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Startups For the Rest of Us

Episode 120 | Growing Your Business Past Employee Zero

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• Paul Graham
• YCombinator

Transcript

[00:00] Mike: This is Startups for the Rest of Us: Episode 120.

[00:02] Music

[00:10] 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. 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. How you doing this week, Rob?

[00:23] Rob: I got a call Sunday night from one of my developers. We almost never speak on the phone. I picked up the phone and I said, “Uh oh.” And it’s Sunday night about 7 p.m. and he says, “Do we have a backup of the database?”

[00:34] Mike: Oh no.

[00:37] Rob: I was like, “Ah, yeah. What happened?” And as he’s talking I’d said, “You forgot the WHERE Clause.” He forgot a WHERE Clause on an update statement.

[00:46] Mike: Oh.

[00:47] Rob: I’ve done this twice in twelve years where you just you say update the table set this column equals that and you know, for those non-developers out there, then you’re supposed to say, “Where the I.D., customer I.D. equals 123.” So, you only update one row. But if you leave that WHERE Clause off, you update the entire table every row to the same value. And so, if you only have 50 rows, that’s fine. If you have 5 million rows, they all get updated. Now, it turns out it was a small table. It’s 4,000 rows and luckily enough, it was not a table that’s used in real time. So, it’s something that’s used in [Audio Glitch] on billing process. So, I was able to just – we stopped the billing process.

[01:26] I was going to run a few hours later and then I got in touch with our DBA and that’s one of the benefits of having a DBA is he has all – I’ve asked him just to have up-to-the-minute backup since so he could basically restore to a point in time. So, I said restore to like 7:15 p.m. Pacific Time, you know, because he ran the query at 7:20. He’s on UK time. So, it did take a couple of hours because I don’t want to wake him in the middle of the night for something that wasn’t basically wasn’t taking down the app. But once he got the message, it was like 20 minutes later, everything was restored and it was fine.

[01:57] Mike: Yeah, I’ve done that in the past at least once or twice myself and I’ve learned if I have an update statement that I’ve written, what I’ll usually do is I’ll comment out just like the update part of it and I’ll do a select first to make sure that I’m selecting all the rows that I actually want to update.

[02:11] Rob: Yeah, I’ve seen professional like DBA, you know, 24/7 DBA guys do that and that’s what I do now too. Like I said, I’ve done this twice and the first time I did it was through an Oracle database and has the rollback capability because you have to commit. And so, I saved myself for the rollback. The second time I did it, there was a way to reconstructing the data and I’d just had to spend about an hour doing some manual stuff. And realistically as we talk through, there’s only, you know, myself and these two…two other people like production database access so – as we talk it through, they’re were ways, you know, if we didn’t have a backup or the backups had failed or something, there was a way to manually reconstruct this data that would had been a pain where we had to pull it from a couple of different sources. But it was like always not lost and realistically the app, you know, wouldn’t have been sunk. So, but it was a funny – it’s such a funny quote, “You know, do we have a backup of the database?”

[02:59] Mike: Yeah, those are words that you just never want to hear? Did you put that out on Twitter because that would have been a great quote?

[03:05] Rob: What’s been going on last week?

[03:06] Mike: I’ve been doing some more work on AuditShark for the self-updating policy builder and that is finally working. It’s taken forever to get it working but it got to the point where we had to read through the source code. I didn’t read to the source code but my developer did in order to get the installer working because we were using a WiX toolset which is open source but it’s not documented real well. So, he had to restore it at one point to just reading through the source code to figure out what different pieces he did and how to make it work and do what we wanted to.

[03:33] So, at this point everything seems to be working. You can just install it and then everytime you run it, it double checks to verify that you have the latest version. If you don’t have the latest version, it just doesn’t self-update which is pretty awesome. It seems to work even if you have like UAC running. It just asks you if you…if you’re okay with updating that and just go through and update it and everything seems to be working pretty flawlessly.

[03:54] Rob: Nice. And this was a little bit of a hang up for your early access.

[03:58] Mike: Yeah. It kind of – it put the whole early access on hold for much longer than I would have liked. I mean it didn’t seem like this should have taken as long as it did but because of all the issues that we ran in to with it, I am not real happy about where the early access is right now. So, I feel like I’m behind schedule on a lot of it and I haven’t talk to nearly enough customers to understand what’s really important to them so far. So, I’m really considering just kind of extending the early access to get more of that feedback and bring more people on to it because that was really just holding me up and until that was done, I couldn’t really add more people to it.

[04:31] Rob: Right. Yeah, I definitely think you need to get more feedback from more people because it doesn’t sound like you have talked to enough at least when we’ve talked in the podcast. It sounds like you have a few people who have given you feedback but not…not enough that you’ve made like drastic changes if needed. I mean in the interest of accountability like the original early access was supposed to start at September 10^th I think and you started it in and then there was something wrong and you – I think you spent about six weeks fixing it. And then I don’t remember what happened in October-November but I don’t know if the holidays got in the way or what but – so you’re now, you know, you’re several months in to essentially early access. You kind of started one and then stopped it and then restart it again in January. Do you have a tight timeframe for this one for like extending it or what…what are you thoughts at this point?

[05:14] Mike: I wouldn’t extend it by more than a couple of weeks I don’t think and not must something drastically serious comes up where people are trying to use it and just doesn’t – it out right, it doesn’t work. The other question is whether I release it without the full-blown Linux support which I probably would. I would probably just launch it and there are pieces that my developers built in which allow me to turn on and turn off different functions based on whether flags are set on their accounts so I can say, “Okay, we’ll turn Linux support on for this account and not that one,” for example which is kind of a neat function to have.

[05:46] So, I’ll probably just kind of plow forward without having full-blown Linux support in there and you know, with the — on the Window side just, you know, move forward with what I got. But I really like to get some more feedback from people as to what they think of how it operates or certain reports they want or things like that. So, I don’t think that would extend it by more than probably three weeks or so. But I do want to get some more people sign on to it and get some feedback from them.

[06:08] Rob: So, coming back to that Drip landing page split test I was running last week. If you recall, I had kind of a stripped down minimalist version and then I had a heavily designed drop shadow which is going to be the final marketing version and they are split tested against each other. And so far, the minimalist version is just trouncing, absolutely trouncing. I think it has 500% more conversions. The highly designed version which almost makes – that’s such a big difference that it makes me think there are might like either someone is messing with me because they know that I’m doing this or there’s like a cookie issue because I was running a split test right before this one and there’s somehow the cookies are overlapped or something.

[06:49] So, I think I’m going to like totally restart it and see if I get the same results. If – and if I do, then I need to seriously look at like what to do in terms of the marketing side because I don’t just want to turn on a design that’s not converting.

[07:00] Mike: I might either go ahead and put either Inspectlet or Crazy Egg on there just to see where people are actually going through and measuring it for a couple of days to see what people are doing when they get there.

[07:10] Rob: Yeah, that’s a really good point. Actually Inspectlet where it records the mouse movement, that would be a really good one.

[07:16] Mike: Cool. So, what else you got going?

[07:18] Rob: Last thing I’ve been working on is over the past week, I’ve migrated about five more sites to WP Engine and you know, DreamHost is – man, I’ve been on there since 2005 and for the first probably five or six years, they were solid. I mean they were really just a great value for the money. I always need one a high end host but they have just had at least with my server I’m on a really old server, right, because I’m eight years old and it’s – the stuff is getting slower and slower and slower and I’m needing to pay more money because I’m on a VPS and I have to crank up all the usage, the bandwidth and stuff. There’s no sites I even have left on DreamHost that are using many resources. They’re just not high volume sites. The one thing I can think of actually is our podcast episodes are on there, like the actual mp3s and I know that it’s like what is it? A terabyte or something a month?

[08:08] Mike: Yes, something like that.

[08:09] Rob: Like a terabyte a month of download but geez, it should be able to handle that, you know. You know, as a result of all these, the MicroConf site is now stable. It’s up on WP Engine. It had two outages within a week. Knock on wood, I shouldn’t have that again because WP Engine is a much, much more stable and faster environment. And then I also got several blogs and some other kind of more critical sites. I think now all of my really critical sites are off of DreamHost on WP Engine.

[08:34] Mike: Yeah, I started to move over. The – the podcast site, I haven’t quite done that yet.

[08:38] Rob: Yup and then once you do that, we’ll need to think about moving the actual audio, the mp3 files as well because they’re on my DreamHost account.

[08:46] Mike: Cool.

[08:46] Music

[08:49] Mike: Today, we’re going to be talking about how to bring people in to your business so that your business can move to the next level because obviously, it’s extremely difficult to do everything yourself. You need to bring people in who you can plug in to different areas your business and depending on what level your business is at and what you need done is going to kind of dictate the types of people that you bring in. So, that today we talk about the different types of people that you can bring in to your business, what sort of roles they would play, when is it appropriate to bring them in, when is it not appropriate, how to find these people and what they can do for you that either you can’t or shouldn’t or that other people couldn’t or shouldn’t do for you.

[09:24] Rob: Right and there are some people probably listening right now that are thinking I don’t want to bring anyone on. I want to stay the solo founder that I am right now, the solo-preneur and I don’t want to hire people because I don’t want the responsibility. And obviously, that’s a perfectly legitimate point of view and both you and I have done that or are doing that presently. Even if you’re doing that though, there are still a couple of these roles like I’m talking about advisers and virtual assistants that I would encourage you to think about doing because let’s stop believing that you really can do it really well all on your own. You can do. You can get halfway there. You can get most of the way there but if you want to achieve your full potential I’ll say or you want to grow faster or you just want some guidance and support, there are some of these roles even if you’re not going to hire an employee, you’re not going to hire someone fulltime or a part-time on a regular basis, there are still help that you can and should bring in to outsource certain tasks and there are still those roles of like advisers or mastermind fellows that I think are critical even if you truly do want to stay that solo-preneur.

[10:24] Mike: So, the first one we’re going to talk about today is the intern. I think that when you’re talking about an intern, you can do either a paid internship or an unpaid internship but at the end of the day, I mean you’re still talking about somebody who’s essentially an entry level employee. I think the real draw back to interns is that because they are low level, because you have to spend a lot of time training them, it may not necessarily be worth of your time because of all the extra time that you have to spend doing that training and training is very time-intensive.

[10:52] It’s very mentally-intensive to make sure that you’re on top of what they’re doing and making sure that they’re doing the right things because if they’re doing the wrong things, then not only are you spending that time with them trying to train them but then you have to go back and you have to still do the work in anyway in – whether that’s having them redo it or correct them, you’re going to basically sink a lot more of your time than you would if they just did it right the first time or if you paid somebody who was much more skilled or experienced to do that work.

[11:20] Rob: Yeah, I think defining interns as someone who’s entry level but has an interest in learning about the field and I guess probably a pretty good way to define it and I’ve always been hesitant to hire an intern. I’d say over the past three years, I’ve averaged two requests per summer college students or grad students who are in like digital marketing or you know, majoring at something dealing with online marketing who have e-mailed me and wanted to intern. And I’ve really struggled with a decision and everytime I got the e-mail because the person A) is taking initiative and so I know that they’re probably going to be someone who gets things done and B) it’s just – I just like to help people out like to give back and teach. I’ve decided not to do it after a lot of thinking and talking to people.

[12:06] The other thing is I almost feel like if someone is going to come and work for free or work for a really, really low stipend which is typical – I think all the ones who have offered have said they’d work for free. Its just kind of – it doesn’t seemed right to me like it seems like I’m getting something – I know they’re getting training but it’s like if I’m trying to do it to save money, but I’m just having to invest a bunch of time and that equation…that equation doesn’t work for me, you know because my time is – I value my time really highly. And so I’d almost rather find someone who is already experienced and pay them like fair wage for their time and probably have more time for my business and then give back to the entrepreneur community through these other avenues.

[12:46] So – but I do know people who have hired interns and have had great success doing it. I know founders who’ve done it. I know that Dan Andrews has his Tropical MBA Program where those people who have a little more – tend to have a little more experience than what we’re talking about but the cost is not very high and they do come in with the attitude of learning. So, I know that it can definitely work. It’s just not something that, you know, has work for me personally in the past. I’ve opted for one of these roles that we’re going to talk about.

[13:11] Mike: Right, I think that the situation where interns would actually work really well is if you’re trying to grow your business and you are looking in to intern program as if it’s a method of bringing people out of college and vetting them before you hire them because you’re going to get a lot better view of what somebody is like as an employee when they’re an intern than you will in like a 45-minute or a 3-hour interview. I mean you just get a much better idea of how somebody works, working next to them or having them report to you for two, three, four months than you do in just going through the regular interview process because there’s a world of difference between those two things. So, the next one we’re going to talk about is virtual assistant.

[13:54] Rob: I’m actually down to three virtual assistants right now. I don’t include developers, designers, product managers, any of those technical roles in virtual assistant bucket but I have three working for me down from I think at my peak, I had six. I’ve hired about 15 over the past probably four or five years and some have they just not worked out and then others have had to move on like one went to grad school and so couldn’t do VA stuff anymore. And then others I’ve, you know, decided to let go or just kind of wound down the projects that they were working on.

[14:25] But I’ve always found a lot of value in finding someone. I mean the nice part about a VA is you can typically find someone who has experience in the area that you need help with, right? So, you have someone who’s already trained. I mean they may not be highly technical person or a highly, you know, design-oriented person but you don’t hire them for that kind of stuff. You hire them for admin work and research and responding to e-mails and other tasks that are just hard to get done and you kind of just need a jack of many trades, like a non-technical jack of many trades. I am putting out a video course on how and why to hire VAs if you have a startup and if you’re interested in that, you can go to softwarebyrob.com and there’s an e-mail newsletter signup in the upper right and that’s where I’ll be mentioning that.

[15:07] Mike: I think the biggest advantage that I’ve found with the virtual assistants is using them to as more of a human filter to whittle down vast quantities of information in to something that’s consumable. So, I’ve used VAs to go out and search for like themes, for example, if I’m putting together a WordPress site and I need a theme for the WordPress site. I’ll point to several of them and say, “These are kind of what I’m looking for. Find me 10 or 12 other options that are close to this one,” because that’s something that you can’t have a computer do it and even if you could, it would take forever to build a program that would actually go out and be able to do that for you.

[15:43] So, having a human sit there and look through those and use their brain to kind of figure out what it is that you’re actually looking for and then present you with those options is a great way to use a virtual assistant to cut down on the amount of time that you’re spending on something. And that way, you’re going through a pre-filter list as opposed to searching through tens of thousands of themes that are out there.

[16:02] Rob: Yeah, that’s a really good example. Ways that I’ve used a VA in the past, couple of months have included, you know, we have people cancel HitTail, right and during the trial and then we have some customers cancel and I wanted to e-mail all of those over a certain period of time and say, “Why had you cancel,” you know, because they didn’t give us – they didn’t have give us a reason or didn’t give us a full enough reason in the cancelation form. And I wanted it to be personal and come from someone on the team and I also wanted someone to just be able to hit reply when they get the e-mail and send it back to us.

[16:31] So, yes, I could write a script to send a bunch of e-mails, you know, but by the time I do that, I had a Google doc spreadsheet that I sent to the VA and I just said, “E-mail them all and here’s the form. It’s short. All they have to do is hit reply.” And then he gathered up those responses, put them on Google docs and he actually arranged them. He didn’t just spit them in there as a big chunk of data. He actually said, “You know, three people said the similar thing.” And so, it’s like you said, he took a large volume of manual information and did something that wouldn’t have been easy to write a computer, to sift through all the responses and we’ve gotten a less responses and send them through a form instead of just saying, “Please reply and just let us know in one sentence, you know, why you’re responding.”

[17:09] And so, that was super helpful and actually, that’s where we did operation retention based on putting all of those responses. And that’s how I do. I view virtual assistants as a form of human automation. It’s a way to automate things that you may down the line want to do and code or that maybe just a little too hard to do with software but that having someone’s help can just help save you as a founder so much time. Hopefully, on a recurring basis as someone you should have at first or for these one-time projects like you and I just mentioned.

[17:38] Mike: The other thing is it’s faster to write down a process and hand it to a virtual assistant and have them go through it and than it is code up any sort of computer program to go through it automatically and although it may be less expensive in a long run to do that depending on what the actions are, you’re going to get somebody sit in there and looking at those things and you’re going to be able to hand them this process. They’re going to be able to execute it within five minutes after you hand it to them as opposed to computer program which might take you weeks or ever months to put together.

[18:05] Rob: Right and you know, a founder, a friend of mine who has a successful SaaS app, he was still answering e-mails like all the support e-mails. He was doing tier 1 e-mail support up until – it was probably three or four months ago, he said it wasn’t taking him enough time for week – per week that he didn’t think it was justified to hire a VA to help him out with tier 1 support. Now, once he did, he was just like, “I cannot believe I didn’t do this sooner,” you know, because it’s not about the sheer volume, it’s like, “Oh, it’s only three hours a week,” but it’s all the little interruptions that you get along the way and it’s having to wait of those sitting in a queue somewhere, they have to come back to five, six days a week, you know, several different trigger points during the day, you want to check in because you don’t want to be 24 hours before someone hears back. And if you can just get someone on board to help out with you even if they are only spending a few hours a week to start, it’s invaluable towards removing that mental burden.

[19:00] Mike: So, the next one is a contractor. And I think that both you and I put contractors in basically the same boat where contractors are a technical step up from a virtual assistant. So, whether they’re doing video editing, audio editing, software development, design work, copywriting, those kinds of things, that’s generally the role that a contractor fills for you. And I think the differentiation between a contractor and a consultant which is the next thing we’ll talk about is that a contractor is somebody who’s coming in on an hourly basis and you put together an idea of what it is that they’re going to be working on and if you need them for one hour a week or you know, 25 hours a week, they’re going to come in and they’re going to do that work for you. But the expectation is that it’s more on demand than anything else.

[19:47] The difference between a contractor and a consultant is that a consultant tends to come in as a highly specialized person in one specific thing. And I differentiate between contractors and consultants because consultants come in for a very short period of time, you have a very specific problem that you want to solve and they tend to be much more expensive. Now, you might hire a contractor to come in and do some graphic design work or design some e-mail templates. And I kind of put that person in to a contractor role even though it is a short term gig but the fact is that they’re much less expensive whereas if I wanted to hire a high-end SEO consultant or a high-end SEO contractor, the ideas that, you know, that person is there only for a short period of time and the value that they’re going to be delivering is extremely high to you and that is why you’re paying them, you know, these vast quantities of money as opposed to a contractor who is still providing value to you but it’s not necessarily the same level as a consultant comes in.

[20:44] Rob: I think the point that what you start to think about bringing contractors or consultants on are if you have a little bit of money and if you have, you know, either from your day job, if you’re bootstrapping or from the product revenue perspective, if you’re actually launched already. That’s a thing with contractors and consultants is they’re more expensive than virtual assistants and interns but they free up your time assuming you can afford someone that’s reasonably good and you hire well, this is where you really start leveraging someone else and freeing up vast quantities of your time.

[21:15] Virtual assistants are great first step for that but as soon as you can bring someone in the help with development or to help with, you know, even if you’re good at design to help expedite data and get something done quicker, that’s really when I think about bringing contractors on. And consultants, I’ve always brought them where it’s like I have a task and I don’t know how to do this or it’s going to take a really, really long time for me to do this like a huge chunk of my time.

[21:37] Most recently, when I acquired HitTail, I brought a DBA on basically as a consultant to help migrate the database, you know, that was 2 or 300 gigs, to migrate it from one datacenter to another. We had an overnighting of a hard drive and all types of crazy set up to keep stuff in sync and real time. Now, the cool part is that he then came on board on a regular basis to do all the database maintenance and the backups and the point in time restores when I need him to do so. And so, he actually made kind of the transition. I still consider him as a highly trained expert and experienced consultant but it’s nice that we now have that relationship that I can tap in and say, “Hey, you know, we have this one big thing. Can you…” I mean he’ll write queries for me sometimes, right? He’s just billing hourly but all the pretty complicated query on a pretty gnarly set of tables that I want to do join on I have him run it through to make sure, you know, is this legitimate.

[22:29] But the thing is as if HitTail wasn’t a profitable app, I probably wouldn’t have dropped the money to bring him on board in the first place. And so, I think that’s the point. Money shouldn’t, you know, it can’t be the thing that keeps you from bringing on someone experienced to help leverage your time but at some time you have to be realistic and you can’t just go out and spend 5 or $10,000 on a website design when you really should be using that for other marketing tasks.

[22:54] Mike: So, now that we’ve talked about a lot of, I’ll call them more temporary workers, why don’t we talk about the next one which is the employee. Bringing in an employee in to your business I think is a huge step. It’s a world of difference between a having contractor or consultant who comes in and doesn’t work for you and if you don’t have any work that you have to send them or you don’t want to send them any work because you’re trying to conserve money, then you can totally do that. But with an employee, you’re making a lot of commitments and there’s an obligations that you’re undertaking in order to pay that person’s salary and you have to be able to meet the revenue targets in order to support that employee.

[23:29] I think one of the big things that most people don’t think about when they’re hiring an employee is all the additional overhead cost that come in with hiring an employee because you have to pay employment taxes. You typically have to cover health benefits. There’s all these things especially when people start to get further advance in their career and they start thinking about things like, you know, planning for retirement like, well, do you have a 401(k) plan or a 529 college savings plan and things like that and those are things that, you know, kind of the overhead of having an employee.

[23:58] Rob: I think the role of employees in tech startups has been changing and I think it’s going to continue to change. Most of the startups that are early stage that are hiring employees, they either have funding or if they’re bootstrapped, they just have to be really, really strict about who they’re hiring and bring people on slowly and do their healthcare costs in the U.S. Most of like the tech startup workers I know don’t have healthcare unless they work for a large company like a Facebook or Google, someone who has a lot of funding. The mentality of I’m going to work for the startup in exchange for, you know, I’m going to exchange kind of those typical benefits of the 401(k) and of the medical, dental insurance and I’m going to instead get stock options and I’m going to get this exciting and fun job.

[24:43] And so, I think that puts pressure, you know, a downward age pressure for sure on the startups that I see hiring in terms of, you know, you can’t get – it’s going to be really hard to get someone who’s 40 years old and married, has two kids to come and work for you if you can’t offer all that stuff. But at the same time, you know, if the expenses is too overwhelming then that’s probably the reality for them as well.

[25:04] Mike: So, the next step from an employee is a co-founder or a partner in the business. And with a co-founder or partner, most of the time I think that when you get in to this situation, you’re doing it upfront, you’re probably working on the business on the side until it gets off the ground and starts getting revenue. And you’ve – hopefully, had those conversations about, you know, how to structure things, ownership, vesting, those kinds of things before you start making any real money or you start running in to any problems where those discussions that should have been had are going to become a problem because you didn’t have them. And you know, a co-founder or a partner is completely different than having an employee or contractor or visual assistant because they are complete vested in to the business or hopefully, vested in the business.

[25:46] Rob: Yeah. Didn’t Paul Graham said that one of the top two reasons that startups have issues from what he sees on Y combinator is founder issues, founder disagreements?

[25:54] Mike: No, it was on the top ten. I just don’t remember what number he used for that.

[25:58] Rob: Yeah. So, it’s – as always it’s like it’s – there’s never – a never or – I never have a co-founder, I always have a co-founder. It’s just finding the right person and finding the right fit both with the business idea and finding complementary skills. I have seen over and over founders get together who are both developers and that just doesn’t make a lot of sense to me, you know. It’s like you need to find someone who can do the marketing stuff, someone who can do the design stuff or someone who can do this, the development stuff, someone who can do, you know, the sales and the admin and manage a VA. I mean there’s all these skills that need to get done and so if you overlapped heavily on a single skill, you really are not multiplying your gene pool there and covering the basis that need to get done in order to actually launch something.

[26:42] Mike: Right but I think that there’s another side that you have to look at as well. I mean if you don’t have overlapping skills, it’s very difficult to take over responsibilities from somebody else. I mean it’s so – for example, if you get a marketing guy together with a developer, they may work very well together by separating their duties but what happens if the marketing guy needs help or the developer needs help? I mean at that point, then you have to start looking out side of those two people because the other person just didn’t have the capability. I think there’s got to be enough of an overlap but not too much as you said.

[27:14] Rob: I think I would err on the side of having less overlap.

[27:17] Mike: So, okay. So, we’ve talked about interns and virtual assistants, contractors and consultants, employees and co-founders. And I think the last one that we came up with was an advisor. And I think there’s a couple of different ways that you can have an advisor. You can have an advisor who is strictly high level person, somebody who you go to and just talk to as more of a mentor. And then I think that there is other advisor who you look at, somebody who owns their business, who is also an entrepreneur, kind of more of a peer than an advisor who has, you know, run their own company in the past.

[27:49] Rob: I’ve seen this structured in many different ways. I mean with funded companies often someone to bring on an advisor early and then they’ll actually give the advisor half a percent or 1% of the company and they’ll have the contract, I don’t know if they put in writing but they’ll say, “You know, I expect you to – I expect that we’ll have a 1-hour phone call each month and that you’ll answer my e-mails every week.” I’ve also seen some informal relationships where you, you know, just say, “Hey, will you answer my e-mails,” or “Can we do a call when needed?” And you’re just kind of doing it to help the person out. You probably have a relationship with them of some kind or you just know they’re going places so you want to be a part of that.

[28:27] And then like you said, I’ve seen mastermind groups where like you said it’s more of a peers giving each other advice and then encourage them and help. And I would encourage you that if you are going to get in to mastermind, to try to find people who are ahead of you in that process rather than someone who is either behind you or at the exact same level because it’s just – it winds up being hard to actually get actionable advice if you’re all just stumbling around kind of doing the same things, you know. Whereas if someone six months or a year ahead of you and they – it tends to be pretty fresh in their mind and they’re going tend to have some really good suggestions for when you hit road blocks.

[29:06] Mike: I was reading something recently that heavily advocated for if you’re going to be giving any part of ownership of your company, any equity at all to an advisor then you should definitely have a written contracts and a vesting schedule that goes with it because some advisors just simply don’t work out.

[29:22] Rob: Yeah, that totally makes sense. I mean I would say any time you’re giving anyone equity for any purpose unless it’s a tiny, tiny amount of equity for a very specific task they’re doing that they should…they should vest overtime because otherwise, you can sign this agreement and now they own this thing and if they disappear, they still own that part. And that’s a major problem. So, I have a question, Mike. So, should everyone have an advisor? Do I need to go seek someone out? And if so, how do I do that?

[29:48] Mike: I think if you’re having specific issues that you are fully aware are issues that are going on right now that you need assistance with, then I would definitely go talk to somebody. Do you need to have that person come on as a full-blown advisor? No, not necessarily. What I would say is that if you happen to stumble across somebody who you think would make a good advisor, then definitely leverage them and try to use them as an advisor. But I don’t know as I would go out and consciously seek an advisor. And the reason for that is that I think that when you start looking at advisors and you’re trying to evaluate different people for advisors, I think that it takes your eye off of the product that you’re developing or the marketing that you’re doing.

[30:28] And it’s not to say that having an advisor couldn’t help you with some of those things but at the same time, if you shift your focus from building your products and talking to customers and doing all the things that are associated with building your business, then you’re no longer doing that and you are – you’ve kind of shifted in to – I almost think of it like a situation for companies that are looking for funding either they’re building the product or they’re looking for funding. And if you’re not – if you’re looking for funding, it’s kind of an all-consuming task and you’re doing that instead of building your product and making a business.

[30:57] Rob: I also think you need some kind of traction with your product before you can basically do a cold intro and find an advisor because you can’t just e-mail someone who’s well-known and say, “Hey, be my advisor,” because they get e-mails like that all the time and there are too many products out there that they…they can’t possibly advice everyone. And so, if you have a network and you actually do know some people who could be advisors, that’s one thing, right? And then it’s an easy one-shot email, “Hey, I’ve finally decided to launch my app like we’ve talked about before. Would you, you know, answer a few e-mails if I send them over the next few months,” and started off informally and then accelerate it if needed.

[31:33] Now, if you just have no contact and it’s all cold, then you are going to need something more than that. You’re going to need an e-mail that’s like, “Hey, I launched. I have traction and I have a couple of sticking points. Right now I’m looking for an advisor, could I send you some e-mails?” And that time, at that point then you actually like you said, you have something that you’re trying to deal with.

[31:55] On the flip side, I’ve found a lot of value in there being people who on an ongoing basis are kind of almost sharing in my journey because they know – they’re really sharing in the journey of the product I’ll say because you don’t have to give them rims of background. You don’t just say, “Hey, I have a SaaS app and here’s what’s happening,” because they’re probably going to tell you some suggestions that you’ve already tried. But if they’ve gone through the journey of the app with you, then they already know what you’ve tried, what you have and it’s just way easier to get that feedback.

[32:23] And that’s where I don’t have advisors as much as I have the mastermind groups that I’ve talked about where people every two weeks, I meet with them either in Skype or in-person depending on the group and they get to hear an update on my app. Even if I don’t have a major issue that week, they get to hear where it’s going, some things I’m thinking about. I’ll always ask for some feedback but even if there’s not a major point of guidance, at least they’re now updated and so, in two or three months when I do have that major point, they know the history cold because they’re heard it, you know, in real time as it’s happened. And that’s been my avenue for finding kind of filling that advisor role with my businesses.

[32:59] Music

[33:02] Rob: If you have a question for us, call us at our voicemail number at 888-801-9690 or e-mail us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt. It’s used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.

Startups For the Rest of Us

Episode 119 | How to Solicit Feedback from Your Customers

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Show Notes

• Linux auditing with AuditShark
• GetDrip
• Follow AuditShark on Twitter
• RapidWeaver
• WWRWD
• intercom.io
• Wufoo
• KISSmetrics
• KISSinsights

Transcript

[00:00] Rob: In today’s episode of Startups for the Rest of Us, Mike and I are going to be talking about how to solicit feedback from your customers. This is Startups for the Rest of Us: Episode 119.

[00:09] Music

[00:18] 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.

[00:27] Rob: 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: So, last night I got Linux support working for AuditShark.

[00:35] Rob: Very nice. So, now you have a component that installs on Linux servers that – you can audit Linux boxes instead of just Windows servers?

[00:43] Mike: I can do Linux boxes but it has to be remote. So, I don’t have a native Linux agent yet. Down the road, I’ll be looking to see what I can do with Mono to take the agent that I have and be able to direct him —

[00:53] Rob: I see —

[00:54] Mike: …put it out on to those machines. But for the time being, this is kind of an intermediate stuff. You know, I expect that some people are going to look at it and say, “Well, no. I’m not really comfortable with that.”

[01:00] Rob: Now, is this something that was built by customer request?

[01:04] Mike: I look through the people who were…who would basically wanted to be in as part of the early access who I’d essentially ruled out because they’re specifically asking for Linux support and concentrated on just the people who are looking at Windows support and realized that there’s a fair number of them that want either Linux or Windows and Linux. So, I looked at it and just said, “Well, just based on the numbers alone…” and it wasn’t like I didn’t know that I needed to go in this direction eventually anyway but I kind of wanted to take a look to see how much effort it would take. And it really didn’t take very long to do. I had to refactor some code but it wasn’t too bad. So, I got some basic Linux support working. It works at the command line right now. I still have to make some of the hooks with the UI to make the rest of the work for the customers and it really wasn’t nearly the amount of effort that I thought it would be.

[01:48] Rob: Nice, yeah. If you have a good architecture, I guess that speaks to that, right, if it’s easy to add code or functionality to it.

[01:55] Mike: Yeah, I mean I planned on doing it eventually anyway. So, there were a lot of places where I just kind of let hooks in and said, “Oh, well, if it’s a Linux machine do this. If it’s Windows machine, do that.” And all the stuff for the Linux machines, we’re just kind of commented out or it didn’t do anything. So, all the hooks were there. There were just wasn’t the actual mechanism to connect in into a machine through SSH.

[02:13] Rob: So, you now have support Windows and Linux and you have essentially an e-mail list of people who need your product, need AuditShark for either Windows or Linux. But what are you looking at in the next couple of weeks in terms of wrapping up your early access and everything is public and you’re officially launched and marketing, so what is that look like?

[02:31] Mike: So, there’s one hang up right now and that’s the installer for the Policy Builder and it’s basically to auto-update it right now because everytime I spin a new build, you have to update that locally which is a royal kind of a nightmare because you have uninstall it and then you have to download the new version and reinstall it. The developer I have working on it has been running in to a lot of problems because he’s using the WiX code base from CodePlex which is an open source package but unfortunately, there’s no documentation for it. So, in order to figure out how its work, he’s had to go in and actually read the source code for it which is apparently just a nightmare.

[03:03] So, that’s been an ongoing struggle for the past couple of weeks. I would hope that he’ll be done in the next couple of days but I can’t say for sure that that’s going to happen. So, it’s kind of wait and see how that turns out. But if that turns out well, then the rest of the stuff should fall in this place pretty quickly. You know, I should be able to hand it out to people who are running either Windows or a Linux over the next couple of weeks.

[03:22] Rob: What have you learn from the early access? I think you’re about a month in. Have you received a lot of feature requests or UI improvements or things that you’ve now wrapped in to the product to make it so that it’s better than it was a month ago?

[03:34] Mike: I’ve got a list of things that I’m looking at making changes too and most of it is around, I’ll say user experience because people looked at it and they said, “Oh. Well, I don’t understand this,” or “What you’ve done here implies X or Y and I don’t quite understand it.” So, I really just need to rework some of that in the UI but otherwise, product functionality is there. It’s just how it’s presented is a little bit off, it’s a little bit misleading in some cases. And obviously because I don’t have as much documentation as I need that makes it a little bit more complicated because people have to look at it. They draw their own conclusions or interpretations about what something means or they look at and they have absolutely no idea what a particular term means and have to guess. I have to either reel them back in through e-mails or you know, talking to them on the phone and saying, “No, that’s not what I mean. It means this other thing over here.”

[04:21] Rob: Very good. Well, I started something I’m excited about. I have a new split test going on at the homepage for Drip, so at GetDrip.com. What I’ve done for the past couple of months is I’ve had a single design of a landing page and then I’ve had three different versions of it with different text, different headlines. Just testing up the value proposition to see which one resonates the most. And right away, one of those just failed miserably which is great because it shows me that I shouldn’t use that particular verbiage to describe Drip and the other two have  been battling back and forth. There was a longer form one and a short form one. They’ve been battling back and forth and they’re actually very, very close in performance. Well, it’s a bit of a bummer I guess [Laughter]. We’d prefer that…that one of them be a clear winner.

[05:01] But what I did today is I actually rolled the ultimate design for the marketing site is all done in slice and we converted the homepage of that marketing site into the landing page. So now, I’m testing two completely different designs against one another. It’s the original landing page that Derek did, he’s the product manager for HitTail and he’s working on Drip as well. And he threw it, you know, that one together in a day and then the marketing site that had a designer design is a much more in-depth, you know, exhaustive kind of marketing design. So, it has a lot more design elements to it and I’m really curious.

[05:36] This is kind of a – it’s maybe a David versus Goliath thing, right, where it’s a nice minimalist landing page versus a heavily designed, heavy drop shadow, lots of textures in the landing page and so, I’m curious. I know which one I like visually but I’m curious to see which one converts because they have in general, they have the same content. It’s all just a visual change and are both just asking for an e-mail address.

[06:00] Mike: Interesting. Do you have any inclination about which one is going to do better at this point or no?

[06:04] Rob: It’s really – this is one of those that’s really hard to say because it’s like I know that the professionally designed marketing app looks more professional. We just spent more time. We spent more money because we know we’re going to have this site for a few years, right? But at the same time, it’s often the simple minimalist designs that do better because they get out of the way of your copy and of your message. And so, I’m actually I really am curious to see which one I don’t really have a leaning at this point. It’ll definitely take a few weeks to figure that out because the site doesn’t get a ton of traffic. I haven’t really started much marketing to it. I think I will resume some paid acquisition sending some traffic there so that can maybe help with the split testing as well.

[06:43] Mike: Very cool. So, the other thing that I’ve been working on is a new Twitter strategy for AuditShark and basically outsourced the actual implementation of it but I kind of wrote down exactly what I wanted to be done and when I wanted it to be done. And so, I’ll be measuring the progress of that over the next two months or so and the basic ideas to follow a bunch of people who seem relevant in the security space and then go out and continuously find links that are relevant to the security world about what machines are being hacked and why they’re being hacked and going in to different communities like, for example, the Rails community and finding information that’s relevant to the security in the Rails community and then tweeting that out. And following people who are members of the Rails community and just kind of identifying different clicks of people who would be interested in that type of information.

[07:32] Going back and looking through at the number of people who follow the AuditShark account back and see who’s actually kind of interested in it because obviously, it’s just following somebody else is going to get them to kind of know about that particular account. And if they follow AuditShark back, then it shows that they’re interested in that kind of information. I’ll be measuring the progress of how many followers the account gains over the next probably six to eight weeks.

[07:55] Rob: I see. And are you doing that to see which niches this resonates with? Or are you actually looking at this as a lead gen, as a way to get clicks back to your website?

[08:04] Mike: I haven’t followed that thought – pattern through yet. So, I’m still kind of working out in my head exactly what the end goals of it are. The reality is it didn’t take me a lot of time to put together that marketing strategy itself but mostly it’s around providing awareness that the product is out there and then giving it kind of a social presence in Google and Bing and whatever other search engines that are out there that are spidering through Twitter’s content. And assuming that there articles that the AuditShark accounting is retweeting or tweeting out there that people are then retweeting, then that should hopefully lead to some people finding out about AuditShark who would not have found out about it otherwise.

[08:42] Rob: Got it. So, I have two thoughts on it. One thing is if you could potentially put your picture instead of your logo on it, it makes people more open to following you. I don’t tend to follow most company accounts that have logos as the picture because it’s just as not as personal. I think you’ll probably get less interest just because it feels more like a corporate thing rather than, you know, they’re following AuditShark versus Mike Taber. It’s just less appealing.

[09:05] The other thing I would think about is to put a short timeframe on this experiment. Obviously, we’re all for experiments but in the experience of marketing HitTail as well as my other apps, Twitter has really not been that helpful. The only time it’s helpful is it’s really helpful for personal brands stuff and like with the Academy and MicroConf and the podcast. I mean all that it makes sense because it’s all are conversation but just marketing B2B apps has been less successful. If you’re actually doing content marketing like KISSmetrics and Buffer app and Bidsketch and that kind of stuff, then that’s…that’s really when Twitter comes in to play because you get followers and then they actually click through to your website and then you either get an e-mail to follow up with or they just become fans and subscribers of your website.

[09:47] So, but just doing Twitter as a strategy and just to aggregating content, I don’t know if I  have seen anyone do that successfully in the beat of the space without having enough really in-depth content marketing also going on.

[09:59] Mike: Right, yeah. I mean content marketing is something that I’m going to be looking at down the road a little bit. It’s just that it’s not this week. It’ll be probably, you know, two or three weeks out. I’ve been trying to evaluate what my content marketing strategy is going to be and I’m still trying to figure that out. Part of it is try to find out which of these, you know, niches are responsive to the things that the AuditShark account is tweeting out. The other thing is in terms of following people, there’s kind of I’m putting essentially an artificial cap on the number of people that is going to be following on a weekly basis. So, it’s not like it’s going to go out and follow like 30,000 people and then wait to see who follows it back. That’s not really what the intent of it is. The intent is really kind of established that two-way communication between people and find people who are interested in the product and the type of problem that it solves.

[10:46] So, part of it is doing that and then the other part of it is as you kind of diluted to was going after kind of a content marketing strategy. I’ve put a timeframe of 6 to 8 weeks to say okay, let’s re-evaluate this to see where this is at after that 6 to 8 weeks and then take a look at it then and say, “Is this something that’s going to continue or is it something that should just kind of fall off to face of the earth?”

[11:08] Rob: So, long-time friend of the show Michael Frankland, he launched a theme site for RapidWeaver mac web design software and he actually dropped me a line and said that he was basically kind of the way we preached about finding a tight niche and going after it. And so that’s, you know, RapidWeaver mac web design software is pretty small and so far, you know, it’s going pretty well for him. So, I’d just want to give him a shout out and his URL is yuzoolthemes.com, yuzoolthemes.com if, you know, RapidWeaver space probably worth taking a look. Last update for me is, remember the t-shirt that WWRWD that we talked about a few weeks ago?

[11:44] Mike: Yeah.

[11:45] Rob: That was not printed. It did not meet its goal.

[11:47] Mike: Oh.

[11:48] Music

[11:51] Rob: So, today we’re going to be talking about how to solicit feedback from your customers. Now, we had answered a question from a listener a few episodes ago on this topic and he had specifically asked on the HitTail website why I didn’t have some type of form or something prompting people to send feedback in and to ask for a new feature and such. And we talked briefly about the best ways to solicit feedback but I felt like there’s more to it than we are able to get in to in that Q&A episode. I’d just wanted to go in to a little more and you know, talk about some of the options and some of the things to weigh when you’re looking at soliciting feedback.

[12:25] The outline today looks like we’re going to talk about when you should solicit feedback, when you shouldn’t solicit feedback, some different services and approaches for doing that and then the options for actually distributing the forms or the surveys or whatever to your customers in a way that gets them to actually fill them out.

[12:41] So, to kick us off, we’re going to be talking about when you should solicit feedback from your customers. And I have two points in the outline. The first one is when you’re in your early days of your product, when people are still canceling and drove because you don’t have enough features, you should absolutely be soliciting feedback from everyone who cancels even if that means sending a personal e-mail and or getting on Skype or over the phone with them. This is the time where you need to iterate very quickly and start figuring out why people are canceling because at this point, you are just plugging a hole in your funnel essentially. You’re plugging a whole in your churn rate and you’re trying to get to the point where you have a stable enough customer base that you can actually start growing your customer base and growing your revenue.

[13:26] Mike: I think the important piece of that that you just said is that it is about plugging the holes in your funnel and the really important piece of how you want to plug those holes is that if you are able to prevent 15 or 20% of the people who come in to your application from leaving through that, that’s 15 or 20% who were going to stick around and contribute more to the bottom line of your product which means that your lifetime value for those people is going to go up rather that down.

[13:51] Rob: Right and even beyond thinking about it in terms of numbers and churn and lifetime value, you want happy customers, right because happy customers stick with you and happy customers talk to other people about your product. They spread the word. And so, I find it that that there’s this race to just build features. I guess as developers we always want to rely on just building more and more and that is almost never the right solution. If your product isn’t catching the attention of customers, it’s typically more of a marketing issue. But if you have customers using it and they are canceling, that typically is a lack of features.

[14:27] So, there’s a big difference between those two things and that’s why when people say, “You know, I have a SaaS app and it’s not doing well,” that’s not enough information to know how you should troubleshoot this and the next question I always have is, “How many customers have come through and actually either sign up for a trial or paid you some money and then not continued with it?” Because if the answer is five, then the response is you need to…you need to get more people using it, right? And once you get those people using it as they cancel, then you should follow the directions in this podcast to solicit feedback from them as they do.

[14:57] Mike: Well, I think the important piece to keep in mind there is that is exactly what you just said is for your SaaS app and I think the things are significantly different when you have a downloadable app that people have paid for because they paid for it once and then maybe they talk to your support team, maybe they don’t but you have a lot less data to work from if it’s not a SaaS app.

[15:18] Rob: That’s true and the interesting thing with one-time product downloads is you basically have two groups of people, you have customers and you have prospects. And often the customers who have paid you with that one-time fee want different things that your new prospects do and that’s always a push and pull as well. And so when you solicit feedback from customers, if you have one-time downloadable software, you also want to solicit feedback from prospects and you should have a prospect list like an e-mail list, hopefully, been gathering e-mails from people who come to your site. If you’re not, then you should go to GetDrip.com right now and sign up to be notified because that is absolutely a way to not only figure out from your customers what you can do to get them to continue upgrading, but it’s a way to talk to the prospects and figure a way to get more of them to buy.

[16:07] But there’s a big difference between prospects and customers when it comes to downloadable software with SaaS apps, the difference is not so big because if you have a customer and they can cancel anytime and stop paying you, then realistically, they’re – about as valuable to you as a new prospect, right? There’s more of an equitable relationship there where customers and prospects are almost the same because either one if they paid you next month, they’re going to pay you the same amount of money. While I do still think you should differentiate between them. I don’t think there’s as much – it’s not as critical to talk to prospects when you have a SaaS app and you already have people paying you.

[16:38] Mike: Yeah, I think that’s one of the downside in the enterprise software space is that they can leverage their marketing and product managers to tell you which you want to hear in order to get you to buy it. And then once you’ve bought it, they don’t care. [Laughter]

[16:50] Rob: Exactly because they’ve already delivered it and they’ve already made their money. That’s actually advantage for customers of why SaaS and an ongoing subscription model can be better.

[16:57] Music

[17:00] Rob: The second point in time when you should solicit feedback from your customers is when you’re essentially moving in to a new market. So, if you already have a successful app and selling well to a certain group of people and you’re basically moving your way in to a new niche or perhaps you’ve even going horizontal and you’re backing out of a niche and trying to takeover an entire horizontal market, that’s when you need to re-solicit prospects and customers. It’s a big unknown, right? If you have a known product but you don’t know the little tweaks that you’re going to need to make in order to satisfy that new group of people and what you will notice if you have a recurring billing app is as soon as you start moving it to new markets, you’ll notice your churn will go app and typically your conversion rate will go down a little bit because it’s just your marketing to this unknown factor and you don’t have all your pieces optimized yet.

[17:48] And so, that’s a really good time to go and solicit feedback from those people in your trial sequence who you know are from this…this brand new market and trying to figure out how do they refer to your product, how do they talk about the benefits because often they will actually phrase things differently. It’s the same benefit that your existing customers get but they’ll use different words for it or they want to communicate it in a different way. And so, that’s why you don’t actually going out and soliciting this feedback can be helpful.

[18:13] Mike: And that’s very helpful for segmenting your market and in terms of your marketing strategy because you’re going to want to build a different landing pages that are designed for different keywords that either you do paid advertisements or tweets or you know, very short bits of information out there where they drive people back to your landing pages and those specific features you’re going to want to call out and different marketing collateral. And based on that that you called out, you’re going to want them to drive them to one landing page or another based on which of those segments that you’re trying to market to.

[18:44] Rob: So, now we have a couple of points in time when you shouldn’t solicit feedback from your customers.

[18:49] Mike: So, the first time that you should not be soliciting information from users is when you’ve stopped learning anything new. And if you gone out there, you’ve asked a bunch of questions from people, you’ve learned a lot of information and then you start hearing the same things over and over again, it’s about that point that you should stop trying to do that yourself. I mean it’s not to say like if somebody cancels, you should never ask them, “Hey, why is it that you canceled?” But at the same time you might want to back off from doing it yourself at that point because you’re the one who’s going to make the judgment call as to whether or not you learn anything new. And if you stop learning new things, that’s the time to pull the plug on it and that’s the time that you outsource it, that’s fine but you shouldn’t be going back to those people and continually asking them when you already know what the answers are probably going to be.

[19:33] Rob: Yeah, I’m a believer in short burst of soliciting customer feedback. Compiling all that feedback, making a roadmap, putting a feature list together, prioritizing everything and then attacking it and iterating on your product, adding features to it. I am much less of a fan of having this ongoing feature requests coming in via e-mail and just constantly having to deal with them, reprioritizing things. There’s a certain amount of agility that has to be there and especially on a very early days, you’re just going like crazy and you are reprioritizing. But once you get at least a little bit stable and you have that customer-based, kind of running around and just constantly having new feature request and all that stuff coming through, it actually scatters you.

[20:15] I feel like it’s counter productive. And so the approach that I recommend is if every maybe four months or six months, put it on your calendar and you do an outreach to solicit this feedback using them as we’re going to talk about rather than having this ongoing, “Hey, I want to request a new feature type of thing.”

[20:31] Mike: And which you just said kind leads in to the second time when you shouldn’t be soliciting feedback is if you’re already converting visitors to customers and they’re sticking around. So, if you’ve gone through that process of soliciting the feedback, you execute that roadmap and then you start seeing your churn rate go down, then those people who are visitors are converting in to customers. They’re sticking around. They’re contributing to your lifetime value and at that point, it’s probably not worth going back and saying, “Okay. Well, you know, how much further do I want to optimize this?” Because there’s a sealing on any of these optimizations that you can do, so there’s always going to be low-hanging fruit elsewhere.

[21:05] So, you can squeeze as much as you want out of, you know, trying to plug the funnel but at some point, there’s going to be such an insignificant return on the amount of time that you’re putting in to it that you’re much better off going to look at other parts of your product, just trying to figure out where those things can be improve, where other marketing efforts can be improved so that you’re not wasting your time spinning your wheels for like a tenth of a percent gain when you could just spend 20 minutes or 30 minutes some place else and get like 1% or 2% gains.

[21:32] Rob: Yeah, that’s what I was trying to say. You know, I’m not trying to imply that I’m a fan of like every six months and get this big feature list and then just build it and not listen to your customers.

[21:40] Mike: It’s almost like space invaders where you got the guys that are coming down and they’re really low at the ground and those were the low-hanging fruit. You want to kill those guys first because the guys are up at the top, they don’t matter so much.

[21:51] Rob: Exactly. I do think that developers and founders and people who are building their apps, they overcompensate. They tend to lean too heavily towards the “I need another feature” that if my app is not selling, if my app isn’t where it needs to be, if I don’t have the revenue I want, then I’m lacking features. And most of the time, that’s an excuse, that’s the resistance talking because you want to go back in to your basement and build more features rather than get out there and figure out what is really going on with your positioning, your marketing, the way you’re selling it, your niche, your channels. There’s all these other things that people I think in general avoid and you can – getting this constant feedback, you’re constantly going to be getting new feature request but going in to…in to your tunnel and sitting down and building them is counter productive. So, I think you should lean way from that, not to say you should never do it but I think by nature, we lean towards it too heavily and so, I think you should lean away from that and lean in to doing more marketing.

[22:50] Okay, so we covered when you should do it, when you shouldn’t. Let’s talk a little bit about options for distributing, essentially distributing the surveys and distributing the feedback solicitation mechanism, right, a form of some kind. Now, the two options that I’ve used that have worked the best are e-mail and a splash page, when someone logs in to your app. This assumes that you’re targeting people either prospects or customers, you know, who you’re having some contact info for. Now, far and away, a well-drafted e-mail typically coming straight from the CEO as plain text, not using the fancy template that you might have paid the designer a bunch of money to design but just a plain text e-mail asking sincerely for feedback but not just that saying, “How would you like to improve the app? How would you like to improve your user work experience?” And actually putting it on not on the customer but making them realize that they are going to be improving it for themselves, that has always converted extremely well for me. And if you have a nice list, a 4-figure list, you’re going to get way more feature requests and you can handle just by doing that.

[23:54] And then the second option I mentioned is to have like a splash screen when someone logs in to your app and you can use a tool like intercom.io. They’re pre-built SaaS app to allow you to message your customers. At HitTail, we just have like an if statement when someone logs in and we do a little mod, mod 2, mod 3 and you know, if there’s a remainder of one for all you programmers out there, then we display a certain welcome screen or splash screen or whatever and I can just set that up pretty easily. It does require modifying some code though. So, if you’re a non-developer an intercom.io might be a better option for you. Both of those work. Now, the issue with the log in is it takes a long time. Unless someone is logging in to your app everyday, it could take you weeks to get enough feature requests. That by definition, you’re going go get your most active user first responding to that rather than everyone who’s on your e-mail list.

[24:42] Mike: Yeah, I was going to point out that the downside of that is that the active users, you’re going to hit them multiple times and that is as a user, that’s incredibly frustrating to get bombarded with the splash screen every single time you log in. And —

[24:56] Rob: So, just for a note, we don’t — either cookie someone or since they are logged in, you know who you are —

[25:01] Mike: Oh, I know —

[25:02] Rob: And —

[25:02] Mike: But I’ve seen the ones where you log in and every single time, it’s – I’m just – it’s just a warning to people who are going to implement these themselves to make sure that you don’t bombarded people every single time they log in.

[25:13] Rob: So, those were the two options, to e-mail your list or put a splash screen on log in.

[25:18] Mike: One more option is to directly reach out to people based on some criteria that you put together. So, if you’re going to say, “Okay. Well, these people who have not logged in for more than a week or two weeks, I’m going to reach out to them and I’m going to start asking them some questions to try and figure out why they’re not logging in and learn what it is that’s preventing them or causing them to not log in.” And that’s helpful for you to determine what level of engagement is typical for your users. But in addition, you can find out if there are ways to help bring them back in to use your software more often, to make them more dependent upon so that they will use it more often, so that they don’t cancel down the road because a lot of times there are ways to predict who is going to cancel and who isn’t based on the usage of your software. And that may very well be that if somebody hasn’t logged in for 7 days or 14 days, that could be an indicator that they’re going to cancel soon.

[26:10] On the other hand, it may not. They may only need to log in once a month or twice a month or something like that. It really depends on what your application is but those are the types of things that you’re going to want to be able to find out from these people and calling them and talking to them directly to the phone versus through e-mail or through having them send you a feedback through a splash page. There’s almost no substitute for talking to somebody on the phone and asking those questions directly.

[26:34] Rob: Absolutely. Now, in many of my apps, we don’t even ask for phone number when people register so we don’t have them. But I think that long term, if you have customers who do stick around, collecting their phone number over the course of your relationship with them will help with a lot of things. It’ll if they have billing issues, it’ll help if you want feedback from them.

[26:53] Now, let’s take a look at four different options kind of services that you can use for collecting the feedback in an intelligent way because the wrong way to do this is to set – tell someone to, “Reply to this e-mail with your feedback,” or “Just send us a e-mail at feedback@ your domain name .com,” because what you get is this big mass of e-mails if someone then has to go through and try to pars out what people are saying.

[27:18] A better approach is to have some kind of lose – at least loosely formatted form that feeds in to some type of spread sheet or database or an app or something. And so that’s what we’re going to look at now are four different approaches to doing that. The first one and it’s probably the one that I use most often because it so amazingly simple to set up. It’s fast. It’s free. It’s pretty cool. You go in to Google docs. You create a new spreadsheet and then in the menu, you can just create a new form from that spreadsheet. And so, you create several columns in the spreadsheet and when you create the form, you can just put a text box and say anything someone types in to that, put in to that column of the spreadsheet. And literally like 5 minutes, you can get a reasonable looking Google spreadsheet form up on the web, on the public web. You just share it everybody and then, you know, has long URL and you just include that URL right in your e-mail or in you splash screen, you know, ask people to go and check it out and give you some feedback.

[28:14] Now, you have to be careful here. You don’t want to constrain the feedback too much. If you have specific feature options that you’re thinking about and you want people to rank them or you want people to select one of the five or something like that, then you can definitely ask them some strongly type of questions but I also encourage you to have a text box or a text area where people can do an open ended feedback and open ended suggestions because that’s only going to provide kind of new ideas that might this person creativity. It’s more of a brainstorming session.

[28:40] Mike: So, one that I’ve used before is Wufoo and I really like Wufoo for putting together the surveys because you can tightly define what it is that you’re asking the users and then on the output side, you can export those spreadsheets. You can then take those spreadsheets. You can load them in to the Google spreadsheets or you can just take a look at them and you can use them inside Excel and you can filter them in any way that you want. Wufoo is actually what I use to solicit a bunch of people initially as my early access users for AuditShark. So, I took all those people and you know, had them fill out Wufoo surveys. I posted a link on my blog and just have people fill it out. It’s very quick, very easy to do. The surveys themselves are pretty easy to format. Obviously, Wufoo is a paid piece of software as opposed to Google spreadsheets.

[29:22] Rob: Right but Wufoo allows you so much more flexibility and you know, it is free up to looks like three forms and a hundred responses per month.

[29:30] Mike: Right.

[29:31] Rob: So, give a fairly – user base that could use, you know, you could use it for but it’s also 15 bucks a month if you want to go beyond.

[29:36] Mike: Yeah, it’s not that expensive.

[29:38] Rob: Yeah and did you know what Wufoo is named at? So, it’s a combination of Wu-Tang clan and the Foo Fighters.

[29:44] Mike: [Laughter]

[29:45] Rob: This next one is a service called Qualaroo and it used to be called the KISSinsights. And you know KISSmetrics, right? They also own the KISSinsights. They sold it to Sean Ellis.

[29:55] Mike: Oh, really?

[29:56] Rob: And Sean has since – he already had an app going that was dealing with like rating of free apps. It was called CatchFree.com or something. He was doing customer development. He learned about what these apps actually wanted and so, he went and acquired KISSinsights and renamed it to Qualaroo. And what it does it essentially allows you to put a really simple pop up survey. You can put it on the public website. You can put it inside your app but it’ll just sit there with a little plus thing and it’ll bounce up after a certain amount of time and you can ask really simple questions.

[30:26] The nice part about this, how it goes beyond what like Google spreadsheet or Wufoo does is you can put a different survey on each page and you can give all different types of configuration variables, right? So, you can make it pop up only once per customer, once per customer per week or whatever and you can get specific feedback about that page, how they’re using it, what they’d like to see improve, any feature request, that kind of stuff. So, this might actually be something that you could do more of an ongoing basis. I think you might get too much feedback if you do that like more feedback than you can use. It’s something to think about using. It’s definitely not cheap. It used to be free and I think it’s like 80 bucks a month now. So, it’s a non-trivial amount of money for this kind of thing but if you’re looking for surveys where you can ask specific questions about specific pages, I do…I do think it’s a good service.

[31:10] Mike: I’ve definitely seen this particular type of form before. So, it looks very familiar and I can definitely see signing up for this for like a month or two months just to get the data that you need and then cancel the service because you’ve already got that information. I mean I think you’re right. I think going and taking this to an extreme is just not going to help you very much. But once you’ve got that information that you need in order to improve your product or improve your website, then the software has served its purpose.

[31:35] Rob: And rounding this out, the last couple of services I want to talk about are UserVoice and Get Satisfaction. There wouldn’t be a podcast episode about soliciting feedback if we’re not going to include these. So, I’m not a huge fan of UserVoice and Get Satisfaction. I think they do a very good job of getting feedback and if you have a massive user-based. I mean 10,000 customers/users or more who are going to give you feedback, it is – these are both good options for you because they allow up voting and I think down voting. There’s a lot of options for it. It’s for amassing a lot of data in to a useable format.

[32:09] However, unless you have that large audience, it can seem like a ghost town like if you get your UserVoice thing up and you put a little tab on left side of your website whichever one was doing a few years ago, if you only have a few hundred or even in the low thousands of users, a lot of them are going to participate and you’re going to have some feature requests that are on there but not a lot of votes. I really question the value of something like this trying to have it up there as an ongoing thing because as we said earlier, when you stop learning anything new, you should stop asking for feedback. And pretty quickly, you’re going to watch the features move to the top that you should implement and you’re going to watch the other one just kind of flail. And once you have that information, in my opinion, the UI distraction, the noise of having that that little tab on the left-hand side goes away as well as people who log in to your site a lot of times are going to start tuning that out visually.

[32:56] And so, these aren’t necessarily something I recommend. They have been popped for options for a long time. Actually, if you’re listening to this and you have use this ongoing and you just love UserVoice or Get Satisfaction, I’d be interested to hear your take on it because at this point, I have great success with, you know, e-mails and splash screens and the other options we’ve talked about.

[33:14] Mike: Yeah, I totally agree with – basically you want to have this critical mass of people who are actually using those services because if they’re not, it does look like a ghost town. If they don’t see anything like this, they’re going to assume that lots of other people use it. But if they see that you’ve put up UserVoice and you’ve only got, I don’t know, 10 or 12 different comments on there, they’re going to rightfully assume that, “Oh, well, maybe he’s only got 20 or 25 users. What are other people using instead of this particular product?” And then at that point, you could have this mass exodus. I’m not saying that, you know, using UserVoice is going to cause that but you have to be careful about what the perception is of the users who are using your product and the information that are going to glean from these types of services.

[33:58] Music

[34:01] Rob: Now, we’re going to look at one listener question and this one is about going moving from contracting to consulting products. It’s from Vlad and he says, “Hello. Thank you for all the experience you guys share. It makes me really evaluate what I do for a living. I have a strategic question and I’m hoping you can help me find the answer.” Basically, Vlad is working as a contractor and he works through recruiting agencies and ultimately, he wants to get to selling products. The issues he says that he works a lot of overtime. For instance, this month, he booked 201 hours.

[34:34] So, that means moonlighting becomes really problematic. He can’t build a product because he can’t allocate enough time to it. He says taking time off is not really a possibility as the client’s attitude is usually that everyone should work as much as they possibly can. So, he’s considering moving to consulting. He hasn’t done it yet but he says he’s looking at finding his own consulting clients, charging a weekly rate that’s roughly two times over his current rate is and during an inevitable gaps, he would have enough money that, you know, would cover that and he would work on the product.

[35:02] But he says, “What I don’t know is if this is actually better than contracting. The idea sounds good on paper but I’m curious is I’m not accounting for some things that will not allow me to allocate enough time for my product. Finding client is an obvious unknown for me. Presently recruiting agencies do all the footwork and I just have to give them a cut. So, my question is would finding and closing the deals actually take so much time and effort that building a product would become impossible?” So, there are few other questions after this but why don’t we tackle that one first.

[35:32] Mike: My view of this kind of thing is that finding new customers can be extremely time consuming and if you find one customer who ends up being an extremely long-term customer, then you’ve got it made. I mean that’s a golden opportunity at that point but you know, if you start finding because of your rate, you end up finding all of these much shorter term contracts that don’t last nearly as long partly because your rate is so high, then you’re going to run to this issue where you’re going to have a lot of down time. And during that downtime, your primary focus is not going to be working on your product, it’s actually going to be finding your next contracts because you don’t know how long that’s going to take and that’s one of those problems that is never going to go away. It cannot be solved by spending a little bit of time on it. It’s an all consuming effort to try and find those new customers because you don’t know when it’s going to be. It could be one month, it could be a week, it could be a day, it could be six months. You have no idea and because of that uncertainty, you’re going to have to sit there and you’re going to have to devote the time to finding those new customers rather than spending that downtime working on your products.

[36:39] So, my advice would probably be to stick with the people who are feeding you that work and kind of go by the rules that we’ve kind of talked about in the past episodes of this podcast where you basically have to have it at least a couple of things you either have time, money or expertise. And obviously, you have the expertise. You don’t have the time but you probably have the money. So, you could probably outsource the development of other product as long as you know what that product is going to be and that way, somebody else is building it for you versus you spending your time doing it. And then you can do code reviews in your spare time which admittedly is probably not a lot of time but it really doesn’t take a lot of time to do a code review of somebody’s code on a daily basis as long as you stay on top of it. If you wait a week or two weeks or three weeks to do code reviews, it’s going to be a lot of time and effort to do it. But as long as you allocated a little bit of time each day or each week to go ahead and do those code reviews, you should be fine.

[37:30] Rob: Yeah, one thing I left out – Vlad’s e-mail is pretty long so I summarized it but one piece that he mentioned is that most of his contracts are six months to two years long and so that’s why he’s looking at moving in to what he’s calling consulting which is the shorter geeks. I was in quite a similar situation maybe 6, 7 years ago. The thing to think about is if you have so much work, you’re working 200 hours a month, then you can be pretty picky about the work you accept and that’s a situation I found myself in was I had more contracts than I could possibly do and that allows you to start dictating some of your terms. As Mike said, the first thing is you either have time on your expertise. You obviously have expertise and I bet you have a lot of money because you’re working so many hours and you’re billing contract or rates.

[38:15] So, the outsourcing is a great idea. I think acquiring an app that someone else had built to give you a head start is another good idea. I don’t think if you’re billing, you know, a triple digit rate that you should spend several hundred hours building some SaaS app that you can hire someone to build for much less cost. This is a common situation for people to be in. The second piece is that you can kind of start dictating what you want to do, right? If you’re working 200 hours a month, think about talking to the clients that are hiring you. I know that I did this. These aren’t necessarily easy conversations to have but letting them know that you can stick around but you can’t keep working – what is that? I guess that’s 50-hour a week. It’s not the end of the world. But if you have a family and that can be a problem.

[38:56] And ultimately, moving down to part-time which is something that I did. I’ve moved down to four days a week and then three days a week and this was all as like a contractors/consultant. That allows you time to…to build your product. But I would think about it before doing that because if you are billing all this time at this high rate, then why give that up? Why not look at getting an app out there, getting it launched, getting it marketed and outsourcing as much as you can. At least getting it to a point where it’s making enough money that it can fill in those gaps. So, even if it’s bringing in a thousand bucks a month, well, you can back off, you know, maybe to 40 hours a week. And then once it’s making a few thousand bucks, you can back off a little more.

[39:34] So, it’s much more of a gradual approach. I agree with what Mike said, moving from contracting to a more short term freelance work, double the price, I really question that approach. I think you’re going to spend so much time finding the work and handling all the business aspects of it that you’re going to be better off in basically in the situation you are and figuring out how to make that situation work for you. Hope that answers your question, Vlad.

[39:56] Music

[39:59] Mike: So, if you have a question or comment, you can call it in to our voicemail number at 1-888-801-9690 or you can e-mail 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. We’ll see you next time.

Startups For the Rest of Us

Episode 118 | Anti-piracy methods, HitTail, AuditShark and other madness

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Show Notes

• Protecting against software pirates
• Actions to take when a software pirate steals your software
• WPEngine
• Micropreneur Academy
• WishList Member
• YSlow
• DotNetInvoice
• Mike’s Twitter handle: @SingleFounder
• Rob’s Twitter handle: @RobWalling
• AuditShark’s Twitter handle: @AuditShark
• HitTail
• GoDaddy
• TheSSLStore.com
• Comodo
• GeoTrust
• Trello
• thestartupkids.com

Transcript

[00:00] Mike: This is Startups for the Rest of Us: Episode 118.

[00:02] 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. I’m Mike.

[00:19] Rob: And I’m Rob.

[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?

[00:24] Rob: I’m doing good, Mike, aside from the fact that I don’t like anti-piracy code in DRM. Yesterday morning I wake up and I have an e-mail from our virtual assistant Andy who’s trying to log in to the Academy, micropreneur.com. He’s doing a little admin work and the WishList plug-in that manages our membership just keeps telling him, “You need to validate your product code. You need to click this button and validate the product code.” We’ve had this thing installed for four years, right? And although we’ve moved servers a few times, I mean we’ve never had to go through the step again. And it turns out that if you try to log in, it wouldn’t let us do anything in the WishList admin and then if you log in as a user to the Academy, it was deathly slow. It was like 20-second page load times.

[01:04] And so I’ve e-mailed WP Engine. I’m trying to run YSlow. I eventually e-mail WishList and as it turns out, they have piece of anti-piracy stuff in their plug-in that calls back to their server and if it can’t validate it by hitting their server, then it slows your site down. And their server was down. They told me the next morning that it had been hacked but that’s new to hearing there [Phonetic]. It was, you know, I tried to hit their server. I couldn’t hit it and so, I figure that that was the issue. And sure enough, when they come back up, everything worked again but it was just, ugh, it was like slap to the forehead, you know, like who does that? I mean honestly, I’ve heard of maybe one or two other vendors doing this and to me it’s such a single point of failure. It’s such a way to piss off thousands of your customers.

[01:50] Mike: I understand the mentality but it’s – I don’t want to say it’s the amateur mentality but it’s the mentality of people who feel like they’re probably not necessarily offering enough value or they’re too scared of pirates to understand that the people who are building real businesses are actually going to buy licenses for it.

[02:08] Rob: Right and actually you’re one of the first people who I had heard say that. This is like maybe 2005, 2006, you had a couple of blogs post on it and we’ll link those up in the show notes but you basically said because I always of the mindset, you know, like in the Shareware world, the MicroISP world, people would always have the license code and you know, in order to use it, you needed the specific license thing and you basically came out and said I don’t think that’s the right way to go and I think that hurts your customers, your paying customers more than it stops the people who are trying to pirate your software.

[02:35] And that was where we’re at the decision for our DotNetInvoice and we were looking at doing some type of registration code anti-piracy thing and we decided not to after reading your post and doing a little more research. But everytime I run in to this now and when I’m the customer and it causes me a great deal of pain and or a lot of angry e-mails from users, I totally think back to that argument of if you’re really a small vendor, the anti-piracy stuff is typically not worth it.

[03:02] Mike: That’s totally correct. I mean even the other way to look at it is how much time are you – and effort are you going to spend as the vendor supporting those people who are legitimate customers who really did buy your product and all you’re doing is you’re…you’re pissing them off and you’re making their lives miserable. And on top of that because they’re talking to you for a support help because your anti-piracy mechanisms aren’t working or there are something, you know, going on that’s making things slow or your server got hacked, it doesn’t really matter what the issue is. Every minute that you’re spending time working with those customers is a minute that they’re pissed off at you and a minute that you’re not getting worked done. So, you’re basically killing time on multiple people because you want to implement stuff that will theoretically help you but at the end of the day, it really doesn’t.

[03:48] Rob: Right and I think your argument in the blog post if you want to defeat pirates, keep releasing new versions of your software because nothing discourages someone from pirating your software more than seeing that they have an old version of it and that they can’t get the new version.

[04:01] Mike: That kind of came about because I had some software that I was publishing back in probably 2002, 2003 and I was selling it and I had put copy protection software on it and it gotten cracked and then we released a new version and then that got cracked and then we released a new version and then that one didn’t get cracked. And I don’t think that it was because somebody couldn’t crack it because it was the exact same encryption code, it was just the new version. I think that whoever was doing it, they just got bored and they said, “Ugh, I’m not going to bother.”

[04:28] Rob: So, I started the day off with a rant, you’re going to start it off with some positive news. Did you get an e-mail from someone?

[04:33] Mike: Yes, I did. So, last Thursday, I was having an absolutely horrendous day. There were tons of stuff that was just going right. And I got an e-mail from Bob Ropp [Phonetic] who said, “Just want to let you guys know that I really love the show. I found it searching through tech podcast about six months ago and I’ve been a loyal listener ever since. Thanks, guys and give up at the good work.” And as I always said, you know, it’s just kind of made my day.

[04:52] Rob: Very nice. I realized we haven’t mentioned our Twitter handles in quite some time. So, if you are a listener to the show and you’re not following Mike and I on Twitter, check us out. Mike is Single Founder and I am Rob Walling.

[05:05] Music

[05:08] Rob: Have an update on AuditShark? So, what’s the news?

[05:11] Mike: Based on your previous comment about Twitter, I started working on the AuditShark Twitter account and following a bunch of different people and just trying to get a small following there and I’ve got it up to around 40 or 50 people in three days or something like that, four days. I haven’t put it any extra time in to it since then but I’m starting to work on the process that I can hand to somebody and say, “Hey, I want you to start tweeting out links and stories and news articles to help grow that following a little bit.” And then in terms of the website itself, I roughly doubled traffics since November and December levels. So, I’ve been doing some content marketing and SEO that is kind of starting to pay off at this point. I got to go back and take a look at some of the inbound links and some of the different keywords that I was looking at as potential targets to go after for SEO but it’s a matter of kind of prioritizing those and putting up some new articles.

[05:59] Rob: And what’s the AuditShark Twitter account?

[06:01] Mike: Oh, it’s just AuditShark, @AuditShark.

[06:04] Rob: So, people who are interested in hearing about security world, is that what you’re going to be posting links about?

[06:09] Mike: Yeah. So, I haven’t kind of fully fleshed out my strategy for it yet but what I’m thinking about doing is kind of going to a bunch of new sources and trying to figure out what links would be relevant to the people who would be following the account and what sort of security things are happening in the world. So, for example, recently, there’s been a lot of problems in the Rails community because there’s been some pretty significant, I don’t want to say backdoors but security vulnerabilities that have kind of come out where you can take control of a server and basically run arbitrary code on that server even if the application is designed in a secure way because it has a problem to do with the framework itself, not necessarily the way that people are using it.

[06:49] And of course, it’s a problem because if your Rail server gets compromised, it means that they can get access to anything that’s on that server including the database and, you know, your customer data and then they can use that to go in to other servers. And just by doing a little bit of matching between different Rails applications, you could start whittling down to figure out, okay, well who between these two applications is using the same password on pretty much all their accounts. And then you could use that to launch massive attacks against some pretty major sites on the internet, you know, anything from Amazon or you know, Microsoft, Oracle, et cetera.

[07:21] I mean if these people are truly using the same e-mail addresses and passwords on all those websites, it would be very easy to go in to them and do different things and especially when it comes in to the things like banking. I mean because people use — if you’re reusing those usernames and passwords or the e-mail addresses, it can be a huge problem. So, I’ve been looking at that a little bit and trying to decide. I’ll say in how far in to that rabbit hole I want to go and I’ve actually reached out to a couple of people in the Rails community and see if they would want to use AuditShark to audit their servers to help monitor for changes of any critical system files. So, for example if the new user show up or a new software gets installed or if some of the code libraries are out of date, et cetera and I’ve gotten some responses from that [0:08:00] so I’m looking at those right now.

[08:02] Rob: Nice. So, if folks are interested in that kind of stuff, I see that’s what you’ll be talking about on your Twitter account.

[08:07] Mike: Yup.

[08:08] Rob: So, on Sunday morning [Laughter] I got an e-mail from both you and my HitTail product manager saying, “Your SSL cert is expired.” And what it have – this is totally me dropping the ball. When I acquired HitTail, it was maybe 18, 19 months ago, the previous owner had a 2-year SSL cert and she had bought it on February whatever two years ago and I don’t know if you can transfer ownership. I should had just bought a new one to be honest but it was on the server I’m working and I was able to export and re-import it when I moved servers and just never thought about it and so bam, right in the middle of – it was probably early Sunday afternoon Pacific Time, the thing just stops working. So, at least the website was up, the marketing site worked but you just wouldn’t, you know, when you click to register that’s SSL because they ask for credit card number and I wasn’t getting any trial.

[08:56] So, the kicker is I went in – I knew it was a GoDaddy SSL cert and of course, I go to GoDaddy to try to just renew the cert and I realize – that’s when I realized, I don’t actually own the cert so there’s no way that I can just renew it. So, I generated a new request on the server and I go to GoDaddy to try to fulfill the request and they say, “You can’t take out a cert for – a Wildcard cert for this domain name because one already exists in our system and it hasn’t been purge, doesn’t get purged for weeks after that.”

[09:23] So, I had to then call GoDaddy and I have to tip my hat to GoDaddy. I’m shocked at how good their customer service was over the phone on a Sunday afternoon and they – the guy I got on with their SSL Department and they purged the old one. I sent in the request and they turned it around in like 10 minutes. For a Wildcard cert, I was really impressed and oh, total time taking was about an hour from the time I heard, you know, from you and my product manager but it was a little stressful for sure. I didn’t know because I kept imagining back in the day, you’d wait 24 hours to get an SSL cert back and I was really hoping it didn’t laying in to Monday.

[09:57] Mike: It depends of what type of SSL cert is you’re getting. So there’s [0:10:00] this thing called an EV cert which is Extended Validation which gives you the – it’s not just the little lock icon in your browser bar but it also gives you the name of the company itself. So, if you like go to PayPal or Bank of America, they tend to have those Extended Validation certificates and it’s supposed to signify to the end user that, “Oh, we have done an extended background check on this company and that will take you several days or even a couple of weeks to get through.” But with yours, I mean it’s not an Extended Validation. So, you don’t have to worry about it and they can generally turn those around pretty quick. I get most of mine through either the SSL Store Comodo or GeoTrust and their turnaround time on most of them is, you know, minutes. It does not take fairly long at all.

[10:43] Rob: Yeah. So, that was good news. It was just a minor…little minor hiccup for Sunday afternoon. Luckily, it got resolved quickly. But Derek is my product manager for HitTail and I just start calling him by his first name. He e-mailed and then texted me and that’s what I needed was the text because I hadn’t check the e-mail that day.

[10:58] Mike: Cool. I just finished up writing an e-course. It’s an introduction to how to use Altiris for my Altiris training site and I’m working on building a landing page for it but I’m also touching base with some of the Altiris sales engineers to see if they’d be willing to tell people about it because they’re in the field all the time and they are talking to customers. So, these customers are obviously asking…going to ask them questions about where can we get resources and they will tell them but at the same time, if they knew about my site and they will probably tell them about my site and get more publicity for the site just because the sales engineers tend to have a lot of clout when they’re talking directly to the customers. They take their thoughts and opinions on whether or not a site is a good resource. They treat it as if they have some authority.

[11:38] So, I think that if just by touching base with some of my old contacts through that network, I can definitely get some more people to the website because the traffic is pretty much kind of leveled off back to where I had originally thought it would be. I don’t see it going significantly back up without some extreme measures [Laughter] just because the site doesn’t give very much traffic for the keywords that I’m targeting and there’s not much else I can target [0:12:00] for those keywords.

[12:01] Rob: Right, small organic SEO market which makes sense. What’s the e-course for? Is it to get SEO traffic? Is it going to rank for keywords or is it to give away and exchange for an e-mail?

[12:11] Mike: Yes, it’s to give away and exchange for an e-mail address and that because I’m getting a lot of people to the site or I’m getting, you know, enough people to the site but my conversation rate isn’t as high as I would like it to be. So, what I’m trying to do is first I want to get e-mail addresses from those people. Send them some valuable relevant content that they’re going to read hopefully on a daily basis and then try to draw them back to the sites who in an effort to get them to buy or to maybe sign up for other e-courses or something along those lines.

[12:36] Rob: Got it. Yeah, in terms of getting e-mail addresses, our landing page at GetDrip.com, I started sending some my paid traffic to that purely as a test of a couple of things, I’m split testing some different headlines and body text of the landing page. And that’s worked out well. There’s already one variation of the test that had just completely flopped and so that tells me that that particular, you know, that verbiage that I was using is suboptimal for this market. And what I like about the paid acquisition is it’s not that I’m trying to actually make money out of it, it’s just that it’s just so easy to send a bunch of traffic to it really quick and kind of see how it behaves.

[13:11] At this point, I’m getting around 20% of the traffic that I’m sending from these two niches to provide their e-mail address. So, I’m fairly happy with that. It’s not like outstanding but it’s definitely, you know, these are cold e-mails, people who’ve never heard of me or heard of the app or anything. So, the fact that they’re willing to type an e-mail in to our landing page is a good sign at this point.

[13:33] Mike: Yeah, that’s cool.

[13:34] Rob: I want to go back and update folks on my Trello versus paper competition, right? I’ve always use paper for to-do list and I moved to Trello a couple of months ago and although I’m still using – I have a Moleskine notebook, the black notebooks that I use for all my long-term items in my big thinking and you know, anything that’s like goals and such. But I got to be honest, man, I have not going back to paper for the to-do list since I wet to Trello and I have the iPhone app [0:14:00] and I have it on the iPad and I have it on my desktop and I loved that it’s all synced and then I can just pull it up anywhere and add stuff, move it around. It’s just – it really is someone finally cracked that nut. You know, Fog Creek finally cracked it and I really – I have not found a reason not to use Trello still. It’s pretty crazy.

[14:17] Mike: Yeah, it is. You know, it’s funny because…it’s funny that you bring up Trello because I was trying to think of how to move some of the UI for AuditShark in to the Cloud just because I was talking to the developer that I have working on AuditShark and we were trying to hash out where would be the best place to host all the stuff because right now everything is kind of split between the Cloud and then you have to have this policy builder and it gets kind of complicated for the user and it’s like well the easiest thing to do would just be have everything in the Cloud.

[14:44] So, we were discussing how to kind of rework the UI and make it easier to use and one of the things that I thought of was the way that Trello allows you to kind of drag and drop things between the different columns and I was thinking that will actually might make a very good UI for putting the policy builder in to the Cloud because I was trying to figure out how to do that, you know, using like grids and tables and adding things back and forth between different columns and within the policies and control points. And it gets…it gets a little bit complicated and hard to explain unless you’re kind of familiar with some of the different terms and how the policy builder works but basically the idea of being able to drag and drop objects on the screen, that right there would solve like 95% of those issues.

[15:26] Rob: Very nice and I wonder if…if Fog Creek use the framework or somebody you could piggyback on and say you don’t have to build it from scratch. You know, I imagine that you use jQuery or something that makes that easier.

[15:35] Mike: Actually, they…they posted a couple of links on their blog that tell you specifically what the Trello stack is. So, it started out – let’s see here, they say that they’ve got CoffeeScript, Backbone.js, HTML5. They have this thing called Mustache which is a templating language and then they also have Socket.IO and WebSocket, Ajax Polling. They’ve got MongoDB, Redis and a couple of other different [0:16:00] things in here. And I probably wouldn’t necessarily need all of these things but the fact is that they tell you basically what the use for that. So, if I wanted to build something that was similar that was specifically designed for AuditShark, then I could probably do it. It would be significantly better than putting much any other security product that is out there on the market right now. So, you know, it’s definitely something for me to think about. I just don’t know how much effort it would take to build something like that.

[16:26] Rob: Yeah and if you haven’t build something like that before, the learning curve will certainly be steep on the initial implementation. It’s nice that they – that’s why I like about software companies. There’s a lot of them will just say, “Here’s how we did this.” You know that Fog Creek published that so that other people can go build cool stuff is really neat and that’s not done in a lot of industries. You don’t see manufacturer showing you their process as a rule. I mean that’s pretty cool.

[16:48] Mike: You know, with software – I mean anybody can make it. It doesn’t matter whether you tell everyone about your idea or tell nobody. I mean the fact is as soon as you launch it, everybody is going to take a look at it and say, “Oh, well, I could build that and you know, this is probably how you did it.” And you can kind of reverse engineer most things. It’s just you kind of to have to put any effort and do the work in order to rebuild something like that. It’s not exactly a big secret.

[17:09] Rob: Oh, I have a couple last updates and then maybe we’ll dive in to a few listener questions. Regarding HitTail, January was the best month ever. It actually had – not only that but I had more trials than any month in the past and previously, June of last year had the most trials because it was the year or the month that the AppSumo deal ran and it sent a bunch of traffic. So, it’s a good kickoff to 2013 and what’s nice is since it’s a 21-day trial, February should actually look good too. We got an unexpected write-up in Search Engine Watch. The head editor had seen a HitTail ad and had been familiar with HitTail from years ago and so, he wrote us up and then invited me on their Search Engine Watch Podcast and obviously, that traffic would convert really well.

[17:50] And I guess the thing I realized, man is it’s like the more you’re out there, the more you have ads running, the more you’re just being written about, the more we’re getting contacted by joint venture partners, people who say, “Hey, we want to e-mail our list, you e-mail your list, you know.” Search Engine Watch finding us – I mean it – it just increased that, you know, that lock surface area like Justin and Jason talk about. I mean just being out there creates more exposure and more area free to expand your business. So, it’s definitely working out or at least it did work out in the month through January for us. So, trying maintain that growth and hit our growth goal of 2013 and on track for that so far.

[18:25] Last two update, one is I watch a movie on Netflix streaming. It’s called Indie Game: The Movie. I highly recommend it. It’s about some software developers who are building indie games and it’s – Indie Game is like it’s just one or two developers. So, they’re not associated with a studio. It is really cool. It captures the emotion, the struggles, the anxiety, how long it takes, how the internet can be really cruel if you put out a game and people don’t like it. I mean it’s very closely parallels what we do as developers also theirs world is a little more subjective, right, where people can just say your game is cool or not. At least with software, if we try to sell on value, we have a bit of, you know, a different measuring stick but if you’re all in to the software development stuff, I really recommend Indie Game. It’s nice because it’s free on Netflix if you have a subscription.

[19:11] Mike: The other problem with selling game is either people like it or they don’t and if people don’t like it, there’s not a lot you can do to save it. It’s not like a business application where it doesn’t meet somebody’s needs and you can tweak it until it does. But with the game, it’s really hard to tweak a game so that people like it if it was just a complete dot or bust from day one.

[19:33] Rob: Right. It’s much more hit-based. It’s like writing popular music or making a movie rather than building software for businesses.

[19:40] Mike: Yup.

[19:41] Rob: All right, last thing is our editor had a comment about last episode. Someone wrote in they were talking about the organic delivery idea in New York and she said that she – there is a grocery delivery service in New York City that delivers organic as well as other fresh food and it’s called FreshDirect. She said it’s a huge operation and it’s hard to imagine one person being able to coordinate that. She said FreshDirect is been around for a number of years and she sure they started out small but now they have a giant warehouse, thousands of trucks and drivers and deliver thousands of items within 24 hours of ordering them. There’s no subscription fee. There is a delivery fee at a minimal amount you can spend.

[20:18] You know, we touched on that a little bit just because there’s competition doesn’t mean that you shouldn’t do something if you can figure out a better way to do it. But if you are going to go head-to-head with a big incumbent player, you do need to figure out how are you going to be better or different than they are and obviously, the logistical aspects of handling all the perishable food is quite a big thing to bite off, if you’re wiling to do that and that’s the kind of thing that interest you, by all means.

[20:40] Mike: The problem with fruits and vegetables and things like that is you run in to a lot of what’s called shrink in the retail industry and shrink generally refers to any goods that are lost but when you’re talking about produce, what you’re generally talking about there is stuff that just could not be sold because it wasn’t any good. So, whether the…the apples have bruises on them or something just went bad, you know, the milk expired, things like that, there’s a lot more shrink in the produce industry than there is in the…the general retail but general retail does have shrink as well. I mean if clothes or something like that get ripped or if a TV set – nobody wants the TV set where the box is kind of destroyed a little bit or mashed in on the side. I mean that’s why in…in the past grocery stores used to take can goods and if the cans had dents in them, they would sell it to you at a discount. And now, they don’t do that anymore because people would take the cans and they just drop a whole case of them and say, “Oh, well, I get 50 cents off of each of this.” So – but shrink is definitely a big concern in an industry like that.

[21:39] Music

[21:42] Rob: Let’s answer a few listener questions.

[21:44] Mike: So, the first one comes from Glen Lawson [Phonetic] and he says, “Hi, Rob and Mike. Once again, thanks for continuing to produce the podcast. It’s been my favorite for several years now. Rob, I have a question for you. You’ve mentioned that you brought on a friend to be product manager for HitTail with the hope that he’ll one day take up more responsibility with allowing you to focus on new products. Once you’ve launched or acquired a product and built it up to a stage where others can manage it with little direction from yourself, how do you maintain growth and encourage your staff to be passionate about the business and have a desire to grow it? Would love to hear your thoughts. Regards, Glen.”

[22:12] Rob: There’s a couple of ways to do this for sure. First thing is you need to hire the right people, right? You need to hire someone who is generally going to be passionate and excited about whatever they work on because if they don’t have that, if you just hire someone who’s kind of ho-hum about any job they do, then you’re not going to be able to instill that in them. The second thing to think about is you want to hire someone who’s specifically excited about startups or about growing startups or about being a startup founder. It’s not something that I think can really be taught but if someone is naturally excited about this concept of being a software entrepreneur, then it’s awesome for them to learn on the job and that’s…that’s what I found with Derek is just that he has such a thirst for knowledge and had such a desire to learn all the [Audio Glitch] of the business that I mean I remember, you know, being this back in the day, right? It’s like you’re a kid in a candy store because you’re doing what you really enjoy everyday and you’re getting paid for it and you’re just learning all these awesome stuff.

[23:05] And so, those are the first few things that I think will carry you a long way and then at some point, I think if you’re looking at long term, you do have to think about putting your motivations alongside the person that you hire. In other words, if you make out really well in the businesses well, then you guys should both do well. And so that product manager should ultimately either get a share of profits or equity. And that’s again, may not be the first year or two that they work but if you’re thinking long term, that has to be something in the back of your mind because someone is not going to work forever just to put a bunch of money in your pocket and they are always going to work harder if there is some more motivation to do that either again make more money in terms of equity or a profit sharing?

[23:46] Mike: Well, I mean I think a lot of what you said rings through for most people but the other…the other side of the coin is I used to think this exact same way as well. You know, what’s in it for the people that you’re hiring? And the fact is not everyone wants to run their own business. I mean some people just want [0:24:00] to be able to go to a job and do that job and it doesn’t mean that they’re not passionate about it. It just means that they don’t want to have to think about it when they’re not working. So, those are the type of people who are perfectly content to work for you. They’re not going to actively be looking for the next ride to catch, you know, the next business to jump on to. I mean they want a job. They want a steady income and they want to be able to enjoy their career and as long as you’re providing them with an environment where they are actually enjoying what they do, then you don’t necessarily have to worry about that too much. And again, it depends on what type of person you hire and what they’re interested in. But you can definitely run in to those people who are more entrepreneurial in nature and want to go on and do their own thing. But there’s definitely contingent of people who don’t want that.

[24:48] Rob: Yeah, that’s a good point. And I think I have a…I have a hard time giving advice in this area because my end is one, right? I have only done this once and I found a certain type of person who works in a certain situation and at this point, I don’t know if I could replicate it yet. With a lot of the stuff that I give people advice about, I have done it many, many times in a repeated fashion, all the marketing, the starting, a company they’re growing, you know, the product revenue and all of that stuff, it’s something that I feel confident that I have done it enough times that I do have, you know, an end of 10 or an end 20. My sample size is just larger and so with this one, I have thoughts on it about how I would proceed, but to be honest with, you know, really I only experience to one person. I have lesson I like [Phonetic] to stand on in terms of giving others advice in my opinion.

[25:31]Mike: The next one is from Brian and he says, “I’m currently struggling with the decision whether or when to hire employee number one. My dilemma is I don’t quite have the revenue yet to support this but I’m also very bogged down in task that I’d like to hand off. So, it’s the chicken or the egg thing. An employee will help free me up to focus on growing revenue but without the revenue, I can’t afford an employee. Should I grind it out as I’ve been doing mostly solo with study but slow growth and hire someone later on when I can afford it or should I hire someone sooner and think of it as an investment just for a faster growth? Thanks, Brian.”

[25:59] I think that the thing that you have to do here is take a look at the tasks that you have that you are spending a lot of time on and try to figure out which one is you’re spending the most time on and which of those tasks could be outsource to somebody at a part-time rate. I don’t know as I would go down the path of hiring somebody fulltime yet but you can definitely find people who are looking for part-time work and especially if you’re doing things like support tasks where those types of things can be scripted and you can give somebody some general guidelines and say, “This is my general blanket policy. If somebody asks for a refund, give it to them. If somebody wants you to help them out, go ahead and help them out.” And you’re paying them on an hourly basis. You can kind of have them touch base with you if they have any questions about that stuff but what you’re really looking to do is free up some of your time without having to pay for them to do it fulltime for you.

[26:47] And that allows you to kind of slowly get in to it and the one thing I would caution against for most people in general is if you’ve never been a manager before, it’s very hard to jump in and just take on somebody as a fulltime responsibility and have to manage their workload at all times. If you’re having problems trying to makes end meet and pay their salary, the best suggestion that I would have is don’t do that. What you need to do is take them on a part-time basis and gradually move in to that role and if it doesn’t work out, then that’s fine. I mean you’ve only taken them on as a part-time employee as a opposed to a fulltime employee because once you start taking someone on as a fulltime employee, that’s a huge responsibility because especially if they’ve left another job to work for you and if it doesn’t work out and a lot of these situations do not work out the first time because you – people are notoriously terrible at hiring people.

[27:38] So, you’re better off hiring somebody on a part-time basis kind of testing the water and see how things go and then move on from there if things work out. But if they don’t then, you know, cut the cord. Move on to the next person and at that point, you’re not really torpedoing somebody’s career or taking them away from a job that they realistically could have stuck around in for a while.

[27:59] Rob: That’s exactly what what I was going to say. That’s why we talk so much and we have done this over and over. We did it with support and in the Academy, with support with HitTail. I could go on and on literally, five, ten times I’ve done this, hiring someone who starts off maybe only at 2 hours a week and they’re purely on as needed basis and that’s where nice project management tool like oDesk that actually tracks their time. There’s things that can really track someone’s time accurately and then like you said, you’re only on the hook for the time they work. They can linearly scale up as the time expands and in fact at this point, I now have multiple people working over 20 hours a week and I have one person working 40 hours a week but none of them started at that point. They all started working a couple of hours a week and allowed me to have the free cash flow to then go invested in other things in marketing approaches or in development cost. There’s no reason to tie up a bunch of money in a fulltime employee. I really don’t see any reason to do that.

[28:57] Music

[29:00] Rob: Our next e-mail is actually not a question. It was…it has a subject cool stuff found. It’s from Carl and he says, “A film is in the making that I thought might interest you and your listeners.” And so if you visit startupkids.com, you can see a trailer for a movie, that’s a documentary about young web entrepreneurs in the U.S. and Europe. Did give them my e-mail address because I’d love to hear when it comes out but it has interviews with the founders of Vimeo, SoundCloud, Kippt, inDinero, Dropbox, Foodspotting and several others. So, he said it should be out in March of 2013. I’m in to this type of thing, right? You know, I love movies that observe, you know, all the stuff that we go through and to see other people talk through it is just fascinating. So, thestartupkids.com.

[29:40] Mike: And I think our last question for today comes from Ricardo and he says, “Hi, Rob and Mike. Thanks for the show. We’re a small SaaS company from Brazil with nearly 250 customers. Obviously, we love to get new customers and hate it and I really mean hate it to lose them. I hate it to the point that I’m disappointed with the whole business and mad with anyone who crosses my path for a few hours after each cancelation. I know I should be doing more marketing to get more customers more quickly. What I want to hear from you is what is your strategy for when you lose subscribers from the moment someone request a cancelation to subscription to the moment you actually let them go, how do you deal with it? What sort of metrics do you think? At what point does it start to concern you and more personally, how did it affect your mood in the way you treat your products? Thanks very much, Ricardo.”

[30:19] Rob: First thing to think about is to look at your product and figure out are you past the point of product market fit meaning have you built something that people want to use, that solves a problem that they have and that you are marketing to the right market that really needs it. So, if you are at 250 customers and they are happy and they love what you’re doing and you are able to find new customers and bring them in to your app, then the answer to that would be yes. You know, if your churn rates relatively low, you know, typically when your growth starts going up, your churn goes down, then you know that you “hit” product market fit, okay? If you’re before that, then every cancelation is an opportunity to talk to that customer, find out why they canceled, find out if they just are never going to use your app or if you’re missing a single feature, if you’re marketing to the wrong people. You know, there’s a bunch of stuff that you can find out for them and that’s a whole another conversation but that’s the kind of pre-product market fit discussion.

[31:10] Once you’re scaling and you’re marketing and bringing new people in, churn is a fact of life, period. You’re going to have people that cancel every month and with 250 customers, I hope that number is not a lot of people but in fact in early days of a SaaS app while you’re trying to hone your funnel and hone retention and get all your features in to keep people happy, you can easily have churn of 10 or 20% a month. Now, you can’t have that for very long. You’re obviously losing a lot of customers. 20% churn with 250 customers is 50 customers a month and you’ll essentially be at zero in five months. So, realize that but no matter how well you hone that and how good you get that number, how low you get it, you are always going to have a few people that cancel.

[31:51] So, I think there’s kind of the mental aspect of it. You said you get, you know, angry when people cancel, I would take yourself out of that loop so that you are no longer  receiving that e-mail and having to cancel them. If it really does impact you and impacts your productivity in the way that you’re working with other people, I would say give that to an assistant or a tier 1 support or something and let them handle that because you don’t need to know about every single cancelation if they’re comments given in the cancelation which you should always ask why are you canceling and require, you know, at least X characters. If their comments given in that, then yes, maybe you should see all of those every week and be able to read through them but in terms of you getting angry everytime they cancel, then you should probably remove yourself from that process.

[32:32] Second thing I think is you have to look at them in aggregate and that actually takes away a little bit of the emotion from it and what I mean by in aggregate is look at the percentage. So, tracking churn percent which is the number of customers who canceled in a month divided by the number of customers you have at the beginning of that month is, you know, an absolute key SaaS metric. So, you need churn. You want to calculate the lifetime value and of course, the monthly average revenue per customer. But in terms of churn, you also want to break it up in to multiple durations because with SaaS or with any kind of subscription, you’re going to have higher churn in the first period that there are customers. So, for some businesses, it’s the first 30 days has really high churn and that can be 20 or 30% and then after that, it’ll settle way down and by down, I mean it can be 2% or 5% like really low areas. In other businesses, your first 60 days have high churn and in other’s first 90 days.

[33:28] So, you’d just have to calculate yours and you see, you watch and look when that churn drops off and then I would look at your first X days, So, for you it’ll be 30, 60, 90, probably. So, I’d say, you know, look at your first 60 days churn and then look at your post 60-day churn. And those are really the numbers you want to track on an ongoing basis and you want to either have a graph of those that you can look at so you can easily see the change in churn or you want to have a table, you know, worst case, you have a table of your current month plus all your previous months so that you can eyeball it and see is my churn going up or down. When your churn is too high [0:34:00], then you have to implement a bunch of stuff to try to bring it down and again, that’s probably an entire podcast or maybe a MicroConf talk that needs to happen, talk about specific ways to bring churn down. There are a lot of different ways to do it. Those are my initial thoughts on it. Mike, do you have anything to add?

[34:16] Mike: I like a lot of the things that you said regarding what metrics to take and you know, when it should start to concern you. Those are good things. I think the number one point that you said was to kind of remove yourself from that feedback loop if it’s really affecting the way that you work and the things that you’re getting done. That I would say is probably the single most important thing to do.

[34:36] The one other thing that I would point out is that this is definitely a situation where it seems like you’re taking these cancelations personally and the one thing that I would point out is that while you’re getting these e-mails and somebody is actively telling you, “Hey, I’m really not interested in your product anymore,” it’s not a lot different than somebody coming to your website and looking at your products and saying, “I’m not interested.” And that 98% of those people who come to your website are not interested and they leave. But for some reason, those people are not irritating you, it’s these people who have actually gone through that extra stuff, have looked at your product, have probably made a couple of payments and at that point, that’s where, you know, you’re getting these feelings of anger from these people who are saying, “Well, you know what? I’ve tried it out. I really don’t like it. It’s not for me. It’s not going to fit for what my needs are.”

[35:24] And my point is that there is not a lot of difference between those two and there’s this much larger group of people who are telling you no and the only reason you’re taking it personally is because you don’t get that feedback loop. So, again, just kind of going back to what Rob said, definitely take yourself out of that, have somebody else e-mail them back, ask them why they’re canceling. Get the information that you need and then just give it to you and aggregate.

[35:45] Music

[35:48] Rob: That wraps us up for today. If you have a question for us, call our voicemail number at 888-801-9690 or e-mail us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt [0:36:00], used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.

Startups For the Rest of Us

Episode 117 | Door to Door Customer Development, Courting Feedback from Customers, and More Listener Questions

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[00:00] Rob: In this week’s episode of Startups for the Rest of Us, Mike and I are going to be talking about hiring an offshore developer, how to court product feedback from customers and using content aggregation and curation as a business model. This is Startups for the Rest of Us: Episode 117.

[00:15] [Music]

[00:23] Rob: Welcome to Startups for the Rest of Us, the podcast that helps designers, developers 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.

[00:33] Mike: And I’m Mike.

[00:34] 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 two weeks into your AuditShark early access?

[00:41] Mike: So, things are going pretty well there. I guess over the past week or so we’ve had some minor set backs because both of the primary developer that I’m using and myself decided to upgrade our computers and he went the route of migrating his machine from Windows 7 to Windows 8 whereas I’d just wanted to upgrade the hardware and debated going to Windows 8 but I didn’t want to spend all the time associated with finding drivers and dealing with all the headaches of reinstalling everything. So, I just took a backup of my machine and then migrated it to the new hardware and just restore everything and I was done. [Laughter] Meanwhile, he spent I think three or four days trying to download all the software and get everything kind of back to where things where.

[01:19] Rob: Yeah, everytime I get a new machine an upgrade, I typically budget myself about 16 hours start from just a barebone instance, install Windows and install everything. But last time I got an SSD drive probably two iterations ago and that time dropped to between 6 to 7 hours because the installs are so much faster. I think Windows now installs in what, 10 minutes or something on an SSD. So, it really cuts a lot of that time out. But with yours, you just did a backup. So, you still have the – because you know how Windows develops that craft over years. I mean if you run Windows for five years, it just gets slower and slower as the – what is it called, the registry? It’s more bogged down than all that stuff? So, at some point you’re going to upgrade [Phonetic], right?

[01:58] Mike: Maybe, I mean I was able to just dropped it in to a back up and then do a complete restore on to the new hard drive and I had an SSD drive that I was going from. So, like my old set up was one SSD drive as my primary partition and that was my C drive and then I have another drive that – or two drives that are mirrored so that I can do my, you know, basically have everything else on RAID and that’s like one and a half terabyte drive. And then I have a third one that I have all my backups get dumped to. So, what I did was on my new machine, I just took my backup drive, popped it in, restored with the backup of my primary drive on to my new SSD drive and then pulled the two drives over out of them and as a mirror and then restore the secondary partition on to that so that my second drive came up in mirror is hardware mirroring instead of software mirroring and everything was pretty much fine. I mean everything is back to the kind of the way it was. The only difference is that now I have six cores instead of two and I’ve got 64 gigs of RAM instead of I think 10 it was. Things are going well.

[03:00] Rob: So yeah, I know that’ll make sense but oh – did you get what I’m saying like overtime if you let a Windows install, there’s run and running on 5, 6, 7, 8 years even 2, 3, 4 years, it just gets slower and slower that’s I —

[03:09] Mike: I know what you’re saying but I don’t really run in to that problem as much because I don’t install like tons and tons of stuff that I just know that I’m never going to use or that I’m going to use minimally. I tried to keep my system relatively clean. But I mean the thing is with an SSD drive, all those performance problems tend to go right out of the window.

[03:25] Rob: Yeah, I’ve still seeing them with the Dell. I have a Dell laptop and I built SSD and yeah, it’s definitely better than it used to be but when I upgrade to a new system, I make it a habit. I feel like I want to start fresh with the brand new OS install. You know, that gets rid of all that junk that’s been lying around. I only install maybe a dozen programs at this point because I’ve — so much as web-based. But it’s still – I don’t know. Maybe that’s an old school way of thinking. I’m interested if other folks still feel that way or if they also just kind of move their stuff as a backup, you know, or if they start from scratch.

[03:55] Mike: I think one of the issues you can run in to is there’s a lot of stuff that runs in the background on startups. So, like if you start  using Evernote and Dropbox and all these other tools and services, eventually, they’re going to be starting up when your machine starts up. And what I found was that there are certain things that with an SSD drive, you’ll run in to problems where a service tries to start but there are other dependencies that haven’t quite loaded yet or haven’t finish loading so you have to change some of those services to start up as a delay of start instead of automatic start when the operating system heads. The other thing that you can do is I think you’re on a MSConfig and what that will do is that will allow you to see everything that’s starting up when your machine boots up and you can just go in and disable anything you want.

[04:39] Rob: I do all that. That’s my standard install procedure. On day one when I install a brand new OS, I do both of those things and I actually have two or three other steps that I go through to optimize it but still, over the years the stuff just gets slow. Windows is not Linux and or you know, or Mac OS and that’s why I like starting over from fresh.

[04:55] Mike: I get it. I just haven’t run in to those problems. I mean my old machine was a lot slower than this one just in general and then switching over I got a state of three SSD drive. So, it’s 6 gigabit instead of 3 gigabit and then the processor as I said is significantly faster. I’ve got three times as many cores in it plus it’s just a better architecture in general. So, I don’t see any of those performance problems that I was seeing before.

[05:20] Rob: If anyone out there runs in to or doesn’t run in to that problems Mike and I are talking about, I’d be interested to hear from you in the comments for this episode 117. So, for the second time in a little under three weeks, I found myself on the Central Coast of California. So, I hit Pismo Beach the last couple of days with the family and then the kids and the wife went home and I’m in San Luis Obispo for a couple of days. And what I love is it’s off-peak time, right, because it’s now…it’s a low season and then the week in that hotel rates are really good. So, you can get serve right on the beach for less than half. And I’ve found that this change of scene for me, really ignites creativity like I find myself wanting to dive in to new projects and thinking a different way about the projects that I’m already working on.

[06:00] So, Steve Blank says get out of the…out of the building and go talk to customers, I think you need to get out of your town or just get out of your space every once in a while and give yourself time to — even if you’re just working from cafés and you’re not even doing kind of the vision questing that I talked about where you take a retreat, I just feel rejuvenated and like totally psyched up right now to work on my projects.

[06:19] Mike: You know, one thing we forgot to mention on last week’s podcast episode was that MicroConf sold out in just between 51 and 52 hours.

[06:27] Rob: That was really cool. So, first we did an internal launch to the Academy and we sold more tickets than we thought we would. And then when we actually did the launch to our early bird e-mail list which really wasn’t even a public launch. It was just sending out e-mails to the list. We sold out like you said in just over 48 hours. It was…it was pretty crazy. That gives us a lot of time and flexibility to focus on the event now, you know, to like spend the time recruiting speakers and adding elements to the event that otherwise, in past years we haven’t had the time to do because we’ve been consumed with marketing it. And in fact, we’ve actually added a couple of more speakers since you’ve talked…you and I have talked about it lately. One is Erica Douglass from Whoosh Traffic. She had a web hosting business that she sold for a million bucks when she was, I don’t know, 26 or 27 and now, she’s on to a new startup. Dave Collins from Software Promotions who’s been doing SEO and AdWords for like 10 years and he’s going to be talking about SEO and then mostly confirmed.

[07:17] And I haven’t even talk to you about this but Josh Kaufman who’s…he’s a bestselling author of the book called The Personal MBA which I’m actually – I just finished listening to the audible.com. He has agreed to come but we just haven’t worked out all the details but he – I saw him on the attendee list. He actually tweeted out and said, “Hey, I’m going to be there.” And I’m just thinking, “Wait, I’m just reading your book.” There’s a bunch of stuff in that I took notes on that I’d love to hear expanded on. So, you and I agreed to invite him. So, I’m pretty excited about to have a line up shaping up. Those – because they’re an addition to Jason Cohen of WP Engine and Hiten Shah of Kissmetrics and of course, you and I.

[07:49] Mike: Yeah, that’d be really cool to hear from those guys. Obviously, some are the ones who were there last year but definitely looking forward to hearing from both Erica and Josh. That would be interesting.

[07:57] Rob: So, last thing before we dive in to several listener questions we’ve lined up is  I was listening to last week’s episode which we had talked about the stage one through five and had to move people from stage three to stage four. And in my mind, I wanted to clarify kind of the discussion there but I think both of us made it sound like you could only find success if you’re in stage four, if you’re a stage four person and I don’t believe that’s true. I think that you can move faster if you’re stage four because you work better with people. I also think you can grow bigger because you work better with people.

[08:27] But I know a lot of people who are stage three and who truly are doing that microISV micropreneur, you know, not hiring contractors, not working with other people. It just takes you a lot longer to get there and eventually, you hit a ceiling. And in fact, if you talk to me maybe two years ago, that was – I was still in that mindset being my own person and just wanting to…to work alone and do everything on my own and that’s not a bad thing. It just matters where you want to go. Once I’ve made the decision that I wanted to go bigger, then…then the ideas that I was working on and I wanted to go faster than I was currently moving, that’s when I really made that switch through the “We’re great” mindset rather than the “I’m great” and trying to build up a small team to help move things along.

[09:09] Mike: Yeah, that’s absolutely right. If that was an impression that we gave, then I apologize for that. It wasn’t necessarily the intent because you can definitely be successful in stage three. You can definitely be successful in stage four. It’s just that with stage three, you’re limited by your own capabilities and success primarily because you are not willing to give out tasks to other people because you don’t feel like you can rely on them to get the results that you want. So, you really in essence self-limiting at that point. It’s not that you can’t be successful because you won’t be successful, it’s just that there is an upper limit to the size of the projects that you can undertake because you…because of that inability to hand out work to other people or to involve other people in your processes.

[09:48] Music

[09:50] Rob: So, today we’re going to be running through several listener questions and we’ll tackle as many as we can within our time constraints. Our first question today is about door-to-door customer development and it’s from Jeremy Frederick. And he says, “I’m currently involved in an investor-funded startup. It’s at learneverywhere.com but we are really struggling to sell the product and I’ve started other projects to hopefully have something else catch on. I launched the website called marketplacedeliveries.com. It might not be the typical site you talk to people about because the really work isn’t the website or software but the execution of the business which is online grocery delivery that focuses on local organic produce. This is definitely a cold market for me but I run an ad campaign in only the Orlando area that converted $100 to 67 page views.” So, 67 clicks I’m assuming.

[10:37] “…and 10 people adding their e-mail to the mailing list. I then printed 130 flyers which was $40 plus two hours of time and went door-to-door in my own neighborhood to pass them out and converted 26 of them to visit the website, 24 of them entered their zip code and 15 entered their e-mail. What I wanted to ask you is if you’ve ever done door-to-door advertising and if these conversion rates are reasonable. Do you think there is a market here and your personal advice on a business like this one? Thanks, I’m looking forward to listening to more episodes.”

[11:05] Mike: To me this is extremely interesting because of the fact that I don’t think that most people when they are trying to build a product of any kind go door-to-door and ask people if they’re interested in, you know, buying. And I mean I understand this is more of a B2C type of opportunity but still, I think that it’s very unusual. I know Patrick McKenzie did it when he was trying to build his appointment reminder software. You know, his is also more of a B2B product than a B2C product. So, I find that just in general very interesting.

[11:35] One of the things that I’m looking at here is that, you know, it says that there are 67 page views. I don’t know what the conversion rate on that is. Is it – was he paying a dollar per click or something like that? I might look at the percentages there to see if it’s a reasonable conversion rate but beyond that – I mean some of the other numbers that you threw out passing out flyers and getting 26 of them to come to the website, 24 of those people entered in their zip code, that to me seems like there is extremely high interest there because if they’re going to come to the website and then you’ve got 90% of them entering their zip code and then 15 of those of people entering their e-mail, you’re talking 90% conversion rate and then a 50% conversion rate. I mean those to me seem really, really high.

[12:16] The question is what type of margins can you get out of it and what is it that you’re actually going to be selling to them? To me, this is definitely worth exploring more. It’s kind of hard to give the specific advice without some more specifics to the numbers. But I would definitely pursue this a little bit more and really, what you’re trying to do is to verify whether there is not a market to be had or whether there is not a viable product. And that’s what you’re really trying to prove is to…is to disprove your theory about is there a market and you’re working theory should be, “I believe that there is a market.” You’ve gone around. You’ve done a lot of these things and to me, it just looks like you’re trying to disprove that but all the numbers are coming back and saying there are people who are very interested.

[12:53] So, I think you’re definitely on the right track and I would advice proceeding forward and start looking at the numbers and what sort of profit margins you can get and what it is that you’re actually going to be offering them and work from there.

[13:04] Rob: Jeremy did mentioned a bit of the conversion or you may had missed that one when I was reading it but he said it was a $100 for 67 page views and 10 people added their e-mail to the list. And so that comes out to about a buck fifty of click and then he paid a $100 for 10 e-mails. So, that’s $10 per e-mail. Now, the conversion rate is about 15% of visits from those cold ads to e-mails. They’re not – 15% is not bad. What is not great is paying $10 to get an e-mail at this early stage because from that list, when he actually launched this, my guess is he might convert somewhere between 10 and 30% of people to customers. So, you’ve essentially paid up to a $100 to acquire a single customer or you may have only paid, you know, $33.

[13:46] Well, that’s not terrible. I mean you can totally build businesses on that type of cost to acquire a customer. I think the next step I would take is figure out what – how much profit you think you’re going to make over the lifetime of a customer and take a guess — obviously, this is a recurring thing, I’m assuming you’re setting them not for a subscription. And these types of subscriptions of physical goods are really popular right now in terms of, you know, you think about manpacks.com. There’s a bunch of what — paleopaks.com. This space is hot but physical goods are – especially perishable goods like you have like you’re dealing with organic stuff, obviously, it’s going to come with a lot of logistically headache and it’s going to be tough to scale really large.

[14:26] So, I would take a serious look at just in the Orlando area, getting this up and going. Hiring people to do these door-to-door deliveries, cost of gas, cost of insurance, all of that stuff, how much you really think you’re going to be able to make per delivery and then say if a customer sticks with this on average for four months or six months kind of just pick…pick a number out of the air. And if you find someone who is doing something like this and get a better lifetime estimate even better. But for now, just take your best guess of what you think it might be and then look, “Wow, do I think I’m going to make enough money from each customer to actually make this worth all the effort of basically ramping up a warehouse and logistical delivery type stuff,” because that’s…that’s a non-trivial thing to do for sure. But I certainly admire your ambition, you know, way to go going door-to-door and setting up ads. I mean, you know, you really taken that the customer development stuff to heart and I think…I think you’re doing a good job with it.

[15:13] Mike: Yeah, I did miss it and kind of eluded to what the conversion rate is in there. I do understand where you’re coming from. I don’t necessarily disagree with anything that Rob just said. The…the other thing that I thought of that I would just want to mention is that the conversion rate that you’re getting from the people that you went door-to-door to and talk to them, my inclination is to believe that by explaining to them exactly what the product was that you’re offering, you probably give them a much better idea of it and then they would get from coming to your website. So, your conversion rate there is going to be a lot higher because you have the time to sit there and talk to them and explain everything to them as oppose to relying on them coming to your website and you know, looking at it for 3 seconds and making a gut judgment call as to whether to give you their e-mail address.

[15:56] Rob: Right and then the thing you have to think about is obviously, as the owner of the business, you’re not going to [0:16:00] do that, right? You’re not going to walk door-to-door but could you hire people on Craigslist either for a cut of, you know, you can give them – unique URL that they hand out and then they get a certain percentage or they basically affiliate or that you pay them, you know, 8 bucks an hour or 8, 10 bucks an hour just to walk around and pass out flyers. And from there, you could also figure out cost to acquire customer based on your success and you know, you’re now training kind of a – it’s a door-to-door sales force and again, that’s nothing I would – I have any desire to do personally but if that kind of thing excites you, it’s certainly a creative approach to acquiring customers and most people, you know, wouldn’t have the guts to step up and try to do it.

[16:37] Mike: Well, I think the other thing to mention is that we kind of titled this question as being door-to-door customer development and that’s really what I would take this as not necessarily looking at this solely as an effort to acquire customers but using that door-to-door experience to kind of figure out mentally what it is that people are actually looking for and you can kind of guide that conversation when you’re talking to people and I believe that obviously that, you know, Jeremy did do this because he got a significant number of those people who actually came to the website to put in their zip code and then entering their e-mail address.

[17:11] Rob: Right and my hope is, Jeremy, is that when you went to those customer’s doors that you also ask them, you know, not only, “Would you be interested in this,” but “How can I make this offering better,” or try to determine from them like Mike said actually doing customer development and not just doing pre-sales because there’s a difference, right? Pre-sales is when you say, “I have this product. It’s this price,” bam! You know, “Will you buy?” And that’s a good question to have sometimes but also customer development is that next step of saying, “How can I improve that? If you won’t buy, then why not?” And figuring out if you can slowly change your…your offering to make it something that appeals to…to more people and is perhaps more scalable for you. So, thanks for the question, Jeremy.

[17:47] Our next question is on hiring an offshore developer. It’s from Anthony Robson [Phonetic] and he says, “Like most, I want to start off the e-mail saying how much I love your show. I’m non-technical but web savvy and you guys still provide quality advice for founders like myself. Although  non-technical, I know plus have learned a lot about marketing my product. I have also found several unique ways that I will try to market this idea. Now, let’s get to the meat of the burger. I want to hire an offshore firm to develop version 1 of my website. I’ve listened to your podcast regarding outsourcing to sites like oDesk. However, do you guys know any resources that can teach me how to hire an offshore development firm?”

[18:23] Mike: So Anthony, the first thing I would say is you should probably go back and listen to episode 64 which is titled Hiring a Managing Remote Developers. And this episode we talked a lot about hiring, you know, remote developers, what you should be looking for. I think that one of the issues you might run in to is the fact that because you’re non-technical, you don’t necessarily have a firm grasp on how to tell the difference between whether a remote developer is going to be good or not or just – or developer in general because, you know, they can blow smoke and you won’t know one way or the other whether they know what they’re talking about.

[18:54] What I would probably advice in that situation is come up with a simple task, ask three or four different people to do the same thing and then just look at the results. Kind of gage how well they get back to you and what the quality is of the stuff that they’ve delivered. So, if you ask them to build a very basic web app that allows somebody to register and log in. It shouldn’t take terribly long for people to do that and the more responsive they are to your request, I would go with the person who is more responsive and is willing to work with you and you know, provide those deliverables quickly as opposed to somebody who, you know, you think maybe really good but they take a little bit longer. They’re trying to fit you in between other projects and you farm this work out to, you know, 3, 5, 7 different people at the same time, you know, to kind of depending on what your goals are and whether or not the first couple of people work out. And you get those mini projects back from them and you just figure out who is most comfortable to work with and that’s probably what I would advice as a good starting point for hiring somebody who’s technical when you are not technical.

[19:57] Rob: Yeah, I also recommend checking out Codecademy, Codecademy.net I think it is. And basically, it’s a free online tutorial of kind – that gives you an idea of how to code and they have a few hundred thousand people have gone through it. But just to get an idea of what it takes to code will really give you a bit of insight in to how to hire a coder. And I think if you’re hiring it for a specific technology like PHP or Rails or .NET or even mobile, but if you learn that technology at least a bit, you’re going to have way more insight, you know, in to how to hire someone.

[20:29] Our next question is about how to court product feedback from customers and it’s from Paul. And he says, “I’m just setting up a new SaaS app. My question is how do you court product feedback from your customers especially around enhancement request? I was thinking of using an enhancement tracking tool to allow people to have visibility. I noticed on the HitTail website, you just have a contact this box and providing feedback on enhancement, et cetera is not necessarily promoted. Your thoughts are appreciated.”

[20:54] Mike: So, I think there’s two different things that I can think of here. One is using something like Olark and other one is using something like UserVoice and you can integrate this in to your products to help gets you direct feedback from your customers. The other thing you can do is you can build something yourself where, you know, you have this built-in customer feedback loop or you just have like a contact or something like that that they can e-mail you and maybe a little dashboard where the user can ask you questions and your replies will be there.

[21:23] But really, it seems to me like it might be a much more efficient use of your time to use one of these third parties that just has an integration component where you just plug it in to your software and it allows them to directly interact with you and they handle all that legwork because you don’t want to be building things that are not going to directly contribute to getting your product out the door right now. Your primary focus should really be getting the product finished and then working with the customers to, you know, make sure that everything is okay, what’s you…you’re building is, what they want, et cetera. But you also want to have some of these conversations up front so that you’re not building something that nobody is actually going to pay for.

[21:59] Rob: Yeah,  I’ll start by saying regarding HitTail and the reason were not asking for customer feedback right now is because we’ve…we’ve hit a sweet spot where we have found a need that we filled with our product and we’re not doing major feature development right now. We already have a list of my long of different customer requests and we have those in a big Google doc and at some point, I’m probably going to pull them out. We’ve decide that, you know, for the further development and do maybe a Reddit style social news thing where – I think UserVoice allows you to do this. You just put a bunch of issues in there and I would probably just e-mail all of our existing customers, send them there and say, “Which of these are you, you know, interested in.” Vote up, vote down type of thing. That’s why I would handle that.

[22:39] We just been pulling them in via e-mail and what I found is that there are people who really want something build, they will in fact e-mail you and let you know even if you are not encouraging it. But if you want a higher volume of those – of that feedback which we, at this point, I don’t want a higher volume, but if you do, then having a splash screen when someone first logs in that they see this screen that says, “You know, we want your feedback.” That’s a great way to do it. Sending an e-mail during your trial sequence or shortly after the trial sequence ends to every customer and asking for feedback will also do that and then having like Mike said having a little UserVoice tab on the side of your website or the side of the app that basically is kind of pinging them all the time to give you feedback.

[23:17] That can work okay but it won’t, you know, people become blind to that, right? There’s the banner blindness where you just kind of tune it out but that at least help you manage the feedback certainly. So, if you’re really looking at to develop your product quickly and you want a lot of feedback, then those are three approaches I would look at implementing. So, thanks for your question, Paul.

[23:34] Our next question is on content aggregation and curation as a business model and it’s from Derek Kuntz and he says, “I look forward to each new podcast like a child waiting for Christmas. Thanks for your time and effort. You’re both are really a gift. I would love to hear your thoughts on content aggregation or content curation as a business model. Let me explain. I’m in a very early stages of launching realcardio.com, a workout app for busy people that allows you to get a workout in less than 20 minutes. Users build their own workout playlist based upon what types of workouts they want to do i.e. cardio, strength training yoga or even a workout mix. Right now, all of the video content is coming from YouTube and it’s only a small sample set. Eventually, much more content will come from YouTube and other sources like Vimeo, Dailymotion, et cetera. It’s much easier to pull content from existing sources like this rather than try to market original content and then host the data myself. Besides, almost every video eventually find this way to YouTube and anyone can embed a YouTube video. What are my potential pitfalls from monetizing a site like this? Derek.”

[24:33] Mike: Wow, I think that your major pitfall would be some sort of problems with legal problems. I mean I don’t know what the legal agreements are around a lot of those video sharing sites but I would be curious to know whether or not embedding them in to your application would be accepted or approved in their eyes. Now, you may be able to give around that, you know, with the technicality by saying, “Well, I’m not embedding your content in to my application, all I’m doing is linking to it.” But that doesn’t necessarily mean that they’re not going to turn around and sue you anyway.

[25:05] So, I would be really cautious about that kind of thing just because you don’t know what those legal issues are. You may want to approach them and ask them questions about it but, again, you may just find yourself in the same boat. They may say one thing, you know, the developers may say one thing and then the lawyers may say something different.

[25:22] One of the things that I can think of is that this seems like a very crowded market and I feel like the problem that people have is not necessarily finding music or videos or something like that to entertain them for the 20 minutes, it’s more of the fact that it’s a problem getting them to the gym. The whole market just feels very saturated to me.

[25:39] Rob: Yeah, in addition to kind of the Terms of Service stuff that Mike talked about, I questioned how much value you’re actually providing at this point. Basically, you’re in a non-business niche so it’s – I know it’s a fitness niche which is fairly popular but it’s still dealing with consumers basically and consumers are really price sensitive. So, it almost feels like a YouTube channel could do this. If someone has a good YouTube channels of yoga workout videos and someone who could just go and get all their yoga from their and if someone, you know, wants to get a different type, they can go to cardio workout says an example and get it from there. So, I won’t feel like I would – if I was working out that I would want to go and manually build a playlist like you’ve shown, right?

[26:15] I think that maybe a better value proposition is to think like Pandora where someone can enter an interest or enter a single video and get a bunch of videos just like that that are really good aggregated workout list that you build automatically. Even then, I don’t know of any consumer that’s actually going to pay a recurring subscription for that. I really think you’re going to need to be ad-driven which is a challenge because there are already ads in the video. From what I know the terms of service you can’t strip ads out or…or add…ads over them. Yeah, I – this is more of a challenge. It’s more of that raise some funding and get really big type idea. I don’t see that there’s going to be enough – that you’re going to be able to generate enough traffic and provide enough value to people who aren’t just going to go to YouTube and maybe put together their own playlist or just, you know, pick a few of their favorite channels and use those if they want to.

[27:04] I just thought of one other interesting angle. If you made a mobile app and it was basically a mobile workout app of aggregated videos, that could – or that may already exists but that’s another interesting thing but, you know, again, you’re going to make 99 cents or 499 or something off that single sale and I guess you could have, you know, in that purchases like we’ve talked about to expand it later on. Yeah, mobile maybe the way to go with this, mobile and iPad and you know, to kind of tablet driven.

[27:27] Music

[27:30] Rob: Our next question is about paying affiliate income on recurring payments and this comes from Will Claxton [Phonetic]. He says, “Hi, guys. I listen to every single episode and I thought it was about time I send in my own question. I was wondering if I could ask your opinion on something I’m struggling to get my head around. I’ve had about a million ideas for SaaS apps and always figure out a reason or two not to go with them but that’s okay, I know I’ll eventually find one that has all the right ingredients. The question I have is more to do with how to pay referral/affiliates on a monthly recurring revenue model. In all honesty, I don’t want to be paying someone forever for a percentage of the monthly income from a customer they referred to me once. Is that something I’m just going to have to bite the bullet with and do or is there a better option of paying them a higher percentage for just six months to a year then cut them off? I wouldn’t want to pay them a one off lump sum at the start because say the app is 10 bucks a month and I pay them $50 and obviously I’m going to get scammed big time. Hope the question makes sense. I absolutely love the show. Keep up the good work. Regards, Will Claxton [Phonetic].”

[28:26] Mike: I have a couple of thoughts on this. I know that Will seems to think that he’s going to get scammed big time but the fact is that if you have an application that you’re selling for $10 a month and you’re paying somebody $50 a month, then realistically, your lifetime value for those customers has to be at least $50. You’re not going to offer somebody $50 if you’re not going to make $50. So, that’s the first thing. The second thing is that you’re not going to pay an affiliate the second that they send you a customer. What you’re going to do is you’re probably going to wait 30 or 60 days for those customers to stick around and not only just to make sure that they are going to be a customer but to start getting revenue for them and to make sure that they’re going to be around for the long haul because you’re right, I mean they are going to be customers who sign up and they’re going to drop out that first 30 days or within two weeks or something like that. So, you almost might want to put something in there that says, “You get paid an affiliate if the customer stays around past the first month.” So, at the very minimum, you get at least one month revenue from them. So, that way what you don’t have to deal with is you don’t have to deal with all the problems associated with the people who are kind of dropping out of your funnel at the very beginning because they aren’t a good target market for, you know, the type of product that you’re offering.

[29:34] The second thing that it does is it essentially forces the people who are on the other end because they’re not going to be get paid for 30 or 60 days, it forces them to send you good traffic. And that’s really what you’re looking for at the end of the day. You want people who are qualified leads to come in to your sales funnel and as long as you’re managing that sales funnel well enough, you can pay people upfront. Now, the one problem that you could run in to is that what happens if somebody does start sending you large numbers [0:30:00] of qualified leads? What’s going to happen is that because it’s a SaaS-based business, you’re going to run to this cash flow deficit where you have going to have to start paying your affiliates mounts and mounts of money before you accrue enough money to be able to maintain your status as cash flow positive.

[30:18] So, if let’s say that you have a thousand people sign up, well, that’s a $50,000 that you would have to pay out, you know, about 60 days later but you’re not going to make that $50,000 until six months in. So, you’re going to have this gap between month two and month six where you have to basically have $50,000 cash on hand. Now, there’s ways to manage that. You can limit the number of people that an affiliate can refer to you at a given month. There are probably ways around that if you work with the affiliates and say, “Look, you know, you brought out enough people that I’m going to have to push this back. I can afford to give you the $50 upfront. I’m going to have to make a payment plan with them or something along those lines.”

[30:56] But those become cash flow issues and with any SaaS-based operation, when you find a traffic source that is working well, you’re going to have to have the capital. You’re going to have to feed that source of traffic and you know, with the affiliates, this is definitely a big problem when you are, you know, paying that much money upfront for them. It’s not to say that it doesn’t work. I think that WP Engine does this but they also have funding on the back end. So, they have the cash flow on hand in order to be able to fund this type of operation and do it effectively.

[31:24] Rob: Yeah, I agree with what Mike said…that sounds, you know, sounds a bit complicated. Unless you have someone fulltime managing that program, you’re going to have a lot of little details to think about and to keep people from gaming the system. I think overall, you need to think about what your version is to paying someone an ongoing monthly commission. Commissions for SaaS apps can be for a lay low like 15%, 20, 25%. I mean that’s typical, right? It’s not like the 50% e-book commissions you typically see. So, if you are charging 10 or $20 a month, 15% is only a buck fifty or $3 and that is in my opinion a completely reasonably enough  to pay someone if they are referring you a paying customer because you should have a very high margins on your customers.

[32:06] In addition, you’re not going to be paying this person forever because customers don’t stick around forever. Your average lifetime is not going to be very long unless you have a very solid business like a hosting platform but average lifetimes are one year or less. And so, I would seriously consider either going with a 15 or 20% commission and just paying it for the fulltime their customers stays with you or giving the affiliate 100% of the first one or two months payments if you feel more comfortable with that.

[32:38] Now, someone could obviously come in and try to game that system but what do they get out of that, right? If you’re not paying them any more than a customer has paid you. So, it’s not like them sending you a hundred say customers does them any good that makes them any kind of profit. So, those would be the two, kind of the two simple suggestions that I look at doing. With HitTail, we offer a 20% affiliate commission and that is for the lifetime if that customer stays there and for us, that is totally worth. It’s just worth paying that much money because the profit margins are high and that’s enough incentive that we do actually have affiliates now working and sending us customers. We’ve actually had quite a few new customers created in January alone from our affiliate program.

[33:18] Music

[33:21] Mike: If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or you can e-mail 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. We’ll see you next time.

Startups For the Rest of Us

Episode 116 | Moving Teams From Good to Great

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Show Notes

• Tribal Leadership
• AuditShark is live. woot!
• Fflick

Transcript

[00:00] Mike: This is Startups for the Rest of Us: Episode 116.

[00:02] 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. I’m Mike.

[00:19] Rob: And I’m Rob.

[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?

[00:24] Rob: I am doing good. I am on a campaign to get this t-shirt printed. Someone tweeted it out to me and it’s WWRWD. It’s What Would Rob Walling Do. It’s only 13 reserved out of and they need 50. It’s —

[00:37] Mike: Oh —

[00:38] Rob: I know, [Laughter] and I’m 13 of those.

[00:42] Mike: [Laughter]

[00:43] Rob: I thought it was funny. That’s at teespring.com/wwrwd.

[00:48] Mike: It’s too bad that they, you know, you have to get to the goal of 50 because I was thinking about getting one and then, you know, wearing around at MicroConf.

[00:55] Rob: I know that that’ll go over really well.

[00:56] Mike: [Laughter]

[00:57] Rob: How about you? What’s going on with AuditShark? You’re about a week after your early access launch.

[01:02] Mike: Yeah, so I had a couple of really, really good conversations last week with some customers who are trying it out and came across to a couple of I’ll say bugs that absolutely needed to be fixed in a short amount of time. So, I got those taken care of. But otherwise, I spent a lot of time on the phone talking to people and kind of getting their thoughts on what they’ve thought of the product, what they’ve thought of the UI, how things fit together, what things make sense and which ones don’t. I wouldn’t say it was completely eye-opening. It wasn’t, you know, a lot of the information wasn’t necessarily shocking but at the same time when you’ve worked on something for so long, you kind of I guess lose perspective of what is obvious and what’s not.

[01:39] Rob: Well, of course. Yeah, you get too close to anything whether you’re running a blog post or if you’re producing and editing a podcast like you listen to it 20 times as you’re editing and you just can’t…you can’t really tell if it’s good anymore.

[01:50] Mike: Right. So, you know, I definitely feel like I’m too close to it which is great to get some of this feedback. So, I’m going to go back and I made just a ton of notes about things that needed to change and some things that just needed to drop out of the UI like there are certain things that I left there because of the legacy way that things used to work and then it changed but I left it in the UI. And because it was in the UI, it just made no sense to the person. So, you know, some of those things they don’t really mean anything. The user doesn’t need to know that they’re there. I just need to rip them out. There’s a lot of good information though so I’m just taking that and going through and working some stuff out.

[02:24] Rob: Yeah, this step – I mean essentially you’re doing, nowadays we call it customer development, back in the day it was called just like your alpha test where you got with customers and started, you know, getting their feedback on it. I’ve always been surprise at how valuable that time is with actual people who are going to use your product. They just…they bring things to light that you could never possibly think of yourself as the programmer.

[02:45] Mike: Right, right.

[02:46] Rob: Well, I heard a Mixergy interview. I’d just wanted to raise that it irritated me and I want to bring this issue to life that I’ve seen happened before. And it’s – the interview was with Kurt Wilms from Fflick. It’s F-F-L-I-C-K was  his app. And the title is “How a Side Project Led to an Acquisition?” And how – you know, his app was acquired in like six months after they launched and I guess TechCrunch reported that it was acquired for $10 million and so it’s like, wow, how did this happen? And this kid was, you know, 24 when it happened. The problem is that when they get in to it in the interview, it sounds like it was nothing like that and that it was a much more of an acqui-hire. Have you heard that term before?

[03:26] Mike: Yeah.

[03:27] Rob: Where people like Google will acquire — “acquire” your company but really what they do is they hire you and then they give you like a signing bonus. So, they acquire your company for like a hundred thousand bucks or 200,000 or and most of it is in stock. It’s nothing like the big glorious, you know, TechCrunch acquisition that everybody talks about. And I’ve seen this several times actually listening to podcasts. So, I’m not slamming Andrew here at all because that’s not…that’s not what’s going on. It’s more of the way that that these acquisitions are reported and talked about and they’re actually not…they’re not the fairy tale exit.

[04:04] There are so few fairy tale lottery exits like the Instagram exit, the 10 million — $20 million exit. There are far fewer of those exits than…than are actually reported and once you dig in to the details, you find out that either it was just an acqui-hire and the amount was over reported or there was a tiny amount of cash upfront and the rest of it is in stock and the stock started losing value. I mean there are so many caveats to these types of the acquisition. So, I’d just I wanted to bring it up more as like as a listener or reader of these kinds of stories have a little bit of skepticism when you’re…when you’re hearing this news.

[04:37] Mike: Yeah, I love the fact that when Andrew started asking him how much money he made and asked if he made a million dollars from it because it’s a relatively small team and it was a $10 million acquisition and he just wouldn’t talk about it. He wouldn’t even confirm or deny that he made more or less than a million. He just said, “I made a good amount of money but I don’t really want to talk about specifics.” And he said, you know, Andrew said, “You’re not even going to say more than a million?” He said, “No, I’d rather just not talk about the money part of it.” I understand from a business standpoint why some of these companies go after these smaller companies in terms of the acquisitions but it’s obviously not something that the rest of us could pull off and it’s…you have to take the stories with a bit of a grain of salt.

[05:15] Rob: Exactly. Yeah, well, I definitely understand why Google would acquire them because they’re talented developers and that’s…that’s actually something Paul Graham has talked about where the…with these acqui-hires they are a major danger to YC companies because as soon as you see someone gets YC funding, well, you know they’re probably going to be pretty good product people, right? They’re going to be able to crank something out and they’re motivated and they have convinced the YC team to give them money. So…so there’s a lot of pluses going for them. And so, he said a lot of the YC teams get contacted within the first few weeks of being announced and they get in to these talks and they – it’s presented as an acquisition but by the time they get to the end, they realized that they’ve really got themselves a job with a like a small signing bonus like I said earlier. And so, I think this is …has been common and it’s certainly becoming more common as time goes by.

[06:05] Mike: So, hey, you know, we’ve talked about upgrading our machines in the past and I have reframe from doing so for properly almost six years now aside for my laptop. I’ve finally get broke down and decided to buy a bunch of new hardware for a new desktop.

[06:18] Rob: Nice. Wait, you’re going to build a new computer? Why not buy a new one?

[06:22] Mike: Mainly because I don’t want to pay for it but at the same time there’s also…there’s a former a hacker in me that just loves to build the hardware. So, to give you an example, years and years ago before anybody was really in to like the liquid cooling of computers, I went  through and I started building my own liquid cooled computer and this was, I don’t know, probably 2000, 2001 timeframe. One of the things that I did was I said, “Well, I want to build a custom case.” So, as a custom case, what I started to do is I started building a case made out of Lucite which is kind of like plexiglass. It’s clear but you can cut it and it’s a lot easier to cut than plexiglasses. Unfortunately, the whole thing never really turned out very well because of the fact that when you start cutting Lucite, it tends to generate static electricity and it was not somewhere I wanted to ultimately put my computer parts.

[07:17] Rob: Yeah, sure. So, are you going to buy parts and assemble it from scratch?

[07:21] Mike: Yeah.

[07:21] Rob: Okay. How long you think it’ll take?

[07:23] Mike: A couple of hours. It’s not very long. I’ve built tons of computers before. I mean I own the business for several years just building computers.

[07:30] Rob: Right.

[07:30] Mike: So —

[07:30] Rob: Now, I remember Dell was your…was your biggest competitor you said.

[07:34] Mike: Yup.

[07:34] Rob: What’s the advantage of doing it that way instead of buying it off-the-shelf because if I were going to do it, I would buy it off-the-shelf. But I’m interested to hear what…what you get out of it that way.

[07:42] Mike: There’s a couple of different things. One is that I can get a six-core processor which I couldn’t get off-the-shelf and without paying through the nose for it. It’d be really hard to find one and I probably have to go like Alienware to get it and at that point, I’m immediately looking it like 3 or $4000 to buy the new machine. You know, I don’t need to spend that much money on it I spent I think around 1800 and I’ve got like a six-core machine with a 500 gig SSD drive and 32 gigs of RAM. I mean this thing is just stack and it’s relatively inexpensive. So, even including the cost of my time which I don’t necessarily put that much of a price tag on it because I kind of enjoy doing this stuff anyway, it’s not something I’ve done in a very long time and I’m like, well, you know, it’s getting about that time. So —

[08:25] Rob: Right, yeah, very cool.

[08:26] Music

[08:30] Mike: Today we’re going to be talking about how to build a great team, The idea for this episode came from a book that I read recently called Tribal Leadership. There’s three different authors to it. I don’t remember all their names off the top of my head but the subtitle to the book is Leveraging Natural Groups to Build a Thriving Organization. And I’ve been given a lot of thought lately to how I want to structure my business kind of in the future because I know that AuditShark is not something that can be done alone. I mean there’s grand aspirations behind it and what it can become and the level of complexity of the products to such that it’s just not something that I can do alone.

[09:03] So, I’ve been looking around and just see if I can find good reading material around how to build a team and how to put one together, you know, who to talk in to, what traits to look for and the Tribal Leadership book is one that I came across. There’s a lot of great points in there about how to identify people who would be a good fit and who wouldn’t and how to structure a team such that they work together as a team and have the same goals and are going to work willingly towards those goals without kind of torpedoing one or another.

[09:32] Rob: All right, let’s dive in.

[09:34] Mike: To start off with, there’s five stages of people and by…five stages of people, people go through these five different stages in life and you have to go from one stage to another. At some point, you can’t just skip from stage one to stage three or stage four. And stage four is considered the stable stage. Stage five is for people who are building something great that is…that is kind of an outlier. But stage one is generally people have the mentality of life sucks and this is kind of the attitude where open hostility comes from people I mean this is the type of attitude that you see from people who are in prison. They just don’t like anybody. They’re not willing to help other people because life sucks so why should you go out of your way to help somebody else because it’s just…it’s not going to matter to them at the end of the day.

[10:19] Rob: So would you say that – let’s say someone who’s like hostile on an internet forum. Would you put them in stage one or would that be more stage two?

[10:27] Mike: I think that would be more stage two and —

[10:29] Rob: Okay.

[10:30] Mike: So, stage one is “Everyone’s life sucks. It’s not just mine. Everyone life’s sucks so I’m going to do the best that I can to make my life better at other people’s expense.”

[10:40] Rob: Got it but it’s like more physical anger and hostility and aggression and that kind of stuff.

[10:45] Mike: Yeah, I mean that’s kind of the way it’s portrayed in the book. I mean you could probably take it to different levels on the internet but with stage two, the attitude is more along the lines of “My life sucks” and people at this stage are generally surrounded by people who have some sort of power that they lack or at least that’s the view that they have. They feel that their life sucks and they’re the victim of circumstances or something that they don’t have that other people have. And that’s kind of where the internet troll kind of comes in.

[11:13] Rob: And I also knew some folks like this kind of stage two people at several of the jobs that I…that I worked out where we all go out to lunch and they would just spend the entire time kind of complaining about how, you know, they weren’t being paid enough or how their boss was this or that and it was always everybody else’s fault. Does that accurate for a stage two person?

[11:35] Mike: Yup. Yeah, that’s exactly right. And the other part that kind of goes with that is that if you ask them what they’re going to do about it, they never have any answer. They are like, “Well, I’m not going to do anything about it because there’s nothing I can do.”

[11:46] Rob: So, that old thing that I’ve said of employees complained entrepreneurs get it done, maybe that who links in here where I’m thinking more of like a stage two person as that complainer who just isn’t willing to kind of take the bull by the horns and make things happen.

[12:00] Mike: Right.

[12:01] Rob: Got it.

[12:02] Mike: So, moving on to stage three. The stage three person has an “I’m great” mentality. And there are lot of people at this stage and we’re going to be talking a lot more about moving people from stage three in to stage four in this podcast because the people who are at stage three tend to be more of the professional level and this is – and in unfortunate ways, it’s kind of encourage by the corporate world. When you go to a job interview, one of the questions that you tended inevitably to be asked is, you know, “Why should we hire you?” And then you have to sit there and you have to explain how great you are and you know, why they should hire you because of all these great things that you’ve done.

[12:37] And all they’re doing is really reinforcing your view that you are great and because of that it just promotes you to continue down that path and not seek to go beyond that, to include other people to in team efforts. And essentially, you become more of a lone wolf. You do a lot of things alone and you know, you tend to constantly complain that, “I’m really good at all the stuff and there’s all these people who aren’t and I can’t rely in them for anything. So, why should I even bother? I’ll just do it myself.”

[13:07] Rob: Yeah, in all of the interviewing I did because I was a hiring manager at or you know, like hiring developer where I interview incoming developers, I only remember there are being a couple out of probably maybe 200 interviews I did where they…they’d get the question of you know, “Tell us about yourself or whatever,” and it would lead in to…it will go beyond just them being great, right? They really would express that they had a great team, that they built a great team, that they got along with people and stuff. So, I remember actually being, you know, impressed with that. It was – and obviously, it’s more of stage four attitude but that is a unique attribute in an employee and it’s something that I…I don’t know that I ever had while I was an employee.

[13:46] I think if I was going to go on an interview even, you know, later in my salaried career, that’s kind of what I was – what you’re trained to do, right? So, that’s, you know, that’s a good tip of…if you have an interview schedule or you know, you’re thinking about interviewing for jobs to think more about less about “I’m great” and more about stage four which is “We are great”.

[14:05] Mike: Right and people in stage four tend to build relationships between others based on a common value and as I said this is an exemplified by the feeling of “We’re great” and in the background it says, “And they’re not.” And they is essentially another tribe according to the terminology used by this book and that tribe can be either in the same company or in some other company or it can be in an entire other company. So, if you’re competing in your company against another company, the other tribe tends to be that other company. And when you’re trying to build your product, you’re trying to compete against them, you’re trying to win market share. Obviously, you have to have a competitor in the stage and that’s really the differentiator between stage four and stage five is that stage four has a competitor whereas the stage five that you are collaborating for a greater purpose but you don’t necessarily point out to a competitor.

[14:55] Rob: How interesting, yeah. So, this reminds me of a stage four of we’re great and we kind of have this…this competitor, could be the bootstrappers versus the venture capitalists because every bootstrapper we know winds up, you know, whether it’s 37signals or us or Patrick McKenzie or Amy Hoy or something. I mean we always wind up talking about the venture “they”, right, the competitors to our bootstrapped companies. And so, I think…I think that’s an interesting way to think about it. And I’m wondering do you know of any stage five movements? Do they give examples of any of those?

[15:28] Mike: They do but as I said before, the stage four is considered more of the stable stage than stage five and the reason for that is because with stage four, you’ve got a competitor. So, think Apple versus Microsoft where they’re trying to win market share against each other and you know, operating systems and the tablet technology and things like that. Whereas if you start going back and you look at like the early days of Apple’s development, they were trying to just build something great. They didn’t necessarily look directly at a competitor and say they are competitor. Steve Jobs looked at the world and said, “I want to change the world.” So, his competitor he didn’t really have one. He didn’t have in mind, “Oh, Microsoft is my competitor,” it was, “I want to change the world.”

[16:09]  And that’s kind of where there’s no direct competitor where there’s another tribe on the other end of it and you can point to those things where if you’re in like a hospital, you know, or a medical organization where the people in there instead of saying, “Oh, our competition is this other hospital over there,” or, “These doctors,” or “That neurosurgeon or whatever,” instead what they say is, “Our enemy is cancer,” “Our enemy is declining health,” or “Our enemy is…” all of these things that aren’t necessarily people. It’s a disease that they’re just, you know, obviously there’s no person behind it but they’re trying to serve a greater purpose by eliminating that disease.

[16:47] Rob: Got it. So, we’ve talked to these stages and you know, I think we have an idea now of where a lot of people we know might fit or we can think of examples of folks we know who had been in 2, 3, 4 and 5. What are we going to talk about today?

[16:59] Mike: So, I think the primary thing we’re going to focus on today is how to move people who are from stage three in to stage four? And you know part of the purpose to that is for most of the people in the professional world tend to be in stage three. I think that the statistic is kind of sided less than 10% of people who are employed professionally are anywhere between stage four and stage five. But you really want to try and take those people who are in stage three especially once that you’re hiring or bringing on to your team whether it’s full time or part-time or is contractors. You want to make them part of your team. You don’t want them to necessarily be a lone wolf and it’s not to say that they’re not confident or talented, it’s just that you want them to start taking on larger projects. You want them to be able to contribute more and you want them to be able to do it without your…a lot of your interventions.

[17:47] You want them to kind of be able to think on their own, make decisions, do things that are appropriate and correct for the business without having to sit there and micromanage them because the more you micromanage them, the less time that you have to do other things and that and that just kind of eliminates productivity. And by doing the opposite, by encouraging them to kind of move in to stage four, what you’re doing is you’re increasing their productivity which decreases the amount of time that you have to micromanage them which increases your time to do other things.

[18:13] Rob: All right, so let’s dive in. It looks like we have eight tactics for encouraging someone to move from stage three to stage four.

[18:21] Mike: So, the first thing that you can do to help move a stage three person in to a stage four is to encourage them to form triads and what a triad is essentially a 3-person relationship. And in particular, if you convince them to introduce their own contacts to one another by pointing to share values or overlapping self-interest or specific opportunities to work together, what you’re essentially doing as you’re encouraging that person to exhibit the stage four behaviors. And the more of these things that you can do that to encourage the person in to more stage four behaviors as opposed to stage three which is do everything themselves and act more as a lone wolf to not include people, then by moving them more in to stage four behaviors, you’re going to change the way that they interact with people and as a result, change their…and change the way that they interact with your business.

[19:09] Rob: And the second tactic is to encourage someone to work on projects that are too large to accomplish by themselves. You’re essentially setting up limitations and in a way forcing them to interact and to form those…those triads or those 3-person relationships. You know, if someone starts working with another and they get along and they start doing good work, it’s almost inevitable that they are going to…they’re going to have to strike up a good personal relationship. Therefore, you know, starting to move them to the “We are great” rather than “I’m great” mode which is from three to four.

[19:39] Mike: The third tactic is to point out that their success has come through his or her own efforts but the next level of success is really going to require a different style because there’s only so far you can take, you know, yourself. Everybody has limits and some people’s limits are higher than others but that doesn’t mean that those limits don’t exist or that you can’t ignore them. You really need to be able to point out to them, “Hey, you’ve been …you’ve been successful to this point but what would it take for you to get to the next level and to be much more successful than you currently are?” And typically that’s just going to take a frank discussion to say, “Look, you’ve been doing great so far but in order to take this to the next level, you have to do something different,” and you know, you can make suggestions about what they might do and specifically point some of the things in stage four that are possible.

[20:24] Rob: And the fourth tactic is to find at least one role model that this person may potentially look up to and point out how they’re exhibiting stage four behavior. So, point out how that…that role model is, you know, essentially of the thinking that “We are great” instead of “I am great”. Hopefully, encourage them to implement those same…the same behaviors.

[20:46] Mike: The fifth tactic you can use is that when someone complains that they don’t have time and the other people aren’t nearly as good which are the two chief gripes that people have when they’re in stage three is that you have to show that they’ve crafted their work life such that no one can really contribute to their…to whatever it is that they’re doing. And a lot of times this means things like not sharing repositories or doing work on their own and then kind of merging in to the code late or just not involved in other people in the task that they’re doing or making it easy to follow documentation or processes or anything like that. So, all of those things, you know, are just examples of things that people may do to make it difficult for other people to contribute to whatever it is that they’re working on.

[21:27] Rob: Mike, when I was a salaried employee, I was totally the stage three guy because I would say all of these things. I don’t have time, you know, I can’t work with other people on this team. I want to hand pick my people and when I did work with people who I consider really good, I totally enjoyed it. So, I think for those projects I was stage four, but other than that, man, I was definitely a stage threer– and I feel like my attitude has changed now that I, you know, have folks working for me in different capacities in terms of designing, developing and handling support. I’m definitely much more about the team being great because I can’t…I know I can’t do everything myself. But for me, I think that moving from salaried employment to kind of breaking out of my own to realize that that I need the help of other people.

[22:09] Mike: Yeah, and I completely understand where you’re coming from. I was definitely a stage three as well and the problem is that until I kind of saw a lot of these things laid out this way, it didn’t…you know, I probably thought a lot of these things to some extent but that kind of relates to tactic number six which is telling the stories of your own transition from stage three to stage four. But there were so many times where I’m like, “Oh well, I can do this,” and you know, it’ll take me a lot less time to do it than it would to explain it to you how to do it.

[22:36]  So, there were just so many times where I would have gone off and done my own thing and not bothered to explain it or document it or anything like that. And you know, I’ve really gotten past that and it’s definitely helped my business. It’s definitely helped me to free up a lot of my time because I can hand these things off to other people and they do them granted they don’t necessarily always do them as well as I do but there are definitely times where they’ve come back with something and I’m like, “Wow, that is awesome,” you know, and it comes back better than I would have done it.

[23:01] Rob: Right, the two objections we hear most often when we talk about outsourcing in any capacity whether it’s outsourcing development or outsourcing e-mail support or handing off any tasks to anyone, the number one objection that I’ve heard is always, “Well, how do you get over that they’re not as good as you,” and “How do you trust them to do good work,” “Just how do you deal with that,” and so I think that’s a common place for developers to be in especially if they’re good developers and they’re talented and they have worked at salary gigs where they’re…people who are much less talented.

[23:29] I think it’s…it’s almost like you might be pigeonholed or forced in to stage three. If you really are the best developer at the company and you have been at several companies, I mean it’s kind of been taught that you can’t rely on other people. And so, it’s definitely a mentality to try to break out if you are going to make that leap. If you do in fact want to make the leap to stage four and you want to work with others and you want to, you know, become an entrepreneur like we’ve talked about, ultimately, you will have to relate to other people to get your goals achieved.

[23:57] Mike: The unstated part of that is that just because you’re great at something that you do, doesn’t mean that you can’t rely on somebody to contribute in a meaningful way. Do they have to do it as good as you? No. That’s not the point and in fact, that’s not the point of stage four at all. The point is to collectively do something great. It’s not about like all of the individual pieces and yeah, it’s great to have everything all at this topnotch level but not everything has to be like that and you don’t necessarily have to have that attitude in order to be successful. I would much rather have people who are gung ho about the business and being successful than having a couple of people who are really good at things but not paying attention or listening or focus on the whole product.

[24:40] Rob: The seventh tactic for encouraging someone to move from stage three to stage four is to instill in them the knowledge that real power comes not from understanding a specific technical thing or from being able to just implement but it comes from having a good network and that there’s much more leverage in wisdom and having other people to partner with than in just purely in information. This was actually a major revelation for me. Maybe it was three years ago when I first started outsourcing and that was kind of the first level up for my business that allowed it to grow faster.

[25:15] The next thing that happened was when I decided that I was going to form better relationships with…with other podcasters, with other startup founders, with other speakers at the startup events I went to and right away, things started generating for me. And it was, I don’t know, I was never a big – I’m a terrible networker. I’m not an extrovert. I don’t…I’m not in to that world at all but building a real relationship, a genuine relationships with people who have stuff in common with you and who you can move along with and progress with is invaluable and that’s something, I think I actually said it is as one of the biggest things I learned in 2011 perhaps was that you can’t do the stuff on your own no matter how much you want to because I definitely I wanted to do everything on my own but that’s just hasn’t been a reality for the past several years.

[26:02] Mike: And the eight tactic you can use to help somebody move from stage three to stage four is to encourage them to manage using transparency. And essentially this involves coaching them to not follow the stage three tendency to tell people only what they need to know. And this is about encouraging the person to over communicate if that’s even possible. I found over the years that telling people a lot more than they need to know to do a job helps because it gives them a lot of background about why they’re doing something.

[26:28] Throughout high school, I hated being told what to do not because I didn’t want to do it, because I didn’t know why I was being told to do that. And there were just so many times where they’re like, “Well, you know, here’s the homework assignment. You just do it.” And you know, you never really got an explanation. I found that even in the business world there were a lot of times where there were people who would say, “Hey, can you go do this for me?” And unless you understand why is that they’re asking you to do that, the problem is that you come up with the solution for them and you do the work but then they’re not happy with it and the reason they’re not happy with it is because they didn’t tell you why it was that you were doing it.

[26:59] So, they didn’t communicate effectively enough to tell you that there were certain things that were important because on Thursday as this thing has to run because if it doesn’t run and the CIO gets…gets to come down and scream at them. And then after that then, you know, the payroll person goes and cries and the payroll doesn’t get fund. So, because of all that extra information, you didn’t do the work and…or didn’t do it right and you know, all that stuff happens, then payroll doesn’t run one week. And then it gets blamed on you because you didn’t do it right and it’s not because you didn’t do it right, it’s just you didn’t know about all these other things and all these other dependencies. So, you couldn’t take them in to account when you were doing your job. So, this is really about over communicating, at least communicating enough information to people that they can make good decisions when they’re going through and doing the work.

[27:40] Rob: That idea of over communication ties in to this thing called commanders intent and it’s a concept on the battlefield of if your commander tells you and a group of men to go do something, they should…if they’re doing it right, they should spell out not only what you should do but the intent of that maneuver because if they tell you to go do something and then a bunch of stuff changes on the battlefield, you need to basically carry out their intent rather than the specific take a hundred steps in that direction and march towards the enemy that the actual specific steps that they told you to do.

[28:13] And I think this is very powerful. This is something that I’ve started doing with my screencast that I created for virtual assistant is I do tell them the steps when they’re doing something but I also take a step back and I say, “Look, here’s my philosophy. If anyone is unhappy, they always get a refund. Unless someone gets way out of line, we offer them this, this, that and this.” I mean it’s much more about the intent that we’re trying to achieve and the goals of the company, you know, rather than the…maybe specific policies that you might see if you worked at a…at a very rigid environment.

[28:44] Mike: So, I think the next question that comes up is how do you know if you have succeeded in going down this path? How did you know that you’ve succeeded in transitioning someone form stage three in to stage four? And the first sign of that is that the person is going to start substituting “I” language for “We”. So, when people ask about the secret of their success, they’re going to point to their team instead of themselves.

[29:05] Rob: And the second way you know you’ve succeeded is that the person will start actively forming triads and his or her network will expand from a few dozen to several hundred.

[29:12] Mike: And the third way is that the person is going to work less but at the same time get more work done.

[29:16] Rob: The fourth way is that his or her complaints about there are not being enough time and that no one is as good will slowly die away.

[29:24] Mike: The fifth way is that he’s going to communicate with a lot more transparency and explain why things are being done, not just what needs to be done.

[29:32] Rob: And the sixth and final way is that this person will communicate more information and they will communicate it more often for them just to have more open roads of communication.

[29:42] Mike: So, to recap a little bit the five stages are stage one is that the person believes that life sucks in general. Stage two, they believe that “My life sucks”. Stage three person believes “I’m great”. Stage four people say, “We’re great.” And stage five people say, “Life is great.” And to help move people from stage three to stage four, you encourage them to form triads. You encourage them to work on projects that are too large to accomplish alone. You point out that current successes come through their efforts but the next level of success is going to require a different style. You describe additional role models who are exhibiting the stage four behavior that you would like them to exemplify. You show them that they have crafted their work life so that nobody can really contribute to them.

[30:19] The sixth thing you can do is to tell stories of your own transition from stage three to stage four. You can also coach them that real power comes not from knowledge but from their networks and there’s more leverage and wisdom than in information. And the last thing you can do to help move them from stage three to stage four is to encourage them to manage using transparency.

[30:35] Music

[30:39] Rob: If you have a question for us, you can call it in to our voicemail number at 888-801-9690 or e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.

Startups For the Rest of Us

Episode 115 | The Pros and Cons of "Proposition HN"

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“Proposition HN”: http://news.ycombinator.com/item?id=5037694

Transcript

[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be running through the pros and cons of Proposition HN. This is Startups for the Rest of Us: Episode 115.

[00:12] 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.

[00:28] 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. I think the word this week is AuditShark launch.

[00:35] Mike: Yes, it is.

[00:36] Rob: So, we’re recording this one day after the 14^th which was your planned launch for AuditShark. How did things go?

[00:42] Mike: So, everything is out there and people who have been given the access code to get in can go in and download it, you know, the early access people that I have been working with. So, everything is available to them right now. There’s a few minor glitches that I have to work out still which will hopefully be resolved by tomorrow. But everything is in place right now and functional and usable. So, we’ll see how things start to shake out the rest of this week. But I’m going to be touching base with people and walking them through things and getting any feedback from them about what makes sense, what doesn’t make sense and any usability, flaws that need to be flushed out or people looking for different reports or don’t understand how something works, I definitely want to get to the root of those issues pretty quickly so that I can start working on other things.

[01:26] Rob: Very good and in terms of marketing, when do you see yourself hitting that and kind of driving new…new customers to the site?

[01:33] Mike: Well, I put together a list of things that I wanted to do for the AuditShark launch and let’s see here, I used to have forty different things on here. I’m down to 31. The problem is that the number fluctuates up and down as I think of new things and as I knock things off. That process is currently in place and I’m working…just working through everything but obviously, some things take a lot longer than others to do.

[01:55] Rob: Got it, so you’ve already started marketing is what you’re saying?

[01:57] Mike: Yeah.

[01:58] Rob: And in terms of timeframe working with early access customers, you said you’re probably going to iterate on the product pretty quickly and do some minor usability and report stuff. How long do you perceive that taking?

[02:08] Mike: Well, assuming that I don’t run in to any show stoppers then I would anticipate that it’ll probably be three or four weeks. I have tentatively in the development schedule. I think it’s February 26^th or something like that for kind of a full-blown go live but we’ll see how that works out.

[02:24] Rob: I see. So, full-blown go live at end of February and so now, would you say you’re like at soft launch? Or would you say this is early access? What would you define where you are right now?

[02:33] Mike: I would say this is more early access. I think a soft launch to me is more you’ve got it out there publicly available. You just haven’t told people about it. Whereas what I’ve got, I feel like it’s more of an early access where it’s by invite only where I’m working with very specific people and trying to figure out what things work for them, which ones don’t and making sure that any issues that they have are resolved so that when I do go live with it to the public, then hopefully, all those issues are taking care of or at least as well as I can at that time.

[03:02] Rob: For my end, I’ve been running a couple of HitTail marketing approaches that I had mentioned in last week’s podcast. And one of them was very inexpensive and it worked out shockingly well. Just a lot of people coming in and then the other one was quite expensive and so far, not worked out very well. So, it’s one of those times when, you know, things would work out the opposite way you think it’s going to. But in the end if 1 out of 2 of my marketing experiments works, then things could be worse so I’ll put it that way.

[03:30] Mike: How did your info graphic goes so far?

[03:32] Rob: Info graphic is okay. Yeah, it’s not like a homerun but it’s, you know, it’s probably a single. We just launched it this morning. So, I’m 5 to 6 hours in. So, you don’t really know what it’s going to do yet but it’s decent to…it’s nice to get a good bit of content out there. I mean it’s definitely driving some users who are signing up for the e-mail list. We’ll see if that ultimately drives some trials down the line.

[03:52] Mike: Very cool. So, I’ve moved my blog to WP Engine and I’ve had my WP Engine account for, I don’t know, probably almost a year at this point but I haven’t move my blog over because up until now I just did not make it to the top of the list but it’s early on the year. So, I’m like, okay, I’ll move it and in about a quarter, my RSS subscribers dropped off in moving. So, I’m trying to figure out where the RSS feed is that they’re actually subscribed to and it’s just kind of a pain because I —

[04:19] Rob: Right.

[04:19] Mike: …obviously don’t see any of the 404 Error messages. [Laughter]

[04:22] Rob: Yeah. Oh, so did you had multiple URLs where people could subscribe then one of them —

[04:27] Mike: I think so. I’m not…I’m not absolutely sure because I don’t – like I said if I had access to the 404 messages on the server, then I’d be able to see that but I just…I don’t see that right now. So —

[04:38] Rob: Got it —

[04:38] Mike: I should…I should have looked at it before I moved everything over but I didn’t think about it.

[04:42] Rob: Yeah, that’s a bummer.

[04:43] Mike: Oh well.

[04:44] Rob: Well, I received my final videos today from that video training course I’d been talking about where I have my product manager interview me about how to hire a VA for startup. It’s about 50 minutes of video. And it looks good. I also have audio. I’m going to get it transcribed and I’m looking at a February launch for that. So, if folks are interested, softwarebyrob.com and sign up for the newsletter there in the upper right.

[05:04] Mike: That’s cool.

[05:04] Rob: Yeah, it’s exciting. So, it’s fun to do new things like the process itself stretch me because I’m not used to doing that type of the in-person set up with, you know, with the videographer and the whole set up in my living room. There’s a lot of fun and now watching the videos, you know, I can really see…I can see room for improvement but I also see a lot of value in the information that we put down.

[05:22] Mike: That’s awesome. So hey, did you…did you notice that Amazon’s kind of did a way with some of the things that they’re selling through Amazon Prime where now if you buy certain things they’ll tell you that it’s eligible for free shipping but only if you have it shipped with other things.

[05:37] Rob: Yes.

[05:38] Mike: But I definitely have noticed an up taken the number of things where next to it, there’s a little bit of text that says, “This is eligible for free shipping with X,” or you know, with something else.

[05:48] Rob: I think I went to buy a toothbrush and it said that and they have a little word for it. I can’t remember what that word is. There’s a little label on it that says, “You know, ships with others,” or “Ship free with the…” I mean it’s kind of a little tag so that you can see it pretty easily and identify it.

[06:00] Mike: Yeah, I think that’s what it is. It’s “Ships free with something else.”

[06:04] Rob: I can’t believe. I mean I’ve ordered things that are a couple of dollars that they’ll ship with Prime and I kept thinking to myself there’s no way they can be breaking…even breaking even on that. So, this is probably their way of trying to reduce that and for me, it’s worked out fine because I just…I order enough from Amazon that I can always just throw it in my next order.

[06:21] Mike: The interesting thing to me about this whole thing is that if were it another company that I didn’t necessarily care for or care about, I’d probably be more than a little bit upset about this but because it’s Amazon and I’ve had such great experiences with them over the years that it doesn’t bother me at all. I look at this particular move and I understand not only the business reasons behind it but I don’t be grudge to them for doing it, you know. If it was like the post office that did something like this, I’d be screaming bloody murder. But because it’s Amazon and you know, I’ve had stuff come to me where I’m like, “Oh, this hard drive is bad,” or you know, I plugged it in and it just doesn’t work and I’ll just send them an e-mail or use there support page and it’s like boom, you got an instant RMA, free shipping both ways. They’ll just take care of it. And because their customer service is so good, they’ve kind of established that great relationship with me such that I’m willing to cut them the slack whereas like I said if it was like the post office or certain other companies, I probably wouldn’t.

[07:14] Rob: There’s definitely something to be said for not only keeping your customers happy but building…building that relationship with them so that they give you the benefit of the doubt if you screw up. We saw this happen. It was last year when we were still have the Academy on DreamHost and we were having outages interment here and there and people really kind of slack, you know. I mean we…we notified people. We posted it in the forums. We apologized but we didn’t get a single angry e-mail about it and I know that there are people who can log in and that was a bummer and obviously, we eventually moved up to WP Engine but it was…it was a testament of people giving us the benefit of the doubt knowing that we are doing everything we could to try to improve the process.

[07:50] Mike: Yeah, the other interesting thing that I found was that LinkedIn has been starting to send highly-customized e-mails to people. And I got one yesterday that showed enlarged photos of 20 different people that I’m connected to and they showed a statistic that related to all of them. And I think this…I think the statistic was something like 16% of your network has changed jobs in the past year and I thought it was really interesting that they are mining the data to that extent such that they’re giving you personalized e-mails like that.

[08:19] Rob: Yeah, I can only imagine that it benefits them because you’re now talking about it. It was a surprise to you or it was shockingly revealing or just shockingly insightful about your own personal information. They told you something you didn’t know about your own professional relationships. So, that means the next time you get a LinkedIn e-mail and probably the next time I get a LinkedIn e-mail, I’m going to open it now because I’m curious to see what they pull out of to my network as well. You know, obviously this raises the…always raises the privacy concerns or whatever. But it’s like if you’ve give them information and you’ve linked up with people, it’s just data to them. They can mine it most ways that they see fit.

[08:52] Mike: yeah, I think I looked at it more from an interesting marketing standpoint where if you’ve got such a wealth of data about a specific item or specific person or a network of people, then you can do different things with it and it was just an interesting way of taking that information, aggregating it and then showing it to an individual and that individual being me, then it was personalized to me based on the other people. And I’m sure the other people got a similar e-mail. So, it’s not like I was the only person out of…sign up they have that got that e-mail but the fact that they went to that level and calculated it  for me, it appeared that it was just kind of a personalized bit of information about my network.

[09:30] Rob: I think it’s actually an interesting idea that, you know, even a small software or service operator could do to send out kind of a year-end summary of your customers either activity or just some interesting…it’s almost vanity metrics, right? It almost doesn’t have to be that interesting. It could be kind of a little info graphic or just a little HTML e-mail containing, “Hey, you had these many keywords last year and you know, these many clicks,” or  whatever. I mean that’s the HitTail example or you can look at anything if you have proposal software. You could say you sent these many proposals and you know, just too like a big…big recap of it. I’ve never done that but I would certainly would…I certainly received some from I think InDinero sent one and I think like when I used to have Mint.com, they would send out monthly and annual recaps. Definitely get you to open one of their e-mails.

[10:15] Mike: Very cool.

[10:16] Music

[10:19] Rob: So today, we’re talking about Proposition HN which is an anonymous post on HackerNews where someone with the username HMEXX. He says, “I will pay $8,000 for you to build your side-project or MVP.” And this post got 1,000 uploads. It had one of the most active discussion thread that I’ve seen in a long time. And there are people on both sides of it about the pros of doing it, the cons of doing it, whether it’ll work, all that stuff. So today, you know, you and I kind of batted around the e-mail a little bit and realized that this could be a good discussion topic just to talk about it from both founder perspective and also from his perspective. So, you know, I think we just…we dive in. I’m going to read a little bit about his initial proposition and then we’ll run through the pros and cons and bat those around. When he posted it, it’s…it’s only about four or five sentences long and we’ll post a link to this obviously in the show notes.

[11:13] He says, “I will pay $8,000 for you to build your side-project or MVP.

Premise 1: Investors and Incubators over-estimate their ability to pick good ideas and startups. Premise 2: An MVP built by a lone, but talented techie is almost as likely to turn into something ‘successful’ as a startup on AngelList that has: 4 founders, 9 advisors, 13 press releases, 600 followers, etc.

Premise 3: Most freelancers will not build and or follow-through with their ideas, because they perceive their opportunity cost to be too high.

Premise 4: HackerNews has a decent number of talented freelancers with good ideas.” Now, I don’t think either you or I agree with all these premises but that…this is what he’s laying out. And he says, “Based on these premises, I present The Proposition [Version 1.0]: I’ll pay you $5,000 to build the MVP of that idea you’ve been kicking around  in your head for the last year. Once you’ve done it, ideally within 2 months, you can go back to earning your full potential. At this point, I’ll take over. I’ll spend an additional $3,000 to acquire enough users or customers for us to evaluate the project’s likelihood of success. We split the resulting company 50-50, as equal co-founders.”

[12:18] So to begin, I want to give a hat tip to Scott Underwood who contacted me about this and we also e-mailed about this and it wouldn’t be on my radar without his e-mail. But now, you know, we’ve broken up some talking points in the pros and cons. I think it’s easy and natural to want to immediately jump to why this won’t work. So, we’re actually going to dive in to the pros first. So you want to kick this off? You know, talk through a couple of pros of, you know, why this might actually be a good and innovative idea?

[12:44] Mike: Yeah, so two that come to mind off the top of my head is that if you’re a developer and you don’t know anything about marketing or you don’t know how to market and find your customers, this is like an instant marketing co-founder. And in addition to that, it gives you an instant accountability partner. So, if you’ve ever had problems getting started or following through with the stuff, this is a great opportunity for you to essentially get it carried in front of you where someone is going to pay you to work on your own idea and then as you follow through with it, obviously, you get paid for it and then in addition to that, you get this 50-50 split of the company afterwards where you’re an equal co-founder and the whole thing.

[13:20] Rob: Right and I think that that segment of developers who don’t want a marketer, don’t know how to market is massive. I mean you and I know it from just in our dealings with people who are trying to do startups and trying to, you know, become micropreneurs. It is probably been number one hurdle that I’ve seen developers have to get over is to get that desire and build the skills of marketing. I think that might be the number one pro of this whole thing if you really are a developer who doesn’t want to get in to that side of it.

[13:49] Mike: One of the things he’s doing is he’s essentially hiring you as a programmer and somebody on the comments had mentioned that he’s hiring you as a programmer for $25 an hour and paying you with the equity to stay on as technical co-founder. In his initial post he says $5,000 for ideally completing this within two months and if you do the math on that 320 hours over the course of two months, that actually works out to more like $15 an hour. But still the fact of the matter is you’re still getting paid to do it at a rate that is in some ways manageable especially depending on where you live because if you live in a place where you don’t have a lot of bills or a lot of expenses, you could definitely make $15 an hour work. And being able to keep the equity afterwards as a technical co-founder is just awesome because chances are good that if you’re a developer, you probably want to concentrate on the code anyway and handing off the marketing side to him is kind of a bonus.

[14:39] Rob: Right. If you have a crummy job and you’re making minimum wage or a little more, even if you’re making decent money but you can live on, you know, a tiny sliver of money on this 5 grand for a couple of months, but you’re smart and capable, then this is the kind of opportunity that it seems reasonable that you would want to think about, right? I mean if you look at what Y Combinator pays, they do is it $6,000 per co-founder? I think.

[15:04] Mike: It is —

[15:05] Rob: Yeah.

[15:05] Mike: …but it’s also, I think they also add on another $6,000. So, if you have two founders, then it’s $18,000.

[15:11] Rob: 18 grand, right and it is three months. In essence, it’s 3,000 bucks a month per founder if you had two co-founders and from what I hear, they’re just basically coding like 15-hour a day is that whole time. So, if we break it down to hourly rate, this guy may actually be paying you more per hour. Now, there’s the…the con of that is that he’s not Paul Graham and they don’t have, you know, he doesn’t have all the investors on the other end of it. But when you really break it down like that, it’s at least an interesting thing to evaluate. I also think it’s just a gutsy idea, you know. It’s a nice experiment. I’m impressed that the guy is willing to put his money where his mouth is. I’ve thought of doing this on my own. You and I have thought of doing a similar kind of a micropreneur Y Combinator thing and it’s a lot of time. There’s a lot of money involved. I mean for him to come out and just do it is a bold move.

[15:57] Mike: Yeah, it’s funny you bring that up. It’s been a while since we even discussed that but you’re right. We did have that idea a while back where we’re like, oh, you know, what if we came up with the Micropreneur Academy funded endeavor where we fund the people to do something like that kind of a scholarship or something along those lines. But you’re right, I mean to actually come out and do it is just…I’ve never seen anyone else to actually do it.

[16:17] Rob: I think the last pro I can think of is that although this could be seen as like kind of an accelerator, you know, Y Combinator is called an accelerator now and TechStars and 500 Startups I think. I mean there’s a bunch of them around the country. His is different because you don’t have to move anywhere. So, it could actually apply to people all over the world. It could apply to you if you aren’t able to move and you live maybe in a middle of nowhere and don’t want to move to a major city where there are accelerators. So, I think that has one advantage. One thing he did say later on in the thread, he says, “If you can get in to Y Combinator, I can’t compete with that.” So and that does makes sense, right? He’s an unknown. He’s only giving you a few thousand bucks. He doesn’t have the…the clout that Y Combinator could bring or an accelerator like that could bring. But what he’s saying is there are also some pros to do it this way because then you don’t have to move to a new place. You don’t have to uproot your family. You really can kind of just if you have the flexibility to take these two months off of your freelance work, it could actually be a reasonable thing to think about.

[17:18] Mike: Two other things that I also came up with this is the first one is he’s specifically looking for single founders. So, if you are the lone wolf type of person, I mean he’s exactly who you’re looking for. The second thing is that he’s the only person that you’re actually going to be working with. I mean it’s not like you have to pass a committee or anything like that. It’s his decision upon, you know, accepting your idea and going forward with the funding, you don’t need to worry about this team people thinking you got ideas, good or bad, you can just go with his. And as long as you’re just incorporating feedback from one person, it tends to be a lot easier to work with one person that it is with multiple people.

[17:54] Music

[17:57] Rob: So, let’s dive in to the cons now. And I have to be honest, the cons list was very easy to come up with and it got long quickly. And so we actually edited a few of them out of this list.

[18:09] Mike: I think the number one is that who is this guy? [Laughter] Does he have any credibility or is he just some guy with $8,000 laying around? I mean the fact is that he’s only giving you $5,000 of it and don’t get me wrong. I think that it’s good on his part or at least, you know, it’s good in my eyes that he’s saying, “I’ll give you 5,000 and then I’m going to take $3,000 and I’m going to set that aside in order to market it.” But the fact is you have no idea who this person is. Does he have any kind of experience? Or is he just some guy with 8,000 bucks laying around that says, “Hey, I want to give this a shot.”

[18:40] Rob: I agree. The anonymity is really a big deal for me because if he can mark it, why is he concerned about people knowing who he is? And during this thread, a lot of people point this out and he says, “Well, you know, you’ll see who I am on our first Skype call.” I just don’t understand why he would do that. What the advantages for him to do that? Someone in the thread joked that it might be Jason Calacanis behind this whole thing. I don’t think that’s the case but it sure will be funny if it was a big name founder that we know and that’s why he’s being anonymous. But again, why would you do that? If you’re a big name founder, this would attract so many more people of higher quality because they’d be going after not just the money but they’d be going after you for your name and your guidance and your involvement in their startup. So, I can’t imagine he’s, you know, “famous” or a really well-known startup founder.

[19:29] Mike: But at the other side of that is that it could be and that could be exactly why he’s being anonymous because he wants to prove a point. Maybe he’s got some side that was with somebody or he’s just trying to prove a point to somebody else that, “Hey, I can go out and I can do something similar in a fraction of the cost.” And you can almost think of it like basically lean startup mode for angel investors. I mean maybe that’s who the guy is. Maybe he’s an angel investor and this is the kind of thing that he is doing or interested in doing and he wants to prove to another angel investor that it’s possible. So, they don’t have to shell out tons of money and putting, you know, tens of thousands of dollars. They can put it some ten thousand dollars work on at something that’s got a reasonable chance of working. And they get more equity as part of it because with the angles and stuff, you’re not going to get 50% and you’re…you’re going to be shelling out tens of thousands of dollars more. So, it could be that somebody is trying to test an idea and, you know, and use in more lean startup methodologies to try and figure out that stuff earlier rather than later.

[20:28] Rob: He does that more detailed about who he is in…in a FAQ later and he says, “I’m also a techie. I’ve had one moderately successful venture so far which has given me a comfortable life but not quite retirement amount. I want to reduce my coding time and instead help people get their ideas to market using my resources. Hopefully, we can build a few success stories along the way. You can find out more during our first Skype chat.” So, another con is that 8,000 bucks like we’ve already said and with only 5,000 of it going to you is not a lot of money for 50% of an idea especially if it’s a reasonably sized product or something that actually has, you know, a market that means the startup is going to grow. If you have confidence in your idea and you think it could be something that could grow beyond just a few thousand bucks a month, it’s just 8 grand…isn’t that much.

[21:18] Mike: You’re right, I mean as you said to top it off, you’re not getting 8 grand. You’re getting 5. So basically if somebody is paying you $5,000 for your idea and it’s not like you just give them your idea and you walk away, you’re still expected to work on it for the next 2 months. So, being able to use that $5,000 in, in many ways can be very difficult to make that money stretch especially if you have a fulltime job. And this is I think the other thing that really gets me about this is that if you have a fulltime job, how are you going to take two months off to work on this idea?

[21:50] Rob: Yeah, he specifically said that he kind of addressed that because someone raised it and he said you probably need to be a freelancer if you’re doing this and you need to take time off client work and that’s what the $5,000 is supposed to try to offset is some money, maybe not all, but some of the money that you would otherwise have made from freelancing. And I think that’s a tough sell for a couple of reasons. One, I mean most freelancers I know make more than 2500 bucks a month, a lot more. And so if they can just save up 5 grand over a few months, you know, why…why wouldn’t they take that approach instead of going this route. I mean I guess that he’s the marketing guy and if it’s his money, then all the better. I think the other demographic this could appeal to is if you’re a college student or like just out of college. You don’t have a job yet. This could be a great summer project and that’s what Y Combinator really started out as was originally going after undergrads.

[22:37] So, 5 grand is actually a decent chunk of change if you’re, you know, living with your parents or living with roommates and you do have two or three months off from school, it totally makes sense why you would…why this would potentially be a better deal. This deal is obviously not for…it’s not just not for everyone, it’s actually only for a pretty tight demographic and that’s probably college students or someone who’s out of work or someone who has kind of a low freelancing rate or someone who lives in the part of the world where $5,000 is several month’s salary.

[23:07] Mike: I wonder if in some ways that isn’t a self selecting group specifically design or intended to get those people who haven’t run in to issues with launching products because they don’t know what they’re up against. So, they’re going to basically beat their heads against that wall even harder in order to get through it because they don’t know any better.

[23:24] Rob: So yeah, you’re saying he’s basically self selecting a group that is more likely to persevere because of their lack of experience with this kind of thing.

[23:30] Mike: Right.

[23:31] Rob: I think another thing is if he really going to market it forever for just 50% of the company? I mean how much attention is he going to be able to give 10, 20, 30 of these ideas because he doesn’t talk about how many he’s going to accept? And I question if he…if he does even if he can fund…let’s say he funds 10 or 20 of them and you know, a good chunk of them come through, how is he going to have a time to market them and is he really going to be able to justify it himself to basically have you step away maybe just do minor maintenance but you walk away with 50% of the company. There’s no vesting, right? It doesn’t mean you have to stick around for three or four years. You keep 50% of that ongoing. So, that’s actually I feel like he could kind of get hosed on that long term.

[24:13] Mike: Yeah and the other thing that isn’t really mentioned here is that what constitutes done? What is considered done in this scenario or that could, you know, do you get your 5,000 upfront? Do you get your 5,000 after it’s done? You know, how many bugs are there? And those kinds of things because obviously, I think if you’re the type of person to go in to this, you want to launch the product and he obviously has an interest in launching the product. I mean he’s got at least $5,000 worth of effort invested in to it plus the other 3,000 so he wants to get it out there and get people using whatever that product ends up being. But in terms of done, I mean what…at what point do you say, “Well, I’m completely done with this and I’m not going to do anymore code on it.” Is it something that you’re going to continue working on? And maybe that’s part of why the equity is 50% split because if you only give somebody a 10% equity on it, then chances are good that they’re not really going to go want to come back and do bug fixes and respond to customer request and things like that.

[25:07] Rob: Yeah, someone mentioned that mobile apps would be a really good way to go with this and that actually makes sense, right? Because then there’s…doesn’t tend to be as much maintenance ongoing with them over that and you really could build a decent mobile app in a couple of months like this.

[25:20] Mike: Yeah, that does makes a lot of sense.

[25:22] Rob: One of the other cons that someone brought up is that is it possible this guy he’s staying anonymous because he’s trying to collect the best startup ideas to steal them. What do you think about that?

[25:32] Mike: I seriously doubt it. [Laughter]

[25:33] Rob: Yeah, I know. I saw that and I was like, oh grown —

[25:36] Mike: Yeah, here we go with…we’re trying to put evaluations on ideas because how do we know ideas are worth virtually zero. Implementing ideas can be really expensive and even if you steal an idea, you generally tend to lose a lot of the vision behind that idea. I mean you can look at any software product that’s out there or you could try and rip it off and you will do a reasonably decent job of making a clone of it but there are certain things that are going to be lost in translation when you’re trying to copy it. And some of those are going to be company related, some of them are going to be product related. You’re going to do things a little bit differently and a lot of times there are some very good reasons why software is designed in a specific way. The one thing that I had was a…I had a conspiracy theory about this. Maybe this entire post was just a hoax and an attempt to get HackerNews karma.

[26:21] Rob: Isn’t every post a hoax in to an attempt to get HackerNews karma?

[26:25] Mike: [Laughter] I don’t…I don’t know. I don’t read enough —

[26:27] Rob: Kind of. I’m interested to see if we’ll see a follow up from this guy.

[26:30] Mike: Yeah.

[26:30] Rob: You know, he said he got such an overwhelming responds from this that he…the e-mail account was overwhelming that he couldn’t even go through all ideas. I’m curious to see if there’d be, you know, he’d following with either the best ideas or just letting us know if this thing ever comes to fruition.

[26:47] Mike: You know, I just had a great thought. I could send him the idea for AuditShark and I could get $5,000 right away.

[26:53] Rob: Do it, do it. He specifically says, “I can’t compete with you if you’re earning a 150K a year or if you’ve already been working on your side project for a year. This may not be for you.”

[27:03] Mike: Oh.

[27:03] Rob: So, you know, he kind of specifically says that. I think the last reason that this may not fly very well is at 3,000 bucks is not a heck of a lot of money to test an idea unless it’s really designed, unless he picks them exactly to work with things that work well with paid acquisition, it’s hard to know in $3,000. I mean I have blown through that in a few days doing test marketing. The fact is your messaging could be wrong. I mean there are so many things that could go wrong with it. The product may actually be able to fly and you may just need to invest a little more time in to it. So, I think you could get a lot of false negatives if you caped your investment at, “Oh, I’m only going to spend $3,000 in, you know, one month or something to try to test this thing.”

[27:41] Mike:  think that related to that my biggest issue is that that $3,000 to test the market is not necessarily being done before you start building this because —

[27:50] Rob: Right.

[27:50] Mike: …I would think that you’re better…much better off testing that market first for the $3,000 and then deciding at that point whether or not to go through with the $5,000 investment to actually build it. At that point, why would you bother hiring somebody to give them 50% equity? Why wouldn’t you just go outsource the entire thing and hire somebody as an hour by hour basis and have them just build everything that you want.

[28:14] Rob: If you’ve listened to this, my guess is you stay in pretty firm on one side of the fence or the other. My guess is more people lean to the ‘no way you’d ever sign up for this’. So, if you think this is actually an interesting idea or it’s something that fits you and that you are going to apply for or consider applying for, I’d be interested to hear from you either in the comments for this episode or calling it in to our voicemail number or e-mailing it to us and that info is at the end of the episode.

[28:38] Music

[28:42] Mike: We do have a listener question to go through. This one is from Joe Rolenson [Phonetic] and he says, “Since you guys have already published a book or have been talking about it, how do you forecast a healthy sales volume? You could base it on conversion rates of those that buy on your own site but that doesn’t account for customers that find your book on Amazon.com or third party marketplaces. How do you know when your sales had plateaued or if there’s still more potential? Thanks. Joe.”

[29:02] Rob: With my book, I didn’t forecast recurring sales volume. I only looked at what is the minimum number of copies that I need to sell to justify me taking the time to write this book. And for me it was building a landing page and seeing how many e-mail addresses I could get and that showed me how people are interested in it. And once I hit a certain number and I think it was 600. It was somewhere between 6 and 700 e-mails, I figured I could close at least a third of them. I figured that they would, you know, be interested enough in the topic and as it turned out, 50% of them bought. And so I made…I think my goal is if I made 6,000 bucks, you know, with the initial launch that that would justify the hundreds of hours [Laughter] that you write the book because I really…I did want to write the book and I was just looking to kind of justify the time and be able to cover it with some type of evaluation.

[29:53] Now, I think in the first 72 hours, it actually made 9,000 but that was top line revenue and then there were printing cost. So, it was somewhere in the 7,000 and change was…was the net profit on that. And at that point, I was happy that the book had basically in my opinion covered the cost. From there, I had no clue what it would do and as it turns out, it did really well. It sold, you know, over the past two and a half years, it sold 10,000 copies. And I did not forecast that and I wouldn’t have counted on that. From what I have seen though, the volume from your own website and Amazon are the only two that really matter. The other third party marketplaces I have submitted to have…haven’t done much for me. But if you’re in a specific niche and there was a niche marketplace, I could imagine that that sales from that could be a little higher.

[30:40] Mike: I think on my end, I don’t really have any good advice to give on forecasting a healthy sales volume. I mean I like Rob’s approach where he just kind of decided, you know, what was the minimum number that he needed to sell and didn’t concentrate on any sort of recurring sales from that. The book that I’m looking at writing would be done through a publisher. So, they already have numbers on what similar books sell. So, for them, it’s more a matter of is this going to make it worth it for them and if it’s going to make it worth it for them, then it would probably make it worth it for me.

[31:10] Rob: Right and for you, you’re writing it more for as a marketing tool for AuditShark and probably as a personal goal or professional goal of writing a book rather than as a source of income because the…going through a publisher, the income is not going to be anywhere near what you even make on, you know, as an hourly consultant or what you’d make self publishing it or from your software apps for that matter.

[31:30] Mike: Right and that’s…that’s exactly right. There’s two real goals that I have in mind. One is bringing knowledge to people who probably need this type of knowledge and the other one is bringing some publicity to AuditShark. So, you know, I do see it as definitely a marketing thing but at the same time there are things that people, I feel like need to know about this particular topic that they just don’t have any idea about and it’s because there aren’t any real books about this particular topic. So, you know, we’ll see what the publishers will have to say though.

[31:57] Music

[32:00] Mike: So I think that wraps us up. If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or you can e-mail 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. We’ll see you next time.

Startups For the Rest of Us

Episode 114 | The 5 Stages of a Bootstrapped Startup

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[00:00] Mike: This is Startups for the Rest of Us: Episode 114.

[00:03] 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. I’m Mike.

[00:19] Rob: And I’m Rob.

[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?

[00:24] Rob: I’m doing good. I feel like the new year is really starting to ramp up and people are back signing up for apps again and it’s exciting.

[00:33] Mike: Yeah, I know what you mean. There’s a number of things that were on my list of things to get done last year that never did but they tended to be more of the clean up nature and I’ve starting to bang through those kind of get them off of my mind and off my plates so that I can work on other things.

[00:46] Rob: Yeah, I had several of those as well. I also finally did my 2-day retreat just to do some thinking. You know, I walked like miles and miles a day and thought and looked at my goals for 2013 and how I wanted to accomplish those and what was going to take. And I looked both at for personal and professional and I just thought through them in-depth. I did mapped them out in quite a bit of detail in a bulleted list and then I put them in to my idea notebook where I’ll be referencing them throughout the year. It was a really good way to start the year actually. I recommend if you can…can take even just 24 hours and get away from kind of the hectic nature of your life to really sit down and think about what you want to accomplish in the year. I found it to be pretty valuable.

[01:25] Mike: Cool.

[01:25] Rob: How about you, what’s going on?

[01:26] Mike: So, I’m in the middle of finalizing things for releasing AuditShark to someone of my early access customers next week and I plan on giving them to access to everything that’s been built so far. And I’ve touched based with the couple of them but not nearly as many as I would like to. So, that’s something I need to work on a little bit more but fortunately, the contractors that I have doing some of the development work, they’ve been just concentrating on the technical side of things which freeze up a lot of my time for all the marketing stuff and that’s going really well right now. I’m really happy with all that’s going on. Hopefully, the trend will continue and my previously stated goal, I was thinking about it last night of not doing code. I decided I have to retract that just because I enjoy doing code on occasion. I think kind of touching things on occasion as opposed to digging in and actually trying to solve some of the down or dirty problems.

[02:19] Rob: Yeah, there’s a big difference between coding on major projects and just hacking your script out because I’m like you. I can’t get away from the code because I enjoy it too much. I really do love writing good code. It gives your mind a rest if you’re busy thinking about, you know, a lot of other stuff. So you just sit there and code for an hour or two can be pretty enjoyable. So, I’m with you. I don’t think I’ll ever get away from it and I don’t really, really have the desire to. But getting away from having to do it 10, 20, 30 hours a week, that’s definitely I can see that as an admirable goal.

[02:50] Mike: Uh huh.

[02:50] Rob: So, other stuff…other stuff that’s new with me, is with HitTail I have three small launches plan for the next probably 14 days. We have an info graphic that was ready in December and it’s about long tail SEO, trying to get some Twitter buzz and you know, wherever else it is, you do with an info graphic to generate some interest. And then we integrated with HubSpot which is a pretty big one for us. So, we’ll be talking to them trying to get the yeses, that integration marketing thing I keep talking about or it’s like you integrate with folks and then you get them to promote you and it gives you reason to talk about what you’re doing. My product manager did a bang up job on the integration on the code and everything. So, it’s pretty cool. It’s something I’m pretty proud of. Yeah, we have a joint e-mail going out as well over the next week or so. So, that’s why I feel like, you know, when I said momentum starting to build for the year, I have like lot of anticipation about these three things because we’ve been sitting on them for almost a month now. They were done in early December and it was like not going to, you know, I’m not going to spend a time to promote now while everyone is offline. So, I’m very excited to kind of kickoff 2013 with three pretty good little marketing efforts.

[03:53] Mike: Now are you doing any technical things on the code-based itself for HitTail to enhance the product  or they are just minimal things that you’re doing here and there? Is that mostly about marketing at this point?

[04:04] Rob: We are definitely still writing code. We’re adding…we’re doing integrations and when you…we’re also adding new stuff based on customer requests. So, there had been some request dealing with like the article work flow and or changing that code as well as some…there’s another piece of information called the Score that we have that is not in the UI and we’re going to be adding that soon. But it’s no…there’s no major features. I mean HitTail itself if you think about it is just one feature, right? It really just goes through the keywords and gives you the ones that you should be ranking for but aren’t…that’s all it does. And so we’re not adding another major section to HitTail at this point. We are still tweaking code and making things better. It’s not really a product-driven…or a product development-driven business because we’re not raising against another competitor who’s also building a bunch of features.

[04:50] At this point, there are still so many people who don’t know about HitTail who can use it features that having someone code on it 30, 40 hours a week is…is just a waste of time, right? It’s that building features for feature’s sake, we’ve already have…we already have brought a market in. So, there is…it’s more of a focus for sure on marketing for the time being. Although I do have, you know, I do have some…bigger features that we may look at later like in late 2013 that would actually change the nature of the product, make it a larger more complicated product. But I just don’t want to go there yet until we have more of a larger user base and just have more experience with it.

[05:24] Mike: You’ve kind of got the product market fit at this point so you don’t necessarily need to invest a ton of time in to new features and you can instead use that time to work on the marketing, maintaining and then expanding the user base.

[05:37] Rob: No, that’s right and that’s actually, you know, something more…what we’ll be talking about today. We’re going to be talking about five stages of a bootstrapped startup and in these phases, HitTail has kind of made it to that phase where it’s not just about building the product anymore. We are still improving the product but there’s that product maturity cycle, you know. Eric Sink did a great presentation about this where he talks about the toddler product and then like the pre-teen and the teenager and just as it gets older, eventually, every product after it’s been around 10, 20 years like it just you really aren’t adding that many features anymore. You’re just…you’re kind of maintaining and you’re trying to launch new products to fill the new cycle. So, HitTail is certainly not there. It has really, you know, it’s been around for seven years now. So, it’s more mature than a lot of products out there.

[06:20] Mike: Cool. So one of the other things that I’ve mentioned a few weeks ago was the e- mail marketing campaigns that I was working on for another company and those campaigns are doing really well. The primary focus of them has been to get people registered for some webinars that they’re doing and we’re up to more than 250 people registered for this webinars. And for me that’s kind of shocking more because the sign up form to these webinars is nine required fields plus four optional fields just to sign up for the webinar. It’s just that crazy the amount of information that’s being asked. And you know, it’s information that this company wants and really kind of needs to be able to follow up effectively with these people because it is not just about getting them to a webinar and then sending them e-mails later on. I mean they want to be able to call these people and talk to them on the phone and figure out who it is that they’re talking out to. So, they’re definitely giving good information but the fact that they’ve had 250 people sign up for these webinars and give over all of this information and just knowing the size of the e-mail list that we’re sending it to, the e-mail lists are not very big. So we’ve actually gotten a really big response to them.

[07:20] Rob: That’s really good. Yeah, you had mentioned before that, you know, maybe the e- mail list hadn’t been e-mailed to in a while. Do you feel like the 250 registered attendees you received, are those people that already have a relationship with the company that they already know, like and trust them?

[07:35] Mike: No and I went back and I looked at some of the early signups from the list and it looked like not one single person who we had e-mailed had signed up. So, I started doing some digging and found that a lot of our traffic was actually coming from LinkedIn groups. So the links to the webinar had been posted on the LinkedIn user groups for the people who we are targeting and the vast majority of those signups came [0:08:00] from that location as opposed from these e-mails. So, I don’t feel like the e-mails themselves helped significantly but I’m just happy with the…I guess the overall results.

[08:10] Rob: Wow, yeah, that is surprising. I wouldn’t think that…I just would never think of LinkedIn marketing like that.

[08:15] Mike: I wouldn’t have either but, you know, just looking at the numbers and the stats and I haven’t checked them in several days. I mean it’s gone up dramatically over the past probably three or four days in terms of the number of signups. But definitely early on from the first round of e-mails that I sent out, there was not one that was from somebody that we e- mailed. Now, they were some from companies that we did e-mailed. So, I don’t know whether or not, in all the people we targeted were managers of these companies. So, my impression is that these managers turned around and forwarded their e-mails to people that that work for them and said, “Hey, this is probably relevant to you.” I would not have expected any of the managers to actually show up.

[08:53] Rob: Right, right. So, do you think that given the success of LinkedIn that their client might actually advertise on LinkedIn now?

[08:59] Mike: I’ll probably recommend that we use LinkedIn but the fact is we didn’t pay any money for it. So, it was just in the user groups and in the user groups, there is some, I don’t know, 3 to 5,000 people who have essentially opted in to being members of these groups. I mean because in order to be a member of a LinkedIn group, you have to actively go say, “I want to be a member of this group.” So, they’re getting e-mails…a lot of them are probably giving digest e-mails and says, “Oh, this is the activity that’s been on this list.” And in there, there’s a link that basically says, “You know, here’s this webinar that you might be interested in.” So, a lot of the traffic has been coming from those locations.

[09:36] And the only reason I actually found this out was because there were somebody that had signed up that I knew I worked with before and I remember looking at the numbers and like, “Why did none of these e-mails that I‘ve sent to match up with the people who have registered?” And I saw this e-mail who had registered and I said I know that I have not e-mailed him and I know who he is and I’ve got his contact information. So, I called him and asked and I said, “You know, just trying to track this down. Where did you get this?” And he’s like, “Oh, I got it from LinkedIn.” And then I tracked it down and just  backtrack. It was obvious once I’ve found that and then, you know, because not all of us is just tracking that I would like to have has been set up but they were being sent to a different URL that I was not tracking.

[10:12] Rob: So last update for me Drip development is going well. I saw the first demo of the app and I also got the marketing design, this whole site’s design and it’s sliced now. Still, just have a landing page up at GetDrip.com and that’s…that’s actually doing well. I had a surprised…I went on a podcast, the Foolish Adventure with Tim Conley and talked about marketing software and that went viral. I think it went to the front page of Hacker News and in there I mentioned Drip. And so, I got a big boost of…of subscribers over the last couple of days. So, that’s kind of nice. I mean the conversion rate won’t…shouldn’t be fantastic, right, because Hacker News traffic in general doesn’t convert that well but it was kind of nice to see people hitting the side and I have a decent conversion rate to e-mails. So, it tells me the…the messaging is at least partially on and then finally decided on hosting. We’re going to go with EC2 which is Amazon, obviously, their Elastic Compute Cloud. And a lot of factors play in to that. There’s pluses and minuses to Rackspace and EC2 and Engine Yard and Linode and I looked at one other and we decided to go with it.

[11:16] Music

[11:19] Rob: Today, we’re going to be talking about the five stages of a bootstrapped startup. So, I was listening to an audio book called Brain Trust: 93 Top Scientists Reveal Lab-Tested Secrets to Surfing, Dating, Dieting, Gambling, Growing Man-Eating Plants, and More! The book is okay. It’s purely entertainment but one of the scientists does research in to the development of industries and how a technology evolves and he’s going to be writing a horribly academic book. I went and researched this. There’s no chance I’m ever going to read this book. It’s called From Art to Science in Manufacturing: The Evolution of Technical Knowledge but the cool part is he summarized the whole book in like this 5 to 10 minutes snippet and I thought it was fascinating and it actually applies really quite well to the model of a bootstrapped startup…and the phases that you go through as you’re…as you’re taking your startup from launch, you know, onto…on to being a successful venture. The stages that he outlines are for industries and so he basically says like take the healthcare industry or the firearm manufacturing industry or aeronautics. And industries evolve overtime and these evolutions take place due to market pressures.

[12:28] So, they might start off as a craft where early on to be, you know, in aeronautics to be a pilot, you really are an intrepid flier. You have a leather helmet and goggles. There is no processes. You’re building your own plane like no one build planes early on, right? Then from there to step two or stage two which is like rules and instruments and that’s where other people are doing it. You collaborate. You start actually having altimeters and instruments to do things and then there’s, you know, another stage where you get procedures and then one where you start automating things. And that’s where today just like autopilot in airplanes. And then the final stage is computer integration and that’s where like computer actually takes over the entire process and you really don’t need human intervention. So, those are the five stages of the outlines and he does a pretty cool walk-through of like how it’s…healthcare is just in stage two or stage three and firearm manufacturing is all the way, I think it’s in stage four but it took 200 years to get there. Whereas things these days like whether it’s like designing websites or you know, being some type of technical expert, they might mature…instead of 200 years, they might mature in 15 or 20 because of the pace…the pace of the world has changed so dramatically.

[13:39] But what we’re going to talk about is how the same five stages can be applied to a bootstrapped startup. Stage one is craft and that’s where you can only learn something by experience or preneurship. It’s where you’re a lone gunman. It’s basically the Wild West and you’re a pioneer of going out and doing something. And so if we apply this to a bootstrapped startup, this is where you are trying to find a problem to solve. There’s no rule book for this. There’s no guideline or no processes for how to do this. We do have frameworks and a vocabulary for speaking about it. A lot of that’s come from people like Steve Blank, Eric Ries, you know, the blog is fair who talks about these things. That’s where product market fit, problem solution fit and iteration and all these terms can help us talk about it. But really there is no predefined set of directions at this stage. And so this is where you’re trying to find a problem to solve, trying to find the market to solve it for and you’re trying to get to launch so that you can confirm that you are in fact solving a problem for that market. And if you aren’t, then you look back and you start again and you can actually iterate in this…this craft stage for quite some time until you, you know, until you figure out that you are solving a problem and can move on to stage two.

[14:51] Mike: So I think this is interesting. How do you know when you’re done with the craft stage?

[14:56] Rob: So the craft stage as I’m defining it is once you…you definitely have problem solution fit meaning you have found a problem that people have voiced and you are now solving that correctly. So, you have launched an MVP. People have tried it. You’ve definitely iterated on that and you’ve actually solved a real problem that they have.

[15:18] Mike: Oh cool, so what’s the second stage?

[15:20] Rob: The second stage is the rules and instruments stage. So, this is where…I’m putting a few goals in this stage. This is where you really are searching for that product market fit to confirm that you actually have it and then to just start scaling things up. But the goals for this stage are to try a lot of marketing approaches and figure out which one is working and which one is don’t. And it also helps you to define your positioning and how you’re going to talk about your product, how your customers, who eventually going to be trying to gather in groves, how they speak about your product. And you’re going to have to do a lot of things that don’t scale. So you’re going to have to do everything you can to spread the word even if you’re doing blog commenting and commenting on forums and things you would never do once you hit scale but right now, you’re just trying to find that group of people who really needs and wants your product and during this time as you’re moving forward, you’re looking hard at your funnel because that funnel, your conversion rates to trial, conversion rates to paid and you know, a little bit about your retention, that tells you when you’ve hit product market fit, right? That tells you when you’re going in the right direction and you’re starting to find a group of people who actually do need your app and are willing to pay for it.

[16:27] The last goal that I had that I’ve done many times and I really recommend people do before they get on stage two is to stop handling support e-mail and other admin tasks because at this point, you’re no longer that lone gunman, the intrepid flier you were in stage one and you need to get anything automatable in to the hands of another human being, right? It’s not time to start writing a code to automate everything yet but it is time to start giving yourself more time to build this business because you don’t have enough knowledge to start building some processes.

[16:58] Mike: And a lot of this relates to developing a product specifically versus building processes and stuff for your business because these five stages of bootstrapped startup, although it sounds like it maybe applicable to the company, you know, and the way that you’re defining it, it’s more applicable to building a product and building that product up and taking it through these five steps. And then if you want to repeat those steps, you can and you may apply some of these things to the business itself as you’re going through that process.

[17:25] Rob: Actually see as being for product development, for marketing and for support, all three of those pieces of your startup follow this process and typically at the same time. So, if you think about stage one which is craft, I’ll give you an example. When I first bought HitTail, I was building the product, did all the code. I was answering all the support e-mails and I was doing all the marketing.

[17:46] Mike: I think what I was thinking more along the lines of was accounting processes, how you’re handling legal agreements and things like that, business structure. Those types of things are not kind of covered in this because when you say five stages of a bootstrapped startup, and bootstrapped [0:18:00] startup implies the company not necessarily the product. That’s kind of what I’m getting at.

[18:06] Rob: Got it, yeah, that makes sense. I guess it depends on the type of startup you’re launching. If you have a SaaS app and you’re already have an accountant and a lawyer, I don’t think that your accounting and your legal stuff goes through five stages.

[18:16] Mike: Okay, cool.

[18:17] Rob: Can you…but can you think of a countered example where your accounting and legal and business like would go through these five stages?

[18:25] Mike: I think if you’re transitioning your business from a consulting business in to a product space business, you might go through this or if you have downloadable applications where you are selling them and then you transition in to like SaaS-based applications or you start transitioning in to the markets that are heavily financial or security-related where you need to start changing the terms of service and agreements and things like that you want to post on your website because those things, although they are related to the product, they definitely relay it back to the company as well. So, you have to make sure that all your bases were cover if you’re trying to gain revenue for those and you don’t want to be assuming additional liability for those types of things. So, I could see that those things that are business related would need to go through changes as you transition through different types of products.

[19:15] Rob: I see.

[19:16] Mike: So, I mean there’s…there’s all these things that I think are probably one offs for those types of situations that you probably wouldn’t necessarily have to go through nearly as many stages. I mean you sign an agreement with Apple to be able to distribute through their app store so there’s more to it than just signing an agreement. But my point is that there are much fewer stages that you have to go through for those types of things but they are required in order for you to be able to operate.

[19:38] Rob: Got it. So you’re right, five stages of a bootstrapped startup; marketing, product and support. That’s really what I’m talking about —

[19:45] Mike: Right.

[19:45] Rob: …because I’m not talking accounting and legal.

[19:47] Mike: Yup.

[19:47] Rob: Yeah. All right, so stage three is procedures and this is where you formalize how you use gadgets at least in terms of pilot and getting airplane. So, in 1935, the US Army Air Corp invented  a pre-flight checklist. So, they already have instruments but they sat down and they said, “There is an absolute checklist that you must do everytime there’s a process that saves a lot of lives.” And they just started making thing more procedural and in the startup, this is where I see you have all of your support stuff completely documented. You know, you have it handed off to one or more people. So, as the founder, you’re now not touching that anymore. You maybe tier two or tier three but you are done with the supporting everything anymore. You’re not the craftsman. Another thing that you should have is you should have like your deployment and your development process is in place. This is where you need to start standardizing and this is actually the part where a lot of like true blue founders who really love to run from one startup to the next start getting a little bored, right? This is where a lot of processes get put in place and you have to standardize because it just makes it easier as you start to work with more people but it can also constrain maybe creativity especially of early stage founders.

[20:53] And this is where in terms of marketing you start doubling down, tripling down on a marketing approaches that work and you really are getting to scale with this and in order to get to scale, you have to have processes and procedures in place and then you have to have marketing approaches that do in fact work during this time or also working on reducing churn and increasing your lifetime value since when as a bootstrapped startup, you start thinking about hiring someone to help you with marketing, hiring someone to help you with development and you really don’t have the bandwidth to do everything anymore. And this is not necessarily a stage that you have to go to. There are micro ISVs that micropreneurs who stay in that stage two and that’s not a bad thing but if you do want to grow past it, these are the types of things, the procedures you need to put in place in order to get…get to stage three and really start scaling it up.

[21:38] Mike: I think the thing to point it out here is that it really seems like in order for you to progress to stages three, four and five, you really need to have a product and a business that

is going to support the type of income to be able to bring those additional people on because obviously you can’t start formalizing these things and hiring people if you don’t have the revenue to justify it.

[21:57] Rob: Absolutely. Yeah, you either need revenue or you need funding. You know, we’re just talking about bootstrapped here because it’s what we’re more familiar with and I just think it’s more relevant to the audience. But if you have funding, they tend to jump around. They tend to jump straight to stage two and then they’ll often skip the procedures and put…do premature scaling so they’ll kind of part of stage three. And it’s a gamble, right? You can move faster when you do that but it’s also the reason that a lot more funded startups fail is because they try to move too quickly and they prematurely scale. Did you see that report? It was the Startup Genome Project and they said…I think it was the number one reason that startup failed was premature scaling.

[22:36] Mike: Yeah, I definitely remember seeing some of…some stuff from them but I don’t remember the specifics of it but I think you’re right. That was definitely high in the list.

[22:43] Rob: Yeah, the other was like founder disagreements-

[22:46] Mike: Yup.

[22:47] Rob:…was a big one and then premature scaling which means in essence you have too much money and you’re try…you just start hiring people and trying to market and spending money growing the business before you really know anyone wants your product. You know, you kind of leap through the stages too quickly.

[23:01] Mike: So one of the things that I think that’s interesting about stage three is that what you’re really trying to do is you’re really trying to make sure that you’re putting yourself in a position where the things that you’re doing are the most valuable to the business. And that includes making sure that the processes behind the business and behind the product itself are going to scale or that you will be able to scale them out by farming out some of that work to people base on a process that you have developed and your value that you’re providing at that point and in that stage is to build the processes and then hand it over to somebody else to execute.

[23:36] Rob: Exactly, everything in stage three is about leveraging you and about getting high leverage out of your time.

[23:43] Mike: I think that both Patrick McKenzie and I had touched on this at MicroConf in 2012.

[23:48] Rob: And if you’re a member of the Micropreneur Academy, you can see both those talks right now inside Micropreneur.com. All right, stage four is automation and this is in terms of aeronautics, this is where they invented the autopilot where it’s autonomous but it’s with human supervision. The goals for a startup in this phase are basically start writing code to handle things that are currently being handled by humans. So they go past it the human automation point and actually make it truly code automated and weren’t just supervised by people. So, this is where basically all of your working, marketing and support tasks, they are heavily documented and or as automated as possible. So, the step is just about continuing, pretty much continuing the work that you begun in stage three.

[24:32] Mike: I think without stage three, you’ll be very hard pressed to be able to make stage four work because if you don’t have those procedures formalize, it’s hard to automate things when you don’t really truly understand everything that’s going on and it really seems like you have to have been in stage three for long enough in such that the automation is made easier because you don’t have to deal with all these exceptions. So when you’re writing an automation code, one of the big risks I’ll say with writing an automation code is that if something changes or something is unexpected that happens, then your automation basically goes completely out the window and you’ll spend 10 to 20 times as long fixing it and make again things right as it was if you knew about that in advance and you were able to write in those exceptions in to your automation code. So, it really seems like you have to been in stage three for long enough such that you will have identified those exceptional cases and then you can program them in for the automation side and stage four.

[25:29] Rob: Exactly, and then that brings us to stage five which is computer integration and that’s where humans are removed from the functioning system that humans become technicians maintaining the machines. And so obviously aeronautics is not there yet. There are certainly a lot of manufacturing industries that have made it that far. And I kind of just threw some goals out here partially and jazz but the goals here are to, you know, if you want to or to hire a product manager or a CEO and then to either retire to Tahiti or to your next startup [0:26:00]. Alternatively, you can stick around and you can continue to improve and grow the business but if you reached stage five, you really have built like an awesome once and…potentially once in a lifetime bootstrap business because most startups will never make it to this stage. This is one that it is functioning at scale and you found a product that people love.

[26:22] I think with startups maybe like Squarespace and that’s a massive example but that was a bootstrapped startup that really has made it to a place where it is operating at scale. And you know, you can even think of maybe some smaller examples that may not all the way be in stage five but they definitely have processes in place and they’re growing. They have employees, places like WooThemes, Clicky, Grasshopper, startups that are really hit their stride and while they may continue to grow, as the CEO or owner, you could, you know, literally hire someone to…to kind of run it.

[26:53] Mike: This whole idea of removing humans from the system and the humans become technicians maintaining the machines really reminds me of the Despair poster called adaptation and it reads “The bad news is robots can do your job now. The good news is we’re hiring robot repair technicians. But the worse news is we’re working on robot-fixing robots and we did not anticipate any further good news.”

[27:16] Rob: [Laughter] Very nice. So, I’m at despair.com. It says, “At Despair, we offer the cure for hope.”

[27:20] Music

[27:24] Rob: Well that wraps up our look at…the five stages of a bootstrapped startup. And review, stage one is craft. Stage two is rules and instruments. Stage three is procedure. Stage four is automation and stage five is computer integration. And we have a listener question today.

[27:39] Mike: So, this one comes in from Ashkin and he says, “Hi, Rob and Mike. First of all, thanks a lot for the best podcast for startups. Your work is simply amazing. I have a few focus areas these days that I run concurrently; monitoring or consulting products, blogging about startups in my country, developing my own product to help with contractors and learning new stuff and new technologies. So, my question is how do you recommend splitting my time? Should I dedicate a single day to working on things or should I do some things each day and essentially multitask?”

[28:08] Rob: Well, I think the first thing. So he have four different tasks he’s working on. He says his monitor consulting projects. He’s blogging about startups. He’s developing his own product with the help of contractors and he’s learning new stuff. And I would start by taking a look at that list and figuring out what you can eliminate or automate more. Let’s look at the blogging. What is the purpose of the blogging? If that’s for fun and entertainment, that’s great but that should not be as high a priority as these other three items on the list. So, that’s the first thing I would look at is elimination. Learning new stuff and even new technologies, we all love doing that. However, are you at the point where you maybe need to stop learning temporarily and that doesn’t mean that you never learn a new technology or a new marketing approach but that is valuable time that you could actually be applying to things. So, if you took a 6-month hiatus on blogging and going out and specifically seeking new things to learn that didn’t directly apply to what you’re doing, then now you’re really down to two things. You’re basically building a product and you’re monitoring and consulting projects and that’s probably where I start.

[29:16] Mike: Well, he also mentions that he is not just monitoring the consulting projects but marketing for new ones and I totally agree with everything that you just said and that was my first thought as well. You’ve got four different things going on. Blogging, unless it’s directly related to your products, I would probably cannot outright because it’s not going to contribute financially to you because it sounds to me like the intent here is to transition from consulting in to products and if that is the intent, then blogging does not sound to me like it gets you there in any way, shape or form. Learning new stuff does not get you there unless it’s directly related to building your own product and you know, I agree with Rob. I would definitely get rid of both of those and then just focus on two things and the reality is you’re really focusing on one which is to develop your product so that you can get out of consulting.

[30:02] Rob: And then his second part of his question is should he divide up day to day or should he kind of stripe his calendar and do two hours of consulting, monitoring and then two hours of building his own product. I personally would divide up each day and that, you know, gives you…because basically monitoring, consulting projects and marketing for the next one, there’s probably work to be done on those everyday and there is probably work to be done developing your own products everyday. And so sure you could, you know, go one day and then flip back and forth but if something urgent comes up, it would in my opinion be nice to kind of…already have that on your calendar I guess.

[30:38] Mike: I think part of the problem with doing marketing efforts is that there is really no end to them. You can do them for an hour or you could do them for 300 hours straight and you will still not be done. It just does not matter. So, I think that for my stand point, it will probably make a lot more sense to block off amounts of time that you’re going to work on each and your focus shouldn’t necessarily be on the end goal. It should be focused on making sure that you have a process in place such that you continue executing that process. And if you look at setting yearly goals, if you’re trying to achieve some massive goal, the best thing to do is not think about achieving that goal. The best thing to do is think about putting the process in place that will put you in a position to achieve that goal at some point down the road. So, if you want to lose weight, don’t focus on losing 50 pounds, focus on going to the gym everyday because that’s the part that is going to get you to losing 50 pounds. And similarly with landing new clients and developing a new product, what will get you to having a finished product is dedicating an hour everyday of your time to building that product or two hours or three hours or whatever it is that you can actually set aside.

[31:49] One of the things that I’ve been trying this week is blocking out my calendar with the exact timeframes that I am going to be doing different things. So, yesterday I had my calendar set up such that from 7 o’clock to 8 o’clock I was going to be getting up and getting ready and then from 8 to 8:30, I was going to be traveling and then from 8:30 to 5:30, I was going to be at work for a consulting customer and then 5:30 to 6, I’d be headed back. And I literally blocked out my entire day and I was off by about 15 minutes for one piece of it and I stayed up a little bit later. I even blocked out time for me to read at night before I went to bed and then I blocked out time for me to go workout. And it really helped me to maintain focus on the things that I had to do because looking at my schedule, I knew exactly when I would have to stop something so I was hyper focused on making sure that I got as much under in that time window as I possibly could because I knew that I didn’t have any extra time to spare because my entire calendar was blocked out from 7 a.m. to 11 p.m.

[32:47] Rob: I think that’s a good point actually. If you look at the tasks that we’re kind of have left, assuming he…he is able to eliminate the ones we’ve mentioned, he really has to monitor consulting projects market for new ones and develop his own product. If…left unchecked monitoring and consulting projects will turn in to a fulltime job. So, if you need to time box to crap out of that one and if you can time box that to 30 minutes a day and basically have, you know, once a day meeting or if you can 30-minute…if you can time box it to 30 minutes three times a week or just as tiny tiny as it can be and still keep the projects going, that is a, you know, a great way to do it and then as you said, if you also time box the marketing and you keep those to just an hour or two per day, then you can spend, you know, a big chunk of the rest of your time actually doing what it…it sounds like your number one priority is which is developing your own products because you want to…you want to get out of the consulting hamster wheel.

[33:40] Mike: Thanks, Ashkin. I hope that answers your question.

[33:42] Music

[33:45] Rob: And if you have a question for us, you can call it in to our voicemail number at 888-801-9690 or e-mail it to us like Ashkin did 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 this podcast in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.

Startups For the Rest of Us

Episode 113 | Choosing Conferences & Meetups, .NET vs. Open Source, Ideas for Low-Risk Businesses, and More Listener Questions...

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[00:00] Rob: In this week’s episode of Startups for the Rest of Us, Mike and I are going to be talking about how to choose conferences and other live events, .NET versus Open Source, ideas for low risk businesses and answering more listener questions. This is Startups for the Rest of Us: Episode 113.

[00:17] Music

[00:25] 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.

[00:34] Mike: And I’m Mike.

[00:34] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word for this, Mike?

[00:39] Mike: Well, I found out a short time ago that our good friend and popular MicroConf speaker Patrick McKenzie has an e-book that he published called Sell More Software: Website Conversion Optimization for Software Developers.

[00:51] Rob: Dude, yeah, I bought off of Hyperink.com the other day. I’m digging Hyperink. They turned a lot of blogs in to books.

[00:58] Mike: Uh huh.

[00:59] Rob: Did you see my tweet about it?

[01:00] Mike: Well, I definitely did see it on Amazon’s website.

[01:02] Rob: Oh, it’s on Amazon.

[01:04] Mike: Yup. That’s probably where I saw it. I don’t know exactly how I ended up there though. It might have been recommended to me through their Recommendation Engine. I’m not real sure. But it’s interesting. I mean he’s got…most of the content I think is primarily taken from his blog but there’s also some new articles that he’s written in there exclusively for the book about selling software and conversion optimization and SEO. So, I think for $10, you probably can’t go wrong.

[01:04] Rob: I’ve read most of the articles in the book as they were published in the blog but since I bought the book last week, I’ve only read a couple of them already. It’s like, yeah, no doubt. I am going to take enough ideas away from this that will be worth the ten bucks? Funny thing about Hyperink, did you know they’re YC funded?

[01:43] Mike: No, I didn’t.

[01:44] Rob: Which is weird because it’s such a non-scalable business in my opinion but they basically have done like two or three pivots from where they originally where they kind of just an online publisher and they have seemed to have some success doing this…this…in this niche of turning blogs in to books and they format them well and I think they do some copy editing and stuff. [0:02:00] There’s a number of blogs like startup and VC blogs that had been turned in to books and they’re all between maybe three bucks and ten bucks and they are all electronics. So, it’s a no-brainer if you need something read. I mean you can typically find a lot of the content for free but it’s like why not pay the money to have them in to an easy-to-read format.

[02:15] Mike: Uh huh, yeah.

[02:16] Rob: Yeah, one of my essays actually made in to one of them Dharmesh has his on startups Hyperink book. I wrote a blog post for that a while ago and it made it in to a book. So…

[02:25] Mike: Very cool. Well, what have you been doing this past week?

[02:28] Rob: Yeah, I have…basically, I had two weeks of kind of on again, off again downtime. I just…and I like to take these…these times to do that high-level thinking that I don’t get done much when I’m sitting in front of a computer. You find it when you’re in front of a computer, you always want to be niggling away like e-mail or Twitter or just, you know, kind of your monkey brain runs wild and it doesn’t let you sit there and like brainstorm and think about high-level things that you want to do over the next coming months or the coming year or whatever.

[02:57] Mike: Yeah, I find that being in front of the computer sometimes is distracting if I don’t have something specifically that I want to get done. You know, it’s kind of a time sink at that point I may as well be on Facebook or Hacker News or something like that because I’m not really being productive and I’m there to be there versus there to be productive.

[03:15] Rob: Right and that’s where I find this time where I’m kind of forced to be away from the computer, you know, because I’m typically with family or friends and often we’re, you know, eating, talking or watching movies and such or there’s even downtime where everybody is reading and just chatting. I mean that is like a good time to I think to relax and kind of center your mind and prepare it for, you know, for the deep thinking that’s required about high-level things about where the directions and the strategy that you’re going to take your…your business because again, I think sitting in front of a computer is not the right time to do that.

[03:46] Mike: Yeah, I think that just taking, you know, a couple of days even away from the computer, not touch the computer, not even check your e-mail, those time periods can be highly productible say for thinking about other things.

[03:58] Rob: So, you’re only two weeks away  from launching AuditShark. How are things?

[04:02] Mike: Things are pretty good. I don’t have this nagging sense of something is wrong but I’m not sure what it is. So, I think I’m feeling pretty good about where things are at. There’s tons of things that I would love to have implemented. There’s tons of things that are sitting in FogBugz that are just not done and they will not be done and I’m okay with that.

[04:21] Rob: Right. So, the technical side seems to be…to be zipped up. Are you feeling good about the marketing and kind of what your launch about getting people to use it, early access users and stuff?

[04:31] Mike: I feel like I’m going to get people to use it whether it is exactly what they’re looking for or whether there’s going to be tweaks and stuff. I kind of expect that there’s going to be some things that they’re going to look at and say, “I’d really like it if it could do this or it could do that.” And that’s fine. I’m perfectly okay with that. It’s…but I really need to get start getting it in front of people and getting feedback from a general market sense of what people are looking for and what they are really interested in seeing.

[04:55] Music 

[04:58] Rob: This week though we’re going to diving in and answering more listener questions. On our first question is about how to choose which meet-ups and conferences to attend. It’s from Felix Leong who is a long-time listener and Academy member and he sent us a number of questions but the one I really want to focus on today is he’s wondering what criteria we could recommend for which meet-ups and conferences to go to. And he said, “You know, do you use a selective approach like checking up the speakers, whether the topics suit in your interest or do you just go to every single free meet-up and kind of do a taster of buffet approach and see which ones do you like and stick with?” So, I think we kind of have two topics here, meet-ups versus conferences because meet-up is going to be more recurring either weekly or monthly things whereas conference is probably going to be a larger expense. We have to travel.

[05:45] Mike: I think with conferences you definitely have to think about “Are there going to be other people there who are in similar situations to me?” And if you are not thinking that question or you don’t have that question, you definitely needs to ask it and once you’ve asked it, the answer should be yes. And if the answer is not yes, then you’ll have to reevaluate why it is that you’re going. If you’re going with just because you want to hang out with those types of people, that’s fine. There’s nothing wrong with that. But if you’re looking to increase your business or figure out what source of things other people are doing that you’re not doing that you could be, then you know, you might want to start thinking about going to a different type of conference. That said, for meet-ups I think that with meet-ups, meet-ups tend to be…I think I tend to use the same type of criteria. There’s a lot of meet-ups here in the Boston area that I just don’t go to because I know that the types of people there tend to be the types of people who are focused on solving problems for which they will be using VC funding.

[06:42] And the approaches that they use are not the same approaches that I would use and they are generally not applicable because they have tons of money to throw around on all these different things to try and figure out what’s going to work and I can’t do that. And for me to even try to do those types of things, it’s just not feasible because I don’t have that money to throw around in my return on them just it wouldn’t be there. That’s not to say that I wouldn’t get something from them but it’s such that I feel like the value is just proportionate in terms of what I would get out of it versus what I would get out of going to some place where there are a lot of other people like me.

[07:17] Rob: Yeah, I definitely take different approaches for meet-ups versus conferences. Conferences, it’s fairly easy to just ask people within your networks. So, I would probably go in to the Micropreneur Academy as an example if I’d never heard of a conference and I would go in to the forums there and I’d say, “Who’s been here? What do you guys think?” Because since the conference tends to only happen once or maybe twice a year and they aren’t that many conferences in our space, you’re going to have someone who…who has gone and it’s going to be, you know, a longer process where you’re going to be able to really find out more details about it. And like you said, I think the big question that I ask myself is “Are there going to be other people there in my situation?” Because if you go to a conference and it’s a bunch of people, you know, even if it’s a startup conference, if it’s a bunch of people  who are freelancers, client services people and they’re thinking about launching startups and they’re there to learn about it, well, if you’re further along then it’s…it’s going to be a drag because the content is going to fit and the people you meet you just aren’t going to have enough to talk about. You aren’t going to take much away from it. The hallway conversations are not going to be interesting. So, that’s the first approach I take with conferences.

[08:21] And then in terms of…of meet-ups, whenever I move to a new place, I pretty much try to survey all the meet-ups in the area. Now, that wouldn’t be possible if you move to San Francisco because I think there are several hundred startup meet-ups within the 60-mile radius. Most other places around the world, you’re going to be able to check out all of the startup and even remotely tech entrepreneur meet-ups over the course of a couple of months. And since they are free or relatively not expensive, I tend to take that that taster approach that Felix talked about and attend all of them just to start seeing overlaps, seeing who’s involve in the community. I think that’s a great way to…to learn who is there in, you know, in your local area, who’s interested in startups because in general, it tends to be a small tight knit community, starting to meet the people who are in your niche. Like Mike said, you know, bootstrappers may be a niche depending on where you live and so one by one, trying to find those people and potentially even putting together at meet-up of just as bootstrappers would be something that…that I would consider. So, I hope that helps, Felix. Our next question is a voicemail question about the pros and cons of a .NET and Open Source.

[09:27] Voicemail 1:  Hey, guys. It’s Jack Colletti from Qula in Pittsburgh. And I love the show and finally got a chance to do a rating for you guys on iTunes. But my question is around .NET. I think it would be great for you guys…you have a pretty expensive .NET expertise. I’d love to hear or maybe a whole show on the topic or maybe .NET versus Open Source platforms, would love to hear more in depth. Thanks again and keep up the great work. Take care, bye-bye.

[09:53] Mike: So, I think that there’s a couple of different thoughts here. The first one is that when you start taking a look at the pros and cons of Open Source  versus something like .NET, you know, there…there’s going to be things for both of them. There’s going to be pros for each, there’s going to be cons for each. I think for .NET the pros list for me is relatively short just like it is on the Open Source side. I think on .NET the pros are that it’s very easy to start getting in to the .NET stock. You can sign up for any of the spark, I’ll say the asterisk spark programs for Microsoft. There’s BizSpark, WebSpark. I think they’ve got YouthSpark now and you can sign up for these programs and you get a lot of software for free and after three years, you get to graduate from these programs. And then you get to keep all the software that you’ve been using. In addition to that, you get to keep the production licenses for some of that stuff.

[10:41] So, for example, when you finish with BizSpark, I know that recently I went through the graduation process for AuditShark and they basically give you a Visual Studio ultimate addition for every developer you have working on there who’s registered inside the program and they gave me, I think what was it, four Windows server licenses and two sequel server licenses to use for however long I want. And then in addition to that, they give you upgrade discounts for buying in to their MSDN Premium Subscriptions. On the Open Source side, you know, pretty much everything is free from day one. You don’t have to sign up for anything. You’ve just, you know, go and you download it and you can compile it or not. For me, I think the biggest downside on the Open Source side isn’t so much that everything is free, it’s that you have to kind of pick and choose which immunity stacks that you’re going to be using because not all of them are going to be supported and if you run in to any problems, you will probably have to fix them yourself. Not always, but there are going to be times where you have to get down and dirty in to the code and to some deep-rooted bug that you didn’t want to and you’re going to spend a lot of time doing that stuff.

[11:50] On the Microsoft side, I feel like Microsoft tends to take care of things for you. That said, if there are problems that are deep-rooted, you may not get them fixed in a timely fashion  or you may not ever get them fixed. At the end of the day, it almost feels like a judgment call. It’s…it’s…to me it doesn’t necessarily make a lot of difference. When you start talking about cost, I think the one issue that a lot of people will bring up is that on the Open Source side, everything is cheaper and on Microsoft, it costs a lot more to run those things. At the end of the day though, you’re biggest cost of your business is employees and your salary and those are going to be exponentially greater than any of the software costs that are associated with it.

[12:31] And I think that that’s probably the biggest thing to keep in mind when you’re evaluating these things and what you’re comfortable with using isn’t so much the getting started cost, it’s the down the road cost. And that down the road cost should not…you shouldn’t be looking at your software for that because you’re going to start comparing, you know, Ruby to a Windows license and oh well, Ruby runs on Linux stack and you know, .NET runs on Windows. Windows is going to be more expensive. Yeah, probably a little bit but at the same time, the incremental cost between the Linux server and Windows server is not that much versus the cost between having no employees and one employee and that is a huge, huge step. So, I would look at those for the cost versus what the cost of the software is.

[13:16] Rob: Yeah, that’s it. That’s a good analysis of it. I think that most people do look at the free cost of Open Source and think to themselves, you know, why would I go with a more expensive platform like .NET and I think you’ve listed a few good reasons. These days if I’m looking at building a new project, I do tend to lean towards Open Source. There are just some really good communities out there that we’ve talked about before the Ruby community, PHP community. I think Python with Django is actually a really good stack to build on. Some of the draw backs I’ve heard of the folks building stuff on Python and then you can’t find developers for it or they’re really expensive and actually Ruby devs, really good startup Ruby devs are expensive. And they’re going to be potentially more expensive than .NET developers who…who tend to be…who tend to get paid well but  but I think just Ruby devs are in more demand in the startup circles right now.

[14:04] In terms of finding employees, since you covered a lot of the other elements, I was thinking about finding developers, finding contractors and my…in my experience, finding PHP developers has been easier than finding a good .NET or a good Ruby or a Python developer and so that’s something to think about. PHP developers are going to tend to be less expensive as well. On the flip side, you know, in terms of finding a .NET developer, they’re going to think more like maybe an enterprise consultant. Most people who develop .NET are not working for small startups because most small startups don’t use Microsoft technologies. And so, you’re going to be much more likely to find that kind of like a PHP or Ruby hacker who has potentially, you know, built and launched stuff before whereas in the .NET world, it’s much less likely that people have worked on small startups are going to have a bit of a different mentality there in general. These are all generalities and these are all based on our experience.

[14:57] But I think these days when I look at a new project like what I’m working on now, I lean towards Open Source and as long as I can find people at a reasonable price and the technology is proven and I’m not doing anything that that’s crazy, you know, that specifically requires hitting some Windows system API’s or that it requires a lot of scheduled tasks or any specific technology that, you know, that Microsoft .NET stuff would be more well-designed to handle, then I link…I do link towards PHP and Ruby for…for web technologies.

[15:29] Mike: One of the things that comes to mind in terms of the difficulty of finding .NET developers versus PHP developers whereas the PHP is really meant for web-based products versus .NET which kind of covers both desktop and mobile and web and you kind of have to pick and choose a little bit more because those people who are doing .NET, they may have done mobile but they haven’t done web stuff or vice versa. They’ve done desktop stuff but not web stuff and they can fall in to a number of traps  of saying, you know, they’re just trying to get a job and they’re saying, “Yeah, I can do that. I do .NET all the time,” and you run in to somebody’s issues about hiring them because they know .NET but they don’t necessarily know it in the context that you need them to know it.

[16:13] Rob: Right, so there’s added complexity and it’s a multi-used technology. Well, thanks for your question Jack. Our next question is actually a lightning round of questions about starting up and so it’s from Derek and he says, “I’m so glad I found your podcast. I’m going to go back and try to listen to most of them. I have so many business and technology questions on how to get my web app out of the gate. I like how you guys talk details. Many podcasts I listen to are good but I get frosted about the lack of detail. For example, here are some huge things to me that may be little to an existing startup.” And he sent over kind of a long bullet of list. I think we’re going to pick out a handful of this and just give some quick answers on our recommendations for doing these things. So, first thing he said is, “How do I find the right business name?”

[16:38] Mike: I think that the right business name is almost immaterial. The business that you have behind your company is it doesn’t matter to most people. I mean you don’t wanted to be offensive. You don’t wanted to conflict with other people who have trademarks on other names out there. But I don’t think to getting the right business name makes a whole heck of a lot of difference. There are certain things that you want to try and follow as generalities. So, for example, you don’t want to have too many consonants in a business name that’s going to make it hard to pronounce. You don’t want something that has a word in it that matches multiple ways to say in whatever language that you’re…you’re speaking for example. You want to have the domain name, the dot com available if possible. But again, most of these things are immaterial. The business name itself means almost nothing to your customers. It means something to you. So, I think at the end of the day, the business name doesn’t mean the heck of a lot. Now, your product name could mean quite a bit to you based on whether you’re trying to do things with SEO or you’re trying to make it memorable to people. That’s a little bit different but I think that the business name  itself just does not matters much.

[18:03] Rob: I wholeheartedly agree and the people who I have talked with lately who are selling multiple software products that you don’t even know what their business name is. It’s very rare that matters to anyone. Terms of finding a good product name I tend to just do domain searches. I spent two or three hours just packing together different parts of words when I was trying to figure out the name for what is now Drip and then I look for all the domain, you know, all the dot coms for those and almost none of them are available. I mean it’s crazy how hard it is to find a good domain. And so I based mine almost solely on being able to find a decent domain and find one that…that suits your fancy.

[18:37] Mike: One that I…website I’ve mentioned a couple of times on this podcast before is leandomainsearch.com which is a good website to go to if you’re trying to find a website name because it will search through…you give it a couple of keywords and it will search and give you  a number of different variations on those keywords for what is available.

[18:55] Rob: Yup and nameboy.com is another one that I’ve used. All right, so his next question is. “When should I become official and when should one incorporate or become LLC or something else?”

[19:07] Mike: “When to become official as a business and when to incorporate or become an LLC?” Those depend on your risk tolerance. If you’ve got nothing to protect then it doesn’t really make a whole heck of a lot of sense to incorporate and go through all the processes associated with getting it as corp or in LLC. In terms of your taxes, your CPA may feel completely differently about it but once you have kind of gone past the state of doing your taxes yourself, as soon as you get a business involved, you probably want to get a CPA involve because they’re going to know things that you don’t. They’ll be able to guide you in to what decisions to make for your business, what things can be written off, what things can’t and then an attorney will teach you about how to structure businesses such that they will protect you from being liable to your customers or from other entities who are out there. But if you don’t have anything to protect if you’re still just working on it , it’s probably not a big deal. I don’t even know as I would bother incorporating or filing a DBA or anything like that unless you want to start writing things off or you have something that you want to protect. So, if you already have a product or you’re acquiring a product, that’s probably a good time to start looking at it.

[20:16] Rob: Until you have someone willing to pay you money for something, it’s immaterial what form your business takes. Agreed that it’s a manner of risk tolerance, I also think that you can easily kill thousands of dollars and a lot of time and basically postpone the inevitable of actually asking people for their money. You can postpone the inevitable by worrying about this kind of thing. I just…it’s not nearly as important as the most people think. His next question is, “How and where should I open a merchant account for accepting e-commerce transactions. I got to be honest, these days, I just sent people to Stripe.

[20:52] Mike: I —

[20:52] Rob: I say unless you have a reason not to, go to stripe.com. It takes you 5 minutes to sign up. There you have the whole shebang.

[20:59] Mike: Yeah, my question would be why even bother opening up a merchant account? It just doesn’t seem to make sense to me to even try for a merchant account these days. I mean it’s a lot of paper work. It’s a lot of hassle and the amount of extra money that you’re going to get using a merchant account versus, you know, using Stripe or something like that, it just not worth it and in fact, many times until your volume gets above a certain point, having a merchant account does zero for you.

[21:25] Rob: He has a few others. I think the one other we’ll put out of here, he says, “I plan on releasing an MVP. I know my target market but how do I solicit them? How do I get them to know I exist?”

[21:36] Mike: I think finding people in your target market and soliciting to them and getting them to know that you exist is a massive topic that we probably covered quite a few times in previous podcasts and I know that you said you kind of new to this podcast. There’s a lot more information in the previous 112 episodes. So, definitely go back and listen to those. If you have follow up questions, definitely let us know but there’s…there’s a lot of other information there.

[21:59] Music 

[22:03] Rob: Our next question is from Justin Schemer [Phonetic] who has sent in several questions before. His question is, “I’m looking to venture in to the startup world a recurring theme that I’ve gotten from your episode is ‘Knowledge is power’ especially when building a startup. Being a developer, I obviously lack necessary business skills to maybe start with something big. My question is do you have any suggestions on starting out with a business that’s low risk and low profit just so I can maybe learn and hone skills needed to do something more involved. It doesn’t need to make money either. I was just thinking something like a simple t-shirt or hat business which seems to have a low initial investment but maybe a good arena to practice marketing, managing, et cetera. Thanks, guys and keep up the good work.”

[22:43] Mike: I think my take on this is that activeness and affiliate for any sort of t-shirt or hat business would probably be a good way to get started if you have ideas about what source of things can go on to those types of things. You can set up like a CafePress account or there’s several other companies that had popped up over the years. They’re the ones that I remember using in a while back but you can essentially create your own store and you’ll get a commission on all those things and you can drive people to your own website. Another one that I can think of is building something along the lines of an info product. So, any sort of informational or tutorial-based product where you are conveying information to people that they are going to find valuable whether it’s based on hobby that you have or on something that you’re just interested in learning more about and you want to be able to take that information and relay it to other people.

[23:35] If it…if you’re finding it difficult to find information about a particular topic, it’s probably a good candidate for some sort of an e-book and you don’t have to put a huge amount of time and effort in to it but you can set up a landing page try and get people to that website, see if people are searching for it, do some basic SEO on it, try and evaluate the need for people to purchase that kind of thing. And if there is, then you can go out and actually build the info product. You don’t have to worry about whether or not you can build it or not. The real questions behind it are “Are people interested in buying that?”

[24:10] Rob: Yeah, I think starting a t-shirt or hat business is probably not a good idea. I don’t know what that’s going to teach you that you’re going to then takeaway and apply to as software startup especially if you’re trying to buy equipment and print t-shirts yourself. I have a friend who runs a t-shirt deal a-day site and it’s an enormous amount of time just to fulfill orders and that doesn’t teach you anything. I think you’re going to be much better off with some time of digital product and like Mike said whether that’s an online course of some kind, an e-book or building some type of small app that, you know, you can build in a couple of weeks or building an affiliate for someone else’s software product and that’s something that’s often overlooked. People feel like being an affiliate, it’s not going to actually teach them anything or like it’s not being a real entrepreneur. But learning how to find a channel of traffic and how to get yourself in a way of that whether that is via SEO or whether it’s some paid acquisition or whether it’s using social networks, I mean there’s a number of ways beyond that to do it.

[25:07] And learning how to navigate those and actually having something to make a little bit of money, it will teach you a lot about everything. I mean about the e-mail marketing and dealing with customer support and how to drive traffic and how to optimize and how to monetize it and all that stuff. The entrepreneurs that I see who are starting out and they are doing smaller products that are not code heavy because you already know how to code, right?  So, learning to code is not the scary part, it’s all the other stuff. So, if you can build either a very small project and do like a show Hacker News and try to get people to actually sign up for a trial but then figure out a way to get some kind of money out of that, I think you’re way better off than just trying to either give something away for free which is really easy to do or, you know, sitting down for six months and writing a full software product. So, I hope that helps. Our next question is a voicemail question on outsourcing  marketing.

[26:01] Voicemail 2: Hey, Mike and Rob. I wanted to call and say that I really enjoy your podcast and I had a question for you. You talked a lot on the show about outsourcing various tasks. One of the things that I thought would be really nice to outsource would be marketing but it seems like it’s such a core activity that I question whether it’s a good idea to outsource it. On the other hand, I read another book recently Masters of Doom and it talks about how much further beyond his peers, John Carmack’s able to progressed as a programmer and developing engines for Doom and Quake and so on by just focusing on programming and not worrying about marketing or some of the business concerns that they pushed off to their distributors. So, I’m just curious what your thoughts on that are and I look forward to hearing your next podcast.”

[26:49] Mike: So, I think my first thought on that is that John Carmack is an extreme outlier. [Laughter]

[26:54] Rob: Yup and so as the video game industry. It’s totally different than the software businesses we’re talking about.

[27:00] Mike: Right, that’s my first thing that I just want to throw out there right away. The second thing is that I don’t believe that you can outsource your entire marketing effort. I think that there are certain things that there are certain things that you can outsource associated with your marketing effort but I think that the core ideas behind it the high-level vision, setting up the processes to do it, I think that that’s something you probably shouldn’t outsource because you’re not going to know what to expect. So, if you’re a developer, outsourcing your marketing is probably a really bad idea because you don’t know what it takes. So, when somebody comes back and says, “Oh, it’s going to take me three weeks to put together this e-mail campaign,” you have zero basis for comparison to say, “No, it doesn’t take three weeks. It shouldn’t take three weeks. It should take you 30 minutes or three hours or something like that.” But if you don’t have any sort of basis for comparison, then you just kind of have to shrug your shoulders and say, “Okay,” versus if you sit down and put together the processes that somebody else needs to follow and…for example, sending out e-mails.

[27:59] If you need to do something  within MailChimp or AWeber or whatever e-mail service provider you’re using to send out e-mails on a regular basis to get some of those things set up not necessarily to write all the content for them but to get those things set up, maybe you want to send out a specific e-mail for, you know, end of the year promotion that you’re trying to do. Something like that, you should have a good idea of how it should be done and if those types of promotions or things that you’re going to be doing on a fairly regular basis, then you’re going to want to document those things and you’re probably going to want to be able to outsource them because if it’s going to take you three hours to do it and you know what the process is going to be to have that done, you can outsource that but you have to put in the time and effort upfront to be able to set those processes in place to have somebody else do them. But once you’ve got them in place, that’s something that you can definitely automate. You could definitely outsource that but building that is not something I would advice.

[28:52] And when it comes to all of the strategic things behind your marketing efforts, you want to be able to track from initial customer contact all the way through to the complete life cycle of your customer, how many times your…you have to touch that customer in terms of your support cost, how many times they have to be contacted with your e-mails and you want to have all of that statistical information. And if you’re trying to outsource that to somebody else, I question how well that’s going to work out because they’re not going to be nearly as invested in the business as you are and they’re probably not going to be thinking of the high-level strategic things that you are because there are certain things that as a business owner you’re going to need know and you want to know versus somebody who you just hired to do that and they may know their stuff, they may know how to do that stuff very well but you’re probably better off hiring them on a consulting basis to help advice you about the different things that you can do and then you go off and do those things.

[29:49] Rob: I’d like to start by maybe defining terms because you can outsource tasks and you can outsource projects and it’s very, very different. You find someone on oDesk for 10 or $15 an hour and you write up a process, you can outsource the task to them and that’s one thing, right? So, you can either have them be doing support or just a basic step-by-step process. You can even create some content for an infographic and you can outsource the specific task of designing that to someone for a few hundred dollars. But to go to someone and say, “Here’s a project. I want you to do all the content marketing,” and that’s likely going to include infographics and blogs and articles and all that kind of stuff. That requires an entirely different level of competency on that person and they need initiative. They’re going to be astronomically more expensive. It can literally be the difference between paying someone $15 an hour and paying someone $3,000 a month to handle all of your content marketing. Those are actual numbers that I’ve received and you know, gotten quotes for them but the difference is that if you have enough money and you don’t have enough time, then you go with that project-base thing. I threw out $3,000. That was a cheap quote, by the way. There were many people who quoted 10 grand a month basically handle the whole, you know, content marketing aspect of…of like a startup business.

[31:05] So, you really need to think about the difference between those. I don’t think that outsourcing it to an agency, that’s what I’m saying is like the project-type, that’s actually can work for you and I know startups who’ve done it and I know that it works but those agencies are extremely expensive and I don’t think that’s what you’re talking about. Most bootstrap self-funded companies are not doing it that way and you can only afford to outsource tasks. Second thought is that marketing is absolutely core activity, that’s something I’ve talked about a lot and it’s very hard. In fact, I’ve never outsource my project-based marketing to anyone until I got…I found that product manager who’s now, you know, working with me on HitTail. It took a while for me to have confidence in him to do that kind of stuff but other than that, I only outsource task-based elements of it. If you have an infinite amount of money, then yes, you would hire experts in-house. You’d hire employees or you’d hire some kind of long-term contract and they would do both of your development and marketing, right? You’d hire employees to do it and that’s  what big venture funded businesses do and that’s the ideal situation. But when you have $500 a month of revenue or $500 a month from your salary gig and you’re trying to fund this, you just can’t do that and you have to make a decision which of these things am I going to outsource and in that case, I really do think that that the development side is easier to spec out. It’s easier to find someone who can give a product, good enough that people can use until you can build this business up and if you do in fact have product market fit and can market this thing.

[32:30] And I also think that the marketing side is the one that takes the vision and the expertise and if you, the founder and entrepreneur, don’t have that going in to a bootstrap startup, I genuinely do not see a way that you can be successful. I think that has to be your number core competency. Even if you love development, even if you’re going to do all the development yourself, you have to love the marketing too because if you don’t, then the business goes nowhere because no one else is going to drive that engine and that’s the engine that’s going to basically drive your whole business. So, thanks, John for that question.

[32:59] Music

[33:03] Mike: If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or you can e-mail 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. We’ll see you next time.

Startups For the Rest of Us

Episode 112 | Startup Metrics for Pirates

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[00:00] Mike: This is Startups for the Rest of Us: Episode 112.

[00:03] 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. I’m Mike.

[00:19] Rob: And I’m Rob.

[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Rob?

[00:24] Rob: I’m doing good. We had a new addition to the Startups for the Rest of Us Drinking Game and it was submitted by Will Samuels and he said, “Drink whenever Mike says essentially. Toast a glass of eggnog and prepare to do some drinking in this episode.”

[00:38] Mike: Yeah, I’ve noticed I do that a lot.

[00:40] Rob: What’s going on? Did you get anything cool for Christmas?

[00:42] Mike: I got a Kindle Paperwhite.

[00:43] Rob: Very nice. How’s the screen? I’ve heard they’re nice, easy to read.

[00:47] Mike: It is very nice. I was actually reading it last night in bed. It was nice. It was not like the iPad where…and part of the reason I want it was because it was not an iPad because the iPad has got that LCD screen and the light is basically shining through it right in to your eye versus everything I’ve read about the Kindle and the Kindle Paperwhite was that it’s more or less backlit where the light shines down on the letters then reflects off of them as oppose to shining directly from the back. And it was a very nice experience. It’s very easy on the eyes. You can read it in little light and you can adjust the lighting levels. It’s just very nice pleasant reading experience. I feel like it’s a lot better to read in bed than an iPad.

[01:25] Rob: That’s what I’ve heard. Makes it easier to go to sleep and doesn’t mess with your realm. The Kindle Paperwhite is the next what is it like the fourth generation Kindle with the same price as the old one but you can read it in the dark without having an external light on it like the old Kindles.

[01:38] Mike: They still sell the ones that are not backlit and those are sold about 60 or $70. This one was about 110 or 120. It’s kind of in between the…like the baseline Kindle and then you have the Paperwhite then you’ve got the Kindle Fire and the LCD screen and everything else.

[01:53] Rob: Cool. I have to admit I have Kindle NV because I had an iPad one. It weighs I don’t know a pound and a half or something and  you know, if you get in bed, it actually is just hard to hold up. You need two hands. I really have thought about getting a Kindle as well because they’re so light.

[02:07] Mike: Yeah and that’s part of why I wanted it. So far it’s working out. Probably give some sort of an update in three or four months after. I’ve actually use it for more than what, two days. [Laughter]

[02:16] Rob: Sure, sure. Well, hey, I’ve had more credit card failures than usual. HitTail normally it charges X people per night for…for their monthly membership and there’s just been a substantial rise in credit card failures and you know what I think is going on I have no way to prove this but I think that either people’s cards are maxed out or the velocity of charges has flagged just a few more of them with the…you know, like the risk department of the credit card has flagged them and kind of shut them down until they can get it cleared. You know, again can’t validate that but it’s the only reason I can think of that, you know, that the charges wouldn’t be working all of a sudden because it’s not like it’s at the beginning of the new month, often times, you know, I’ll see things that…that expired from one month to the next but it’s the middle of December and I would expect that maybe at the start of next year. But…

[03:01] Mike: It could be. I recently got a new American Express card and it’s not like my old one was expiring. I just got a brand new one in the mail. I have no idea why. I think it had to do with…they’ve got some like new chips that they’re putting in to the cards so I don’t know how many of those cards or American Express versus something else but that might be what the issue is where people are switching cards and then because of that their old cards are being denied because they’re no longer valid.

[03:01] Rob: Got it. Yeah, good to know. How about you? Have you been doing any work on AuditShark?

[03:33] Mike: Yeah, I’ve had a bunch of articles written recently. I think I had mentioned last week that I was going to get that started. I tried…tried out a few different things. I’ve got about ten different articles on various topics written at this point. Most of the qualities had been pretty good. There has been one that was…it was off topic. We asked for false positives or false negatives. It’s basically a definition of it and we forgot to specifically state that it related to compliance so they gave it to us based on e-mail  false positives and false negative. So, it was more about spam filtering than about compliance and we try to go on back and forth with them but it was just going to be a nightmare. So, we’re just ordering a brand new one. And it was only I think 8 or $9 to have it written. So, it’s more cost-effective to have them rewrite it than it is to try and go back and forth with the original author.

[04:19] Rob: We’ve seen this happened from time to time with the articles that people order through HitTail and we’ve actually had to tweakour U.I. and add an extra required feel that forces our HitTail customers to add more detail to article request because they’ll just say, “Write an article about this keyword.”And often times, you know, I might say going to the Notre Dame but what they mean is going to Notre Dame the college in Indiana. You know, there are these things where people just get it totally wrong. There’s the same city names in like Canada and in the US, in England and they’ll say, you know, blank city name real estate. And so without an extra layer of specification of what you really want the article to be about, you’ll often get the incorrect subject matter. So, I can totally see what happened. You really can’t…can’t fault them because when I have false positives, I would…in technology, I would also think of e-mail false positives.

[05:13] Mike: We caught it before, well it wasn’t before I got to the person, apparently the writer had picked it up and we gotten in touch with the intermedia area. I’ll call them and say, “Hey, we just want to clarify and add some notes on here and it looks like we’re not going to be able to.” And they said, “Oh, yeah, once a writer picks it up, there’s nothing we can do. You can’t send them additional instructions or change anything, nothing.” I’m like, “You can’t even just forward this information to them,” and apparently not. So, whatever, what you do.

[05:39] Rob: Sure, I did want to cover some iTunes reviews we’ve gotten recently. I want thank Kyle MB [Phonetic] who said, “Real value and no fluff. I’ve listened to you guys for about 12 months. Rob and Mike share real life practical information that provides value.” And Scott Bartell said, “Great podcast. Awesome thought provoking content, offering some great advice that is typically actionable and applicable  to my startup.” So, I encourage you, if you haven’t go in to iTunes even if you don’t write a full review like that, you can just click the 5-star rating and you don’t have to do anything else and we really appreciate it. It helps us rank well in iTunes, helps us grow our audience and we obviously, you know, appreciate you taking the time to do that.

[06:16] Mike: You know, I…I reviewed a very interesting book over the past couple of weeks for O’Reilly. They got in touched and asked if I’d be interested in taking a look at this book. It’s called Lean Analytics for Startups and it’s all about looking at data trying to figure out what it is that you should be doing, talking to people and trying to figure out what it is that they actually mean versus what they are telling you and being able to read between the lines and then some of it I’ll say softer skills because you’re interpreting what people are telling you versus a lot of it is very hard core math about these are some numbers that you should be looking at and this is exactly how you should track them and how you should follow them. And it doesn’t give you technology specific things in terms of what…of how you should track them, just these are the data points that you need and these are the actions that people need to undertake in order for you to track that information.

[07:05] Rob: Nice. Did you take away anything that you think you’ll be putting in to place with your businesses?

[07:10] Mike: I did. I took a bunch of notes and I have to say it was part of the review process I had to send them back, filled out questionnaire they had and it’s probably two or three pages worth of questions that they had but then in addition to that, I sent them probably 8 or 10 pages worth of supplemental notes and stuff on different things that were in the book, things that I thought either they need to be elaborated on or just didn’t make much sense in the contexts of where they stood in the book. But there’s a lot of really good information in there. So, yeah, I definitely took some notes and made sure that I’ll be integrating some of that. But the one interesting thing that I found was that it almost seemed like no matter what the stage of your business, the book was going to be applicable to you or at least certain parts of it. When you start your business, there are certain things that are going to be applicable to you and then as you progress in to your business and you start building it up, there are other parts of the books that are applicable  to you. So, depending on what stage you’re in, it’s going to have something for you which just depends on, you know, where you’re at with your business.

[08:07] Rob: That sounds good, hope to check it out when it comes out. I just listened to episode 219 of TechZing and it’s called Confessions of an Overcommitter and Justin and Jason talked about overcommitting to doing too many projects and just their process…some projects they’ve had to abandon over the past couple of years. It’s really quite interesting. I recommend, you know, even the folks don’t typically…even if you don’t typically make it through the 90-minute TechZing Podcast every week, it’s an exceptional episode that I wanted to call out because I resonate a lot and I feel like the entrepreneurial ADD that a lot of people have will, you know, resonate with this episode. So, check it out if you have time over the holiday break.

[08:45] Mike: Speaking of those guys, are you taking funding from Jason? [Laughter]

[08:48] Rob: [Laughter] No, I’m not. Did you hear that episode?

[08:51] Mike: Yeah, he…he’s talked about it several times. He’s like —

[08:53] Rob: Yeah.

[08:53] Mike: “Oh, I’d love to just dump money in to whatever Rob’s way.” [Laughter]

[08:56] Rob: Yeah. No, I don’t think I’m going to take funding. Obviously, I told him, “You know, you’ll be first on the list if I decide to.” But there’s more…it’s more trouble than it’s worth to take a little bit of funding just with the structuring that needs to take place and all that. I don’t really need the funding. At this point, I have enough in the bank to fund this as fast as I can and I guess if I wanted to get, you know, Drip specifically, if I wanted to grow quicker, I would consider funding obviously if it was the right choice but I just don’t think. Without raising several hundred grand, it’s kind of not worth the effort to do so.

[09:25] Mike: Cool. So, I think in today’s episode we’re going to be talking about startup metrics for pirates. There’s an acronym that’s Dave McClure came up with. And Dave McClure if you’re not familiar with who is, he’s an entrepreneur and a prominent angel investor who’s based in San Francisco and he founded and runs a business incubator named 500 Startups. And he does public speaking engagements and works with a lot of different startups. And the acronym that he came up with is called Startup Metrics for Pirates because it’s AARRR kind of a play on aarrr for pirates.

[09:58] Rob: Yeah, folks who haven’t heard of Dave McClure, he’s more than just an angel investor. He founded a technology consulting company in ’94 and then he works as a consultant for Microsoft, Intel and other companies. He was a Director of Marketing at PayPal for some key years 2001 to 2004 then he launched and he ran marketing for Simply Hired which a lot of you probably heard of and he was also heavily involved in Mint.com. I think he chose to hire Noah Kagan to run the marketing. So, I think he was the marketing guy there before Noah. So, he definitely has experience, you know, with this kind of stuff and then as Mike said he started his seed accelerator in 2010 and he’s been doing…he’s been an outspoken and he, you know, large personality angel investor. So people…people either love him or hate him in general.

[10:40] Mike: So, the acronym that he came up with is there’s two As and three Rs. And the first A is acquisition. Second A is activation. The first R is retention. The second R is referral and the third R is revenue. And we’re going to talk through these five different things. There’s two different things that Dave points out about this and the first one is that these are explicitly for marketing. These things that you do apply specifically to the marketing not necessarily to the product itself because there are different things that you are going to do with the product versus the marketing behind it. The second thing is that these are not exactly sequential and one of the things that he would do is he would put an emphasis on activation and retention before acquisition referral because you want to make sure that people are actually using your product and you are retaining them as users before you go out and try to do a lot of acquisition and referral to try and scale things up. And there are certain things that are more important but it’s definitely important too that you make an attempt to go through these different stages in your startup and try to apply them to the marketing plans that you put in place.

[11:41] Rob: I see. So, when he says they’re not sequential and again, let’s run to the five. It’s acquisition, activation, retention, referral and revenue. So, they’re not sequential in terms of what your business should focus on and optimize but for the most part they would be sequential for a single customer coming through your business because first, you would acquire them through, you know, general means we’ve talked about different marketing approaches. Then hopefully, you get them to activate and then try to retain them and then he’s saying get them to refer others and then look at the revenue model.

[12:11] Mike: Right.

[12:11] Rob: It seems like for an individual customer, it’s probably going to be sequential but for your business in terms of what you should focus on, it’s…you may start with number three and four like you said.

[12:21] Mike: Right and again, because these are associated with marketing not necessarily the product, you have to remember that because number five comes in as revenue, that essentially ends the marketing pipeline because you’ve already marketed to them enough such that by the time they get to the revenue phase you are asking them for money or you have monetize them in some way, shape or form through either ads or lead gen or something else.

[12:44] Music

[12:47] Mike: So, the first one is acquisition and acquisition is essentially when users come to your website and they can come to your website for a number of different channels. They can come in through any SEO you’ve done, PR campaigns, social networks, direct telemarketing, TV, ads, et cetera. And this is essentially where you start measuring from and this is 100% all of the people who come to your website, all the people that you get in touch with, that’s where you start counting from and that is you’re hundred percent that you should start counting from.

[13:17] Rob: Right, so this is the top of the funnel, right? This is all of your marketing approaches, all the high level stuff and certainly, acquisition is probably talked about more than a lot of his other points than the other five points because the acquisition, the marketing approaches tend to be just the things where you can have little tips and tricks that work and can drive…it just sounds so cool to say, “Oh, I’m…I can drive 10,000 people to my website doing this.” So, 20,000 people by getting on Digg or Hacker News or some other, you know, social news thing.

[13:49] Mike: Right and that’s one of those things that if you look at that and you look at those raw numbers, “Oh, I got a million people to my website,” that’s great, you know, how many of them activate? How many come back? How many are going to follow through and do any of your calls to action? And getting a million people to your website is great but if you’re not doing these other things to essentially follow up with them, then it really doesn’t matter.

[14:13] Rob: He’s just saying it’s almost like visitor acquisition. It’s not actually acquiring the customer. It’s just getting someone to come to your website and step two then is activation.

[14:23] Mike: Correct. So, activation is when users enjoy their first visit. If they have some sort of a happy user experience, if they hit your home page or a landing page or they stay for more than a couple of seconds because a lot of people will come to your website and just at a glance, they’d said, “No, this isn’t what I want,” they hit the back button or if they start clicking around your website a little bit, if they view two or three pages or four, those are the people that you want  to start tracking. Again, you’re moving from that, you know, hundred percent people who are in the acquisition stage down to maybe you’ll get 25% of them or 50% of them in to the activation stage. And as you start measuring these obviously that funnel is going to whittled people down but you want to get as many people down to the revenue stages you possibly can. But again, this is just your marketing funnel.

[15:10] Rob: Yeah, I think the way I would think about activation in terms of maybe a SaaS app or you know, WordPress plug-in or some type of software product, I would think that activation will either be someone who signs up for trial or better yet is someone who signs up to hear more about the knowledge that you’re spreading basically through a like an e-mail follow up sequence something…the similar thing that I’m trying to do with Drip that we do with HitTail and I do with all my products. I think that getting a certain percentage of people to engage give you permission to contact them again is likely a good indication of activation. Do you…can you think of other aside from them entering an e-mail in a box but it seems like it’s a trial or them giving an e-mail is activation? Do you see other options for that?

[15:54] Mike: Well, that’s not really what Dave is talking about when he’s talking about activation. In terms of just marketing because what you’re talking about with users activating a subscription or signing up for a newsletter or something like that that is more about users coming back. That’s about retention. What he’s talking about with the second page which is activation is that they actually enjoy coming to your site and they stay there. If they view a couple of pages, maybe they look at the newsletter sign up screen. That’s essentially still looking at them in terms of being in the activation stage in your marketing. If they sign up for it, then they’ve entered in the stage three which is the retention but if they sign up for a trial, they’ve…they’ve skipped all the way to the end and you know, you’re trying to get them in to that stage five which is revenue. I —

[16:39] Rob: But the trial is not revenue, right? A trial is more…I could see a trial being retention like you’re saying step three but a trial is not revenue yet because of whole chunk of those people will never give you a penny.

[16:49] Mike: Right but in terms of the retention that Dave is talking about, he’s talking about mind share more or less and it’s getting people to come to your site and to think about you in the future and in terms of retention, users come back to your site. It doesn’t matter if they’ve signed up for anything, if they come back to read your website again because if you…if you look at the number of people who just come to your website once and then leave and never come back, then it’s an awful number to look at. I mean people don’t want to see that number but it’s really, really high. If they come back to your website for anything whether it’s because they signed up for something or if they start viewing other pages on your website because there’s a blog or additional content that they want to read, that’s what he’s talking about in terms of retention. It’s not about retaining you as a potential customer for product, it’s about retaining some sort of a mind share for you to want to come back.

[17:41] Rob: I hear what you’re saying and I think that could be done using let’s say you have a free trial of a SaaS app or you have a free version of a WordPress plug-in that is what’s going to bring them back to your site, right? Or if they sign up for a 5-day e-mail course is that…that’s what I’m thinking of in terms of the step three, retention. Would you agree with that stuff or not?

[18:03] Mike: No, I do, I do.

[18:03] Rob: Okay.

[18:04] Mike: It’s just that I guess morph in what you were talking about in terms of activation because —

[18:07] Rob: Got it, okay.

[18:08] Mike: …you had said activation they sign up for a trial, I’m like well that’s true —

[18:10] Rob: Jumping and be gone. [Laughter]

[18:11] Mike: Yes, it’s jumping all the way to step five. It’s not what —

[18:14] Rob: I see.

[18:14] Mike: …the same thing.

[18:15] Rob: So, activation and which is step two is pre…you think it’s pre them giving you anything. It’s pre…it’s just them having a good experience on your site rather than them actually giving you an e-mail or taking any kind of action.

[18:28] Mike: Correct.

[18:28] Rob: Got it.

[18:29] Mike: And then step three as you said they sign up for a mailing list or they sign up for a newsletter. They start reading the blog. They come back to it and you know, they start actively looking for a little bit more information.

[18:42] Rob: You know, imagine, Mike, someone might be listening to us and thinking how can I improve step two, the activation stage because I think we talked a lot about acquisition and retention but how do you make someone have a better first visit, have a better happy user experience?

[18:56] Mike: Well, you have to kind of walk them through what you expect them to do or what you expect them to understand from your website. You want to strip it down. You want to make sure that there this little information there as possible that is distracting and that’s one of those things where you look at a landing page and a lot of landing pages these days, they only have one or two links on them. They look like the rest to your site but almost nothing is clickable and they may rip out some of the navigation. They may rip out a lot of the additional images that are on the page and all of that’s in an effort to…to minimize what the user has to pay attention to.

[19:33] So, if there’s only two buttons on the screen and obviously, those are your only two options to click on anything. If you have arrived there from either a Twitter campaign or from Google AdWords or something like that, if it’s a true landing page and those are you’re only two options, you really make it simple for the person. Either they use the back button and they leave entirely or they move forward on one of those two options. They don’t really get around to the rest of your site and you can help drive them to do exactly what it is that you want them to do such as signing up for a mailing list or watching a quick video or signing up for the newsletter and things like that.

[20:08] Rob: Yeah, I think there’s a couple of really common mistakes made at this point like with landing pages. The first one I see over and over is giving way too much information. You should give the minimum, minimum amount of information and you should and need to be able to communicate your products, value proposition through that specific audience and realize that the value proposition may be different for different audiences you’re marketing to but you should send each of those through different landing page then but you should be able to communicate your value prop to that audience in one sentence or even shorter than that like six words and in complete sentence. And if you can’t do that, then your product is…is too complicated and you need to figure out what the…the single most valuable value prop…someone is going to be coming through that click to find, you know, that’s what you’re trying to do. You can’t have ten value props on the page thinking that you’re going to capture everyone because you’re basically going to capture no one, right?

[21:01] The second error that I see is doing the opposite of what you said which is putting a lot of links, giving people, you know, all the paths through your website and I think that the natural inclination is to think “Oh, you know, if they don’t want to give me their e-mail, then I don’t want to chase them off. I don’t want to lose those people.” And the fact is that if they don’t want to give you their e-mail, then they aren’t a good prospect. They aren’t interested enough in your product to type in their e-mail and to trust your, you know, your website hasn’t build enough trust to convince them that you’re not going to spam them and that you’re actually going to provide them with something valuable. If they’re not going to do that, then either number one, your offer is bad and you need to fix it or number two, they’re just not a good fit for you and you’re wasting your time marketing to them anyways.

[21:44] Mike: So, stage three in this process is retention and like you said getting people to sign up for a newsletter or e-mail list, walking them through to a tutorial or things like that making sure that you have plans at enough mind share such that they will come back to your website. Those are the things that you’re really looking for when it comes to retention.

[22:01] Rob: Yeah and retention can happen in a number of ways. You know, if you think five or ten years ago, retention was just someone came to your website and then remember to come back to your website and that’s a really poor way to play it these days. There’s much better tools for it. You know, before social media and blogging and all the e-mail lists and all that stuff, that was what most people did. And if you actually go in to your Analytics and you look at the number of the percentage of people who purchase that are first time visitors versus returning visitors, it’s typically anywhere between two and ten times more returning visitors purchase from you. And I look at this in my Business of Software talk a couple of years ago and I actually…I talked to Hiten Shah about it for Crazy Egg. I think Patrick McKenzie, I had numbers from him. I had numbers from Dave Rodenbaugh, from a number of my apps and they…across the board it was a minimum of 200% improvement from returning visitors and like I said I think with Crazy Egg it was like 14 times more people purchase who are returning visitors.

[23:00] And so you can always rely on people remembering but that’s a really, really pathway to do it. You want to improve you’re odds of having them comeback by doing things we talk about a lot on the podcast and you know, offering a 5-day e-mail course or some type of rewards that they sign up for your e-mail list so you can ping every once in a while. It is maybe having Facebook and Twitter and having them follow you but there’s just such a weak ties these days that they…it’s not something I really go after. I always go after the…the higher commitment approach like an e-mail or a trial. I mean when someone is actually trying your app, then you’re having more of an excuse to get in touch with them and they answer their questions to the e-mail and I think those are probably the top ways these days that I’d recommend looking at retention. And this is actually I mean as a little plug like that’s why I’m building Drip. So get drip.com. It helps with this stuff. It helps you retain more and be able to contact them more and work them, you know, turn them in to trial users and or customers.

[23:54] Mike: Right and all that’s more focus on actively trying to retain them versus passively just hoping that they will come back to your website or that you’ve provided enough information on your website to begin with that they come back on their own. Something else that I think we haven’t really mentioned yet about retention that I think would fall in to this is if you’re using Google or AdRoll or any of these other services that will market to them after they have left your website and essentially follow them around with advertisements when they visit other websites.

[24:24] Rob: That’s exactly right. Retargeting or remarketing —

[24:26] Mike: Yup.

[24:26] Rob: …yes, it’s called. Yup and you can do it both on other websites they visit or even now Facebook has remarketing. So, if someone visits your website, you can remarket to them on Facebook and that definitely works well.

[24:39] Mike: The next two, number four and five are referral and revenue. And I think that this can be interchange a little bit. It depends on the type of company that you’re putting together the type of product that you’re marketing as to whether or not referral comes before revenue or vice versa. But with referral, users like your products enough to refer other people and you can get them to help refer other people either through e-mail campaigns or things that you do on your website, contest, having widgets on your website that they can either download on to their desktop or on to their website. There’s a number of different ways that you can allow people to refer other people to your product or service.

[25:17] Rob: There’s a whole world that goes on this viral marketing type of stuff where if you’ve ever heard the term viral coefficient, you’re shooting for as high viral coefficient as possible and that means that every new user you get refers X other users. There’s a certain number when you write one viral coefficient it means that every new user refers one other user as a certain number that you hit that I think like Sean Ellis talks about which is when you’ve really hit product market fit and your viral marketing is doing well because imagine, let’s say every new users you got referred three other users. That’s an incredible viral growth. So all you got to do it just stuff as many new visitors in to the top of the funnel and then business is going to multiply. That is only achievable, again, from what I’ve read because I’ve never built a viral business like but it’s only achievable if the virality is baked in to your business. It’s not something where you have them sign up for a trial of a SaaS app and then there’s a screen that says, “E-mail your friends,” or “Refer your friends to, you know, to…to get a discount or something.” It’s just your viral coefficient will never get above one or very unlikely to get above one if it’s not baked in to product in terms of something like LinkedIn or Facebook or Twitter where you’re actually actively encourage and the product actually gets better the more people you refer, right?

[26:32] In order to use the product well, you need to refer a bunch of people and so there…there’s a difference here and it’s something to keep in mind forcing virality on the product is not necessarily a bad thing but you can’t expect it to dramatically grow a SaaS app or a WordPress plug-in or just a standard software business like it would a social network or you know, even e-Bay that kind of thing because it…they’re different piece. And so, while virality can work in all the cases, it’s something to keep in mind as you’re building your business to know what kind of business you actually run and how you can use referrals and thus the virality…there’s a several companies that offer this now but if you are a software type of company or you’re selling something even if you’re selling information, there are services like ambassador. They’re at getambassador.com and I think Referly is another one but they basically help engineer with this so you don’t have to build all the engines to do this. It’s kind of like having an affiliate program, someone who handles your affiliate stuff. But they offer more abilities. They offer the…they e-mail your friend forms, the widgets and that kind of stuff. And I do actually use that with HitTail. That’s a good way to think about doing it instead of building it yourself.

[27:41] Mike: And the third R in Dave McClure’s list is revenue. And in this stage, users conduct some sort of monetization behavior and whether that is they’re clicking on ads or they’re filling out information that you’re going to follow up on with them for example lead generation. If they’re signing up for a subscription or doing anything that is essentially going to generate money for you, that’s the revenue stage.

[28:04] Rob: Like Mike said earlier the revenue stage can come before the referral stage but in the typical Silicon Valley startup and the stuff that Dave McClure is talking about, that referral stage they try to put it before any type of revenue because that’s how you get that viral coefficient as high as possible whereas building smaller businesses where, you know, you are mode dependent on the revenue in order to grow since you’re bootstrapping, I would tend to put the revenue before the referral. You also need someone to be using it and be happy with it and willing to pay for it in my opinion before they’re going to refer someone to “more boring” business like these businesses that we do talked about on this podcast.

[28:43] Mike: One of Dave’s points about the referral is that your customer satisfaction for them has to be greater than 8 for to work anyway. If they’re not particularly satisfied with the experience that they’ve had with your website or with your product, that just not going to work at least an 8 out of 10. Well, that kind of makes sense. I mean if people aren’t happy with it, they’re not going to refer others and if you’re depending on that referral piece of it to help drive your growth, it just not going to work.

[29:07] Rob: Yeah, I think in terms of the step, the revenue step, this is harder than it sounds. I actually run in to quite a few entrepreneurs who do build that application or build that software product and they do get visitors to the website, meaning they get past the acquisition stage and they do get some kind of activation because people at least mill around on their website and they do get them to sign up for a trial. So some type of retention but then they either have a free plan and the person never converts to revenue or the trial expires and no one is converting to revenue. So, getting to this fifth stage with at least one or two percent of your overall website visitors is harder than it sounds and it’s something that requires that you’re solving a problem have, problem solution fit and that you’re marketing to the right people so that you have product market fit.

[29:53] And once you hit this and you can push a lot of the folks who are in step one all the way down through the funnel and actually get some revenue  from at least a small portion of them, that is when it’s time to scale the business and that’s where it actually does makes sense to sometimes to raise funding. I think a lot of folks take for granted and I think I did in early days as well take for granted that getting to revenue is just the natural next step. It’s like going to high school and then going to college and then, you know, taking the next step and that in that whole path, but it’s not. It’s actually a lot harder. The first three steps, acquisition, activation and retentions aren’t actually that hard. Getting someone to sign up for a freemium plan or getting them to sign up for a trial is really not that big of a deal. Getting someone to refer someone or getting someone to pay you money is a lot harder and turning that in to a repeatable process is even harder. But once you do, you basically meant taking money. I mean that’s where you just put money in one…you put a dollar in one side and you crank the handle and then $3 comes out the other side a month or two later.

[30:52] Mike: One of the other interesting things that I think Dave does with this is that he assigns an estimated value to people who are in each stage of this funnel. So, at the acquisition stage, you have a lot more people but their estimated value for each one is, you know, maybe 5 cents versus somebody who is down at the retention area because they’ve come back to your website a couple of times. They might be worth an estimated value of about a dollar and then if you get down to the part where they are entering the revenue stage, they may be worth $50. And again, these numbers can be wildly different based on what your revenue model is, how much your product cost, what’s your expected lifetime value is, those kinds of things. But from Dave’s point of view, the interesting things is trying to estimate the value of each of those people because then you can essentially extrapolate how much money you should be investing in to each of those phases.

[31:45] Rob: That’s a really good point. I actually wish I had brought that up. I have all of my funnels spelled out just like you’ve said. I have…I know the exact dollar amount and sometimes it’s the cents amount for all those change of the funnel and I know how much I can pay to acquire a trial, how much I can pay to acquire an e-mail address in to our 5-day e-mail sequence. I know how much we can pay to get someone on the 7-day long tail SEO crash course on HitTail. I know how much we can pay for in general for website visitors although that one tends to vary, right, because the source really matters a lot. But if you don’t know those numbers, then you have a couple of issues. First thing is you’ll never be able to do paid acquisition and while that’s not the end of the world, paid acquisition is such a large…it’s a large market that you could be reaching in to that you won’t be able to grow very fast, you know, without knowing these numbers. You can do things like content marketing and put out infographics and blog post and do a lot of, you know, viral videos and be on Twitter and Facebook and do all that and that’s okay. You can drive traffic fairly inexpensively but you still have to monetize your time and infographics, they are fairly expensive to get designed and they will often take a lot of your time to manage and to figure out the numbers.

[32:56] So, in my opinion, you have to monetize those as well. The entrepreneurs I know who are doing content marketing they won’t say an infographic is free. They will look and say, “All right, I’m paying a designer X hundred dollars and I’m spending X hours of my time that are valued at a hundred or $200 a piece and I add that up and unless this infographic or this blog post or this, you know, story that I’m trying to get placed on…on a guest post somewhere, unless that drives X number of trials or X number of e-mails, then I have a negative ROI even though I didn’t actually I’ll put that money I will put it in time.” And so I truly believe in…in basically monetizing and quantifying all elements even if you’re not cash out of your pocket, it’s really important that you know your numbers. That in my opinion is a way that you’re going to be able to monitor things and go after the things that work and double and triple down on and actually grow your business the fastest.

[33:49] Mike: So, just to recap that, the first stage is acquisition which is users come in to your website from various channels. The second one is activation and that’s where people enjoy their first visit. They have some sort of a happy user experience. The third one is  retention, users come back to your site and visit it multiple times. The fourth one is referral and again, the fifth one is revenue which can be interchange with the referral but referral is people like your products enough to refer others. The fifth one is revenue in which users conduct some sort of monetization behavior.

[34:17] Music

[34:20] Rob: If you have a question for us, you can call it in to our voicemail number at 888-801-9690 or e-mail 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.