had 9 speakers and I think 4 or 5 touched on email, some more heavily than others.
[14:50] But I know for one, some things I took away was my Drip and my live cycle emails are set and locked and loaded on my apps but I noticed some things Patrick McKenzie was doing specifically with some language in a couple of his. It’s awesome because he’s like yeah, take these emails and just like search and replace with your app name. So I think I’m going to take a couple of those and change some of the verbiage in mind to kind of soften in the blow specifically like when credit card fail, there’s some really good verbiage of like don’t worry we’re not the bank or your cellphone company. We’re not going to screw you. You didn’t do anything wrong but if you can log in and update your credit card, it’s a very courteous nice email and I like the way he approached that.
[15:31] Mike: Yeah. It was more of a gentle nudge of hey we’re going to delete all your data or whatever. But I do like that only was there that gentle nudge hey we’re not the credit card company but the other thing that I like that he did was he said you can put language in there that says we’re going to pause your account which is a lot different than saying we’re going to cancel your account. Because pause indicates that it’s a lot more gentle in terms of the language but it is non-conformational and I think that’s just a phenomenal way to put us we’re going to pause your account versus we’re going to cancel or stop you account.
[16:07] Rob: Another takeaway that it seemed to resonate with a lot of the attendees was my wife’s talk on staying emotionally and relationally healthy while launching your startup. As some background, my wife’s a clinical psychologist and she is cofounder of the Walling Family as I said in her intro. She works with a lot folks who have trauma and anxiety and that kind of stuff in her clinical practice not specifically with software people that are startup founders but she’s just been around enough to know what goes into launching a business. Her talk was – several people came up and said that was the talk that stood up for them because it was so different than anything they’ve heard at any conference in the past.
[016:50] Mike: Yeah. I really liked her talk as well. The thing that really struck was that she gave very specific strategies of how to do different things in your life and how to recognize when things are going wrong and how the specific tactics that you can use to deal with those things. It’s one thing to just talk about those things but it’s another to provide a roadmap for what those solutions look like and how it can work out for you. It wasn’t just that the talk was good but it’s just she took it to another level by giving you all the information that you needed to not only recognize the problem but to deal with it as well. I think that was really the part that stuck out for me.
[17:27] Rob: I definitely appreciated that. She knows the audience well enough to know there needed to be some actionable takeaways. I also liked that she integrate research studies. She integrated studies that none of us would read but they’re basically more academic psychological studies of founders of businesses, entrepreneurs, how much stress that puts on people. And there was that interesting stat of entrepreneurs suffer a more from anxiety. Entrepreneurs and their partners suffer a more from anxiety but they have a lot less depression.
[18:03] The difference is running a business can be stressful but it also tends to fulfill you more. It was saying that folks who have 9 to 5’s tend to be less fulfilled and depression tends to be more of an issue. So she focused more on how to deal with anxiety, how to recognize that in yourself what to do to combat it and really gave some tactical things about that.
[18:24] Mike: Another talk that was really interesting was when Peldi got up there and discussed all the different tools that he uses in Balsamiq and how he runs the company. It was just mind boggling to see how many different tools they use and what they use for different things is really like they went out there and they really did the research and figured out which tools were going to work best for them which worked best of tools that they trusted to stay around for the long haul. And then integrated them into their business and just the sheer number of tools was just astounding.
[18:56] Rob: Yeah, when Peldi started talking and I had seen his slides before hand I thought good god how many tools do you use you know? I was almost like why do you use so many tools? But what I realized is that they have 16 employees and they have 200,000 customers and the only way that a company that small – because he’s trying to keep it intentionally small right? He doesn’t want to grow big. I mean you could be at 30 people and supporting 200,000 customers easily. He wants to keep the team small so he is going to great lengths to implement all kinds of tools that bridge that gap and allow him to not grow a big company because as far as I understand his goal’s always been to have fewer employees. He really wanted to be a solopreneur to be honest. So to be at 16 and then have tools bridging the rest of that gap is a really interesting way to look at it.
[19:45] Mike: Yeah and I think that does a couple of different things. One is it makes your company just in general more profitable because you got more customers per employee and so that allows you to do a lot more things for the employees in your company but allows a little bit more I’d say flexibly which in terms of being able to choose the things that are right for your business versus being forced to hire because you have no other choice.
[20:10] There were a couple of things that came up that were not necessarily primary things but individual takeaways that people took from different talks and one of the things that several people said to me after the fact it stood out to them was the idea that when you’re doing paid acquisition you don’t want to pay more than about a third of what the lifetime value of a customer is.
[20:29] And there’s a couple of different reasons for that but I think the one that resonated with some people was the idea that if you’re doing all the heavy lifting and handwork of building a product and building an application you don’t want to be spending and giving away 30% of the sales to somebody who’s really just doing advertising for it. You’re doing all the handwork and basically they’re reaping all the rewards for it. And that I think struck with a bunch of different people and like I said several people came up to me afterwards.
[20:57] Rob: What I like about that kind of the whole discussion about having these – the kind of rules of thumb, they’re like lose metrics, well they’re always debatable. I’ve heard a fair number of times I started work with – trying to get customers at less than a third lifetime value and it makes sense to me, it works for my business and that’s kind of the rule that I use now. But Andy Brice have never heard that but he’s done a lot of paid acquisition. And so someone asked him do you agree with that? And he said you know, I’ve never heard that but that feels about right. And that’s when I realized like a certain point when you’ve been doing something for 8 years and you really know the ins and outs of it like right on the spot he just has intuition about it because he knows it so well.
[21:42] It was kind of cool to see people who have had experience with these things generally agree on something and again maybe he would say it’s 40% or its 30% but its right in that range we can kind of all agree. I feel like that’s valuable as if you’ve never paid acquisition that it gives you a decent realm to shoot for and to know if your way off when you start and 10 years ago no one had this rule of thumb. I’ve never heard it so you just have no idea where you should land as you’re advertising.
[22:08] Mike: Now that you mentioned it, it was Andy Brice I remember hearing him exactly say that. He said that the reason he said that it felt right was because it felt wrong to give away more than 30% of the sale to somebody for doing virtually nothing. And it almost feeds into an affiliate marketing where you have affiliates and he’s got affiliates for his product but the issue is when you’re doing affiliate sales for example, how much do you give them and there’s recommendations all across the board like 20% 30% and he said that the reason it feels wrong is because you’re giving away more than 30% and you’ve done all the hard work. And all they doing is throwing up advertisements for that stuff.
[22:46] And even if you look at the Apple Store, Apple takes 30% of the sale on a lot of different things and if you view it from that standpoint, 30% feels about right then that’s not necessarily a bad deal but especially if they’re giving you a decent size channel.
[23:00] Rob: I think one other them that came up a couple of times which is always interesting at MicroConf because we have at MicroConf we have a mix of people who really do want to stay as a one person software company and then we have folks who are branching in to hiring few employees. But Peldi was 16 employees. Dan and Ian from Lifestyle Business Podcast, they did a really good talk on hiring. And the theme that overlapped both of them was if you’re going to hire you have to have some type of operating dock. They call it an SOD, Standard Operating Dock or SOP Standard Operating Procedure.
[23:35] I mean even Peldi, he said he played it fast and loose for years and didn’t want to have “processes” in place. He hit a point where right around between 10 and 12 employees he just couldn’t go on any longer trying to do everything verbally and he had to start putting stuff in writing and so we got good solid insight from both the way Peldi has approached it and the way Dan and Ian have approached it. Dan and Ian have taken it to another level. I mean it’s like the core of their business and it sounds like the completely reinvented their business when they kind of stumbled on this.
[24:08] But it was neat to see that these two different businesses came across at almost at very, very similar the way that they’ve approached it. And so that’s another thing where I like that it’s kind of a rule of thumb now right? It’s like you got two people who stumbled upon it separately and it’s amazing how similar their approach is to documenting this stuff for their employees and not only for on boarding but just for anytime someone wants to refer to how to do internal email within the company or how to respond to someone about support on Twitter, it’s all documented in their knowledge base.
[24:42] Mike: Yeah. And it’s not just the two different companies came up with it. It’s the two radically different companies came up with them. I mean Dan and Ian do not run a software company. They primarily make physical products and then you’ve got Balsamiq which makes a software produce and the overlap between the businesses at also the core competency is just radically different but they have the same type of problem and they came to the same type of solution so I thought that was kind of an interesting piece of it as well.
[25:12] Another talk that I think resonated with a bunch of people was Adi’s talk when he was putting together public beta and I don’t know how public he’s been with the previous startup that he tried before public beta but there was another one where he felt like he didn’t necessarily do a lot of customer validation. And they had this giant email list and it ended up converting it about half a percent. And with the thousands of emails that they have, half a percent it just doesn’t even remotely make a business.
[25:39] And they spent a fair amount of money building that up and so we decided that for his next thing that he was going to try and do, he was going to do a lot of customer validation and take credit cards. And in some ways, he talked about the internal struggles that he had and taking those credit cards because he knew that he didn’t really have a product yet. The interesting thing that I talked to Adi about this afterwards and said I’ve done something similar, in his case he went through and he went back to those people where he’d taken a credit card and said hey, here’s the real story. I don’t have a product but here’s what we’re working on and I’ll work with you to make sure that we’ve got it.
[26:12] In my case I did that and of those people who I’ve gone back to and had actually paid for it, not a single one of them follow through later and paid for the product that I built afterwards. So he and I talked about that a little bit and it was just – it’s kind of bizarre. I think the theory that we kind of came up with, because I couldn’t get a response from these people at all but the theory that we came up with is because my product was more in the enterprise space that people probably went, got the corporate credit card, got approval from their boss, signed up for it and then when it wasn’t available they had to go their boss and say yeah, I’m sorry I made a mistake and they didn’t want to give it a second chance after that. So it might’ve been to save face on their part.
[26:54] Rob: What I liked about Adi’s talk is he was just really open about it. He actually said that they wanted to take money upfront. They want to get credit card information because he wanted that idea to be more validated. You and I talked about this a number of times. Now Adi was not taking money to fund it. Let’s be clear. He was taking money to validate it. He wanted a bigger commitment from people that they really actually wanted this thing that he was building. He wasn’t doing it so that he could take the money and go build something because he had the money to go build something.
[27:25] Now in the end I guess he wind up – the content’s pretty expensive to build and he didn’t build the content. He instead did forums, got people in, started building community. He basically said himself we promised one thing and we took credit cards and then we let people in for a different thing and we gave them the chance to opt-out at that point and that’s there were a few people who were upset at that but he had kind of switched it up a little bit.
[27:48] But that he gave people a full chance to opt-out and most people did not. It was a very small amount that decided not to. Actually maybe it was 5% so it was still a small amount and he said that was what he needed to feel confident in the idea and it was actually validated and so he would actually do it again.
[28:05] Mike: Yeah. He said even if the opt-out rate had been significantly higher, it wouldn’t matter because the opt-in rate was still significantly higher. That’s what he was looking at, what’s the opt-in rate after? They really know what’s going on, how many of them were willing to stick around or was it just they were kind of interested but not necessarily fully invested in the idea and that having that credit card is really what differentiates whether you’re truly interested or not. And it’s not the only thing you can use but it’s certainly a major indictor.
[28:36] Rob: I think those are the major things that I took away. I have a big list much longer than we can fit in the podcast for our fourth MicroConf I think it was a success, our first one in Europe. There always a lot of work but they’re a lot of fun. I feel like it provided a lot of value for people so I feel good that we decided to do this. I know when we first started we didn’t know if we would sell it out. There always all the doubts and stuff but I’m glad that we did it.
[29:01] Mike: Yeah and I think the tone was definitely set well especially early on and the expectations were set and we did a really good job of making sure that the experience that you get at MicroConf Europe is going to largely mirror what you get in MicroConf Vegas and that was a major goal for us I think. It was to make sure that you get the same type of experience and obviously the speakers and hallway tracks are going to be a little bit different from one another. But knowing that you’re going to get the same level of quality, the same level of experience, what we really wanted to make sure that we didn’t do was say, have people come and then realize that they’re getting a significantly different experience in MicroConf Europe versus the one that we held in Vegas. I think we were really successful at that.
[29:41] Rob: Yeah I think that since we’re done this multiple times that you and I have gotten better at hosting, connecting people, emceeing, you kind of get better at running a conference. You just learn those rules of thumb that make things get better. The question that I got the most at the end of the conference was are you doing it again next year in Europe? I think we are. I mean we haven’t decided 100% but my guess is I don’t see any reason why we wouldn’t. So if you missed out and you’re interested in hearing about MicroConf Europe 2014 head on to microconfeurope.com enter your email address on the upper right and that will put you on the early bird list. We do tend to sell out fairly quick on these conferences so if it’s something you’re thinking about it would likely be fall of 2014 somewhere in central Europe.
[30:27] Music
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Episode 154 | Tools For Testing Your Sales Funnel, Reseller Strategies, Integration Marketing and Other Listener Questions
Show Notes
- Constant Contact
- LessAccounting
- KISSmetrics
- Visual Website Optimizer
- Optimizely
- FairlyCertain
- Authority Labs
- Moz
Transcript
[00:00] Mike: In this episode of Startups for the Rest of Us, Rob and I are going to be answering questions about tools for testing sales funnels, reseller strategies and integration marketing. This is Startups for the Rest of Us: Episode 154.
[00:11] Music
[00:18] 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.
[00:27] Rob: And I’m Rob.
[00:28] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made.
[00:30] Rob: So I have some good news and some bad news. The good news is Drip launched to 600 more people today, nothing’s broken so far. People are signing up for trials, things look good. The bad news is Google has announced that they’re going for 100% not provided keywords. They’re trying to go to 100% of not sending keywords to root to your website so that you don’t know how people are finding you organically.
[00:57] Of course they dropped some hint we want to protect everybody from the NSA but in fact if you actually buy the same key words through Google ad words, they will tell you the keywords that people are using to find you so sounds like more of a money grab than anything. The reason it’s bad for me is this impacts Hit Tail. Basically Hit Tail relies on those keywords and that’s part of the data that it uses to give you back suggestions.
[01:21] So what I’ve been seeing, I’m kind of panicked when I heard about this and I thought oh man, Hit Tail’s done. If they get 100% Hit Tail doesn’t have much value. But what I’ve noticed is there a steady slow decline over the past 6 to 12 months across all sites and my sites included of the not provided thing rationing up. So my turn rate hasn’t increased. With my own sites, we still get plenty of suggestions and we fill the blog with long tail keywords suggestions. So as of today even though I have sites that are literally at 90% plus not provided, I’m still able to use Hit Tail and get value out of it. It’s not much value as I got 12 months ago but as long as it doesn’t abruptly go to 100% I actually think that Hit Tail can stick around at least in the short term and potentially a little bit further out in that.
[02:10] So that’s been my day, launching a new one and then seeing another one kind of get hammered by that. It’s that third party integration right? It may not be an API that were using but for all intents, anyone of any time can kind of pull the rug out from under you if you’re relying on their data.
[02:23] Mike: Yeah. I mean that’s not even an integration. That’s just an outright reliance on them, so that totally sucks. And reading that, they started doing this back in 2011. I would think they’ve been heavily testing this a lot over the past couple of years and probably start shutting down some of the companies that are doing SEO. I can’t imagine any other reason why they would be doing it other than to basically make more money off of ad words because they want people to use ads. They want people to click on those things.
[02:51] And when people are doing all sorts of organic SEO, then they don’t need those paid advertisements anymore because their search engine is good enough that it’s showing people the results that they want that their algorithm has determined are the best results out there. So it makes sense that they would want to obscure that so that people start having to buy ad words because their traditional SEO “tricks” don’t work anymore.
[03:15] Rob: Right. And Google kind of at a one two punch and the second part of the punch is they went out and blocked all the scrapers. So if you’re doing SEO, you typically use a rank tracker, something like surf fox but it basically tells you enter a bunch of keywords and you enter your website and it tells you where you rank for those. And Google used to have an API for that and they shut that down a couple of years ago. Then these companies were scraping to figure out your rank and now they blocked them. So they’re really rabidly going after SEO and they also shut down I think another couple of blog networks like big link farms they call them.
[03:52] The death of SEO has been coming for a long time. It’s been a slow, slow plod forward. And if Google didn’t own so much of the search landscape I think others search engines would step up. As far as I know still being in the other search engines, they don’t do really any of this stuff. They don’t block this stuff but there just aren’t enough in the market to really make a difference.
[04:13] Mike: Got it. On my end they just finalized a massive upgrade of Audit Shark over the past couple of days. The servers are finally running windows 2012 at this point. Everything’s now on the .net 4.5 framework and all the bugs that I had talked about a couple of weeks ago are completely out of the picture. Basically all the ones that were associated with the upgrade have all been dealt with. So I’m really pleased about that progress and at this point it looks I’m going to be going to the early access customers and working through the process with them.
[04:44] But everything I’m looking at so far basically says that things are ready and good to go. It’s just a matter of hitting that early access list and working through people and making sure they’re getting the value out of it and to kind of iterate in similar to how you’re doing things. I’ll probably a lot more hesitant I’ll say. I’m certainly not going to be emailing 600 people at a time because there’s a lot of traffic that comes in from some of the different components and I want to make sure the infrastructure can fully support it because that’s one of the things that hasn’t been I’d say adequately tested. So I’ll be on boarding people at a much lower rate than I think you are.
[05:20] Rob: Yeah, absolutely. Well if you recall, I started off with one customer and then I brought one customer on at a time until we had 20 people using the system and that took me six weeks to do. So I think you’re at that stage. Then we fixed a bunch of stuff, added features based on their responses. By the end of that I had about nine paying customers almost $500 in revenue and then that’s when I decided to email that first 300 batch. We didn’t upgrade the data base server. We split the server into two. We did a little bit of scaling stuff that took literally 1 or 2 hours to do because with all the virtual stuff it’s easy.
[05:59] I think you’re headed towards that at this point because you’re right. I never would’ve emailed 600 people 3 or 4 months ago because I just didn’t have the confidence that we can handle it. I’d say to be honest I think that’s both from a technology perspective but it’s also just from your processes. You need to make sure you’re answering support emails in a timely manner, how hard is on boarding? Can you walk people through individually? Do you have your trial emails that go out or are you sending those manually because I did that manually early on. Do you have automated billing? There’s a lot of things that if you don’t have them in place yet, that’s another thing that doesn’t scale yet if you don’t have the code written.
[06:34] Mike: Yeah. That’s definitely right. There are some of those things that I got automated and some of them I don’t. So for the time being I have to send out things manually. The code for billing hasn’t been fully tested yet so I want to run those things manually for a little while until we get to a point where I’ve gone through them and said okay I feel like we’ve covered 80% or 90% of the different scenarios that could possibly come up or something could go wrong. And at that point just add in some extra error handling and make sure nothing’s going to go wrong or maybe even just set it up so that it sends me an email says here’s the summary. Please click on this link going to the dashboard and then click the run button to just go through and actually do the billing for everybody.
[07:13] But I do want to be careful about a lot of stuff like that. As you said, until you get to a certain point, I mean you don’t want to just blast a ton of people there because you’re going to overload yourself with either support or all these other problems.
[07:26] Rob: Right. Very good. Well congratulations again. So you have one paying customer and you basically said you’re done with remediation and the UI and now a technology upgrade so you’re going to start moving into contact and early access folks, very good. I subscribed to Patrick McKenzie’s email newsletter and he sent something out within the last week that relates back to a conversation that we had and that Dave had actually called in about and he left a voicemail and was basically talking about getting that payment upfront versus just getting a commitment to pay upfront.
[08:00] Patrick reminded me that Jason Cohen at MicroConf had said I think it’s going to cost $30 a month, will you write me a check for the first month right now to reserve your place? I won’t cash it until we deliver. So Jason had taken a slightly different tact which was getting a commitment upfront and actually getting a check but he wasn’t taking the money. That kind of goes back to our discussion of us saying the important thing is to get the commitment. I think if you actually need the money to build a product, this is not a good approach. Right? Because you’re not supposed to cash this check. You should have the money to build the product on your own and if you don’t, I don’t think this is the way to get it.
[08:39] Mike: My favorite part of that entire email was – and I’ll quote him word per word. Patrick says “My favorite symptom of an unmet need for software is any Excel spreadsheet which is ever updated by one employee, sent to a second employee, updated, and then sent back. Every time that happens a Saas angel gets its wings.”
[08:56] Rob: Very nice.
[08:57] Mike: That reminds me of a comment that we go on episode 138 from Sean who said as you’re doing your research, if you come across anyone that’s using a spreadsheet as attracting tool, that’s a big signal you’ve got an opportunity to build something that can do it better.
[09:08] Rob: Yeah. I heard this. I think this is a software a couple years ago. I liked this approach. I also like the approach which is another one I heard at a conference. Look at the big enterprise tools where there is no lower price Saas version and see what pieces of that you can break off and turn into a more lower price but self service version of it. So you don’t have the long sales cycles. You try to bring it down to the small and medium sized business market instead of the enterprise market and there’s a ton of apps that have done that.
[09:38] I mean think of all the accounting apps, you think of the kind of CRM apps that only used to be a million bucks and now there’s SaaS versions. You see even email marketing apps at first were very, very expensive and in Constant Contact came with a $39 a month version. So I think there are still some fruit. I don’t know if it’s low hanging but those are interesting ways to generate ideas is looking at both enterprise apps and then ways that folks are using excels spreadsheets.
[10:03] Mike: Something else that ties into that is most people are very familiar with excel but I’ve seen a lot of applications written over the top of axis databases. So I think that’s probably another good place where if you find anybody who’s got an access program that has been customized or has been outsourced as some consulting company who came in and built something for them to track different information, that’s another place where you can probably look for a product to build.
[10:31] I think the one thing to be a little bit careful of is that when you get into those types of things it’s a much bigger commitment on the part of the company that brings somebody in to build that for them. So chances are the complexity is going to be a lot higher than they had with an excel spreadsheet but I still think it’s at least worth exploring and asking questions about.
[10:48] Rob: So you also had a little shift in your marketing focus this week. What happened?
[10:52] Mike: I actually cut back on my Facebook advertising just because I didn’t have time to pay attention to it. Facebook was they were sending clicks though but they weren’t necessarily converting as well as I would’ve liked. But because I didn’t have the time to follow-up on it, try and figure out exactly what was happening, I basically just killed it dead in the water for a little while until I could come back to it. Because as I said, we were working on that massive upgrade of the Audit Shark infrastructure and I just didn’t want to be throwing money away. So instead of doing that I just said okay, well I’ll kill this for a little while.
[11:20] Rob: Yeah. A little known fact about paid acquisition is there’s a lot of upfront time investment honing in to make it actually work and then even once it works you still need ongoing maintenance because the ads burn out. Some people call it ad rot but it basically the click through rates will go down over time. I’ve never seen a system where that doesn’t happen especially with visual ads like this. So it’d probably a good idea to cut back on them but you’re going to start them again. I imagine that there’s still a liquid of market out there. You plan to start it up in the next week or two?
[11:52] Mike: Yeah. I mean I’ll be doing it later this week. I’ve still got a bunch of different phrases that I want to try, want to swap out some of the images and just try some different mechanisms for saying the same types of things but in a different way, try to reach different audiences going into different target markets, that sort of thing.
[12:09] Music
[12:12] Rob: Very good. So we’re answering some listen questions today.
[12:15] Mike: That’s right. So the first one that we have is from Carl Falconer and he says hey guys, thanks for all your work creating the podcast. I’ve recently been attending a local lunch and learn series on financial literacy for startups. I’d be interested in learning how you both manage the business accounting not necessarily the tax accounting of your products. For example, things like balance sheets, cash flow etcetera. What’s the decision making process behind your financial models? With all of your experience, have you become better at predicting your breakeven point? Thanks. Carl.
[12:42] Rob: So with a software company I like to keep it very simple and in fact I don’t look at my balance sheet ever aside from cash on hand, that’s pretty much all I would look at as an asset. I like to keep things simple. I like to focus on the business rather than this kind of stuff, the business accounting aspect of it. I know that if I was running a business with inventory or with accounts receivable where you invoice and get paid net 30 you need to look at that stuff. You need to look at cash flow. But for me, the cash flow comes in virtually instantly. The biggest delay I have is with Stripe which is a seven delay from when I get paid. So as long as I have enough cash in the bank, it’s literally a rounding error and it doesn’t matter.
[13:20] So the thing that I look at with my business accounting is the income statement. All that is is all my revenue, all my expenses and I can just look top to bottom and see what came in that month, look at anything that’s kind of funky. I know the rule of thumb. I can set a budget physically in the accounting app or I know rule of thumb of where I should be if something looks out of whacko, go in and investigate.
[13:40] Realistically software companies tend to be especially Saas apps like this tend to be really cash heavy. You’re not typically at a danger of expelling more cash than is coming in once you reach profitability. Frankly I just treat it as kind of a simple cash in cash out business. And the packages that I’ve used are Outright, that’s typically the one I use for the simpler businesses I have and then I use Xero which is xero.com which and that’s for the more complicated scenarios. As Mike and I’ve talked about over the last couple months, we both have bookkeepers now and that’s actually been a god send because it just saves me quite a bit of time getting these things organized this month.
[14:17] Mike: Primary difference between me and you is that I use some different tools. I use Less Accounting for one business and then I use QuickBooks for the other. Just like you, I don’t pay attention too much to anything like balance sheets or accounts receivables or anything like that. The biggest thing is just how much money has come in over the past 30 days and how much money I’m spending on some of the different services. And that can vary from one month to the next. Occasionally I’ll go in to try and identify where all my money is going so that I know at least periodically review whether or not there’s services that I’m just no longer using anymore and whether or not I need to cut them.
[14:54] But I actually have some services that I’ve been using for a while that I just continue paying for them because it’s actually more of a hassle to go in and cancel those accounts than it is to just say oh well, it’s only $5 or $10 a month or whatever. In terms of predicting a breakeven point I don’t even think that comes into mind. Do you think about that at all or no?
[15:14] Rob: Not really. I basically set goals of where I want to grow revenue each month. That’s the one number that I look at. While keeping in mind that I want to acquire customers for substantially less than their lifetime value. As long as I’m doing that I know that the business is going to be profitable down the line. I don’t think that about breakeven. I think about I want revenue to be in X thousand dollars 30 days from now and those are the goals that I’m shooting to hit and the breakeven just kind of comes along with that.
[15:43] Mike: So thanks for the question Carl. Our next question comes from Henry Oswald and he says I’m currently trying to measure my sales funnels and could do with some technical guidance. I’m sure many are in the same boat. Could you elaborate on which tools you used to measure your funnel and or AB testing’s. How do you measure which traffic sources convert? Which three things would you recommend you’d measure for a new site? It feels like this is something everyone says you should do but rarely say how you should do it. Thanks in advance. Henry.
[16:07] Rob: Alright. So here’s how you should do it. In terms of which tools do we use to measure? I use Google analytics because it’s free. I use Kiss Metrics because it provides a little more detailed information but it’s quite expensive. I think it’s $150 a month is the low end plan. And for split testing I used what used to b Google website optimizer that now integrated it into Google analytics and you can get by if you don’t have a high budget analytics. There are solid tools for split testing like visual website optimizer and optimizely. Again I think those started around $100 a month. So it depends on where your budget is and do you have more money than time at this point or not.
[16:44] Your second question is how do you measure which traffic sources convert? You can easily setup a Google analytics goal for any type of conversion that you want. Google had to do that. I mean it will take you two minutes to do. You do a base on the URL someone hits or you just slap a little JavaScript on your receipt page. Again, you can also use Kiss Metrics for this. I use both and check back and forth.
[17:06] And then finally you said which first three things would you recommend you measure for a new website? I’m assuming this is a software or a SaaS website so here’s the three things I would look at. One is your visit to trial conversion ratio. Second is your trial to paid conversion ratio and the third is you should have a Drip email sequence running. I would look at visit to Drip email sequence conversion and then from that sequence into your trial conversion.
[17:35] Mike: But personally, similar to you, I use Google analytics and then I also use Kiss Metrics. So in terms of the tools I use I don’t think that there’s a whole lot different there. The other thing that I’ve used is it’s a C sharp framework for doing AB testing called FairlyCertain. Last I checked there was a bug in it. It wasn’t actually doing the AB test properly so if you did an AB test, the visitor would see the A and the A type test no matter which page they went on. So if you’re running two different tests, they would only see the A version of test one and they would only ever see the A version of test two.
[18:12] So as far as I know that’s a bug in there that I don’t know whether they fixed it or not. I actually went into the code and fixed it myself so that it was random between them. So if you were running more than one AB test on your site it just wasn’t necessarily giving you the correct results. And that’s something you do have to be careful about no matter what AB testing tool you’re using because you want to make sure those results are accurate. So do some testing on your own, make sure it is giving you the right results.
[18:37] In terms of the three things I would recommend measuring for a new site, a new site kind of implies it’s a new piece of software that you’ve unleashed and for those types of things you want to be careful about running AB test when you don’t actually have enough incoming traffic. I think Rob did a really good job of talking about the things that you should definitely be measuring but I would be very, very cautious about running AB test when you don’t have enough traffic to justify those AB tests. If you’re not going to get statistically significant result then you don’t want to be running those tests because they’re going to be giving you misleading information. So Henry thanks for the question.
[19:14] Our next one comes from Dylan and he says hi Rob and mike. I’m trying to come up with a reseller strategy and would love to hear your thoughts. My bootstrap product’s called Activity Book, is an HR enterprise application which requires a private VM so it’s not strictly a Saas application. Sales are fairly high touch at the moment using cold calling and face to face. I have several clients on trial including HR service providers who want the product deploy for each of their clients to be used as an HR portal. The HR service providers will in effect become resellers. In addition to these, I’ve been approached by other companies who’ve asked for reseller programs. This is all great but I’m struggling with a reseller strategy that’s attractive to both parties.
[19:50] Pricing is confusing. Should I give a percentage of the lifetime in the client, just the initial sale or a depreciating percentage during the lifetime? Should I allow them to charge whatever they like as long as I get my fee? I’m also considering white label and allowing the reseller to run training courses in their own configuration services etcetera. What do you guys think? Do you offer reseller packages or know of anyone who has an attractive reseller package? And closing, I’m a long time listener and believe my product has got to the point it is right now due to the inspiration from you guys. If it wasn’t for you two and Seth Godin, I’d have no product. Thanks, Dylan.
[20:21] Rob: Gee. Thanks for the mention next to Seth Godin, that’s a very high compliment. So it’s a little different with the reseller and affiliate right? Because an affiliate typically is just directing traffic over to your site and you’re basically paying them a percentage. Resellers are often valued added right there. Actually doing some installation they should do support, upfront support for you and so they should tend it in general they will get a higher cut for doing that. The other thing the reseller brings is they have their own network of typically of clients either existing ones or new ones they bring in. So that’s typically how I think about the difference between affiliates and resellers in case you listen to this wondering what that might look like.
[21:00] So he asked a couple questions here. The first one was about pricing. He said should I give a percentage of the lifetime of the client, just the initial sale or a depreciating percentage during the lifetime. My thoughts on this and they’re not highly experienced is that I would give them a percentage of the lifetime of the client but not upfront. Assuming you are charging a monthly maintenance fee, there’s nothing more attractive to a business than having recurring revenue and most businesses don’t have that. So you can give a much, more much smaller percentage of that recurring revenue say 10% or 20%but that’s an annuity of that business. And if they’re not used to that, it really can be crazy. The lifetime value to them can be worth a lot.
[21:41] On the flip side if you were to say okay, all the upfront charges, the set of fees, they all go to you so maybe they get 100% of the setup fees in the first month and then you get everything after that. That’s an okay deal for them. Personally if I were in their shoes, I would prefer the recurring. So maybe that is something that you need to feel a couple of them about and figure out which way you should go but I would lean towards giving a portion of that recurring sale.
[22:09] Mike: I actually disagree with you and here’s why. You have to remember that when you’re dealing with resellers of the size that my assumption is these resellers are going to be – I mean they’re an HR service provider. So they probably have 50 to 100 to 200 employees probably even more. When you start getting into those types of companies, they have dedicated sales reps. So the problem you’re going to run into is I don’t know what your software actually sells for but let’s say that it’s $500 a month and you’re going to give them 20% of the sale like Rob suggested. The problem is that $500, they’re going to get 20% of the sale, that means the company is going to get $100 a month which to you and me sounds like a reasonable deal but at the same time they have sales reps to pay.
[22:56] So if that sales rep looks at it and says well why should I sell this software package for $500 a month to customer X when I can sell them $2,500 worth of consulting services and make my numbers for the quarter? Those are the things you have to keep in mind when you’re going to go down this path because it’s ultimately the sales reps that are going to be trying to resell your product, not the business. So although you’re giving them $100 a month in recurrent revenue, it’s not necessarily going to go to the sales reps. The sales reps is not adequately compensated to actually go do that. So that’s something I would be really, really careful about.
[23:31] Rob: Got it. So you would lean towards trying to have a larger upfront fee and basically giving perhaps a huge chunk of that, maybe even 100% of it to the company with the hopes that they would then split that with the sales rep and they’d have more motivation.
[23:44] Mike: Possibly. I would go talk to these companies and find out exactly how their sales reps are compensated and how they’re going to be selling it and you may very well need to work out several different types of reseller agreements with your first several resellers to figure out what’s going to work best and which ones are going to do it because you can take our advice and do one thing and then find out 2 or 3 years down the road that it’s really just not working. What you need to do is try out a couple of different ones and figure out which one’s going to work the best and maybe you tell them upfront hey, let’s try this and we’ll reevaluate in 6 months and try and figure out from there whether or not this is appropriate, whether or not your sales reps are actually going to sell it and figure out what’s going to work for both of you.
[24:26] And I think that if you approach it from that angle and tell the company upfront look, we’re trying to figure this out just as much as you are in terms of reseller. The other thing I’d be cautious about is letting them push you into any specific way of doing things because they may ask you to do something that you may not necessarily be comfortable with but they say well let’s just try it and you get backed into a corner and it turns out it’s just absolutely fantastic for them. Maybe they’re taking all the top line revenue and they’re just sending you the monthly fee which may very well be what you want but just be cautious going down the road that they’re not pushing you around as well.
[25:02] Rob: Right. So you’d lean towards saying that you’re trying to figure it out as much as they are and that you want to do a short trial and maybe try to do one or two sales at this rate and then determine later if you need to adjust it, that kind of thing.
[25:14] Mike: Kind of. I mean I wouldn’t limit it to just one or two sales. I mean I’d probably give it a time limited basis like 5 or 6 months or something like that and then throughout the course of that 6 months, if you have let’s say five different resellers and one of them brings in 25 sales and the other one only brings in one, we have to go to the reseller that only brought in one sale and say hey, I have another reseller who brought in 25 sales. They’re about the same size as you. What is it you’re doing that’s different from them?
[25:41] And try and figure it out from that perspective and say I want to help you guys sell more but unless either I understand how you’re doing things or unable it compare them between you and another customer then it’s very difficult for you to help them and it’s a very non-confrontational way of addressing what eventually would be problem because down the road if they come to you and say we’ve got this huge customer we’re trying to land and they can just become a time sink for you. And if they’re not landing sales then you’re going to end up spending time with them waking through pre-sales things because it is an enterprise sale and you’re just not going to get anything out of it. So you want to be able to compare people and make sure you don’t end up in that situation.
[26:26] Rob: What do you think about the second part of this question? He says should I allow them to charge whatever they like as long as they get my fee?
[26:32] Mike: That’s a tough one because with larger companies, they tend to tack on services. I know that there are certain hardware providers out there who will – they’ll bundle not just hardware and software but they’ll bundle services into price quotes and it could be a little bit difficult to figure out how much of the cost is going to software? How much is going to hardware? How much is going to services? And you’re in a slightly different situation where there’s a private VM so it’s just a virtual machine that you deliver digitally so there’s no hardware directly associated with it but obviously the customer has to have the hardware to run it.
[27:07] I would definitely try to understand how it is that they do their services and what their general pricing looks like before you start making decisions about whether or not you’re going to just a take flat rate or not. The other thing to take into consideration is if you try to be too greedy, they may very well try to emulate exactly what you’re doing and have somebody else go out and build it as a platform for themselves that they can leverage basically for free. So you don’t want to get too greedy but at the same time you don’t want them overstepping their bounds either.
[27:39] Rob: I have a tough time at allowing them to charge whatever they like because then that means you’re leaving the price elasticity on the table. Your business isn’t going to grow. If it’s an enterprise product, the idea is that you’re going to make the most money, a big chunk of your revenue from the higher end sales and if other people are skimming that off the top then I just don’t think your business is going to grow as fast as if you were to kind of keep a control over the ultimate price. The last piece of his question he says I’m also considering white labeling, allowing the reseller to run training courses in their own configuration services etc.
[28:13] Mike: Well I mean these ties a little bit back to the previous one. The thing is allowing them to charge whatever they like is probably not a bad thing because if they’re charging whatever they like, theoretically you’re offering the same product to reseller 1 as you are to reseller 2. The primary difference is that they are offering different services to their customer. Even if you have two resellers who go after the same customer, theoretically they’re offering your service on the back end and you’re going to get paid whether either one sells it. So it doesn’t necessarily matter and they’re going to try and compete on price to some extent.
[28:45] In terms of white labeling, white labeling is tricky. I think that I would get a good handle on just having them act as a reseller before I start going down the white labeling. Because with white labeling you really want to be charging exponentially more and until you know what you should be charging as a reseller, it’s very difficult to know what you should be charging as a white label provider. So Dylan I hope that helps and thanks for the question.
[29:10] Our next question comes from Marco Schwartz and he says hi Mike and Rob. I’ve been following your podcast for about 3 months now and I’m working on my own products and looking for a Saas app idea. I am personally passionate about the restaurant business so I’m thinking about building a web app of this business that would manage accounting, inventory, staff etcetera that would be priced for a monthly fee. I know it’s not really a niche like you would advise in your podcast but on the other side I didn’t find any Saas apps online. I only found some very expensive $1,000 to $2,000 software packages to buy. Am I missing something? I’d love to have your opinion on this idea. Thanks.
[29:42] Rob: I don’t think this is a terrible idea but know upfront that this is going to be high touch sales. You are going to be doing out bound cold calls in the evenings because that’s when restaurants are open or you’re going to be paying in person visits. I don’t know anyone who makes a lot of these kinds of sales directly online using paid acquisition and Facebook ads and SEO and content marketing and that kind of stuff.
[30:07] Now you mentioned a broad range of what your app might do. You said it would manage accounting inventory staff etcetera. That is huge. I bet those packages that sell for $1,000 to $2,000 are massive and probably have 5 or 10 year old code bases and that’s probably why they look so crappy because they’re written in an old technology. But I would bite off a much smaller piece of that and then try to expand outward at a minimum. But know that you are in for high touch sales that you’re going to be dealing with people face to face and I would personally go out and try to sell 10 copies of it first or 10 subscriptions to it first based on the idea or based on mock ups or based on some designs or just something just to see what that feels like.
[30:49] Even if you get 10 no’s, at least you’re going to know what it’s like to have a conversation with restaurant owners and you’re going to have an idea of how hard it is to talk to and potentially sell. I would also suggest that you consider getting in touch with Brian Casel and he has a podcast called Bootstrap Web and he owns a product called Restaurant Engine which is basically think of it like square space for restaurants. It helps them get their websites up and running. At least with Restaurant Engine you can imagine that there are a certain amount of restaurants actively looking online for a new website and looking for website templates and designs and stuff so he has things he can tap into.
[31:26] What you’re talking about is taking over their back office and handling accounting, inventory staff, that’s a more complex proposition. You’re going to need a lot more credibility. It’s going to be a challenge. You said are you missing something? Yeah, I don’t think it’s as easy as perhaps as you’ve presented in this email and I do think that before you write a line of code there’s a lot more feet on the ground research that probably needs to happen.
[31:50] Mike: Yeah. I’ll second what Rob said. I mean the restaurant industry is I’ll say technologically averse. So I’ve looked at this a little bit, there’s a website that came up on Flippa a couple years ago that was also in the restaurant space but they weren’t doing inventory or accounting or staff management anything like that. The only thing that it was intended for was for allowing a restaurant to take orders online. And I forget how much it was selling for but it was probably $2,000 or $3,000 and the price point was I think around $500 or $800 or something like that and they were not getting very many sales. I think they were only getting one or two a month.
[32:28] So the revenue was reasonable but what I am talking to the owner of it, it turned out that there was a lot of high touch sales that went into that because everybody wanted customizations. Everyone wanted it to look like their own website and then it came on to once they bought the software package they wanted all these customizations and then they wanted a whole website design and it tended to turn more into consulting engagements than anything else. The different things that you talked about, the accounting inventory, staff management, each one of those things could be its own software package because it’s such a large problem that can be solved.
[33:04] So I might look at some of those. Maybe you’re looking at a time tracker for restaurants or something like that because you want to be scheduling people to come in and work and that might be something that you want to translate into an online solution. But as Rob said, go talk to them, see if there are ways that you can figure out how they manage that problem now whether or not they do use spreadsheets or just call people up and ask them what their times are. Maybe you can put together a package where people can say this is the hours that I work. These are the hours that I don’t work and have the software package basically take the store hours and manage staff in the business based on who’s going to be available and when they’re not going to be available. So Marco hope that helps, thanks for the question.
[33:50] And the last question of the day is from Frank Anderson and he says hi guys, thanks as always for the inspiring and informative show. I’m building a Saas app and been looking at the various B to B app stores such as Sales Force and Mail Chimp. Do you guys have any experience or perspective on how helpful these can be in terms of getting traction with a new app? Would love to hear this discussed on the podcast. Thanks. Frank. Rob, I think you had a specific term for this. You called it integration marketing?
[34:16] Rob: That’s right. Yeah, I mentioned this in my MicroConf talk this last year. So the answer is it depends. The real key to making this kind of thing work is that you get an upfront buy in that if you build something cool you build a nice landing page that they will do an email blast for you or a blog post or something like that. A tweet, maybe you build it, maybe you don’t but just to build it to be in the app store and get a small trickle of occurring traffic every month, I tend to not do that. I’m not saying it never works out but most of the time that doesn’t work out.
[34:51] What’s really nice if you’re actually looking for establishing a sales channel and trying to get some early traction from early customers, you need that initial blast to all of their customers. And so think a little bit smaller than Sales Force and Mail Chimp because those are the ones that you can apply to and submit your app and you’ll get in. They’re not going to email their customer base about you because you’re a small fish compared to them.
[35:14] So as an example with Hit Tail when I started doing some integration marketing I contacted some smaller SEO Saas apps, some you may never heard of like Authority Labs which is a rank tracker. I actually contact SEOMOZ and wound up on theirs. You’ve probably heard of them. But the larger ones, we’ve integrated Hit Tail with Basecamp. That one didn’t do very well for us. And there were two reasons for that. The first is that they wouldn’t agree upfront to do any cut type of blast because they’re just too big and we knew that. But the integration itself wasn’t very hard and it was the first one we were doing and we kind of just wanted to do it as a trial.
[35:48] The second reason it didn’t work out super well is because the audiences don’t exactly line up. So you’ve named two services, Sales Force and Mail Chimp. Unless your audience really closely aligns with people who are using Sales Force and Mail Chimp, just because they have a lot of people using doesn’t mean a lot of them are going to come use your app. So with Basecamp, I mean it’s like a fraction of percentage of people who come over who actually sign up for trial whereas with SEOMOZ and Authority Labs, those are at least 10 times the sign up rate of the Basecamp integration.
[36:21] So that’s the first thing to think about is who can I find who’s small enough that I can talk to the founder and it’s not some big committee and I can say if I do this and do a really good job at it, are you willing to kind of email the audience and give you that initial kick? The second thing is to think about which apps are out there whose audience is really closely aligned with the customers that you’re seeking. So thanks for the question frank. I hope that’s helpful.
[36:46] If you have a question or comment for us, call our voice mail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups 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 153 | SaaS Pricing Tactics
Show Notes
- The data behind purchasing behavior at UserVoice – Article link
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I will be discussing software as a service pricing tactic. This is Startups for the Rest of Us: Episode 153.
[00:08] Music
[00:16] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:25] Mike: And I’m Mike.
[00:26] 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?
[00:30] Mike: Well it’s been about three minutes since we recorded our last podcast episode so I’ve got nothing new this week.
[00:35] Rob: Alright. Let’s dive into the topic today which is SaaS pricing tactics. This is based on an article written by Richard White who’s the founder of UserVoice. We’ll obviously link it up in the show notes. But his article is titled The Data Behind Purchasing Behavior at Uservoice – Pricing for Conversion. He did a two parter. We’re looking at part one and these are basically all the tests that they’ve run at UserVoice over the past couple of years.
[01:02] UserVoice is essentially a system to get feedback from your customers and they branch now into online help desk software. What’s cool about Richard’s article is that it’s not a lot of theory. It’s a lot of practical things that they toyed around with and that they struggled with in their early days. So the first thing, we’re going to cover five or six different points.
[01:22] The first one is his take on free plans. Basically for the first 10 months of UserVoice it was entirely free. There were no paid plans. He called it a public beta. And they had 39% month over month growth in account signups during that time. So what they found thought was that as soon as they announced they would be having paid plans at some point in the future, just announcing them, it cut their growth in half. He makes a note, he says you couldn’t even sign up for them. You could just fill out a lead form. And it should be noted that these new plans for the most part included features that weren’t currently available in the existing app.
[02:01] But what they noticed, that makes it sound like oh, well as soon as you introduced paid plans you’re going to cut those sign ups in half. What they found though is after 30 days the percentage of active accounts have doubled during that mite. So they basically cut growth in half but it was essentially the tire kickers who stopped signing up. So the takeaway that Richard White talks about is launching pricing earlier can help you find the real customers of your service and not be distracted by tire kickers.
[02:26] Mike: I find this interesting that one of the things that I think might be a little bit difficult to kind of differentiate is between who are the tire kickers that are using your product versus the ones that are actively looking for a solution to the problem. Because obviously you want to reach out to these people and understand how it is that they’re using it, how you can help them better. But at the end of the day you also have to be charging them for the service because otherwise you’re not going to stay in business for very long.
[02:51] I think that one of the ways you can do that is to figure out whether or not they’re actively using their account. I’m struggling to figure out what other ways you could use to figure out is somebody actually going to pay for this in the future or they’re just kind of playing around with it or using it for a free product that they have and they’re not necessarily willing to actually pull out their credit card and pay for it.
[03:11] Rob: Right. Basically trying to decide of all the active users who are actually using the product and getting value out of it, which of those are going to pay us if we do introduce paid plans? And I agree. That’s a tough question. My gut feeling is that unless you’re in like a real consumer niche or a niche where there are a lot of free options out there, that especially if you’re going B to B that if people are activated and they are actually using it that the vast majority of them would in fact pay you for the service.
[03:41] I can’t say that blanket across the board but if you’re actually saving them time or making them money, I don’t see why that you’re not going to be able to get quite a few of those folks to pay you once you start charging.
[03:56] Mike: Yeah. But even with UserVoice for example, I can see a lot of startups signing up for it and say oh, well I would like to have some sort of help desk or knowledge base for my products but I haven’t launched yet or I’m in the process of launching and trying to get it started. So I’m going to sign up for this free service over here but I wouldn’t be willing to pay for it if they were asking me money for.
[04:14] Rob: Yeah.
[04:15] Mike: So they’re using it in a business like setting but they wouldn’t be willing to pay for it. And that’s kind of what I’m getting at because I can definitely see scenarios like that but maybe that’s just a very specific scenario.
[04:28] Rob: Also, just the idea of having a 10 month free product that’s like a public beta, that’s just crazy. I would never even consider that again. Again, I can’t imagine doing that because the chaos of it, the thousands and thousands of free users who are never going to pay you and are never going to provide value but are going to complain that you don’t build features, it’s just going to be overwhelming. That doesn’t even sound interesting to me.
[04:51] So the whole 10 month public beta thing may have worked for UserVoice because maybe it was an innovative product and they really didn’t know who was going to use it and this was a way just to get people and to figure out how they were going to use it. And if that was their goal then cool, but if you have more of an idea of how your users are going to use it and you’re building something that’s I don’t know, more of a standard product or just more of a known entity, I don’t think – like I’ve always said, free plans don’t work. I don’t like premium models, that kind of stuff.
[05:21] Mike: Yeah. I mean they were funded to the tune of $1.8 million.
[05:24] Rob: Got it.
[05:25] Mike: That’s a little different.
[05:26] Rob: Right. So they really wanted the hockey stick to move up into the right and this is one way of doing it. Not in terms of revenue, just in terms of users. So the next tactic that Richard talked about are the specifics of their pricing plans once they introduced them. He said that they originally announced only two paid plans priced at $289 a month and $589 a month. So they went from free to basically $300 and $600 a month and they received a ton of feedback that people wanted sub $100 plans.
[05:55] So they expanded to five plans. They have a free plan, $19, $89, $289 and $589. What they found after they launched s that 77% of their revenue came from two of the plans. It was the most expensive one, the $589 and their $89 plan. The $289 which is in between those two, he calls it a wedge plan. It didn’t have a ton of extra features over the $89 plan and it was designed to make it easier for you to either stay at $89 or justify making the jump to $589 since that $589 had so many more features than the one below it. Why not just pay the extra amount?
[06:32] He also noted that their lowest plan, the $19 plan had a ton of accounts but at such a low price point relative to the others it was never going to be a significant amount of revenue. I’ve noticed this as well with my apps. I know that I remember WuFoo talking about this when they said it was like 90% of their profit was from their top two plans which were the super high end enterprise plans and everything else was more of a around. So his takeaway that some pricing plans exist simply to make other plans look better. That’s what he calls a wedge plan, that’s in between. While lower pricing plans can be a decent entry level for people, in general you are going to make the vast majority of your revenue and profit from your higher end plans.
[07:13] Mike: Yeah. What’s he’s referring to as a wedge plan is classic anchoring where you’re basically anchoring somebody’s concept of how much something is worth to the different price points by just having it in there. If you look around there’s various examples on the internet where you if you have two different plans that are close to each other in cost, let’s say you’ve got one plan that’s $10,000 and another one that’s $15,000. If you introduce a $30,000 or $40,000 plan then people will go for the $15,000 plan and look at it as much more reasonable than it was before. And in addition they won’t try to negotiate you down on some of the different pricing because you’ve got this massive plan out there that costs so much more and it’s obviously geared to other types of people and to look at it and say oh well, that’s just what it costs.
[07:56] Rob: The third tactic that Richard mentions is discounts. He says we had 13% of paid accounts on some sort of discount with an average discount of 52%. Not surprisingly the lifetime values of these discounted accounts were lower, they were 17% lower, the non-discounted accounts. But it was offset by the fact that they were also 17% less likely to have churned. And his takeaway is discounts can be a useful tool for driving conversions without undermining long term lifetime value. But heavy usage might signal issues with your pricing structure.
[08:30] Mike: Yeah. These numbers that he kind of cited are a little bit confusing because he’s saying that some of the paid amounts that had a discount, they paid less than 50% of what the actual price was. But they provided a lifetime value that was 78% lower than the non-discounted accounts. And he said that it’s offset because there’s 17% less likely to have churned.
[08:51] But what strikes me as odd is it sounds to me like by giving them a discount they’re more likely to stick around for a significantly longer period of time because he’s saying here that the lifetime value was 17% lower but they were given a 50% discount. So those numbers just don’t quite make sense to me. It almost sounds like he’s saying that they stuck around for longer.
[09:14] Rob: Yes. He is saying they stuck around for longer. Basically the mental piece of it is if you have a discount, you don’t want to quit and then not be able to get that discount again. So the fact that some people got what I imagined were positioned as one time discounts of 40% or 50% they felt like they were getting a really good deal so they’re more likely to stick around even if they may not be using it for a month or two. Whereas if you’re paying full price what’s really going to keep you there?
[09:38] I’ve used discounts in a couple different ways. I’m always pretty careful to use them. Typically when I do a launch, I always want to give the people who’ve been on the email list definitely give them a special discount because it’s a nice encouragement for them to get in and try out the app. You give it to them for the life of the account. Your grandfather them in. It’s a great way to get them in on the ground floor and like he said it actually reduces churn which is helpful early on.
[10:01] The other place that I’ve done essentially discounts is with affiliates. I don’t discount and do affiliate commissions but in essence, having an affiliate is kind of like discounting because you’re basically paying that affiliate a portion of the sale. And so I have used affiliate programs to just some success on some of my products so it’s another place I’ve used it.
[10:24] The last one is there are a lot of kind of perps, pages behind pay walls. So like in moz.com which used to be SEO MOZ and there’s a bunch of other membership sites. They will contact me and ask about discounts on a particular product and if it’s behind a pay wall and not going to be available to the general public I will typically – and they have enough of volume that it actually makes sense, I will typically go ahead with that. And so those discounts I’m talking about are a little different I think than what he’s talking about.
[10:53] It sounds to me like they were doing more enterprise sales with these really high price points and so they would probably negotiate individual discounts. I haven’t really done that. I don’t tend to want to argue over pricing but then again I don’t have $600 a month plans like he does. I think this is probably an interesting topic. I’d be interested to see more data on it as well as discuss it more in a future episode.
[11:15] Mike: Yeah. I think we definitely have to take a look at what your pricing points are and if you are selling into the enterprise, it’s almost expected that you will have an enterprise plan of some kind that is largely negotiable. I’ve seen enterprise plans get knocked down by 90% before which is just a crazy number to drop it down by. Some of them are really good negotiators and they will pick two different vendors against one another directly and say well this is my price point. Either you beat it or you lose the bid.
[11:42] Rob: The fourth tactic, Richard talks about is usage limits and he talks about that at one point they added usage limits on the number of users who could give you feedback. Since most of their plans were feature based, they saw very few upgrades post trial so they thought usage limits would drive upgrades as a company scale activity. And to quote him he says “this was a huge failure. It created what I call a success penalty: the more successful you were in activating your users to give you feedback the more expensive the product became.” So his takeaway is if you’re going to price on usage, it needs to be on usage that customer has control over such as number of seats, minutes used, etc.
[12:19] Now my take on this is that usage limits can work and that even if it’s something I don’t have control over, I just don’t buy into this success penalty thing. I think that for UserVoice to provide a lot of value to their customers, people have to get a lot of their customers activated and using it and so he’s right. There is a success penalty that’s not great. But if you look at it like analytics packages at kiss metrics or get clicky or there’s a number of them. They base their pricing on usage.
[12:47] And the idea is that as your traffic increases that you’re probably becoming a more successful company. You’re getting more value out of that product and you’re putting more load on their servers. And so you could call that a success penalty but I believe that works. In fact I based Hit Tail’s pricing on this usage model and that has worked out well for us. So I don’t think this is an absolute always works, always doesn’t. I can see how it didn’t work for UserVoice but I do know that it works in other cases.
[13:16] Mike: I think this is very largely dependent upon the very specific offering that you have, what you’re putting that usage limit on. Even within any given products, I mean you can put a usage limit on a ton of different things. And depending on what you put it on, I think it depends a lot on what the end user values and how much they think they’re going to use of something and how easy it is for them to mentally translate that back to their actual usage to figure out what they’re going to end up paying.
[13:43] I really feel like part of the problem that they had was that people don’t necessarily understand or know or have a good way to predict if they start using this, how much are users going to use it and what plan are they going to end up in because there’s a very big difference between $89 a month plan and a $289 plan. So if you’re kind of borderline and you don’t know if you’re going to have $700 or $800 voters then what does that mean on my website? How many votes am I going to get?
[14:11] It’s like well it depends on your traffic, depends on how engaged they are with your site. Depends on how much your support problems are right now. There’s just so many factors that to me, I look at that and I say that’s just confusing and I would have no idea where I’m actually going to fall within those users limits.
[14:26] Rob: Yeah. I’d agree. I think the other thing, look at mailchimp and a lot of the email marketing systems. I mean they base it on how many subscribers you have and that could also be called a success penalty but I would still say that actually works because when your list does hit 10,000 you really should be paying more than when your list was at 1,000.
[14:41] Mike: The different between something like mailchimp is that you have these people going into your mailing list and you can look at that and you can understand on a monthly basis oh I had 600 this month, 700 this month, 800 the next month. Whereas with what UserVoice was doing they’re saying well you get up to 1,000 voters per month. Well it could be 500 one month. It could be 3,000 the next and because there’s no accurate way to predict that, that’s where the problem comes.
[15:09] Rob: Yeah. That makes sense. And it also as you said, their pricing plans, they’re such a big jump between them that with mailchimp you’ll jump maybe $25 or $50 in a month but you don’t jump $200 like UserVoice did. So it seems to come down to you can do it based on usage limits. You can do it based on featured gating and what he’s saying is gating features for them worked better. I still believe there’s a very strong case to be made for usage limits in a lot of cases.
[15:38] The fifth tactic that he discussed is length of trial. He said moving from a 15 to a 30 day trial had no measurable impact on any metric that they track ‘til they kept it at 30 days for marketing reasons.
[15:51] Mike: That seems like a very arbitrary thing to do. You changed it and nothing’s seemed to change in their metrics so we just leave it there for marketing reason which are entirely arbitrary or arguable at that point.
[16:02] Rob: Yeah. It’s tough to measure. I mean if he got data then I can understand him doing that but I do question the logic of going with 30 days instead of 15 because with 15 you can iterate. You can test so much faster. And you essentially, if there really was no difference, I would always opt for a shorter trial because you just move faster. You can only do 12 split tests a year if your trial is 30 days long. If you want to mess with any emails during that sequence or any of that stuff.
[18:31] Whereas if you’re doing 15 day trials, you can do 24 different tests on your trial. I’ve always found that shorter trials worked better. Here’s the next piece of data I would want is to run some ads with 30 day trial lengths and run ad with 15 days trial lengths and see if one gives you more upfront clicks or more conversions or sends more people into your funnel. Because if that’s the case, then he’s right, you would want to go with all the things being equal, if 30 days just sends more people into the funnel then of course that’s going to make you more money in the long run.
[17:03] Mike: Yeah. But from the way you said it, it sounded like you didn’t have any measure or impact on any metric that they tracked and my assumption would be that they do track the number of people coming in and everything else. So like you said, it’s very, very hard to say.
[17:17] Rob: And the sixth and final tactic that Richard discussed is requiring credit card before trial, something we’ve talked about quite a bit on this podcast in the past. He says moving from requiring a credit card upfront to not requiring a credit card until the end of the trial had no effect on overall conversions. To quote him, he says the general view is that not requiring a credit card up front is good for new services where customers don’t quite know the value of a service. So this switch may have been more beneficial if we had made it earlier but by this point UserVoice was pretty well established and you knew what you were getting into. One group that really loved this switch was his support team – they now had a lot less angry emails from customers who had auto-converted and needed a refund which they always gave he says.
[18:00] Mike: It seems to me like you could still ask for that credit card upfront. If he’s saying that it didn’t have any effect on the conversions or trial sign ups, I find it hard to believe that it had no effect.
[18:10] Rob: It depends on what they were doing. Remember we talked about the totango research thing that we’ll link up on this episode as well but they basically said that your numbers are going to be totally different and this has been my experience. If you asked for it upfront, you get fewer people into your trial sequence but you convert a lot more of them in the other end. And if you’re doing more of low touch sales and you’re not actually reaching out to people, then that’s going to be your best approach.
[18:32] But if you are doing more of an enterprise model where you have inside sales people and you’re again, calling people on the phone, emailing directly, you’re really nurturing them along and you’re doing more of a manual intensive thing, then not asking for credit card and just getting people into the funnel then qualifying them to see, only going after the active users and all that stuff, it’s a much more time intensive approach. But the totango study says that results in more customers overall. So without knowing how UserVoice was operating during the trial, you can’t really make a call as to whether he conflicts with the totango stuff or supports it.
[19:05] Mike: If it really didn’t have any effect on those conversions or trial signups, I would probably lean towards not requiring it just so you reduce those support costs because obviously anyone who gets angry and comes in and says hey, I want to refund and not only do you have to pay the refund fee or whatever, but there are also going to be people who dispute the charges as opposed to reaching out to you so that’s going to cost you money. And then you’re going to have to have more support people to deal with those incoming emails.
[19:31] So everything being equal I would say yeah, in this particular case you wouldn’t want to require the credit cards but I think that in general, if you have a new business that you’re starting up, you want to ask for it just so that you don’t have to do these high touch things.
[19:44] Rob: Right. And I think with the new business as well you want people – as long as you’re conveying the value proposition pretty well n your landing page or pre-trial, then the people who give you the credit card are the most qualified and they’re the ones that you really want to engage with as you’re trying to build out those new features.
[20:00] So if you raise $1.8 million and you have to get to X thousand users per month and you just need growth, growth, growth, then yeah, maybe not asking for credit card is fine. As a bootstrapper, you need to get to revenue. You need to get to it quickly and you need to find the people that are really going to use your app and then find more people like them and you need to build out the things that they want rather than getting – if you ask for credit card upfront versus not, you’re going to probably get five times more. These are real numbers, five times more trial users into your funnel if you don’t ask for credit card.
[20:25] Now the question is is that a good thing or a bad thing? It’s a bad thing if you’re doing all your email support and your volume is five times as high or you’re doing all the on boarding and there’s any type of manual process involved in that because in the end you’re going to convert about the same or maybe it’s a few percentage points more but there’s so much more upfront work for you to do there. So there really are a lot of tradeoffs here and it’s about knowing what is best for your particular scenario.
[21:02] And as we’ve said many times, typical bootstrappers where you’re not quite sure what you’ve built yet, you’re not quite sure who should be using it, how to market all that stuff, I would always go to the people that are at least willing to take a chance to on you by entering their credit card and giving the app a try rather than the four other people who aren’t going to sign up but who would if you didn’t ask for credit card upfront.
[21:25] Mike: Something else to point out is that just because you make a decision one way or the other doesn’t mean that you can’t change it in the future. You could always start out by asking for a credit card and then as you scale up the business and you have people who are dedicated to support or dedicated to following up with new customers who’ve signed up for the service, then you can switch over to that sort of model and do more of an outreach program to help bring those people in.
[21:46] Rob: Absolutely. That’s a thing to remember is none of this are set in stone. All of this stuff is fluid especially in your early days pre-launch and probably for the first 3 to 6 months after launch. You will be changing some of these. So I always look at it as what’s my rule of thumb based on my experience and other people’s experience and research reports like totango. Make the best call that you can and see how that works for your business.
[22:10] And if there’s a big outcry from a lot of people who are interested in actually paying you money, then you need to reevaluate that or if your conversion rates are really low, you need to reevaluate that and that’s kind of the bottom-line with it. Without data for your particular instance, your app, your customers, your marketing, these are all just rules of thumb to get you started. But from there, you’re going to have part gut instinct and you’re going to have part a lot of data gathering to determine which direction to go with all these kind of pivot points.
[22:41] Music
[22:44] Mike: If you have a 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 152 | Strategies For Loading Up Your Pre-launch Email Lists
Show Notes
Transcript
[00:00] Mike: You know I haven’t paid a lot of attention to the discussions around the NSA the past month or so but I have a conspiracy theory I want to share. I think that the NSA is single handedly responsible for unleashing both Perl and Php around the world.
[00:11] Rob: And tune in next week when Mike and I answer hate mail from all the Perl and Php developers in our audience.
[00:16] Mike: This is Startups for the Rest of Us: Episode 152.
[00:19] Music
[00:28] 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.
[00:34] Rob: And I’m Rob.
[00:35] 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?
[00:40] Rob: Things are ramping up there. They’re starting to get exciting. Drip, I’m doing another small launch this time to about 25% of our list. So just cranking out a few last minute things before we go live next week. How about you?
[00:54] Mike: Part of the good news and bad news today because we’re recording a little bit early. So the bad news is there’s not going to be a lot updates. But I do have some good news to share and I know it’s only been three days but I have my first confirmed paying customer for AuditShark.
[01:07] Rob: Congratulations man. That’s awesome.
[01:09] Mike: So we’re still straightening out, things with the credit card but the agreement’s already kind of in place.
[01:13] Rob: This is like a momentous occasion. You have your first pay. How does it feel?
[01:17] Mike: Good. It was nice to get the email because I asked very directly. I just said now that the remediation information is in there because you said that was going to be a problem before, now that it’s in there and you could take a look at stuff, what do you think and is this worth paying for? And kind of want to get his thoughts on whether he thought it was valuable or not and whether he still found a need for it in his business and he’s like absolutely. This is what I was looking for.
[01:41] Rob: That’s great news man. Now to find 500 more people exactly like him.
[01:45]Mike: Yup.
[01:47] Rob: Congratulations again.
[01:48] Mike: Thanks.
[01:49] Rob: So I was wondering what your take was on Brecht Palombo’s suggestion for scalable content marketing for Audit Shark? So Brecht Palombo runs – with Scott Yewell, he has a podcast called Bootstrap with Kids and in episode 23 he outlined scalable content strategy.
[02:05] Mike: Well I listened to the episode and it’s funny because at first I was like I don’t think this would really apply to me because the stuff that I’m putting out there is ultra specific and it’s all remediation information so I wasn’t thinking it would be terribly applicable. It just wouldn’t be stuff that people were searching for.
[02:21] And then I got an email from Patrick McKenzie who basically said the exact same thing but he phrased it differently and it really made me think about maybe I could do this? So one of the things that comes to mind, if you haven’t gone over and listen to Bootstrap with Kids, definitely listen to not just that episode but the podcast. His podcast is pretty good. I’ve been listening to it all along.
[02:40] He lays out the strategy where he has something like 15,000 pages that are published to his website based on information that he’s gathering as part of his product. I can basically do the same type of thing within Audit Shark where all the different security control points that I’m looking for and not just those but also the steps that you need to go through in order to remediate them, I could take those, dump them from the database, add some metadata around it in order to address some SEO concerns and formatting and things like that. And then publish them through the website and make them indexable by Google.
[03:13] Rob: Yeah, and that’s the basis of that whole scalable SEO content marketing rather content – it’s not really content marketing because I consider content marketing to be more viral and sharable stuff. But it’s getting into Google and getting a large foot print and then as soon as you have any type of website authority, those pages, they start ranking for those long tail keywords terms and those are the ones that someone’s searching for some really specific searches. They tend to be more likely to have that pain point and more likely to convert.
[03:39] We’ve seen Patrick McKenzie use it with success on Bingo Card Creator and we’ve seen Brecht use it. We’ve see some other examples of it. But I definitely think if nothing else, it’s worth line item in your marketing plan and at least a trial implementation. But the thing is with scalable content I think once you do a trial implementation you might as well scale it up. Right? Because if you go to the problem of kind of defining stuff for 100 pages you might as well go to 500.
[04:02] Mike: Definitely. I think there’s going to be some work around the formatting side of it but in terms of the content itself I don’t think it would be very difficult to just – if you’re going to do it for one page, what’s the difference between 1 and 500? Because you’re already kind of automating it for a couple of pages.
[04:15] Rob: Right.
[04:16] Mike: You almost need to do a lot of them in order to figure out whether or not that’s going to be boosting the traffic because most of them are going to be very long tail things that aren’t going to get a lot of hits but the ones that do are going to be fairly targeted.
[04:28] Rob: Right.
[04:29] Mike: So definitely thanks to Brett and Scott and Patrick McKenzie.
[04:34] Rob: You mentioned you’re having trouble with your Nexus.
[04:37] Mike: Yeah. So it’s only a week old so I’m fairly certain it’s not the hardware but it feels like it’s just buggy. Whenever I open the browser, occasionally it will just crash on me for no good reason and I’ve had it shut down on me just randomly. So I don’t know what’s up with that but you know, I’ve read around a little bit. It seems like the Nexus’ got some bugs in it and it’s more operating system related. And also a lot of the apps that I download, I feel like every single app wants an always on connection to the internet so that they can phone home. And if you don’t have an internet connection they just don’t work.
[05:11] If it weren’t for those apps, I mean I could deal with the bugs. Yeah, it’s a brand new tablet. It’s probably going to have some bugs here and there. They’re going to issue same updates. I’m not real worried about that. The thing that bugs me is the apps always wanting this constantly on internet connection. That’s the part that bugs me because if I’m using it on a plane or something like that, I’m not going to have that. And what’s the point of having a 32 gig flash drive if it’s not even going to be used.
[05:33] Rob: Yeah. That makes it tough.
[05:35] Mike: I mean I’m going to keep it and kind of see how things play out but like I said it was an experiment so just kind of dip my toes into other realms of technology.
[05:43] Rob: Sure.
[05:44] Music
[05:47 Mike: Today’s episode is called strategies for loading up your prelaunch list. We got an email from Jack over at collabinate.com. He says hi guys, love the show. I’ve listened to every episode and was inspired enough to come to MicroConf 2013 which was amazing. I’m building a service called Collabinate which provides an API for hosted activity streams. It’s really all for building Facebook or Twitter style feeds into your apps letting you surface information for your users without making them dig.
[06:10] I’m writing because of something Rob said in the last episode. You mentioned you had 1400 subscribers to the Drip mailing list. My question is how the heck did you get that many sign ups prelaunch? I’ve had my landing page up for a few months now with ad words and Facebook ads pointing people to it for last month and I still have under 50 subscribers. Do I just need to spend more on ads or do you guys have other better strategies for getting more people interested to sign up? Thanks again for the great content you guys put out.
[06:33] So today what we’re going to be doing is we’re going to be talking about some of the different options you had for helping to scale up and build that list and then we’re going to also talk about some of the things to keep in mind while you’re doing that or in some cases before you go about launching into some of these different options.
[06:46] So the first one is to find websites that accept startup submissions. There’s at least a couple dozen places where you can do this. I’ve used a beta list in the past. I’ve got a spreadsheet that I put together with a bunch of them. So you can just go to Google and search for like startup announcements or software betas, things like that. There are a lot of different websites out there including reddit. I think reddit has a couple of sub reddits where you can go in and you can – I think one of them was called rate my startup or something along those lines.
[07:12] There’s tons and tons of places where you can post links back to your website and not just get signups but also get people giving you feedback and comments on either design or the product itself. You do have to be a little bit careful about some of that feedback because if they’re not actually interested in buying it then you kind of want to take some of their suggestions with a bit of grain of salt.
[07:31] Rob: With Drip I was able to get on several of this kind of beta, these prelaunch sites because there are two different types of these. There are some that only accept startups that have launched. I think like killer startups is like that and a few others but then you mentioned beta list and there are just some that are pointing more to like landing pages or startups that are in beta or are going to be launching soon.
[07:52] And the beta list in particular I’m pretty sure I got almost 300 email signups when it appeared on that site. So this is definitely something that’s worth sending at least a little bit of time on. All of the sites are not going to list you because they do get a lot of submissions and all of them are not going to lead to 300 signups but if in aggregate, you can either spend n hour or pay a VA to spend a couple hours and do this. It’s certainly something in those early days doing the things that don’t scale to kind of get the momentum going. It’s definitely up there.
[08:22] Mike: One of the things I did was I complied this list of different sites and then handed it off to somebody to go through all the different sites and get all of the required fields that they were asking for and just build a spreadsheet so that I knew all the information that they were asking for. And then either I will go through it or I’ll probably have somebody else go through it and just paste in the answers to all the different questions that they were asking.
[08:43] So there’s definitely ways to kind of scale us out and form out different pieces of it. But there are things like the description, the sales pitch, things like that, those are things that you’re going to want to kind of craft a little bit and put a fair amount of thought into it. It’s not like you can just say oh well, I need you to go fill out all these different forms because things like the founders name and your website and things like that, those are very straight forward but there are other things like the sales pitches and the URL’s and stuff, some of them you’re going to want to use tracking mechanisms for that kind of stuff.
[09:11] Another option for building your mailing list is use social media like Twitter or Facebook. I’ve been using Twitter to build out the following for Audit Shark and I’ve actually started getting large enough following that people from that are filtering into my mailing list. So basically there are certain tweets that are going out, specifically mention Audit Shark, hey check this is out and I embed different tags and they’re from Google to be able to do the goal tracking and identify clearly whether or not somebody clicked through from Twitter and then onto the landing page and then actually submitted their email address.
[09:43] Rob: Yeah. I think that’s a really good point. If you’re going to do this you should absolutely setup goals in Google analytics so that you can see which sources are converting for you. Because it’s not just about driving traffic. It’s about driving actual emails. And the nice part about this is if you vet these traffic sources early then once you launch and you’re actually going after paying customers, you already know which traffic sources you are going to focus on. So I haven’t done much with the social media angle, getdrip Twitter account and Facebook page but they’re just place holders at this point and I haven’t use them to really to drive leads at all.
[10:15] Mike: Third option is to ask to be a guest on podcasts. There’s a couple different things that this will do for you. The first one is typically it will get you links back to your website and drives them traffic and SEO a little bit. But the other thing is it gets you in front of more people. Clearly you don’t want to just blast out an email to tons and tons of different podcasts and just ask if you can be a guest on their show.
[10:38] What you really want to do is focus on the podcast that you believe are going have an audience that overlaps with whatever problem that your podcast solves. So if for example for Audit Shark I would probably go on to tech oriented podcasts or anything that has to do with dev opts, security management, those types of things. I wouldn’t want to go on to a podcast that talks about marketing and say hey you guys should lock down your servers. It’s not really applicable to the audience and when you start making those pitches, I almost feel like it would make you look bad by making a sales pitch to somebody to have you come on their show when it’s just totally not relevant to their audience because they’re not going to get anything out of it.
[11:12] Rob: Absolutely. And the thing to keep in mind when you’re pitching podcasts is you’re not pitching your product. You’re pitching a story. So what is the compelling story that you can offer to their audience? What is the way that you can make their podcast look good? So when I go on podcasts, I always make sure that I’m not on there to talk about Drip or to talk about Hit Tail but I’m there to educate their audience on how to market. And then I use maybe Drip as an example.
[11:38] or I’ll go on to talk about how to support an app or how to scale something and again it always gets mentioned because that’s the experience. It’s kind of mentioned on the side and that drives people to the site just because they become kind of curious about what you’re up to. So I found that it seems like the podcast listeners, if you’re in the right niche and you do get a nice lock-in with your core audience, you provide a lot of value to, then that works really well. But as soon as you stay out of that one, Mike said the conversion rates go down.
[12:07] Mike: Something else to keep in mind when you’re pitching to podcasters is you don’t want to send out those blank emails. As Rob said you do want to tell a story and you want to make sure you tell them exactly how your story is relevant to their audience.
[12:21] Rob: Right. I think we’ll have better luck talking about your podcast after it’s launched unless you already have a story to tell before it’s launched. Right? You need something interesting to talk about. And when I’ve pitched podcast I typically start with the people that I know because they’re just going to be more likely to let me on. And then once I have a few of them then you can start branching out because you’ve gotten better about talking about your product and your pitch gets a little better.
[12:45] But I hand send emails to every single podcast. I would never do a bulk send because you really have to hand tune that pitch in order for it to be anywhere near relevant. I will also, if I don’t listen to the podcast regularly, I would go back and listen to the previous three or five episodes just to figure out if in fact my information is a good fit for their audience.
[13:06] Mike: Great points. The fourth one is to use paid traffic on some of the various ad network. I did a quick search for ad network on Google and on the first page there was a search result named 25 ad networks for online businesses. So these different ad networks are very easy to find. Google ad words is clearly not the only one. LinkedIn isn’t the only one. Facebook isn’t the only one. There are a lot of them out there. Some of them are very niche ad networks so you can find some that only cater to certain audiences.
[13:31] And if you can find out that caters to the audience that your products solves a problem for, then you’re going to have much better results with that particularly ad network than within some of the others.
[13:41] Rob: Yup. I’ve done this every time, every time I’m going to launch something and I did it with Drip as well. This is a great way to find out which ad networks are going to work for yours and I absolutely got – probably in the several hundred and it may even be a thousand signs ups from this approach.
[13:56] Mike: The fifth one is something that I’ve started doing recently is I subscribed to helpareporter.com and I’ve been looking for any reporters that are doing stories that are related to security. And if you’re not familiar with helpareporter.com they have a daily email that goes out I think three times a day and it will include all these different reporters and a summary of what they’re looking for in terms of a story. They’re generally looking for sources of information.
[14:20] I got one today that was specifically looking for the security practices that you educate your new employees on in small and medium businesses. And they tend to spell out exactly what they’re looking for whether they want to do an interview. Sometimes they’ll say exactly who they’re going to be doing the story for. Sometimes they’ll just say it’s just an anonymous source or they’ll say it’s a podcast or something along those lines.
[14:41] I’ve even seen other startups that are doing this because they are trying to find content for their blog and they’re looking for people to interview. So that’s another way. It’s more SEO related. It’s not necessarily related to loading up your prelaunch list but that’s another avenue for marketing your startup.
[14:55] Rob: I used to use helpareporter. It became too time consuming at a certain point. If you have a bit more budget than you do time, there is a service that I use. It’s called bitesizepr.com. It’s $89 a month and you enter a bunch of info and they monitor helpareporter for you and actually write the pitches for you. You approve them or reject them and then if a reporter contacts and obviously you talk to that reporter but they basically take a lot of the grunt work. The three emails a day was a bit overwhelming for me.
[15:24] Mike: So the sixth strategy is to setup Google alerts and let Google search for new pages which match your search criteria. And in some ways this could be a little bit overloading just like you said that you found helpareporter.com to be because you’ll get emails from Google all the time. And typically you setup these searches and what you’re looking for is anywhere where people are talking about something that relates to your product. You want to go in, take a look and see if there are any non-salesly ways you can comment n whatever the topic is because a lot of these things will come back from blogs.
[15:53] Sometimes you’ll see things that are sales pages of your competitors, those you can generally safely ignore because they’re not usually going to allow people to just randomly comment on their site. But any blog articles that come up, what you’ll do I you’ll put a signature into the profile that you setup and then put the link back to your website and that will help drive some traffic back to your site.
[16:13] You probably want to use a VA for this kind of thing to kind of sort through and filter the data. I would say this is probably not one of the best sources for loading your prelaunch list because 1) it’s time consuming and 2) you’re going to have to put a lot of time and effort into it and you’re relying on traffic that you’re getting. So you’re also going to have probably some issues putting in any sort of tracking codes in and the URL’s that go back to your website. I would definitely rank this lower on the list on a lot of these other strategies.
[16:41] Rob: But I actually think there’s more value here than just building your prelaunch list. If you really are getting alerts and you’re seeing blog posts come up or forum threads or stuff of that nature and you go in and participate, you’re going to learn a lot about that audience and you’re going to learn about whether they are interested in your product. And if you actually post it into a forum or comment discussion and you come back and see what people have said, that alone could help you hone your value prop, hone your headline, hone a direction that your product’s going to go. You could really get into almost that customer development type discussion.
[17:13] I think there’s potentially more value here than just building the list. It’s obviously not scalable but I have definitely done this and spent many hours kind of pounding the pavement in this fashion.
[17:25] Mike: So the seventh option is to ask bloggers if you can write guest articles on their websites. Something to keep in mind here is this is very similar to approaching podcasters and asking them if you can be a guest on their show. Make sure that you’re making individual sales pitches to these guys but also, save your best material for these blog posts. You don’t want to be putting your best material on your own blog. You want to be putting it elsewhere. So that will help drive that traffic back to your website.
[17:48] Rob: I mean this is an entire art right? Of trying to pitch in and get guest blog posts. I get pitched probably once or twice a week for people to guest post in my blog and anyone that I don’t know or haven’t had some connection with almost always gets a no. If you follow me, if we’ve interacted at least once and you pitch a compelling story, you’ll see there are a lot of guest posts on my blog recently because people are doing exciting things and since we met at MicroConf or we’ve emailed in the past or I have some buy in or some interest in their story, it just makes it so much more likely that I’m actually going to say yes.
[18:21] So to be honest, there are some pretty good stories like on hacker news and some other marketing blogs about how to market your app through guest post and like I said, there’s a lot to it, a lot more than we can cover in this episode so I would go to Google and search for that and do some research because there’s a right way to do this and wrong way to do it.
[18:38] So the eight strategy or loading up your prelaunch list is it use SEO. A lot of people think why would I do SEO so early because doesn’t it take months and months to rank for a term? Is it really going to actually play out before my launch? There’s a couple responses to that. A lot of people think that their app is only going to take 3 or 4 months to build and it winds up taking 10 or 11 months. In that time, you can do a heck of a lot of SEO. And even if you don’t get a number one ranking and time to build your list you’ll be way ahead of the game than if you wait until you actually launch. So that’s the first thing.
[19:10] Second thing is I have seen using tactics that go after long tail keywords or giving away some pretty specific templates that are related to your business like Bid Sketch, when Ruben first started, he gave away web design templates and kind of stuff. That was way in advance of his launch and that was a big reason that his mailing list grew. I have seen people give away email templates. I’ve seen people give away all types of stuff that’s landing page templates, all types of stuff that’s actually actionable.
[19:40] So if you plug those two together where you’re doing some SEO for terms that other people aren’t doing a fantastic job with, and you’re giving something away and letting them know hey, if you do this, we’ll also let you know when we launch so that they’re aware of it, you can grow your list a lot faster that way.
[19:55] Mike: Yeah. I’ve seen people giving away different white papers or eBooks or things like that on their websites. A lot of times I’ll see this as a strategy post launch but I think you’re right. You can definitely use this prelaunch in order to start building your mailing list and getting people interested in it. You can also use that to start discussion and help guide the product direction before you launch so that when you do launch so that you aren’t just listening to crickets while you’re trying to wait for sales.
[20:19] Rob: And the ninth and final strategy is to pick some strategic early access customers. One thing that’s happened with Drip is a lot of the early access customers that have been using it and have been happy with it, they are bloggers themselves. They have large Twitter followers. And I haven’t even asked them but almost all of them written a post, a link to Drip, talked about it on Twitter, mentioned that they signed up. They’ve started to create a buzz which I really appreciated.
[20:42] If you are able to strategically pick some people who actually have audiences, the odds are that they always need fresh content and they always want to talk about what they’re doing, new things that they’re innovating. And if so you’re building something interesting and you do have the potential to let in people with audiences, I would always opt to do that early on.
[21:00] Mike: So those are nine different strategies that you could use for loading up your prelaunch list. Now as part of these strategies, there are definitely some things that you want to keep in mind. The first thing you want to keep in mind is that you want to use landing pages as much as possible so you can test what text is and isn’t converting. Because if you’re bringing that traffic to your website, and it’s untargeted traffic and by untargeted I mean it’s not targeted at a specific page, you’re not trying to pitch them on some of other website and bring them in, there’s a disjointed experience between the other site that they were on and the one that they’re going to if they click on I don’t know, something that say peaches and you show them a picture of oranges, that’s a disjointed experience. It’s just not going to jive with what their expectations are and they’re probably just going to bounce off the page.
[21:44] Rob: The other thing, I mentioned it earlier is definitely setup goals and Google analytics is the way I do it. There are obviously other options but if you don’t know which of your sources are converting then you’re leaving a lot of data on the table.
[21:57] Mike: Another thing to keep in mind is do not rely 100% on the vendor’s conversion stackers for some of the different ad networks. One of the ones I’ve been using pretty extensively lately is Facebook and their conversion tracker sometimes works and sometimes it doesn’t. It’s really kind of bizarre. Some things it does, it just doesn’t make a lot of sense and there are things that they do where they’ll count something and then I won’t see it on my website.
[22:21] What you really want to do is make sure that you’re using something that’s kind of a tried and true mechanism. I use kiss metrics. I also use Google analytics. But you want to use something in addition to whatever it it’s they’re offering so that you know that it’s working and you essentially get a double check on those numbers so that you understand whether or not they’re correct and you know whether or not to look for something else.
[22:41] Rob: Another thing I would do early on is install your remarketing pixels so there’s a bunch of providers for remarketing like perfectaudience.com or adroll.com I think Google does it as well. I have tried four different providers. And I found perfectaudience to be the best. It converted the best for me.
[22:59] But I have had the retargeting pixel installed on Drip since the first day I launched the landing page. Now the cookies only last I think for 60 days or 90 days so I won’t be able to retarget everyone who ever visited the site. But when I do launch I’ll have the previous 60 to 90 days worth of people who visited and didn’t give me their email address and I will be able to then show them ads and say Drip has launched or check this out because I know they’re at least mildly interested in the product.
[23:24] So before you start driving traffic to your landing page I would highly recommend it’s free to sign up for perfectaudience or AdRoll. Grab the tracking pixel and put it on your websites so that you can basically start cooking those folks as interested parties.
[23:39] Mike: And some of it kind of ties into that a little bit is if you are doing paid advertising to drive people through, if you don’t have time to manage and track that paid advertising campaign, shut it down because you’re basically just throwing money away, there’s a lot of little tweaks and stuff. You really have to be paying attention to these and put a process in place that allows you to understand whether or not it’s working and if it’s not, you either need to make the tweaks or just kill that particular one because there’s a lot of different things that you can try and if you’re not paying attention to those, you’re just basically flushing money down the drain.
[24:11] Music
[24:14] Rob: If you have a question for us, call 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. 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 151 | Getting Paid Before You Build, Dealing with Entrpreneurial Angst, Figuring Out How Much to Charge and More Listener Questions
Show Notes
- The Founder Test – based on episode 133
- Study from Totango about asking for credit card up front
- Swell iOS app – Pandora for talk radio
- TweetQureet – top tweets from your timeline in a daily email digest
Transcript
[00:00] Mike: You know, I’m really irritated. Miley Cyrus goes out there and gets naked and licks a hammer and it’s called art. I do it and I get kicked out of home depot.
[00:08] Rob: This is Startups for the Rest of Us: Episode 151.
[00:11] Music
[00:19] Rob: 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.
[00:27] Mike: And I’m Mike.
[00:29] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So aside from twerking, what is the word this week sir?
[00:35] Mike: I want to send out a thank you to Julian Corlett for putting up a website based on episode 147. Instead of giving you guys the long URL for it, we decided to just register foundertest.com. So if you go to foundertest.com it will take you over to the site. It’s a really good – I guess a summary of that episode. It takes you through all the different questions that you can answer and basically gives you a score at the end as to how well prepared you are to meet the challenges of starting your own business.
[01:01] Rob: Very nice. So last week I spoke about that I was going to be sitting with a glass of bourbon waiting for the Drip early results to come in, the trial conversions and things did in fact go well. I’m quite pleased with it. So Drip is now in the low four figures of revenue so that’s a good milestone to cross over from three to four. Then I think we’ll be doing another launch similarly. I say a launch, it’s basically an email to another small group within the email list.
[01:27] I originally planned to do 10% or 20% of the list basically send them an email and then send to the other 80% to 90% but given all the work that it took to do that first small chunk, I think I’m just going to kind of break it down into small pieces because since our on boarding is pretty intensive, I just can’t imagine trying to handle eight or nine times the load that we handled to get everybody up to speed.
[01:51] And so in order to not sacrifice people’s early user experience with Drip, kind of take it as it comes and then it will be nice because MicroConf Europe is in two weeks and so I’ll get another group in and before that, probably try to get someone in mid to late October once I feel like we really have it down.
[02:07] Mike: Very cool. I’ve got all the new UI code that we’ve been working on for Audit Shark out live. There’s a bug that’s in there right now that we know about that is not displaying the instructions for fixing problems that it finds and that’s just a problem with the angular js. It strips out all the HTML tags that we basically put in there used in mark down language and angular just strips it out just more for safety considerations than anything else. So we have to figure out a way to either put them back or to strip out that piece a bit.
[02:38] But the other thing that I’ve done is remember how you’ve been asking me if there were any other pieces that are essentially preventing people from moving forward and actually paying for it. And I’ve asked those questions. Right now I’m just waiting for the feedback from them to see where things stand right now with this new code in place is what they’re looking for or if it’s not and we’ve got more work to do.
[02:58] Rob: Very nice. So if I recall you had two things left to get done before you felt like you could start charging. One was the new UI, and you’re saying that’s live and the other is remediation and you said you guys just found a bug that you’re technologists, I’m sure you’ll figure that out in the next week here. Once remediation is done though that’s kind of where you think the line in the sand is drawn but I guess you’re going to wait to hear back. You’ve already asked the question and you’re waiting to hear back if that is in fact the line at which people will start paying.
[03:26] Mike: Yeah. I asked if that was the line and if it’s not then they’ll let me know. But I truly believe that it is and even without it showing some of that stuff right there, I can hack in a little bit. It just won’t look as pretty. It will still give them the information. It just couldn’t probably look a little bit better. That’s a fix. It can be put in on the next day or two so I’m not real worried about that. But really it’s just a matter of getting their feedback and I’m going to start putting more people onto the system regardless of what they say and start getting more than just a few people’s feedback on that.
[03:54] Rob: Yeah. I definitely think that will be helpful. I’ve noticed that the more folks that I get using Drip, the more data points I have and it’s hard to make decisions when you only have 5 or 10 people using your app because everybody’s just kind of all over the place and their specific needs come at you and you feel those are the most important things to do. But when you have 100 or 1,000 people using it, it’s actually easier right? There’s more data coming at you but it’s easier to pick out the things that are most critical and that you should tackle next.
[04:23] So I ran across a really interesting study. It was actually emailed to me by Ruben Gomez in bidsketch and the studies from totango.com and it has something to do with whether you should ask for credit card upfront. And we’ve talked about that time several times on the podcast and so we will link this up in the show notes but it basically supports the stands we’ve taken on the podcast of when in doubt, ask for credit card.
[04:46] But if you have a higher touch sales process and you have people in place, you have the labor force there to make phone calls or to actually close sales, then you can think about not asking for credit card and you will close more people if you’re doing it right. So that was the results of the study but it was nice to see it point out in numbers and totango just did a really good job of putting the study together. What else is going on with you?
[05:10] Mike: Well I bought a Nexus 7. It’s based on the Google android OS and it’s just a seven inch tablet.
[05:16] Rob: So what do you think about android versus IOS?
[05:18] Mike: I feel like it’s harder to find things in the android store and I’ve only used it for a day and a half so I probably don’t have a good basis for saying that just yet. But it feels like it’s a little bit more difficult to find apps that are like business related. It feels like the android ecosystem is trying to push pretty much anything at me like saying go over here for movies, go here for music and here for apps, here for games. And I’m not really interested in most of that other stuff. It’s just having to navigate around in the android store.
[05:58] Part of the reason I bought the Nexus though is because I’ve started to realize in some ways my knowledge of technology is starting to become a little bit obsolete because technology’s just kind of progressing so fast and I really haven’t taken the time to stop and update my skills or familiarize myself with different ecosystems and operating systems in quite some time.
[06:21] So I figured it would be a nice idea to kind of sit back and go through android a little bit because I don’t have an android phone. I’ve got an iPhone. I’ve got iPads and I got a Mac book pro and I also do a lot of stuff on the window side. And android is really just not something that I’ve delve into so I thought it would be a good idea to kind of invest in myself a little bit.
[06:38] Rob: Very nice. Yeah, I’m also taking a tack with that since Drip is written in Rubyonrails I’m actually going through one month rails which we mentioned a few episodes ago, about half way through that course, it’s been good so far. And I also have been working with Git in GitHub. Learning a lot there, just trying to get up to speed so that I know enough to be dangerous and make some tiny changes to Drip now.
[07:00] And again since it is technology that I have never developed in full time, the ruby on the rails syntax makes sense. It’s easy enough to learn now but it’s kind of the larger paradigms I think that are hard to learn when it’s not something you’re doing 30 or 40 hours a week.
[07:16] Mike: I think that learning that stuff is just it’s not just a matter of being comfortable with it but it’s also the matter of being able to make technology decisions for your business moving forward and that’s really the reason why I picked up the Nexus. I know that I think in a month or so there’s rumors that the new iPads are going to be coming out and I’ll probably pick one up then at that point just because the iPad that I have now is from several years ago. It’s the iPad version one. I haven’t bought a new one since then because it’s done everything that I needed it to do.
[07:45] But just from a standpoint of familiarizing myself with different technologies, that’s where I see it as kind of a necessity. Like I’ve said, I’ve looked at some of my skills and I feel they’re becoming a little bit on the obsolete side because I just don’t know enough about these other things to make decisions.
[08:02] Rob: Sure. And that happens fast. So our podcast is now inside an interesting app. It’s an IOS app called Swell and it’s basically Pandora for talk radio, that’s their tag line. So you have to apply to become part of it as a podcaster but as a listener you can just download it for free in the app store. So I’ve heard about it on this week in startups so I emailed them and they let us in which is cool.
[08:27] I’ve been using Swell for a few days and it is pretty good. It starts to hone in on your taste. I wish it had more podcasts. There’s a lot of NPR and like ABC news audio and BBC and stuff so it is definitely more geared towards talk radio at this point. I think they’re trying to keep the quality high. But if they make it a better discovery engine for podcasts, I would absolutely be listening to that a lot because frankly I seek out new podcast and if they do in fact crack this, make it the Pandora for podcasts instead of just for talk radio.
[08:59] Mike: Hey we’ve got another thank you from Joseph Blackman who says hey, I’ve been a listener for over a year and I’m thankful for the breadth and depth of your knowledge. I don’t code. I don’t have a Saas app and I don’t have a startup. I just like the core values and thought processes that you two have. I bought a business in the east bay area because I don’t have any cool ideas of a startup but I know once I get into the corridor it will start to flow. Thanks for being yourselves. Don’t change. Don’t conform. Joseph.
[09:22] So thanks Joseph. It’s really great to hear when people quit their jobs and kind of go down the road of being a bootstrapper.
[09:28] Rob: Yeah. On that note we should add him to the success stories page on the website.
[09:32] Music
[09:35] So today we’re going to be diving into a number of theirs listener voicemails, listener questions, some just listener comments helping other folks out who have written in the past. So we have some good stuff. We’re going to be talking about getting paid before you build a product, dealing with entrepreneurial angst, figuring out how much to charge and a few other things. So let’s kick it off on voicemail to comment on Mike’s recent explanation of Audit Shark.
[09:57] Voicemail from Dave: Hey guys! This is Dave from Ohio calling. Listen. Love the most recent episode. Mike, hats off to you. Hope you are feeling better. It takes a lot of courage to come out and talk about that on the podcast. And certainly hope you’re feeling better. Don’t worry about the Nay Sayers. Screw those guys. Second thing, I really loved the most recent episode because I really have a great idea now of what AuditShark does. I was in that camp of not knowing exactly what it did. It really really helped to understand all that work. And Rob would love to hear the exact same detailed kind of talk about Drip as well. So, listen love the podcast. Guys take care. See ya. Bye-Bye.
[10:30] Rob: Thanks Dave for the voicemail and certainly for the encouragement. I’m glad we did that explanation of AuditShark because I got a couple other comments that said it really enlightened them and gave them a better idea of the problem, the pain point that AuditShark is going after.
[10:43] So Dave asked basically what is Drip and I kind of have it boiled down to just maybe 60 seconds. In essence, so Drip is an email marketing app. It’s the easiest way to capture drive by website visitors and engage with them using an email mini course. So most of us know we should be engaging with prospects via email but it’s time intensive to do that. So Drip’s single purpose, the sole reason that I came up with the idea and then wanted to build this is to fix that time issue with setting up an email mini course and capturing email addresses on your site.
[11:16] So it goes all the way from capturing emails to helping you create a mini course and then to tracking your trial and purchase conversions from the mini course. It’s basically three steps. The first is you install one snippet of java script code into the footer of your website and then you have an email capture form that appears on every page of your site. So you don’t have to modify any code and you can go into the Drip web app and you can modify that headline, moving forward in the description and we’re going to be adding the ability to split test that form against itself. And you can go to hittail.com and you’ll see it in the lower right that’s an example. You can also go to planscope.io and getambassador.com to get an idea of it.
[11:51] So the next step, after you’re capturing emails into Drip is we offer what I think is the fastest way to get an email mini course live. We literally spent weeks building and honing and making it simpler and simpler and I think we have the simplest email sequence or auto responder management flow. So basically creating an auto responder is very simple and I’ve used mailchimp, I’ve used Aweber campaign monitor and I like to say we’ve turned auto responders into a first class citizen instead it being just a bolted on piece like it is with the other providers.
[12:25] So the kicker is so yeah, we’ve given you a tool but now we’ve put something on your to-do list. It’s to put together a five day email course. So for free originally I was going to charge for this but I figured out it’s just to our benefit to do it for free so no charge to people signing up. We will compile a five day email mini course for you if you have some existing content that we can pull from. So if you have five blog posts or an eBook or something we can grab, we have templates that we just put them into. Basically the end goal is to increase your conversions right? Either to trials or buyers, that Drip should pay for itself every month. And so we track those as well.
[13:01] So you can see if someone originally hit your site from say a Google search, searching for particular keyword, then went through your email sequence, clicked on a link and email number five and then converted. That’s another piece of function I haven’t been able to get out of any other – all my analytics tied together, I still can’t see that. And that’s what Drip has given me. It’s given me insight into hittail’s flow.
[13:24] And then yeah, the last point is we do offer split testing within email sequences which is not something that I’ve seen in any other product. So the most common question after I kind of – that’s the pitch right? And the most common question I get is should Drip replace something like mailchimp or does it add on? And it can do both. We have broadcast emails. We have all the basic functionally with something like mailchimp but we also integrate with mailchimp in case you want to – if you’re really invested in mailchimp or Aweber, sales force or something else. We have an integration where we push every Drip subscriber to your either system. Mailchimp’s done and then we’re working on Aweber and sales force and they should be done in the next couple of weeks.
[14:00] Mike: When I got started with Drip, it was very easy to set up an email campaign where if I want to be able to teach somebody and get them on a mailing list, it allows them to do that very quickly and it automatically builds all the codes to put that widget on my site to capture that information. So that’s not something I’ve seen from other email marketing tools that are out there. And then in addition, the sequencing that is in getdrip is I would say superior to a lot of the other things that I’ve seen out there. Not to say there aren’t things that are comparable but it was just very, very easy, very intuitive to get in, get started to do it and I wasn’t even asking for any help.
[14:34] Rob: Nice. So yeah, it’s at getdrip.com it’s just a landing page right now but we are letting people in slowly like I talked about earlier in the episode. Next we have a voicemail that’s about getting paid upfront before building your app and it actually refers back to comments we made a couple episodes ago.
[14:52] Voicemail 2: Hey guys! Love the show. At the end of episode 147 you answered a question about a listener who wanted to know about getting money upfront before a product was built. Your answer did a great job of explaining the options. And your thoughts on the viability of that technique but I would like to see you spin that in a different way. Maybe more in the way that this guy actually asked the question which was what he heard a lot at MicoConf. That means people were really a proponent of that technique. And also if it’s a needed avenue if you need the development money upfront in order to get the product created. And you really feel like it’s the best way to go. What are some of the things to consider as you actually enter into that strategy? Anyway, love the show. Looking forward to the next couple episodes. Have a great day. Bye-Bye.
[15:37] Mike: I think that’s a great question there. From my standpoint, what you’re really trying to do is you’re just trying to validate that people actually are willing to pay for it. When you ask your friends or your peers whether something’s a good idea, nobody wants to hurt your feelings. So they will probably agree with you in many cases when if you were some random person off the street, they may very well disagree with you.
[15:58] And when you’re talking to those types of people that you do have that relationship with, asking them for money is essentially that dividing line. It’s the red line where the rubber meets the road where they’re going to say is this something that I would actually pay for versus something that I just say hey, I think that’s a great idea. And oh yeah, I think you could definitely charge and make money for it.
[16:19] But if they’re not willing to put their money where their mouth is, that’s where it becomes different. I think that’s in many cases the dividing line between when you’re talking to people that you know versus you don’t know as to whether or not it’s a good idea. If you’re talking to just random people and they’re telling you that it’s a good idea and they would pay for it, then you can take them – I’ll say a little bit more face value because they’re not so invested in a friendship relationship with you of any kind that they’re going to say things that will in some ways appease you. And you don’t have that level of investment with people that you’ve just met I’ll say.
[16:50] The second piece of it is whether or not you want to ask for money when you’re trying to fund a product. I think that one’s a little bit harder for me to answer because I’ve never gone down that road. I would have to say that if you absolutely need some level of money to make it work because you need to invest in tools or what have you, I would be doubly sure that what you’re doing is actually going to be received by the market and there are people willing to pay for it and then if you can fund it through your own personal finances.
[17:18] Because really what you’re doing is you’re investing in your own future whether it’s tools or training or infrastructure what have you, those things are an investment of the future and it’s going to be difficult to get to where you want to go if you’re always looking at things as if they were expenses rather than investments.
[17:37] Rob: First comment that Dave made was about a lot of people mentioning about MicroConf, if I recall, only one person mentioned it and then some other people referred back to it. So I don’t take it as something that’s like super popular or that a lot of people are doing. I know Nathan Barry has done it. He’s the only one that I know who’s done this in recent memory and actually had success with it and got I think he had 1,000 in presales or 1,500. It wasn’t a huge amount. It wasn’t enough to fund the development of it for sure.
[18:02] The question that I have about is because I’ve never done this and I don’t plan to do it. I have some reservations about it. I think we mentioned that. But I’m not even sure it’s legal to take money that far in advance when you haven’t even built anything. I know it’s not legal to take money if you don’t have a physical product to send someone. Do you know if it’s even legal to do it if you haven’t built software?
[18:19] Mike: I don’t know if it’s legal but I’ve done it.
[18:21] Rob: Okay. Well, there you go.
[18:24] Mike: I mean it was for my alteria’s training product. I put it out there, had people – they were able to pay for it, they were willing to pay for it and people were actually making payments and then after they made the payment I had to go and refund their money because I didn’t actually had a product. But it was just because I wouldn’t to put that hard line in front of them to say will you cross this line? And if so, what is the bend for that?
[18:43] Rob: Got it. So that’s a good point. You took the money but then you refunded it right away and that’s different than what – Dave’s talking about doing it in order to fund the product so that you would actually be keeping it. I don’t think that’s legal. I’ve never heard anyone do it to fund a company. The other thing is it could get complicated. Let me give you an example. We started building Drip last December and I had emailed folks in like October, November and said here’s the basic idea of it. Would you pay X dollars a month for it and I gave them a specific price and some people said yes, some people said no.
[19:13] The people who said yes I said okay, I understand it has to have value for but I am going to hold you to that. I wanted them to make a commitment. And that’s the key thing you’re trying to get here is an actual commitment for someone to buy it when it does come out. I felt like since I knew these people, some of them anyway, that their commitment was worthwhile. And if I had taken money at that point for the first month or the first six months worth of the service, it would’ve kind of a crazy ride because I expected it to be done in 3 to 4 months, that was the original development cycle and here we are 10 or 11 months later and the product is just about to launch.
[19:45] I mean we do have paying users at this point so I guess early access would’ve gotten it a few months ago but bottom-line is if you take money from someone then you are really on the hook for something very quickly. Like you can’t say alright I’ll be back in a year, give me your first six months of payments. You need to turn something out quickly. So you’d have to have a pretty small product or be pretty sure about your development cycle.
[20:08] Again, I tend to be a little more risk averse than some people. Some people put $20,000 on credit cards and I won’t do that. And this is also an approach. I don’t think there’s as much value in it as some people might think. It might sound great to get this money upfront and be able to pay for it but I have I serious reservations until I see someone pull it off and pull it off well. I also think just doing it on a landing page which is how I’ve seen it done leaves money on the table. I think that you will get more people to buy if you just collect emails and you actually build a product that you have to show to them and then they can decide whether to buy it or not.
[20:37] If you force them to pay five months before the product’s done, you’re going to get less money upfront during your launch. I don’t know if that still answers the question. Thanks Dave for calling in and getting us to discuss it again.
[20:48] Mike: I think the real point is just getting that firm commitment. And when you ask them for money it doesn’t mean that you take the money. It just means that you’re asking them for money. That’s the very subtle difference I think that most people are kind of skipping over in their minds like oh you’re asking for money so you’re taking the money. It’s like no, I’m asking for money and you’re just trying to get that extra level of commitment.
[21:06] Rob: So our next email is actually a comment from MicroConf attendee Tim Kohl. He says hi Mike and Rob. I was catching up on old episodes of your show today and heard your listener Scott Underwood in episode 147. He described how he was contemplating doing a consulting engagement as basically a product development exercise. I actually did the exact same thing last December so thought I’d share my experience.
[21:29] Tim basically goes on to say that he found a company that approached him to make basically a plug-in and it didn’t have the money to pay his full consulting rates so he says so what I did was charge him 25% of my normal hourly rates with the understanding that I’d be building a mini product that I could resell at my leisure. I made sure to bill in my normal way with an invoice at the end of the month listing the full hour rate and then adding a clear 75% discount at the end.
[21:54] This way the client perceived a tremendous value in the work but didn’t have to pay more than they could afford. It had the added bonus of controlling scope while the discounted hourly rate wasn’t huge, it was still large enough to discourage scope creep and motivate the client not to want to add every little custom feature that wouldn’t necessarily make sense to have it when I resold it. The development portion worked beautifully and all told it took only 50 hours to build and I now have a super niche product for which there’s a real need ad no competitors. Mostly everything I developed is easily applicable to other businesses also in his line of work.
[22:28] So that part was a resounding success. But here’s where I messed up. I figured I’d need to resell the solution to 10 people to break even on the 75% hourly rate discount. And if I only count development time then that turns out to be accurate. But I didn’t allow for any time to actually make sales because users in this market are relatively on sophisticated lot. So they’re very hard to find on the internet and it sounds like it’s just much more of a high touch sales process.
[22:51] I spent almost as much time/money in gathering a list of a few hundred phone numbers and having an assistant prequalified leads as I did developing the software itself and now actually making those sales is held up on me finding the time to make those few hundred phone calls. Anyway if you’d like to forward my contact info to Scott feel free. I’d be happy to talk to him if he hasn’t already pulled the trigger. All the best.
[23:11] Rob: So thanks very much Tim for writing and definitely enlightening. I like the way Tim handled that. I also think a difference is Tim’s product only took he said about 50 hours of development where Scott’s if I recall it’s a Saas app and I imagined it’s several hundred hours worth. Our next email is from a listener in southern Indiana and he’s emailing us about dealing with the angst of being an entrepreneur with a good full time gig and he’s wondering how to get out of the 9 to 5 mindset and frankly whether he should.
[23:40] So he says hi Mike and Rob. I’m 33 years old, married, one kid and a nice house with a big mortgage and a full time gig as a systems consultant. The pay is very good for the area in which I live. I like everyone I work with and everything’s going well. There’s nothing to complain about other than it being mundane sometimes. I always say it’s the best job I could have if I liked working for someone else but I’m not happy. What’s wrong whit me here? I have a deep seeded desire to quit worrying about the mundane details that go on in my job and do something more important with my life.
[24:07] I’ve listened to your podcast and consumed a slew of other resources during this time about moonlighting, working for yourself etcetera but I’ve never made a mental commitment to actually seriously think about quitting my job. It’s comfortable, routine, easy and I have little responsibilities like on call schedules. I also have no real support from my wife, family or friends. My entire social circle is made up of 9 to 5ers that either think I’m “interesting” for running my side business or think I’m selfish and should spend more time with my family.
[24:33] I realize I should go out and meet others like me. They do exist in my community but it’s hard for me. I’m a major introvert and I really hate the schmooze sessions. I’d much rather be coding. It’s also hard because they’re outside of my typical social circle. Frankly I have no idea where I go this bug from. I know no one close by that has any desire to do anything else with their lives. I could go on forever but I’ll spare you. I appreciate any advice or assurance you can give me. I just hope I can get my mindset changed and actually take you up on it.
[25:00] Mike: Well there’s a lot there. Where to start? I think that if you look around the country there are probably tons of other places that would provide you with the same experience where there’s not many people who are in your social circle who are interested in doing those kinds of things. I think that unless you live in or around a major city then chances are really good that you’re not going to have friends who are also trying to build a software based interest business. So that’s the first thing. Definitely don’t feel like you’re alone in that regard.
[25:33] The second thing is that you have to really decide whether or not it’s something that you want to do or if it’s just something that you’re interested in. I’ve heard a lot of people who basically looked at different things that they were interested in doing in their life and decided hey, do I want to build a business around this? If you’re interested in let’s say golf, do you want to go out and become a professional golfer? That may or may not be realistic depending on your skill set but the same time, once you decide to do that full time, it becomes a job.
[26:01] So is that what you want to do to yourself? Is that the position you want to put yourself in terms of billing a product? It sounds to me almost like you might be in a better position if you have a co-founder who can do a lot of the customer development side of things and push on that side that you’re not necessarily comfortable with or that you don’t want to do because you’re going to find that when you own your own business, there’s a lot of things that need to be done and if you don’t do them, you’re going to have to find somebody else to do them or they don’t get done.
[26:30] So those are just some of the challenges that you’re going to probably run into going down this road. But I definitely feel like this is a mindset thing that a lot of people have. It’s very difficult to give up a 9 to 5 job that’s very steady, very stable and pays very well. I think if you don’t have the support of your friends and family, I mean your friends are one thing because they may not necessarily understand what it is that you’re trying to do but definitely if you don’t have the support of your family, is very, very hard to try and do anything substantial or make it into anything more than a hobby.
[27:00] Rob: I think the first question that you should ask yourself is how unhappy are you at your job? It sounds like you like your job but there’s some restlessness going on. But how burning is that restlessness? Is it just killing you? Because the people that I know who have left their jobs and made this work, they had to do it. Like in all caps, THEY HAD TO DO IT. It wasn’t a matter of I’m comfortable, I might want to do something – wouldn’t that be fun to do it? Because you’re just not going to make it. You’re not going to make it through the long nights, the weekends, the comments from friends and family, all that kind of stuff.
[27:33] If you have to do this you absolutely – you view it as kind of a lifelong regret if you don’t do this, if in 30 years you look back and said you know what, I had a good life as a consultant and you imagined that that’s going to make you happy then do that. But if it’s a burning desire, and it’s something that you absolutely cannot live your life without doing, then take this more seriously.
[27:52] Second question I would ask is really try to get down to the nuts and bolts of like why do you want to leave your job? Where does that come from? I think like Mike said, is it just an interest or is that something like a burning desire? Is it a hobby? Because I was into startups in the 90’s when I was in college and it was just this fun kind of diversion. It’s something like I don’t know, watching reality TV or reading a romance novel on the plane. It’s just kind of a fun entertainment thing and is that what it’s like for you or do you feel again this burning desire to kind of have a legacy that’s different than the path you’re traveling now.
[28:25] I know it’s complex. It’s not something that we can answer in a single podcast episode here but I hope that helps and definitely thanks for looping us in on your decision. I imagined that a lot of other listeners might feel this way as well. Alright, our next question is about how much this person can charge for their twitter digest service.
[28:43] This is from Andrew Bonnello and he says hi Rob and Mike. I wrote TweetQureet to scratch my own itch and we’ll link that up in the show notes because the name is hard to spell. He said my own itch is too many interesting people to follow, no time to monitor my timeline for top stories. Lists are manual and need maintenance. Tweet recommenders I’ve seen send to use social signals like retweets rather than subject and theme. Can daily tweet filtering based on the user’s own interest be automated?
[29:08] Once the user signs up, they get a daily email digest of up to 10 top tweets. If there are more they can explore a timeline page with the full list. I’ve completed the initial bare release and I’m looking to grow rather than branch the product in new directions. For enterprise customers I want to figure out how much can I charge individuals who get value out of the service. I’m not looking for exponential growth in user numbers or a high profile buy out. I just want a solid engaged user base and a recurring monthly revenue stream of three or four figures. Do you have any suggestions?
[29:36] And a little bit of background, he says I’m a software developer formerly at Google and DreamWorks animation. I quit full time work about three years ago to try and use my software skills to build a sustainable online business for myself.
[29:46] Mike: It sounds like this is geared more at the consumer market than at the business market. Twitter already sends out emails on a daily basis to say hey here are top tweets from people you follow or people you might be interested in hearing from. But it sounds like this is positioned a little bit different where they’re essentially data mining the people you follow to find out what stories are trending within that list of followers that you might be interested in hearing from or hearing more about.
[30:15] Obviously if you’re following a lot of people then there’s tons of tweets that fly by on a daily basis that you never see. So this is essentially a service that will help you filter those down a little bit. It’s hard for me to just generalize and say this is how much you could charge for but because it’s a consumer based product or at least that’s kind of the way that I see it, it seems like you probably could not charge very much.
[30:37] I think that probably $10, $15, $20 is probably the top range. I hate saying you should charge $5 or $6 for it because you start getting down to the point where one support call just blows your entire profit for the entire customer. I think that the $10 to $20 range is probably something you could pull off but again I look at something like this and I would probably not use it. I don’t know if I’m the best person to be asking for pricing advice on that.
[31:03] Rob: I think that’s the key is asking us, you can get our opinion but I probably wouldn’t use this either so I think you really need to find people who are willing to pay you for it. They’re the only people who can tell you what they’d be willing to pay because they get some kind of value out of it. If you’re trying to bootstrap and app like this, you need to find revenue. And in order to do that you have to provide value. So who do you provide value for?
[31:27] I can imagine this as a funded IOS app that’s given away for free when someone raises a million bucks, builds it and then tries to sell it to a twitter or raven tools or Google or someone. So I just don’t even know there’s a revenue model here until you have someone paying you money, I don’t know that I think that there actually is a group that’s willing to pay you unless you do go up into the B to B space. Right?
[31:51] You try to make this – I think we talked a little bit about on twitter but try to make it a brand monitoring or some kind of system that actually helps a company save some time, makes them money, saves the money that’s sold on value. Without that, I just don’t know. Without really knowing who desperately needs this, if it’s just all consumers can use it, then it’s not going to fly.
[32:12] Mike: Yeah. I think the biggest problem that I see with this is that essentially you’re showing people tweets that presumably they’re probably already getting in some way, shape or form and you’re aggregating them in some special way that allows them to see things that are most interesting to them which is very subjective to begin with. So essentially what they’re paying you for is a level of trust that you are searching through the tweets that they’re already supposed to be getting and presenting them with ones that you feel would be interesting.
[32:39] And because those things are already available to them, then you’re somehow saving them time of searching through these. But you’re bridging that gap between how much time are they spending on it versus how much effort does it take to find those. I think that in the consumer space people value their time a lot less than in the business space.
[32:58] Rob: Our next email is from Doug Martin. It’s on the value of consistency. He says I’ve been a long time listener. As I hit refresh on iTunes this morning I had to smile as I saw you guys have put up yet another episode. My podcast list is cluttered with shows that’s repeated out over the years. It is good to know I can count on you guys for great content regularly. Keep up the good work.
[33:18] I just wanted to read that not so much that it’s a compliment to us but it’s more of a testament to like putting something out every week. Remember that it’s easy to be great. It’s hard to be consistent. A lot of people come out and they put out a flurry of 7 or 9 episodes and then poof, they’re gone. And unless you have some kind of idea in mind, some kind of vision, some kind of revenue model, like you have to have things in place, just coming out and putting out a podcast for a week is a nontrivial thing. So definitely appreciate it when folks take notice. I think that’s the reason that we have been able to build an audience over these years is just showing up every week, every Tuesday morning right? Right in their iTunes feed.
[33:52] And our last email of the day is from David Lepont and he says hi guys, I have a comment about your episode where you talk about AB testing. He says I have a reaction to the part about calling customers which as he said is supposed to raise conversion rates. So he’s talking about if you asked for credit cards upfront, then you get a good conversion rate, but if don’t ask then you’re supposed to call customers. That’s kind of the rule of thumb. It’s what I see working with Saas apps who don’t ask for credit cards.
[34:17] He says personally I hate being called by a software company and I find that really aggressive and it would very likely have the opposite effect on me. Many people of my age in their mid 20’s really hate to speak on the phone and feel like every interaction originates from the web or the software world should continue as a communication method on the computer or on the internet. Emails with incentives are really more appealing to me. I don’t know your thoughts on that but that’s my opinion.
[34:39] Mike: David thanks for the reply in that. I do want to point out that just because that’s the way you feel doesn’t mean that that’s the way other people feel. There are definitely people that feel the way that you do and it would probably push them away. But when you’re looking at the numbers and analyzing them kind of independently of feelings, if you’re looking at those numbers, if you’re getting a 20% to 30% measurable increase in the performance of your sales campaigns by reaching out and calling people or if the average dollar amount of a particular sale is going up by calling people then it’s very difficult to argue. Well we shouldn’t do that because there are few people that we’re going to make angry or they don’t like it.
[35:19] Because at the end of the day, you’re in business to stay in business. You’ve got to make money in order to stay in business. And if you’re not making those sales calls and you have to let people go because you didn’t do it because it would make you feel bad to call people when the other side of the coin is you have to let people go then chances are good you should be making those calls. This just kind of continued upon you actually offering a product that has value and the fact of the matter is that you’re running a business and the number one goal of the business is to stay in business.
[35:47] Rob: Yeah. I think a couple of things. One is remember that you’re not your customer. So what you prefer isn’t necessarily what everyone prefers. In aggregate, numbers don’t like. So like Mike said, if it raises your conversion rate overall, that’s something to really keep in account of. I hate phone calls myself. I don’t answer my phone during the day at all. But I have noticed that when software companies have called me and at first, it does kind of put me off but it does remind me that I signed up for their trial and some of them have converted me not by talking to me on the phone but it reminds me to go back in and yeah, that’s right. I have to cancel that or I want to take another look at it. And frankly it’s probably worked more times than it hasn’t.
[36:27] So there’s kind of this fallacy. Developers fall into this a lot. It’s where they say well, I hate signing up for email lists and getting all the spam. So email doesn’t work so I’m not going to have an email signup form and yet we know that email is one of the best, if not the best marketing approaches out there today. And so don’t fall into the trap of thinking because you don’t like something that it doesn’t work.
[36:39] Mike: Yeah. There’s a lot of things that coming from the world of developers and then kind of moving over and doing marketing and sales, there are lots of things that as developers they always irritated the crap out of me and then in going over and seeing the other side of the world is not like everybody’s a developer. There are tons and tons of people who are not developers who don’t fall into that mindset. And you kind of have to keep an open mind when you’re looking at those things.
[37:13] Music
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