In episode 615, join Rob Walling for a solo adventure where he covers what makes a business bootstrappable (and things to avoid), cargo culting, and how large of a business you can build at different customer lifetime value levels.
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Topics we cover:
[1:51] What makes a business bootstrappable?
[14:15] Cargo culting
[20:05] How large of a business can you build at a specific annual contract value or lifetime value?
Links from the Show:
- Bootstrapper’s Guide to Outside Funding
- Episode 613 I Hacking Your Founder Psychology
- Episode 602 I Explaining SaaS Metrics to a Child
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
Welcome back. It’s Startups For the Rest of Us. I’m Rob Walling. Thank you so much for joining me. Today, I’ll be talking through a couple topics inspired by listener questions, and then maybe one or two solo adventure topics that I’m going to bring in. So definitely going to hit on what makes a business bootstrappable versus not.
I want to talk about cargo culting in startups. I received a question about how large of a business can you build at specific levels of lifetime value or ACV. Depending on how long those take, I might add a fourth topic in as well.
Before I dive into that, it would be amazing, even if you’re subscribed to another tool, if you would go to Spotify right now type in Startups For the Rest of Us, give us a subscribe. If you’ve gotten value from this podcast and want to give a little bit back, I’d really appreciate it.
This episode is actually one of ‘the show must go on’ type episodes. I had a guest lined up and they had to postpone for a couple of weeks, and I hop on a plane to Scotland tomorrow. Not tomorrow when you’re hearing this but tomorrow when I recorded it. Since we ship every Tuesday morning for 600 and 15 episodes in 12 years, I want to get something out there. So I’m going to kick off.
The first topic is what makes a business bootstrappable versus not. This has come up a few times. There was a question, maybe six months ago about this. I listened back to that episode. I listened to the answer I gave and I felt like it was fine but it was not great. So I sat and actually gave it more thought. I wanted to revisit this topic. What I realized is that the default is bootstrapping, that I start by saying, every business is bootstrappable, except in these conditions.
These are seven or eight things where I think makes it a lot harder, or near impossible. The reason I start with the default is bootstrappable is traditionally if you just think about bootstrapping and venture funding, so you don’t take angel investments, or a TinySeed indie funding type thing. You just look at bootstrapping versus venture, even just in startups.
This is not in brick and mortar, not in dry cleaner car wash. You just think about software and tech, including hardware, biotech, just startups that are going to be high growth and become multimillion dollar businesses. I think somewhere in the neighborhood of 1% of those companies started each year or each decade or whatever you want to put it, are a fit for venture and should raise venture.
It’s a small number. Now maybe it’s 1.5% or maybe, I think the number is like 0.7% of companies that try to get venture funded, get it. Yeah, maybe the number is one or two, but it’s a small number. The rest have traditionally bootstrapped because that was what you did. It is the only option.
With indie funding coming out, where you have angel investors who are willing to put in money for a company that may throw off profits in the long term, and you have TinySeed willing to invest in smaller outcomes, if you sell for $10–$50 million, that is usually an abject failure for venture capitalists, but for TinySeed or for some angel investors, if you can invest at the right amount, then by the time you get to that $10, $20, $30 million, the return is ample enough that it that it works for you.
With the advent of that funding, I loosely think of it as this rule of 1-9-90, where around 1% should raise venture-backable businesses, around 9% should think about indie funding, and around 90% should probably still bootstrap. Again, maybe the indie funding number is 20%, but it’s not 50%. There are a lot more businesses that can and should be bootstrapped than there are should take any type of funding. There are a number of reasons for that.
But with that in mind, coming back to the question of what makes a business bootstrappable versus not, I’m going to say the default is that you should bootstrap unless, and then I’m going to walk through several points. The first one I thought of is revenue is pushed down the line, meaning think of Facebook, and how long they had to exist before they could monetize it. Google is similar, where they had to have servers and developers and build up these networks, and Facebook had to move from school to school.
A lot of expense there where they needed money for that because the ad model is way down the line. Usually, if a startup uses the ad revenue model, the revenue is pushed way down the line because they don’t run ads from the start. You need to get traction. As you start getting traction, you can raise money and as you raise money, you don’t need the ad revenue. Frankly, building ad tech is difficult. Also, if you have it too early, you don’t gain the traction and the momentum.
You need that critical mass. So if you imagine Google or Facebook having ads from day one, it could have changed the outcome. If your revenue is pushed way down the line, and this includes even Dropbox, where they’re free. They are freemium and you can get a lot of value out of Dropbox.
I don’t remember the exact number of megabytes you can get before you have to pay them. But I remember using it for quite a long time. It wasn’t until I started doing video and more audio that I needed to start paying for Dropbox. I think back in the day, Dropbox used to say, of all of our customers that sign up in a given year, it’s like 2%–3% convert to paid within a year.
Think about all that they have, the support and all costs of that hardware, of the storage, of customer support, and all that money is pushed on the line. But they built a pretty good business on it. Revenue is pushed down the line. If it is postponed and you can’t just monetize early that were SaaS, we charge $50 a month. First day, you’re a customer, right? That is the opposite.
The second thing that makes a business really hard to bootstrap is if the market is winner-takes-all, meaning something like Uber, where really Uber and Lyft are wanting to. And when I say winner-takes-all, you know what that phrase means. It doesn’t actually mean all, but it does mean most.
Uber is big, and it’s a lot bigger than Lyft. It’s because it needed to move very quickly. Because once everyone has that Uber app downloaded, both the drivers—two-sided marketplace—and the folks that need rides are unlikely to download another app unless Uber really makes big mistakes, which they did.
If you watch the growth of Lyft when Travis Kalanick was making his mistakes, getting ousted as the CEO, and Uber was talked about having such a toxic corporate work culture, if they hadn’t done that—it was a huge stumble—I think they would still be many, many, many times Lyft. Lyft played a big catch up because I know that a lot of people actually deleted Uber at that time.
With that said, if it’s a winner-takes-all market, you have to move really fast. Amazon was in another space like that where it’s like, yes, there are other online retailers. But who else? It’s like Walmart, aren’t they number two in e-commerce? But Walmart had 60 years and thousands and thousands of stores already. So that’s how they got in.
That’s not a bootstrap. They didn’t bootstrap that. They put tons of money behind it. Ecommerce on the internet. Again, winner takes all does not mean 100%, but Amazon has a huge chunk of that, and Jeff Bezos knew that and therefore did not try to bootstrap Amazon. He raised funding from the early days.
Another thing that makes a business hard to bootstrap is—similar to Uber—a two-sided marketplace. If you have reach into one or both of those sides—you already have an audience of drivers or of folks who want a ride or you already have an audience of people applying for jobs and employers who might hire folks—it’s a different story. But if you literally have zero audience in a space, and you’re trying to do a two-sided marketplace—no reach, no customer list—bootstrapping this is very, very difficult.
Even if it’s not winner-takes-all. Not all two-sided marketplaces are winner-takes-all. Elance, Upwork, guru.com, there are others. Now I would say that Upwork has certainly owned most of the market. I don’t even know if it’s the majority. But there are other two-sided marketplaces in that space. Bootstrapping them would be very difficult. I don’t know which of those three bootstrapped if any.
But if I were starting a two-sided marketplace, I would either want reach into one or two of the sides, or I would want buckets of money to be able to reach, because it’s like launching two SaaS products at once. Because you have to have two go-to-market strategies. I mean, it’s just such a headache. You’ve heard me say this before, please stop trying to bootstrap two-sided marketplaces, if you don’t have an advantage.
Another thing that makes it hard to bootstrap—it’s possible, but it’s hard—hardware. It’s just really expensive. I heard from a friend who ran a SaaS company, who then started a hardware company. He said, this is ridiculously hard, ridiculously expensive, and takes forever. So is it possible? Sure it is. Is it easy? No, it’s not. I would certainly think about raising funding if I was going to do it, if it’s a hardware biotech with big R&D expenses.
Another thing that makes bootstrapping hard is similar to that pushing revenue down the line, but it’s taking a percentage, a cut of processed revenue. A good example of this is Stripe. Stripe takes 2.9% plus a transaction fee. That would be very, very, very difficult to bootstrap that business. Because all the infrastructure you have to build upfront, in order to support that, then people just trickle in and you’re taking 3% of $1,000 the first few months, so you take in $30 off of that.
How do you pay for the servers? Even if you’re coding yourself, how do you keep yourself alive and everything, in terms of having money to live? That is why Stripe went through YC and then they obviously raised a kajillion dollars. Is it possible to have, let’s say, an ecommerce startup where it’s like an abandoned cart software or even start a shopping cart of your own or whatever to compete with Shopify, have a niche and take a cut of revenue? Sure it is.
I did notice when Shopify launched back in 2006 or 2007, they were purely a percentage of GMV (gross merchant value), a percentage of the revenue. They quickly switched that within six months to where they have subscriptions. Same thing with Gumroad. Gumroad originally just took a cut. I think it was like 8% total. So it was like 3%, whatever it was, it doesn’t really matter what it was. But now they’ve really been pushing their subscription plans since then.
Another thing that makes a business not bootstrappable or harder to bootstrap is having massive per user costs. Even if it’s not massive, not having monetization. So I guess this ties into the earlier one of really pushing revenue down the line, but it is having higher per user.
I come back to Dropbox. When they launched—which was over a decade ago—they couldn’t use AWS because it was too expensive. They rolled their own hardware in data centers. There’s an upfront cost to buy those and to store everything.
Then the last two are needing a network effect, which I guess really is like, mostly a two-sided marketplace. But you could have three sides and everything. So that relates to the two-sided marketplace.
Then the last one I was thinking of, which I don’t actually think should be included in this list but I wrote it down with a question mark. I was saying, bootstrappable businesses, I was thinking that it’s easier to bootstrap a business when the audience is online, the customer base is online. Then I looked at how many TinySeed companies are going after home improvement contractors, CAD engineers, lawyers, investment firms that invest in derivatives, there’s a whole list.
Yes, these people, it’s not that these customers are not sending email or using web browsers. But they are not hanging out on Twitter, in private Slack groups, on Facebook groups, on Stack Exchange, Hacker News, and Reddit in the way that developers, designers, founders, and some other groups are.
Everyone is “buying” anything that’s online. But what I mean is, are they really hanging out and easy to reach? Home improvement contractors, construction firms, architects, interior designers. There are some hunts where they hang out, but it’s not going to be at the level of technical folks.
Originally, I was thinking, I’ve always targeted folks who are online because I’m on online marketing. I’m not going to do a lot of cold calling and in-person events and stuff. But I actually think it is a great opportunity there.
I know there’s a great opportunity because I see the companies that we’ve funded and the companies in the MicroConf space that are actually going for audiences that are mostly not online. Is it more expensive to reach them? Yes. That’s why your price point is higher. Your ACV affords you the luxury of doing that. There’s often less competition. It’s more of that customer paying than it is the competitor paying.
So that was my list. It’s probably not exhaustive, but I wanted to put it down here because I felt like my last answer was shorter. I didn’t think I communicated it in the way that I wanted. So hopefully those seven points helped give you a frame of reference when you’re thinking about your next business.
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Alright, my next topic is cargo culting. If you haven’t heard that term, I’m going to read a little bit from the Wikipedia page that essentially defines it. A cargo cult is a belief system of indigenous people in Melanesia.
Basically during the Second World War, allied military forces used to airdrop supplies in large numbers, and technology and all that stuff. Then the soldiers who were on the ground in Melanesia would trade with the islanders.
After the war the soldiers leave, and this thing called a cargo cult arose. Cargo is what was being dropped and the indigenous people attempted to imitate the behaviors of the soldiers, thinking this would cause the soldiers and their cargo to return.
This included things like dressing like a soldier, performing parade ground drills with wooden or salvaged rifles. They misattributed what was bringing the cargo, which was completely unrelated to them being soldiers, and it was completely related to someone flying a plane over and dropping all the supplies. So that’s the definition of it.
I see this in startups where some startups are not successful because they did things. They’re successful in spite of the things that they did, in spite of the decisions they made. I brought this example before where it’s like Apple or Basecamp, or someone says, well, they just built great products, and they didn’t do marketing.
I do believe Jason Fried and David Heinemeier Hansson came out and said, yeah, we don’t do marketing. We don’t track metrics. We built a great product, that stuff. To be honest, Dave eased up on that (I think) on that narrative. When I interviewed Jason Fried a couple years ago at MicroConf, that’s not how it came across. Actually, he said, we did some things right. We also got lucky. And I appreciated that honesty from him.
But there are other examples of this of, you take 100 companies that do tracks or analytics. They are doing blocking and tackling marketing, whether that’s SEO content, pay per click, cold outreach, partnerships, integrations, whatever, all the things that we talked about on the show. The 100 companies that are doing those, from what I see, from my experience, the companies who succeed are doing those things.
If you took 100 companies who just said, well, I’m just going to deliver a great product, a couple of them would succeed. They will get lucky. I talk about hard work, luck, and skill. In this case, I’m basically saying blocking and tackling is having the skill to do it then putting in the hard work.
Could you feasibly have really little hard work and skill and just get really lucky? Absolutely. Out of 100–500, even bootstrapped startups, you’re going to have a few that do. That survivor bias pointing to them, and then saying, well, look, they made it work. They built this amazing business. All they did was build a great product. I say, no, that’s not all they did. They also got really lucky,
They were either super early to a space. They accidentally stumbled into just a huge vacuum of demand, which is unusual these days in software. Most demand has been satiated by some type of product. So there is some competition.
Let’s say a product was beloved by everyone, and then got hacked and was shut down or it got sold and shut down. Suddenly, there was a big vacuum there. You went in and realized, oh, I can build this product. You need to have some skill, and then put in the hard work to build a good or great product.
But if that demand was already existing, and you jumped right in, you can’t say, we didn’t need to do marketing so you don’t either. Because unless you—you being the other person listening to them—have the same situation where you’ve stumbled into this amazing demand, or super early to a space where it’s like, oh, my gosh, this tool or this ecosystem is taking off WordPress or Stripe or No-Code or you know something where you just hit it at just the right time.
Again, maybe it’s skill that you did that, or maybe it’s luck. But unless the other person also has that in place, you’ve succeeded, probably in spite of some of the things you didn’t do rather than because you didn’t market.
I’ve talked about being early and getting lucky for other reasons. I’ve heard some stories where the founder is almost acting coy, like they succeeded without working hard. Like yeah, we just made it. Either we’re that good or I don’t know, they don’t want to admit the hustle.
Again, except for a couple founders I know who have gotten exceptionally lucky, I can’t think of any founders I know who have not worked their ass off to build a great company. It is a lot of hard work in getting some things right and some things wrong. But it’s moving fast, it’s working on the right things, it’s being willing to make mistakes, and it’s being willing to put in the hard work.
By hard work, I don’t mean 80-hour weeks, I mean really focused time of executing on something and not being all over the place, not skipping from one thing to the next, not doing things half ass, like seeing them through and showing up every day. Whether it’s a podcast, or a SaaS app, or a book, showing up every day and shipping and getting something out into the world.
I think that’s all I have to say on cargo culting, I just wanted to bring it up as something to be aware of. I think it’s an anti-pattern, right? It’s an anti-pattern to look around and think that you don’t need a lot of the tools.
You know what? We want the world to be that way, don’t we? We want to just I’m a product person. I want to just build a great product. I really don’t want to have to market it. I want it to market itself. It just doesn’t happen that way very often. It’s very, very rare.
Sherry talks about this. She comes on the show periodically. The last time she came on the show, she talked about her new book that launched. She said she really just wanted her to get a book deal because the book is great. But in fact, without a social media presence, without an email list, without some type of audience and name, she said she couldn’t get a book deal, and that sucks.
I don’t want the world to be that way. But those are the facts. It’s just the way the world is and I feel similar about startups. It’s like it’s easy to want to think that the world is a certain way. But I think the reality is quite different.
All right, the last topic of the day is a question from Brian. He actually made a comment on the startupsfortherestofus.com website. He was talking about the episode where I explained SaaS metrics to my 11 year old at the time.
Brian says, “Great episode, extremely bright child.” Thanks, Brian. He says, “The example you used in this episode produced a lifetime customer value of $200, which you described as an amount that is ‘fine’ for a small business but really hard to grow a company.
Perhaps an idea for an upcoming episode could be to look at different lifetime value metrics in a bit more detail and map these on to different kinds or sizes of businesses. I know this is quite macro, and you would have to speak in general terms, but I personally would find this episode really helpful for loose mapping of future business product pathways in my own projects.”
I summarized this as, ‘how large of a business can you build at a specific level of ACV (annual contract value) or lifetime value?’ I think it’s a great question. I think there’s a pretty simple answer to it. Of course, podcast drinking game, it depends. Yes, I got it in there. But realistically, my rules of thumb or my mental generalizations are, let’s think about it as ACV because lifetime value can be misleading. Because if you have very, very low churn like 1% a month, then you’ll get your lifetime value from that customer over 8.33 years.
That’s not helpful when you’re bootstrapping because you’re going to run out of cash. I like to think about either average revenue per account (ARPA) per month, or we can say ACV, which is just how much you receive on average from each customer in a year. So one of those is much more relevant. Because as a bootstrapper, you need the short payback periods from your marketing.
If you’re doing pay per click ads, four months, six months, seven months, you get further out than that. You just need more cash in the bank and quite a bit in order to not go to zero before you pay that back.
Here are some general rules of thumb. Usually, in most cases and almost all the cases I see, the lower your price point, the higher your churn. The lower your price point, the lower your lifetime value, not only because of the numerator, but because of the denominator. If you remember, lifetime value is your average revenue per account per month divided by your churn percent.
So if it’s $50 a month of charging and 5%, churn then it’s 50 divided by 0.05, which is a $1000 lifetime value. If your churn is high, and your average revenue per account is low, it goes double really fast in terms of lifetime value. So that’s point one.
The hard part about saying how large of a business can you build at a specific revenue per month or annual contract value really depends on the size of the market. Because look at Netflix, or Spotify, or any of these subscription services aimed towards consumers where they’re charging $6–$15? That’s the big range, but they build nine-figure ARR businesses, is that right?
Yeah, that’s hundreds of millions? If not, do any of these get into the billions in revenue? I actually don’t know. But I wish there were textboxes on the Internet. I could type these questions into and just give me the answer instantly.
But you get my point. You can build a massive business, but you need massive scale. You need a huge total addressable market and total reachable market. That is not what most of us as bootstrappers are going to be able to do.
You can’t just think about how large of a business at a specific ACV. It doesn’t map. But I will say in general in the bootstrapped software space, the bootstrapped SaaS, you do have to think about the total reachable market.
Let’s say that you have podcast hosting or podcast editing software or something like that and your price points are a bit lower, because you have prosumers and others using it. Your price points are in the $10–$100 for most and then you do have some enterprise folks in a dual funnel. That space is large and it’s growing.
Versus if you are starting a business that serves construction firms, or that serves venture funds, venture firms, or accelerators, there aren’t that many. They actually are pretty easy to reach than construction firms, but there are not millions of those available.
There are tens of thousands. It’s not a huge number. Your ACV or your average revenue per account per month per year has to be pretty high. I’m thinking along lines of $5000, $10,000, $25,000, $50,000 a year in order to justify the work to sell and support if it’s construction firms or just the small market of accelerators or venture funds.
Versus you can build a multimillion-dollar or an eight figure business in podcasting with that probably not average revenue per account of 20—I would hope it would be more than that—but certainly it can be a lot lower.
Similar to email service providers, like Drip’s lowest pricing plan was $50. Average revenue per account depended on that at the time, but let’s say it was $70 to $100 for a certain period of time, but that email space is huge. The number of companies that need an email service provider, the expansion revenue, and the ease of marketing in that space means we can acquire customers for not very very much, basically.
The ACV could be a lot lower than someone selling into a space where everything is cold outreach. Where it’s like, I’m going to do LinkedIn, I’m going to do in-person events, I’m going to do cold calls.
These are the axes I’m looking at. How hard is it to find your customers? Are they online? Are they online all the time? It’s the Hacker News crowd and Reddit and just developers and that kind of thing? And you just build that audience and get it going? Or are they really hard to reach and you’re going to have to be doing the calls? The cold calling.
These are really the drivers of how big of a business you can grow, as well as that total reachable market term. No one says it that way. But TRM, I don’t know how else you would say that. The total reachable market of how many folks that you can actually reach that you could potentially convert, and then the average revenue per account in churn. Those are the things I would put into a blender.
Again, it can range. There have been businesses that have applied to TinySeed. I think one that got in there had 1500 potential customers. That’s it. There’s a way to expand beyond that, but it’s a very small number. As a result, for us to invest in that company thinking it gets into the millions of dollars in ARR, that company has to charge a lot more. Again, $25,000–50,000 per customer per year in order to justify that.
So I like this question, Brian. I appreciate you sending it in because I think it’s good for us to think about these rules of thumb and to think about the axes of it’s not just a CV, but it’s what’s the cost to acquire the customers, what’s the churn like, and what are our price points like? I hope me talking that through was helpful not only for Brian, but for you as a listener.
Thanks again for joining me this week. As a reminder, if you have Spotify, it would be amazing if you search for Startups For the Rest of Us, give us a subscribe, and a like. I don’t think it’s a like. It’s probably a thumbs up or a five star rating or something to really help us get just a little more traction, a few more listeners, and I’d really appreciate it. This is Rob Walling, signing off from episode 615.
In episode 602, Rob Walling explains SaaS metrics to his kid. This is a great episode to listen to if you are unfamiliar or not well-versed in SaaS because we dig into from first principles, starting with dollars, revenue, and the purpose of businesses, all the way to SaaS metrics like MRR, ACV, and LTV. And, even if you are well-versed in SaaS metrics, you’ll likely learn a few things from this conversation.
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Topics we cover:
[1:55] MicroConf Local London tickets are on sale
[3:17] Starting with the basics: money, dollars, and businesses
[13:29] Recurring revenue
[13:58] Average revenue per account (ARPA)
[14:56] Monthly recurring revenue (MRR)
[15:08] Average revenue per customer
[17:08] Annual contract value (ACV)
[19:30] Differences between Revenue Churn and Customer Churn
[21:18] Lifetime value
[22:10] Average customer lifetime value
[25:49] Customer Acquisition Cost (CAC)
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
I was inspired to do this episode by a quote that’s attributed to a bunch of different people. I think most often if you search for this quote, you find it attributed to Einstein. I don’t know if he actually said it, but it basically says, “If you can’t explain a concept to a child, then you don’t understand it deeply enough.” When I heard that, I thought SaaS metrics are so boring, convoluted, and complex.
What’s cool in this episode is actually certain metrics, I say monthly recurring revenue, what does that mean? Then he’s able to define it because the definition is in the three words, but then there are a couple of terms where it’s not obvious what they actually mean. You can hear him thinking about it, because he doesn’t speak the jargon like a lot of us do. You can hear him struggling to define it. I’m going to actually say, yeah, that’s a bad name for this thing but it’s just what is generally acceptable at this point. It’s what most of us use.
Anyway, I hope you enjoy this episode. It’s very different from a lot of the stuff that I do on the show. But I would say that if you are maybe unfamiliar or not super versed in SaaS metrics, this is a good episode for you, because we really do dig in from first principles, starting with dollars, then making it all the way to lifetime value and a few others.
I was also going to do expansion revenue, but it was running long so I decided not to do that. Even if you already know SaaS metrics, I still think you’ll learn something from this because I’ll be honest, I learned a few things from this conversation as well.
Before we dive into that, tickets to MicroConf Local in London are on sale. Actually, they are going fast. I think we’re going to sell out, if we haven’t already, because I’m recording this a week or two in advance. But if you go to microconf.com, you can go to our events menu and snag a ticket assuming they’re still available.
Local:London is a one-day event, May 18. We’re going to be hosting three or four amazing speakers. Asia Orangio will be there, and Brennan Dunn. I’m going to be there doing a talk. It’s just a fun get together. It’s a fun gathering to be able to hang out with other Microsoft bootstrapped and mostly bootstrapped founders. And we keep the ticket price really low. It’s around £200, depending on a few factors.
Hopefully, that’s something that you can make it too because I would love to see you and do a fist bump. I never fist bump before COVID, but now, unfortunately, that’s just a better way to do things than shaking people’s hands. Anyway, I would love to meet you face-to-face, if you’re listening to this, and you’re able to make it. With that, let’s dive in to me explaining SaaS metrics to my 11-year old.
Rob: So you know why we’re here today, right?
Rob: I want to start at the beginning with the basics. Do you know what a dollar is?
Rob: Of course Do you know that dollars can buy […]?
Fisher: Yes, they can also buy other things.
Rob: So dollars are our currency. Do you know that there are other currencies in other countries?
Rob: Can you name one?
Fisher: British Pounds.
Rob: There you go. You like the Brits, don’t you?
Fisher: Sure, why not?
Rob: So dollars are what make our economy go around and it’s what you would get paid if you get a job. Do you get paid dollars on any recurring basis?
Fisher: Yeah, I have an allowance for doing chores and such.
Rob: Cool. You get that money from us. Where do your mother and I get our dollars? How do we make our dollars?
Fisher: From your jobs being an entrepreneur.
Rob: Right. So we have jobs that are maybe a little different. I know you know different than most people. You and I know some folks who work as teachers, or who work as doctors. They are paid by a school or by a hospital. But your mother and I run our own companies.
You know what a business is, right? Can you summarize what a business or a company is? Why you might want to start one?
Fisher: I guess an organization of multiple people with what’s the defining factor of a business, like a pyramid of authority, hierarchy with someone at the top.
Rob: Oh, that’s interesting. You think about that. That’s the internal structure. Sometimes the business is just one person like your mom, really until the last six or eight months. It was just her in ZenFounder, so there wasn’t any need for that authority or internal structure. I think of a business as an organization that seeks to produce a profit by creating something that people value enough to pay for.
Fisher: Organization of people.
Rob: Yeah, one or more people. Here in the US, they’re called LLC, you can have a sole proprietorship, you can have a C-Corp. Then in Britain, they have a Limited Corp, I think, Private Limited. You’ll have to forgive me, I’m still just learning that stuff. But that business, because there are nonprofit organizations that are set up to do certain things, there are benefit corporations, but really what we’re talking about is a for profit company. What does a for profit company do, do you think?
Fisher: I don’t know. They give people stuff and people give them money.
Rob: Right. Examples of that, can you think of any companies that you buy things from with your dollars?
Fisher: I don’t know, Lego?
Rob: That’s a good example. Target.
Fisher: I sometimes buy stuff from Target.
Rob: Buy Lego from Target.
Fisher: Lego usually, as well. I don’t know. Amazon has better prices, but they’re a massive mega corporation. So is Target […].
Rob: So Amazon’s another business that you give your money to. Ultimately, there’s a lot of (I think) nuance around profit being the main motive of companies, or just one of several because there are these multiple bottom line-companies now that want to make a profit and also help people, which I think is good and noble; I’m actually invested in a couple of those.
Let’s say that you pay your money to a business like Target or Lego. For every dollar you give them, it costs them $1.20 to produce, market, ship, and provide you with that product.
Fisher: Then they’re losing money, though.
Rob: Okay, so does that work or not?
Fisher: No, they’ll bankrupt themselves.
Rob: Okay, good. So you’re already bringing in a term of bankruptcy. That’s great. When you give them money, do you know the term for that, what they call that inside their company?
Rob: That’s right. Revenue is the dollar you give them. But what if it costs them 70 cents to manufacture and provide all the service or the product to you? Do you know what that’s called? That 70 cents.
Fisher: I don’t know. 70 cents relative to a hundred would be profit, but I don’t know it. Manufacturing costs, maybe?
Rob: Yeah. There are two things. You’re getting at it well, actually. The global term or high-level term is an expense. There’s revenue and expense. But you’re even going within expenses. There’s something called cost of goods sold. It’s also often summarized as COGS, that is manufacturing cost, shipping, and some basics.
We have revenue, which is the dollar. You want to say $100, that makes more sense to you because you never give Lego $1. Let’s give them $100 for a set. And all of their expenses, including their COGS and shipping and Target takes when they sell it to them is 70 cents. That’s their expense. Then the 30 cents that’s leftover for Lego.
Rob: $30 that’s right. I’m still in the dollar. Yup. The $30 leftover is?
Fisher: The profit.
Rob: Yeah, there you go. Okay, so now we have business fundamentals. We have money, revenue, expenses, and profit. Okay. Now I want to switch up the business type and switch from Lego to (let’s say) that I started a software company or you started a software company. That’s now the product you’re selling. To get started, can you name a few pieces of software that you use on a daily or weekly basis?
Fisher: What software, like programs?
Rob: Yeah, just name a few. There are a bunch of them, right?
Fisher: Like apps, I suppose.
Rob: Include games.
Fisher: I play Rec Room and Minecraft sometimes.
Rob: I think we paid for Minecraft on the iPad. I think Rec Room is free, but there’s currency inside of it. That’s going to be their revenue stream. What else?
Fisher: What else? What other programs? I don’t know the Amazon App if I want to.
Rob: Yeah, that’s software, but realistically, so Amazon, you don’t pay for their software. That’s just a catalog to buy through them. How about, wasn’t there one called Kahoot!?
Fisher: That’s like a quizzing app.
Rob: Right. But didn’t we pay? You downloaded it for free then you could pay for a premium plan.
Fisher: That was Lookit for school. It’s like Kahoot!
Rob: They’re learning apps and we paid a subscription. You get some special stuff, right? Some upgrade. How about other software? Those software all download to your iPad, and it runs locally. You could turn off WiFi and it would work. What about software like Google Drive, Google Docs, and Google Sheets? Those run on the Internet, don’t they?
I know there’s an offline mode, but let’s just assume that there was no offline mode, because there was actually many, many years before they had that. Realistically, you need WiFi to access that, don’t you?
Fisher: To access a document?
Rob: Yeah, in Google Docs.
Fisher: Yeah. I guess.
Rob: Like to edit a document without offline mode.
Fisher: Assuming there’s no offline mode, yeah, you would need WiFi.
Rob: Do you use any online web-based video or photo editors or is it all app-based?
Fisher: I use Adobe Express Photoshop sometimes.
Rob: Is that downloaded onto your iPad? Is it an app or is it in a browser?
Fisher: It’s both.
Rob: Got it. It’s both. Okay. So that’s the thing. If it’s local, it’s downloaded to your iPad, then it’s just software or apps programs, as you said. If it’s any browser, there’s this term, and it’s Software as a Service. The term is terrible. So it’s SaaS, right?
Fisher: Wouldn’t it be a service, if it was an app?
Rob: There can be a money line where Google Drive or Google Docs, you can access it in the browser, and it goes out onto the Internet into their servers to retrieve your documents is what it is. But they also make an app. It’s the confusing part. They also make an app but that also goes out to the server, they call it in the cloud, right? You’ve heard this. It goes out to the Google servers to pull your docs back when you want to edit them.
Fisher: Docs also just redirects you to the app.
Rob: Got it. So the app versus browser thing maybe is not the best distinction. But I think the big thing is Software as a Service is where your data is usually not hosted locally. It’s hosted not locally on your machine, but it’s hosted on Google’s servers, or it’s hosted on Dropbox’s servers.
Think of Spotify, which is more of an entertainment app. I create playlists and those playlists live on the Spotify servers. I can access them from any device. Software as a service, terrible name, agree?
Fisher: Sure. It’s not like you build your company around it or anything.
Rob: What company are you referring to?
Fisher: I don’t know. You use that term a lot. It’s not like you build your life around that term.
Rob: Well, because Drip was Software as a Service.
Fisher: Not that not that much exaggeration, to be honest, but yeah.
Rob: Right, my life is built around it. Well, that’s the thing. It’s this very left brain nerdy term that I think is overly technical. I wish there was a better term for what we do. So you remember Drip, it was software that people could use to build their email list so they could communicate with their audience. Remember that?
Rob: Okay. People paid monthly for Drip. That’s Software as a Service. That’s usually monthly or annual. It’s not a one time fee. Some of the apps that we buy that you pay for like Angry Birds, Plants vs. Zombies, where you pay $5 or $10. Then you don’t subscribe. You just get to play the game.
Fisher: Yeah, you did it yourself by using those two examples.
Rob: Yeah, you get it?
Fisher: Yeah. They’re good games, though. Yeah, that is the case. You buy the game and then you play it.
Rob: Right. Well, Software as a Service is different. You get what’s called recurring revenue. What do you think that means?
Fisher: Recurring revenue is revenue that reoccurs. So multiple payments in a month or a week.
Rob: Right. It’s standardized. It could be anything, but it’s kind of standardized in general on monthly payments or yearly payments. Those are usually the two options, I’d say in 80% of the cases. What if I were to give you this phrase, average revenue per account per month, average revenue per account? What do you think that means?
Rob: Yeah. There’s a different way to say it, average revenue per customer.
Fisher: Okay, if an account is paying $5 for your service a month, that would be in fact, the average revenue per customer per month.
Rob: That’s exactly right. In this case, account and customer are interchangeable; ARPC or ARPA. What if I had 10 customers or 10 accounts paying me $5 a month, then I had 10 paying me $15 a month because they use the more premium version. What would my average revenue per account be?
Fisher: 10 paying you $5 and 10 paying you $15. $15 times 10 is $150 and $5 times 10 is $50. So you get $200 in revenue a month for your service.
Rob: Awesome. So that’s total revenue per month. That’s called MRR. Monthly recurring revenue. MRR is what you just defined. That is the total monthly revenue that I get from all of my customers. What is the average revenue per customer? Because I have 20 customers.
Fisher: 5 and 15, $10 per customer averaging?
Rob: That’s correct. Yup, exactly. You could get there one of two ways, the same amount are paying you $5 and $15 that it’s in the middle at $10. Or you could get your MRR, you went to MRR, which is $200. Then you said, I’m going to take my MRR, and I’m going to divide it by my number of customers. That’s the formula for average revenue per customer. So you came across $10. Now $10 would be very low and you’d have high churn, but we’re not going to do that today.
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So we have MRR, we have average revenue per customer or average revenue per account. What do you think I mean when I say annual contract value or ACV?
Fisher: The word that confuses me is contract. Annual is yearly, and value would be how much is worth relative to something else, but contract?
Rob: Yeah, it’s weird. It’s another clunky phrase that I wish was different. Maybe ACV stood for annual customer value, the value that I received from a customer in a given year.
Fisher: It would make more sense.
Rob: Yeah. And do you know what that means? Let’s say a customer pays me $10 a month, what do you think is their annual customer or contract value?
Fisher: 10 times 12 is $120.
Rob: Right. So that’s it. That’s ACV.
Fisher: $120 a year?
Rob: Yeah, but if you get a thousand of them, then you get $120,000 a year. With that, I want to cover just a couple of more things. This is all revenue. You notice that this is all money coming in. We haven’t talked in SaaS about anything going out. So we’ve talked about MRR, ARPA or ARFC, annual contract value.
One of the hardest parts about SaaS is that your customers can cancel anytime. What if a customer, if you say they’re going to pay me $10 a month, do they pay you that forever? What if someone decides they don’t need it after three months and they cancel? How much have they paid you?
Fisher: $10 a month that’d be $30. You’re expecting $120.
Rob: Right. So in that case, you expected them to pay you $120 in a year, but they only paid you $30 and they’re gone. Do you know the word for that when someone cancels that we use inside SaaS?
Fisher: Cancel? I don’t know.
Rob: Yeah, that’s called cancellation. But the way we represent it as a metric or as a number is we call it churn. Churn is the percentage of your customers who cancel in a given month. Churn with an N. Churn. You know, like churning butter. It’s that word. The reason it’s called that (I think) is because it’s like you’re churning butter. It’s you’re turning it over. You turn butter over and over to make cream, white milk. You turn cream over and over to make butter.
You can tell I’ve lived on a farm. But you’re turning customers over in this case. What if I had 100 customers at the start of a month, and then 10 customers canceled during that month? What do you think as a percentage? What do you think my churn would be?
Fisher: 10 out of 100 would be 10%. So you have 10% churn.
Rob: That’s correct. That’s called customer churn. There’s also something called revenue churn, which is, let’s say I had $10,000 a month in MRR (monthly recurring revenue) and $1000 worth of MRR canceled. It doesn’t matter if it’s one big customer, or if it’s a thousand $1 customers, but it’s that amount of MRR churn. So $1000 out of $10,000. What would that revenue churn be?
Fisher: $1000 out of $10,000. $1 out of $10 or $10 out of $100 revenue churn.
Rob: Right, 10%. It’s the same number because these are contrived examples. 10% churn, does that sound high to you or low to you?
Fisher: I don’t know.
Rob: Imagine that every month you turn 10% of your customer base. So you go from 100 down to 90.
Fisher: That’s quite high.
Rob: Then you churn nine that month, because it’s 10%. So now you’re at 81 then you churn 8.1.
Fisher: And then you bankrupt yourself.
Rob: Well, that’s what happens, right? 10%, churn, I believe you, you churn out 90% of your customers, and I forget what the number is, but it’s eight months or something. It’s the end. It’s expensive to find new customers. It’s the death of SaaS growth, it makes it hard to grow when people are canceling. That’s a more advanced topic to talk about, eliminating churn and why that happens and all this.
But I want to get to this concept called lifetime value, which is what do you think that means, lifetime value of a customer?
Fisher: The only thing I could guess is, how much money they could give you in their lifetime, I guess? I don’t know.
Rob: That is another one where lifetime is maybe not the best term for what it is. It’s like the relationship value of the customer.
Fisher: The lifetime is how long they use.
Rob: Yup. How long they use your software, how long they pay you for your software. That makes sense. We call it lifetime value. It should honestly be relationship value or something like that. Let’s say someone signs up, they pay you $10 a month, and they stick around for 20 months, and then they cancel, what was their lifetime value?
Fisher: Okay, they gave you $200.
Rob: That’s right. Usually you don’t look at it as an individual customer. You look at an aggregate because when you have a thousand customers, they’re all paying you different amounts. Some cancel at month 6, at 9, at 12. You have to average it out. To calculate the average lifetime value of your customer, first, you need to calculate the average lifetime of your customer, the average time a customer stays with you.
I want to name the formula for this and have you tell me if you think it’s intuitive or not. If you had 5% churn, for easy math, it would be 1 over 5% which is 1 over 0.05. How many months is that? One divided by 0.05 is the number of months, the average lifetime of your customer.
Rob: Close to estimate, it’s zero.
Rob: Yeah, if it was 0.5, that’d be 50%, and your average lifetime, it would be? So the lifetime average would be 10 months or 20 months with those numbers. The way you get your lifetime value of a customer— remember this is relationship value—is you take that lifetime, 10 months, 20 months, and you multiply it times your average revenue per customer. If we go back to our example earlier, average revenue per customer per month is $10. Remember, we did the average. If your average lifetime is 20 months, we take 20 times $10. Audio math is riveting, isn’t it?
Fisher: Equals $2000?
Rob: $200. That’s an average revenue over the lifetime of your customer. It’s called the lifetime value of a customer on average. And $200 is actually fine for a small business. It’s really, really hard to grow a company with a $200 lifetime value. I feel like that covers the revenue side, the money coming into the business.
I really want to talk about the two largest expenses. There are tons of expenses in any company, even in SaaS. There are the incorporation fees and there are legal fees and you have a payment processor like Stripe and you pay a small amount to them, but really the two biggest expenses, what do you think they are?
Fisher: I can see the document where you’ve listed these things.
Rob: Well done. Hacking the system.
Fisher: I can see it on the dock and I was going to guess salaries anyway, paying your employees.
Rob: That’s right. That is the number one expense.
Fisher: Other expense is how much the time was worth making the product.
Rob: Yes, that’s right. It’s different. Remember we talked about COGS or cost of goods sold with Lego and how they might have a lot of that because they have a huge manufacturing plant. They have people on the floor and they’re paid for the plastic. There are all those things. SaaS really just has time, doesn’t it? And time is money. You’ve heard this expression, right? Let’s say I hire five engineers, two support people, a customer success person, and a salesperson. What do I have to pay all of those people? Back to our first thing, dollars?
Fisher: I don’t know. I can’t estimate all those people.
Rob: I’m not asking how much but what do you think I pay them in? Do I give them granola bars to show up for work?
Fisher: No, no, you give them money.
Rob: Monies. Monies or salaries are your number one expense. The other one and it’s another SaaS metric, much like we talked about it, MRR and average revenue per customer, annual contract value. These are metrics that we track and pay attention to and try to improve. The last one I want to talk about is CAC.
Fisher: That’s funny. CAC.
Rob: Cost to acquire a customer. What do you think cost to acquire a customer means?
Fisher: I guess it’s an estimation, but you could estimate how much money you spend on the products you acquire. I don’t know.
Rob: You’re getting there. Yeah. It’s how much money you spend on marketing.
Fisher: Oh, it’s marketing. Okay.
Rob: And it’s averaged. So realistically, if you’re buying ads, it’s usually easy to calculate costs to acquire a customer. Because you know that if each click is $1, and 1 out of 10 clicks results in a customer, you’ve paid $10 to acquire each customer. That makes sense.
Rob: Okay. It’s harder when you’re doing things like producing content, because really, what is the cost of your founder’s time? Sometimes I’ll see CAC estimated as all of our marketing expenses, divided by the number of new customers we receive in a month, and it’s across all of those things.
The hard part is, you do want to drill down further because you want to figure out where you’re low. Why would you want to figure out where your low CACs are? If I had three different marketing approaches, let’s say I was running ads, and it was $10 to acquire a customer.
I was creating content, meaning I have maybe videos on YouTube, and it’s costing me $50 to acquire a customer. Then I’m doing outbound sales, like reaching out to people on LinkedIn, Twitter and email, and it’s costing me $100 to acquire a customer. Well, which one of those is best? And why is that important?
Fisher: Well, LinkedIn and YouTube. The last two approaches I already forgot.
Rob: The first one was ads, it was $10, $50, and $100.
Fisher: Then reaching out for people for $100 bucks for a single customer would obviously be the weakest. You would probably eliminate that one and spend that money on salaries or more marketing.
Rob: Right, the other approaches that are working. You’d rather try to optimize.
Fisher: That’s why you need to know the weakest approach.
Rob: Very good, sir. That’s your SaaS metrics. Do you feel smarter for having had this conversation?
Fisher: I don’t know. I kind of already dealt with all of them.
Rob: You knew most of these things. All right. Well, we won’t tell the people that because the whole point is I was supposed to be explaining it to someone who didn’t already know these.
Fisher: Plot twist. Your editor doesn’t cut this part out.
Rob: I thought we were going to leave it. Do you have a YouTube channel you’d like to plug?
Fisher: Yeah. I know you’re not going to do it but subscribe to my YouTube channel.
Rob: How do they find it? They go to youtube.com and they search for what channel?
Fisher: This is going to cringe, I’m not going to lie. I haven’t played Among Us in 12 months and this is a reference to that.
Fisher: Yes. Because no one even spells it with a Y anymore, or else you’ll cringe. It’s just the laws of dignity now.
Rob: Laws of dignity thermodynamics. Am I right?
Fisher: Yeah, editor, editor, man, I’m sorry. You had to listen to 35 minutes of unsmart people talking. Thanks for editing stuff.
Rob: Thank you for joining me on the show today.
Rob: If you enjoyed that episode, let me know. I’m @robwalling on Twitter. Let’s connect there. If you haven’t downloaded our two free guides, these are never released podcast episodes plus PDF guides. First one is Eight Things You Must Know When Launching Your SaaS. The next one is 10 Things You Should Know As You Scale Your SaaS.
These are my learnings from 15–16 years-ish in SaaS as well as mentoring, advising, and starting companies. I put them all into these two episodes and these two guides. If you go to startupsfortherestofus.com, enter your email, and we will send those to you.
Thanks as always for joining me again this week. I look forward to being back in your ears again next Tuesday morning.
In episode 600, join Rob Walling for a solo adventure as he dives into topics ranging from when to hire your first manager to a mental framework for deciding which things to work on vs. what to delegate to your team. He also shares his thought process behind when things take multiple iterations and how to know whether or not you are on the right track.
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Learn more aka.ms/startupsfortherestofus
Topics we cover:
[1:04] A mental framework for deciding what things you should focus on as a SaaS founder vs. what to delegate
[7:28] The importance of resting and taking proper breaks as a SaaS founder
[14:28] When to hire your first manager
[14:50] The two main components of management: supervising and leading
[18:45] The importance of continuous iterations
[26:21] Why you need to manage your own psychology as a founder
[28:11] Hitting a big podcast milestone: 600 episodes
Links from the Show:
- Strawberry Fields I Beatles
- Yesterday I Beatles
- Episode 200: Customer Acquisition Plans for Bootstrappers
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you.
Welcome back to yet another episode of Startups For the Rest of Us. I’m your host, Rob Walling. I’m doing a Rob solo adventure this week. I’m going to talk through some thoughts and mental frameworks about certainty versus uncertainty. Which things should I be working on versus delegating, supervising versus leading? Might even touch on a concept called spell burn and talk about thought processes behind when things take iterations and how to know if you’re on the right track.
The first topic I want to cover today is a question that I’m asked relatively frequently. It’s something that I’ve just written down in my book that I’m working on. I’m working on a book about building seven-figure SaaS companies, mostly bootstrapping. This question of, what should I be focused on versus which things should I delegate, which roles, which responsibilities, and which tasks. The framework that I have around this is certainty versus uncertainty.
There are so many tasks in a startup that you’re relatively certain what the outcome will be. Email support is a certainty. You’re going to get some emails, and it’s a certainty you’re going to have a response to those emails, right? There’s not so much creative work or big levels of, is this going to happen? Is this going to work? I need to try a bunch of different things before I figure out what works.
In the early days, the first month to three months, yes, there are new questions. You don’t know what’s coming, but eventually, you get your canned responses. You’ve seen 80% of the tickets that are going to come through and you figure out ways to put stuff into KB and to make support a repeatable process. This is similar even with software development without actually writing the code.
Unless you’re building something incredibly novel, incredibly difficult. AI, machine learning, or something maybe with VR—unless you’re doing that, the odds are that once you know which features to build, getting that feature built is pretty predictable. You know that you can build the page to have the checkbox with the setting that says whether people should send email or receive email. It’s a checkbox. You can build this.
You may be off on that time estimate, is it going to take a day or is it going to take three days? That’s a little uncertain, but getting that task done is pretty predictable. Thus, I would call it a certainty versus which features should we build in order to get closer to product-market fit or in order to satisfy more customers? Which features should we build next? How should we prioritize these? It’s uncertain, it’s kind of foggy. You do not have absolute data. You don’t know exactly which is going to work. Frankly, you’re probably going to have to make some mistakes along the way. You’re going to build some features that maybe you shouldn’t have built.
We did that. I’ve done that before. You build them and then you think a year or two later, no one ever uses that. Why did I build it? But you need to get enough successes when you’re doing that, that you keep pushing the product forward.
Another big area of uncertainty is in marketing. When you don’t have any marketing approaches that are working and sending constant consistent leads to your site, it’s going to be some uncertainty of, we don’t have any data on which approaches we should try. The first thing I would do is go to my rules of thumb like what are the five main B2B SaaS marketing approaches. I will reveal those in my upcoming book.
I would pick one of those, I would dive deep on it, and you try it. You go months, you go all in, and you spend the time. It may work and it may not. The uncertainty there is kind of unnerving. But being a founder is making hard decisions with incomplete information. As you think about these two paradigms of certain versus uncertain, realistically, as the founder, you should be diving into the things that are hard and that are uncertain because you’re the best equipped to figure those out.
There are some exceptions I’ll say. Could I just hire a marketing genius unicorn who can come in and take the uncertainty, try a bunch of marketing approaches, and figure them out? Is that possible? Yes. Is it likely? No, you are going to have to find the 1 in 10,000 marketers, someone in Asia […] or […]. There are a few other folks I’ve worked with who are that good that they can take the strategy, try a bunch of things, figure it out, and then make them more certain.
Once you’re six months into running ads and they’re working, once you’re six months into SEO and content and that’s generating leads and it’s growing your business, that becomes more of a certainty. At that point, that’s when you can start to think about handing it off. You hire someone, you bring somebody in who’s really good at that particular thing. You bring in an amazing content marketer and amazing SEO writer.
This is now a proven aspect of your business, just like your product is. Deciding what to build next is really, really hard before product-market fit because you’re flailing all over the place. You don’t really know. You see, I don’t have 80% of the features that I need. Flash forward to three years, you have product-market fit. You’re doing $2–3 million a year. It becomes a lot easier. From experience, it becomes a lot easier to look ahead almost a year and say, this is probably what we need over the next year.
There’s always going to be stuff that makes its way in that you didn’t hear about. By that time, you’ve heard so many suggestions. You’ve heard the gamut of what someone could possibly want in your product because there’s maturity and it’s become a more certain piece of your business. In fact, that’s at the point where we hired our first product manager, the first time that the two co-founders of Drip did not make every single product decision about what should be built.
You know a lot about how it should be built—although we had designers helping us with that—the first time was when we were doing a few million dollars. We could have possibly done it a little earlier. I’m going to be honest, there was a lot more uncertainty before that point.
The lesson I want you to take away as a founder or an aspiring founder is that the areas of uncertainty are going to be the ones that you don’t want to lean into. Your comfort zone is in areas of certainty because you know that you can do them. You can write the code and ship the code to make the app.
The uncertain piece is, do you know what to build to make the app viable, to make it into not just a hobby but a business? The answer is probably not. You need to lean into the uncertain. The riskier aspects of your business at the start because those are the ones that make you uncomfortable. Those are the ones that are going to help you. You’ll actually grow the business. You can use this as a guiding principle of the moment. I have enough money to hire someone, whether it’s a part time contractor, whether it’s a full time person. I would always be looking to essentially offload the areas of certainty.
Customer support is an early one. Software development, it is more of a certainty. I know there’s craft to it. I’m a developer myself. I really used to be a developer, but I know the craft that goes around development, and that as a founder, you care more than anyone else. That’s true, but honestly, if you want to grow this business and you want to build something that people want, get there fast, and be an ambitious startup founder, you are likely leaving growth on the table by hanging out in areas of certainty for too long.
My second topic is about as a founder, giving everything to your business without taking the proper breaks or the rest to recharge. It is a recipe for burnout. This is also a recipe for not operating at a high level, not operating at your peak productivity. For this, I want to use an analogy from a tabletop role-playing game. It’s called Dungeon Crawl Classics. If you’ve heard of Dungeons and Dragons, this is a game similar to that.
You roll the dice. It randomly decides if you hit or you don’t a creature and how much hit points you do. There’s solving the puzzles. There’s exploration. It’s an interactive game. It’s a fun game. You can play in person or some folks play it online. The thing that I like about Dungeon Crawl Classics, which I’ve never actually played.
I have the rulebook and I listen to some podcasts of people who talk about it, but one of my favorite elements of DCC is—it’s called Dungeon Crawl classics—this concept of spell burn. It’s this phrase they invented to define this mechanic of the game. What spell burn is, if you are a Magic user or a mage, follow me on this even if you don’t like role playing games, just follow me. I’ll get back to startups.
Spell burn is if you are a spellcaster, you can burn some of your stats to add to your die roll. When you go to hit or cast a spell to roll back your stats. You have things like strength and agility and I forgot what they’re called in DCC. The DND words are strength, dexterity, wisdom, intelligence, constitution, and charisma. Each of those defines something.
Strength is how strong you are. Dexterity is how agile you move around. Again, DCC has different names for them. I think it’s agility instead of dexterity, but with Dungeon Crawl Classics, you can burn points of strength, points of agility. I think maybe charisma is the third one. When I say burn, basically, these attributes range from 3 to 18. You can say, I’m going to take three of my strength points.
Let’s say, I have 15 strength points. I’m going to take three of my strength points, I’m going to add them to this die roll, and then your strength temporarily drops down to 12. That weakens you. It makes your attacks work less. It literally is taxing your physical form, but it’s like you’re pushing it into the spell you’re casting. Then you know you roll your die and if you hit it without the added three, then you made a bad choice.
If that three is the difference between hitting and missing, you only use this when you really, really need it. It’s going to be a total party kill or you’re going to get crushed. The concept here is that you are literally sacrificing part of your physical form in order to be successful at this action. I’m hoping you can see the obvious path to what I’m about to say about startup founders.
How many founders do we know, myself included, who burned parts of ourselves mentally, physically, and emotionally, to be more successful at an action or to be more successful at our company? How many of us sacrifice sleep, sacrifice exercise, sacrifice personal relationships, sacrifice alone time for emotional recharging? Startup burn, maybe that’s the term for it. I think of it as spell burn. It is taking aspects of yourself and grinding them down and giving it to this other entity so that it can succeed.
In the short term, it will work. In DCC, if you spell burn your points down too low, you eventually can die. You can sacrifice your life to die to cast this last spell. The way you recharge is you take rests. I think healing potions might also work. I actually don’t know. You can tell I like the concept but haven’t actually played the game. But long rests is what starts to recharge you. I think you recharge one point per day or whatever to give you an idea of how long if you sacrifice three, five, or eight points, it can take a long time to regain these back.
It’s the same with startups. It’s the same with your company. When you give all of your emotional energy and all of your time—your 40-, your 50-, maybe your 60-hour weeks if you’re doing that. You empty your bucket for your company or your product and you don’t have any left for the rest of your life, you have to eventually take a rest. You have to step away in a way that recharges those batteries.
Personally, we ran a tiny seed retreat about 10 days ago before I’m recording this and then we had MicroConf right after it. I always know for at least the first two or three days after a MicroConf, I’m going to get almost no work done. I’m going to barely be able to talk to any other human, my wife and children included. I basically strapped on a VR headset for two or three hours. I played a bunch of games. I read about tabletop RPGs. I listen to podcasts that have nothing to do with business.
I watch some TV shows. I don’t really watch TV but I needed to do something that I wasn’t thinking about, interacting with, or diving into the business because I had spell burned myself into a place of exhaustion, which is what happens and it’s okay. I know that going into it. In fact, I’ve talked to several people on my team, Producer Xander and others. Basically, it’s the same thing. We all felt that way because you put so much into it.
The lesson I want to say is, look, it’s okay to do that but know that you have to take this in seasons, and you need to recharge quite frequently, probably more frequently than you think you do. While you will have seasons of maybe working long hours and being really emotionally intense about it. If you do that for months or years, it will absolutely grind you down. It will lead you to burnout, it will lead you to unhappiness. It’s just not a long term sustainable approach. Anytime I can talk about tabletop RPGs and relate them to startups, I consider that a win.
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My next topic is around management. More specifically, it’s a question I received from a founder that was saying, when should I hire my first manager? As a startup founder, should your third hire be someone who manages other people? That was kind of the question we were getting at. To answer that question, I had to frame it with this framework that I have around management. I think there are two components to management, there’s supervising and there’s leading. They’re two very different things.
The supervision is more of a mechanical approach. It’s taking care of vacation requests, it’s being a liaison between them and HR, it’s doing monthly or weekly one on ones, it’s annual reviews, it’s worrying about pay in terms of their salary, and that they’re well compensated, that they’re happy. It’s the mechanics of interacting with that person on your team versus leadership or leading, which is the way I define it is guiding them, mentoring them, and overseeing their actual on-the-job actions.
I want to give an example to illuminate this. If you’re a developer, it’s often that you’ll have a tech lead who is not your manager. That tech lead is probably doing code reviews for you, mentoring you in terms of software development, making sure the code base is great, guiding architecture. There are all types of things happening, but the tech lead is often not your supervisor or your manager. That often is a director of engineering or a manager of engineering.
In the case of Drip where I was the co-founder, I supervise the entire team. Everyone reported to me. That was because we never got more than 10 people. Frankly, you shouldn’t have more than six direct reports, let me just put it that way. But that’s what made the most sense. I had the most management experience. I was handling all the day-to-day operation and mechanical supervision of everyone.
The leadership—the technical leadership—specifically, was much, much, much more on Derek’s plate. He knew Ruby, I didn’t. He and I would architect things. We would talk about things. We would guide it technically, but he was the tech lead. That was his role, right? All the engineers look to him for technical guidance. Then they look to me for, can I take time off, what’s going on with my health insurance?
Similarly, with customer success, once we had two customer successes, Anna became the head of customer success. She was the technical lead of our other customer success person, but everybody still reported to me. So supervising versus leading. That’s how I want you to think about it. You could have a 10-person company and you could be the supervisor or the manager of 10 people, they’re all reporting to you.
I think at that point, you can’t possibly be a subject matter expert in all the areas and you have to have someone leading at least a couple of those areas. Usually, it’s product/engineering, customer success. I can imagine there being a sales leader. If we were a heavy sales organization, that would have been the case. I didn’t have the skill set to do that.
The reason I make this differentiation is I think the technical leadership or the customer success leadership, that can happen really early. You can have someone who is a good individual contributor be a good leader, but being a supervisor and providing that, I’d say it’s more advanced or more in-depth like feedback and giving critical feedback about performance, that often takes a lot of work. It takes some practice or having worked with a manager that you respect who’s doing a really good job.
I think really early on in your company, delegating leadership of development, leadership of sales, or leadership of customer success I think is an absolute win. I think by the time you’re at three or four people, maybe five, you should start thinking about that. If you have anyone who is a little more senior, delegating that without delegating the supervision, if they don’t have the experience.
Then when you get to the point where you directly have about six direct reports, not including any founders, you should really start thinking about, okay, am I able to promote any of the leads that I have into a full-blown manager where they’re both supervising and leading? I hope that’s helpful for you in thinking through the concept of when should I hire managers for my company.
For the fourth and final topic of today, I want to talk about iterating. I want to talk about how sometimes things take a lot of iterations, sometimes they don’t, and sometimes you nail them from the start.
For this one, I’m going to have another analogy and not tabletop role playing games, but is another one of my favorite topics, The Beatles. So my youngest son and I listen to all the alternate takes of Strawberry Fields Forever. I’m sure you’ve heard this song. The cool thing about The Beatles is they have so many great songs but then they also have all this outtake footage where there are literally at least 26 takes of Strawberry Fields Forever that were recorded. Then there are a bunch more that they were just doing in practice and not recording.
This is an addition to the demo version that John Lennon recorded at his house. The crazy thing about it is they’ve released takes 1, 4, 7, and 26. They’re on Spotify. You can find them on YouTube. Then there’s the final version. Then there’s a demo version. So there are literally six or seven versions of the song.
My son took to this one version that is very different from the others, and of course, these aren’t just takes. When you think of a musician doing 20 takes of something you think, oh, they hit the wrong notes. They were offbeat. But this is The Beatles. They’re genius musicians and almost every take is a full take-through that could have been pressed to vinyl.
That’s not what they’re doing. It’s not that they’re taking it because they screwed up. They’re adapting the song and they’re changing the song over time. When you listen to take 1, it’s a very stripped down almost acoustic thing with kind of a keyboard behind it.
“Let me take you down ‘cause I’m going to strawberry fields. Nothing is real and nothing to get hung about. Strawberry fields forever.”
Then they take six or seven, they’re adding horns in.
“Let me take you down ‘cause I’m going to strawberry fields. Nothing is real and nothing to get hung about. Strawberry fields forever.”
Then there’s the take 26 that has cellos. It has backward drum beats playing in it, it’s way faster. It is just almost a completely different song. The melody and the words are still there but the feel of the song has evolved from John with his guitar into this, frankly, incredible work of art.
“Let me take you down ‘cause I’m going to strawberry fields. Nothing is real and nothing to get hung about. Strawberry fields forever.”
All that to say they didn’t do that with every song, but they were willing to put in the time and they were willing to follow their gut to get to a vision that they had in their head. You know John Lennon, Paul McCartney, or George Harrison that they had a vision in their head of what that song maybe should sound like, but they didn’t know exactly and they just had to work it and work it and work it and get there.
Then there were songs like Yesterday that Paul McCartney woke up and the melody was in his head and he thought that he had heard it somewhere else but he remembered it anyway. He’s playing the song with different lyrics. Originally, it was called scrambled eggs. Really bad words. Not like “yesterday, all my troubles seemed so far away” is a good song. But it was like “scrambled eggs, oh, how I love your legs.” I think that was the original lyrics.
It’s terrible but he’s playing this for people saying, have you ever heard this? Have you ever heard this? Because I think I’m ripping this off by accident because it was just in my head. That was it. He wrote the lyrics. My understanding is there are two takes, literally two takes, that’s it, of that song. Because the song was done. He knew it had hit the vision and he knew it was amazing. I think it’s my favorite Beatles song. I think it’s one of my favorite songs of all time, to be honest.
It is, I think, still the most covered song ever, that has the most cover versions of any song ever written by anyone is Yesterday. I think there’s a little testament to it’s probably a pretty good one. Here, on one hand, we have Strawberry Fields Forever, with all this iteration over days and days and days, getting not a full orchestra, but most of an orchestra involved and having all these versions, and then we have Yesterday that pops into a guy’s head that he does two takes of and then it’s done.
There are other examples of this, not just The Beatles. I’ve been to several Picasso museums. It’s funny, Picasso’s art is fine. It’s not like I’m enthralled with Picasso, but Picasso’s creative process is incredible. There’s a reason that I have a Picasso guitar tattooed on one of my arms because I’m enthralled with the fact that he would paint the same painting in different ways 20, 30, 40 times because he was iterating trying to figure out how am I going to get this to work? How does this fit together to where this finally lives up to my taste of what I want this to be.
That’s how he invented Cubism. You can google that, but it’s an entire branch of art. It’s a style of art that just didn’t exist. He learned the basics, he learned the fundamentals, and he painted paintings like everyone else. Then he just started iterating and iterating. You’ll see there’s one room—I believe it’s in Barcelona, the Picasso Museum in Barcelona—where there are 25–30 versions of the same painting with different colors from different perspectives, with different views, and it changes each time.
I’m so struck. I sat in that room for 10, 15 minutes and just stared at these works of art that any one of them is a work of art and could be hung in a museum, but they didn’t live up to his tastes. It wasn’t what he wanted. He knew he was not getting the results that he wanted so he kept iterating.
Similarly, Einstein spent how many years iterating and developing relativity, it did not hit him instantly. I think that’s a long way of saying that in startups, it’s the same thing. Sometimes you will start a marketing approach to content, say SEO. It kind of works from the start, but it doesn’t really. I think founders who aren’t long term successful, they throw their hands up and say, this doesn’t work. AdWords, Facebook ads, they just don’t work. But they do and they can.
They may not work in your space, that’s true, but did you think that maybe you didn’t iterate enough? Did you think the execution is off, that you need to play around with it more? Maybe you need to get better at Facebook ads, Google ads, content, SEO, maybe you need to give it more time. There’s a balance here. You don’t want to do something for a year and spend all that time and have it not work.
Also, I think, giving a marketing approach a month or giving a product three months to find the product-market fit is too short. There’s someplace in between where you need to see the progress along the way that as you iterate, there should be some progress made. You should be getting some traction with it slowly. You start to see that light at the end of the tunnel. You start to see take 26 on the horizon or painting number 30 where you think I’m getting there.
I’ve said before, so much of being a founder is managing your own psychology. Part of that is knowing yourself. If you’re the one who tends to just skip from one thing to the next and you don’t iterate, you don’t improve it, and you don’t put in the time to figure out these hard things, then you probably need to stick with things longer than feels rational, longer than you want to.
You need to get reinforcement from a mastermind group, from a co-founder, from someone else who has some insight in your business because oftentimes we have blind spots. We need a different perspective to help guide us or to help push us when we want to skip to the next thing.
Conversely, if you’re the person who sits and grinds on something for nine months—I tried Facebook ads for nine months and they didn’t work—probably too long then. You probably should have got some outside counsel before. Maybe you should have considered hiring a consultant. Maybe you should have just bailed on it and moved on to content SEO.
There’s this balance of knowing yourself and knowing what your tendencies are. But realizing that even geniuses, even the best there have ever been—people like Einstein, Picasso, and The Beatles, these names are synonymous, they are used as examples of geniuses. Even these inventors, artists, and musicians had to iterate over and over and over on their works to get them to be successful, to get them to live up to their taste.
I think to a lot of us, this is where we put our creative juices. This is how we get that feeling of building something. This is our dopamine rush. For some people, it’s writing a song or painting and for others, it’s shipping a feature or it’s building a multimillion-dollar company that changes your life. I hope that thought of sometimes needing many iterations, sometimes, though in rare cases, that kind of thought process or mental framework is helpful to you this week on your entrepreneurial journey.
Speaking of showing up every week for 12 years, this is episode 600. I debated whether to even bring it up because I’m just not sure how important that number is. It shouldn’t be any different than 599 or 601. It happens to have a couple of zeros at the end but you show up every week to build something like this. When these 100-episode milestones hit, I always think I should do something different and special. I should bring on these guests and we should reflect on things we’ve done and how we’ve done it.
We have done that, right? Mike and I had our wives on for an episode. That was probably episode 200. I’ve done reflection episodes, look back episodes, we’ve had people send in audio clips, we’ve had all that all the stuff. I think that’s great. Maybe at 700, I’ll do that again. I think it’s a good reminder to think about sometimes just showing up every week and putting in your time, whether it’s this podcast or whether it’s showing up every day to ship that next feature, celebrate your milestones, and I’ll be celebrating privately.
I’ll probably hang out with my wife and kids tonight and raise a glass to episode 600. But as you build your product, as you build your business, as you build your company, remember to think in terms of years, not months. Sometimes just showing up every day or every week and putting in the work is what you need to do to get to where you want to go.
Thank you so much for joining me this week and whether it’s for the last six or last 600 episodes, it’s been my absolute pleasure to get on the microphone and be able to think about these things and talk about them, and hopefully, these are helpful to you this week or this month or this year as you build and grow company. Signing off from episode 600. We’ll be back in your ears again next Tuesday morning.
In Episode 593, join Rob Walling for a Solo Adventure as he chats about accidentally deleting all of his old tweets, retaining talent, the ideal market for a SaaS business, and more.
The topics we cover
[3:10] Deleting old tweets
[8:43] Retaining talent
[12:39] Ideal market for a SaaS business
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
I had a fun episode this week. It’s a Rob solo adventure. I’m going to talk through a couple of listener questions, tell a story or two to kick us off. There are first stories that still kind of pain me. It goes under #toosoon, but it reminds me of those times where if you have written a database query, and you forgot the WHERE clause, where you write, update this column in the database to XYZ, then you forget to hit WHERE, you submit that clause, and you wipe out a whole column in a table and you have to go back to a backup.
It also reminds me of the time, Derek will be fine with me sharing this, but this is probably 2014, maybe even late 2013, we’re like a year into Drip. Sunday night, my phone rings, the first problem is we didn’t call each other, it’s all texting. If someone calls me, I consider that they are being held hostage in an overseas prison somewhere or that something’s on fire, their house or our servers are on fire. I literally picked up the phone. I said uh oh, that’s how I answered it, and it was Derek just sweating bullets. He said do we have a backup of the database? I said yes, we have a backup. What happened?
He had done something like that where I think he forgot the WHERE clause, it was in the credit card table. I think we had a hundred customers at the time so it would have been bad but not the end of the world. Basically, I think it had overwritten all the credit card numbers in the table or something like that. We didn’t even store the full credit card. Maybe it was the Stripe customer ID that allowed us to charge it, it was easily fixed, and we lost no data.
I remember that feeling when I did that, I did it to an ecommerce website back in, it must have been 2001. This is before Shopify. We had built a custom ecommerce shopping cart and the whole website was all custom. I did that to the order’s table or the order in progress table or something, and it’s just the worst feeling because I hit this update, I forgot to say which row to update, and it’s taking way longer than I think it should to execute. Why is this going? About 10 seconds in I’m like oh, good Lord, how do I cancel this command? Of course, it’s already done tens of thousands of rows of damage.
That was another one. We had a database backup and refreshed it. The reason I’m telling all these stories is that a couple of friends of mine over the past year or so have started deleting old tweets and I didn’t really understand that. They set up a service that recurring go back x months and just deletes anything before that in their account. I was asking one friend about it. I said, why do you do that? He said people will go back through your tweets, they’ll go back 10 years, 12 years, and they’ll dig something up like quoted out of context, basically. I just never wanted that to happen.
When he said it I was like yeah, I guess it could happen but it feels a little overly paranoid. Then of course, in the past three months, I’ve seen this happen twice to notable people where someone just comes back through and says something, well, that’s not really what I meant or cultural norms have changed. There are all different types of things that can happen.
The most recent one was someone built a copy of Wordle on iOS and just duplicated it. Wordle wasn’t even original to the guy who built the web. Is there a web version? I don’t play Wordle, I don’t know. Who built the version that’s popular right now, it’s actually from some game show in the ’70s or the ’80s.
Anyway, this guy builds a copy and there’s this big hubbub. They go back through his tweets and they just roast this guy. There’s a big pile on because it’s Twitter, of course, and there’s a certain group of people who kind of just want to be angry about stuff all the time.
Anyway, I’ve sat, watched these, and kind of listened to […]. I think, you know what, I don’t say controversial things in general, that’s just not that’s not my bag. That’s not how I built my personality or my brand. That’s just not really who I am so I’ve always been careful. I have nothing that I’m worried about in particular, but I started tweeting in I believe it was 2009, so we’re talking 13 years.
Over that time, I found out because I signed up for some software and it said I had 9300 tweets, likes, and retweets. Not actually that many, which I think shows a little self-restraint and also a few years where I completely quit Twitter while I was building Drip.
All that said, I thought, what does it hurt if I go back and I delete even the first 8 years, 10 years of my tweets. I don’t need them. They’re these super ephemeral things anyway. These aren’t like blog posts.
I went back through robwalling.com and I had a couple of hundred essays there. I read through a bunch of them and I was like these don’t hold up. These were really a point in time where Digg was a big thing, social media, or social news websites, it’s not relevant anymore. I even had to prune some of those a while for both for SEO purposes, but just to get the old thinking off of the site.
I was like yeah, I’m going to delete 6000, 7000 of these. I think it was the first 10 years basically in my history. I feel like since 2018, 2019, I’ve been tweeting more, and I’ve been more consistent about it, really giving more thoughtful tweets, doing threads, and that kind of stuff. I figured, hey, I’m going to keep that and delete the rest. I don’t see any downside to doing it.
I went into the software, it was recommended, and it was good, it was fine to sign up. It’s relatively inexpensive. I started using it and their date picker is a little finicky. I really struggled to get the first 10 years, 8 ½ years, or something, and eventually, I did. It’s like cool, those are all the tweets. You have to go through this whole process of downloading an archive and uploading it into the software.
I took a deep breath, it was a Sunday afternoon, and I hit submit. I sat back and it said deleting 9300 tweets, likes, and retweets. My eyes got wide. I was like what? It is that hair stands up on the back of the neck, all the blood rushes out your face, and I’m like it’s deleting everything, everything I’ve ever tweeted.
I get this mini panic attack. I knew the date thing was finicky, but it’s deleting everything. I like to go and look for a pause or stop button. I emailed their live chat. Of course, they’re in Eastern Europe so it’s midnight, 2:00 AM, or whatever it was. I hope that your bug is not deleting my entire Twitter stream, all my tweets forever. Of course, it did.
For hours, I was in shock that all my tweets, they’re gone. Before long, I realized it doesn’t matter and that’s the shocking revelation is it just doesn’t matter. That’s how ephemeral these things are. No one noticed, not a single person pinged me, asked me about it, mentioned it, called it out. I deleted a tweet I think from less than 48 hours prior and it just doesn’t matter.
There are a couple of things. The interesting thing is that man, it sucked and it’s kind of a funny story to tell in retrospect. The other interesting thing is that I feel like if I deleted all my essays or all my podcast episodes, that would matter because people go back, they listen to them, and there’s still value. If I deleted my book, pulled it down from the internet, people would still buy and read that book, my first book Start Small, Stay Small.
It continues to reinforce this idea in my mind of ephemeral things like social media and I guess the questionable value that I see in them. Of course, you’re going to still see me on Twitter because that’s what we do and that’s where we hang out.
All that to say, I don’t know if there’s a great lesson to take away from this other than it definitely made me continue to think about social media, what is the value of it, and knowing that the value is probably not in any type of long term staying power. It’s much more about that at the moment part of the conversation.
My next topic before I get into some listener questions and comments is from a conversation I had with a founder who was asking me how I can retain this person? It is a senior dev at his company, who I think is working part-time, half-time as a contractor, and works on other projects as well. The founder was asking me, how can I motivate this person to come and work with me full time? He has a lot of options. This is the gist of the message that I sent back to him.
I said, I would ask what he was looking for. Some people are less motivated by money and they might want one of the following: control over what they work on, to have a big impact on the app they’re working on, to know for sure the job is stable, to not have their spouse/family be suspect that they’re making a bad choice taking the job, more money, flexible working hours, to manage or not manage people, remote work, autonomy, the potential for advancement, ownership along the lines of stock options or profit-sharing. I would just ask him what’s important and try to give that to him.
The reason I’m reading that here is when you’re hiring or retaining, keep in mind that not everyone is motivated by money. I think in sales and on Wall Street like in finance, traditionally, people are motivated by money and that’s why they gravitate towards those things. I don’t think it’s a stereotype as much as it’s mostly the way things are done. In a lot of other roles, money is lower on the totem pole than that list of things that I just mentioned.
In particular, I think in this competitive job market where everyone can be remote, anyone can now get a job at Google or Facebook and get these really high salaries because they basically pay above market. If you’re qualified, they pay above the market rate in your city or town. Think as a founder of other ways to motivate. It’s harder to do when you’re first hiring because you don’t know the person and it can be awkward to figure it out or ask.
Retaining is different because oftentimes, you’ve worked with that person and you kind of learn what their personal life looks like. You realize that, wow, for this person, maybe working four days a week, just working 80% of the time is actually a huge benefit to them. They will stick around a long time, a lot longer, if you are able to give them that flexibility, or as I said, to know that their job is stable, to have a huge impact on the app that they are working on, and have more control to manage or not manage people.
There are all types of things. I think we often get stuck on this transactionality of it where it’s salary and benefits and it’s kind of those things. As startups, we still have advantages over these larger companies. It’s not just remote work like it has been for the past decade, but it’s several of these other things. It’s the flexibility to be able to meet people where they are, where they want to be met, and potentially retain some people who might otherwise leave even if you don’t have the money to pay them top dollar.
My next topic is a topic submitted by a listener, and actually, I want to go back on what I said earlier about not losing anything by having my tweets deleted. The one thing that I lost is I tweeted a question. I said Courtland Allen’s come on the podcast, what should we talk about? There were about 25 or 30 pretty interesting topics and we only covered maybe five of them in that. Then I’ve covered I think four or five since then. There were still 15 or 20 topics that I think could have made great conversations and of course, they’re gone now.
This was from that. I had already copied it into our Questions Trello board. A question is if you had to start a new SaaS today, what are all the criteria that the market or the app would need to have? There’s a lot and this varies by person.
I remember sitting down with Derek Reimer before he’s going to start starting SavvyCal and he had his list of personal requirements. I think some people, if you’re a true lifestyle bootstrapper and you just want to build $100,000, $200,000 a year app and live the amazing four-hour workweek life, then your criteria will be different than someone who wants to build seven- or eight-figure business and sell it for $30 million or $40 million and get there in three or five years. The markets are different, the problems that you’re going to tackle have to be different to have those different velocities.
My list is from someone who has stair-stepped his way up into a place where I’m not going to build a small app anymore. If I were ever to build a SaaS again, I would not want it to be a six-figure ARR company because I’ve been there, I’ve done that, and it just wouldn’t be interesting. It wouldn’t be learning for me at this point. Even building a low seven-figure SaaS app would be retreading old ground.
My criteria come down to several of the following. I don’t know if this was an exhaustive list, but I jotted a few down coming in because there are a lot of things to be thinking about. The first thing, of course, is business to business. I wouldn’t go to consumers and I frankly wouldn’t want to be marketing to aspirational folks or prosumers. There’s just too much price sensitivity and the churn is too high.
The next thing though and what’s super important to me is that it has some organic reach, meaning that people are searching for it. This goes all the way back to the Start Small, Stay Small days, but not just that they’re searching Google for it but there just is a market-proven out for it because inventing a category or building out a market is not something I’m particularly interested in.
If you think of Drip and how it started, before it was an email service provider. It was actually an email capture widget and there were no other apps doing that. There was no sumo.com. There was no OptinMonster when we launched, or maybe OptinMonster was WordPress, and it launched within a few months of us. It was really right around the same time.
We were moving into this new category and then what I realized was there was so much demand in this existing category of email service providers and that the big ones weren’t able to provide for their customers and that’s why we basically moved into that space. Within months of launching in 2013, we moved into that space. It was very fast. I would want there to be an organic reach because I have the experience and the resources to be able to get in front of whether it’s search volume or wherever else that reach is playing out.
Another thing I’d be looking for is some kind of virality. It doesn’t need to have this incredible built-in viral loop like a social network, but when I look at SignWell which is e-signature from Ruben Gamez, when I look at SavvyCal which is a scheduling link software from Derek Reimer, they both have pretty neat viral loops of when I go to sign a document and I invite other people, they see this neat app that’s easy to use and better than the other products on the market.
Even that little bit of virality that is a natural spread, that’s a really nice flywheel. In the early days, it wasn’t that important but when you get to 100 customers, you get to 1000, you get to 10,000, suddenly that loop becomes a chunk of growth.
The next thing I would think about is I would not enter a space that didn’t have notable expansion revenue because I want net negative churn in any app. After building Drip and having that negative churn in that app, you get spoiled, frankly. I call it the golden ticket. I called it the cheat code of SaaS, but net negative churn is 100% an incredible lever in SaaS companies.
Everyone else who’s not SaaS is trying to get to recurring revenue and SaaS has built-in recurring revenue. We get that cheat code for free, but net negative churn is then the next level. It’s where if I had zero customers this month, my company still grows, -1%, -2% churn. It means you grow by 1% or 2% even if no one signs up, it’s incredible. That would definitely be something I’d be looking at.
The other thing is I would, at this point in my career, only leverage an existing asset that I had. Whether that’s an audience, my network, something to that effect, or something I’ve built, I wouldn’t start from scratch in just a brand new space like I’m going to go build software for construction managers these days because I have advantages that I can and should use. In fact, all of my apps up until Drip pretty much didn’t use any of my advantages. Maybe you could say HitTail did, but I remember having tens of paying customers for my audience at the time, which is not huge.
Everything before that was things like I had an ebook for bonsai trees, I had software for .NET developers, I had no .NET audience, wedding website, SaaS, have any reach into the wedding industry, printers, lineman jobs, which was jobs for powerline electricians. I was grinding it on the marketing approaches. It was SEO, the pay-per-click, the display ads, content marketing, some partnerships, integrations, and affiliate. I am doing the left brain like knowing your funnel and crack on these apps not using the audience, it was a personal brand.
Drip was really the first one that my audience I think had leveraged well. It obviously was in a different space and a more ambitious project, but it definitely showed in the early days with the growth that I had an asset to leverage. Again, I want to reiterate, if I was on step one of the stair-step approach, some of these wouldn’t apply. Maybe I don’t have any assets to leverage, maybe I don’t need net negative churn because I’m just looking to build something that’s going to make my house payment.
Two more things that I would want in a SaaS if I were to enter a space. One is little or no platform risk, ideally no platform risk. What I learned is that almost everything has platform risk to some extent. You have a web hosting provider and you’re kind of on their platform if you think about it.
Sending email, I remember thinking that email is essentially this open-source protocol and that Drip would have no platform risk. Then you send 100 million emails a month through SendGrid and people start marking them as spam, so now SendGrid says, hey, maybe we need to shut down your account.
You have platform risk there or SendGrid is cool with it and the email blacklists were like these bizarre, archaic 25-, 30-year-old things run by these curmudgeonly people who kind of could just add you if they felt like it. It was really this bizarre look into that whole space and it’s one I don’t care to go back to. If they put you on the blacklist, now your IPs are blacklisted and your deliverability goes in the tank.
That’s where I’m saying it’s tough to have a business with really no platform risk, but as small as possible is something that I would want because I don’t want someone else in charge of my destiny. If I want to build a several million dollar company and have a lot of folks relying on it for their livelihood. It’s just not cool to wake up at night and think, can this be put out of business overnight?
Lastly, it’s kind of a two-parter. I would enter a space where there’s not a ton of price sensitivity and that would probably mean having a dual funnel where on the higher end, you can charge $500, $1000, $5000 a month to big players who come through, Fortune 5000 companies who are real enterprise or mid-market.
Also, you have inexpensive entry-level plans, whether you have a free plan or whether you have that $20–$50 entry plan much like an email service provider could have, much like Percy Pricing works if you have an electronic signature or if you have a CRM. People can come in on a small team and hey, it’s $15 a user, $30 to get started. By the time you have 10, 20, 30 people on that team, you get both expansion revenue but you also have that lower-end funnel where you can have a lot of customers.
We see a lot of TinySeed companies come through and they are purely mid-market and enterprise where they only have high price plans. Those are great businesses too and they can grow really fast because the contracts are so big. The ones that I see growing fastest have two funnels and they have the self-service low price funnel.
Squadcast is a great example of this. They are studio quality podcast recording software in your browser. You can think about the avatars that they have where they have the fly fisherman on the low end who’s really a hobbyist, Dungeons and Dragons podcast who $5–$10 a month is kind of where they want to be.
Then you can think about Startups for the Rest of Us, Tropical MBA, any type of business, or any podcast. Certainly paying $50, $100, even $150 a month for my recording software is not that big of a deal. Then you have massive podcasts studios or even radio stations who need to record remotely due to COVID and they can and should pay $500–$5000 a month. You think about that as that dual funnel is having the high end and then those low end plans.
The nice part about both of them together is, (a) your revenue can keep growing each month even if you’re not landing these huge deals because you do have the influx of the lower priced plans kind of like a more self-service model, but (b) the more people you have using your product, the more chatter is, the more of a brand you have.
The difference between having 1000 and 20,000 users/customers like active users is in the Facebook groups, in the Slack groups, on social media, on Reddit, or on Hacker News, people are like, yeah, I’m familiar with that, it’s a great product, you just have so many more. If you had 10,000 customers paying you $10 a month, aside from the obvious price sensitivity that I think would happen as well as the high churn, 10,000 customers are kind of an army, especially if you build a great product. That’s where these dual funnels are quite exceptional.
Those are several criteria I’d be looking at if I was building a new SaaS. Yours may be different or maybe you can borrow a few of mine.
My next topic is actually a thank you email from a listener Pawel Brzeminski who has actually offered some good advice and corrections on my Episode 581, inflation for founders. He wanted to send in some kind words. He says, “I should have included some nice words about your podcast. Startups to the Rest of Us have been absolutely transformational to my entrepreneurial journey. You may not remember, but I came to MicroConf back in 2015 and did a short attendee talk.” I actually do remember.
“The talk was about how I was starting Snap Projections from zero, then grew it to high six figures in a very competitive space, and sold it to a public company within four and a half years for a life-changing sum of money. This would not have been possible without your podcast and the additional resources you’ve created. I’ve always had tremendous respect for everything you do to support young entrepreneurs and enable them to succeed, so big thank you to you.” Cheers, Pawel.
Thanks for the comments. As I say, I put these in a label in Gmail and they mean the world to me. A huge amount of my satisfaction these days comes from emails and stories like these of folks who say your podcast got me through a hard time, whether it was a hard time in business or just a hard time personally. I have podcasts and virtual mentors who don’t know who I am, personally, and I listened to them and they get me through these hard times. If I can be that for you, if I have done that for you, I consider it an honor and I consider it my life’s work. It’s my legacy at this point.
My mission, which is now the mission of this podcast, MicroConf and TinySeed, is to multiply the world’s population of self-sustaining independent startups. I hadn’t realized that I started doing that in 2005, 17 years ago. I just kind of started writing a blog and writing about entrepreneurship. I hadn’t realized it when I wrote my book in 2010, started the podcast in 2010, and started MicroConf in 2011.
These are just steps along the way, you just take the next step, and there is no strategy behind it. It was just something that I was doing to meet other people and to hopefully help folks but also just to get thoughts and ideas off my chest because I come up with these frameworks, I see mental models, I see what worked for me, and it just seemed the right thing to do to share them with people. It would be boring if I didn’t. Just running businesses for me is fine, but it’s not as interesting as interacting with other interesting people.
It wasn’t until probably right around the time I was leaving Drip. It was three, four years ago, where I was like you know what? This is the mission now. This is my legacy and what I’m going to do for the rest of my life is to multiply the world’s population of self-sustaining independent startups. Thanks, Pawel.
If you have a success story and you want to mail it in at firstname.lastname@example.org, as well as if you have any questions or any topics that you’d love to see discussed on the show, even just random little topic ideas or specific questions about your business. I’m actually running very low on questions at this point and so that would likely be covered relatively quickly in our next listener question episode or two. That’s going to wrap us up for today. Thanks, as always, for joining me this week and I’ll be back on your earbuds again next Tuesday morning.
In Episode 572, Rob Walling does another solo adventure to talk about taking responsibility for the outcomes of your business and the importance of putting in the reps as a founder. Bootstrapping a startup is a marathon, not a sprint and it’s important to enjoy the journey along the way.
Thanks to Software Promotions for supporting this podcast! Learn more about their SEO and AdWords services
The topics we cover
[2:20] It’s not your fault, but it’s your responsibility
[8:35] It’s not the game, it’s the practice
[15:23] Dietary patterns Rob wishes he would’ve known 15 years ago
Links from the show
- Episode 551 | Task-level vs. Project-level Thinkers, No Such Thing as an Autopilot Business, and More (A Rob Solo Adventure)
- 11 Years to Overnight Success: From Beach Towels to A Successful Exit – Rob Walling – MicroConf 2017
- Thanks to Software Promotions for supporting this podcast! Learn more about their SEO and AdWords services
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
We are moving things forward now, looking ahead to MicroConf Remote in a couple months, as well as the fact that we just crossed 10,000 YouTube subscribers after just about 18 months on our YouTube channel. That’s youtube.com/microconf if you haven’t checked it out.
We have a lot of folks watching videos both from live streams that we’re doing as well as the in-person MicroConfs over the past decade. We’ve now done 24 MicroConfs including the 4 that we ran last month.
In other news, we announced TinySeed Europe this week. This is a European timezone fund that is going to be investing in B2B SaaS companies across Europe as well as Africa, the Middle East, and anywhere in the European time zones in essence. We’ve been making great progress raising that fund. It’s actually been going faster than we expected.
Obviously, if you’re an accredited investor interested in diversifying into early-stage B2B SaaS companies, head to tinyseed.com/invest. If you think you might want to work with myself, Tracy, and Einar on the TinySeed team—you’ve heard both of them on this podcast—you should head to tinyseed.com/careers. We are hiring a European program manager, full-time hire, fully remote in the European time zones.
Today, we’re doing another Rob Solo Adventure. We’re going to cover a few topics that I’ve had the chance to think about over the past month or so as I’ve been traveling. I plan to cover three or maybe four topics today depending on time.
The first is something that I’ve not only been working on with my kids, but something that I’ve had to say to a couple founders over the past few months. Frankly, it probably needs to be said more often to folks who start their own company. The phrase is this: “It’s not your fault, but it’s your responsibility.”
Some examples of that are at our house, the dog knocked over a thing of glitter that someone had left out—one of my kids. I said, it’s not your fault that the dog knocked it over, but it is your responsibility to clean it up. That’s a simple everyday example.
The bigger one is when I hear founders complaining about things that are holding them back. They’re complaining not in a way of venting, moving on, tackling it, and taking action to fix it, but they’re complaining with the sense that they’re helpless. It’s a sense of helplessness, that someone else should come in, tell them what to do, or fix it for them.
We start companies because we don’t want a boss. We want freedom, purpose, and relationships, and to make money. There’s a bunch of reasons and motivations. Different founders do it, but one thing you have to realize if you’re going to go down this path is that you don’t have a manager anymore. You don’t have a boss to say you have to do this. You have to make some hard decisions about what to do next.
It can be easy to be trained by a system that always shows you the next step. You start in first grade and you know you’re probably going to second grade next, and then you go through eighth grade. Then in the US, you go through high school—ninth through twelfth—some people go to a trade school, some people get a job, and some folks go to college. Maybe you get post secondary education or maybe you go get a job.
I remember my first job. People told me what to do. I showed up for work and they said you do that task. I’ve talked about task-level, project-level, and owner-level thinkers. In the early days, I certainly was a task-level thinker. I think a lot of us are. But it’s easy to fall into a trap of saying, well, someone’s always going to tell me what to do next and to not take your own destiny in your own hands.
A lot of us then go to start a company or we start a side project, whether it’s to make a little bit of money on the side or whether it’s to gain, ultimately, that freedom, purpose, and relationship. The hard part is making the mental shift from someone’s always going to tell me what to do and someone else will take responsibility when things go wrong to the buck stopping with you because the moment you take that plunge, things happen that are not your fault.
Google comes in, sideswipes you, or knocks you out of existence by accident without even noticing. You build on a platform like Shopify or Heroku. They come knocking at your door and they say, we want to take X% of your revenue or we’re gonna put you out of business. We just shut off your API access. Or a competitor comes along who doesn’t even really know what they’re doing, but they’re good at raising money. They raised 10 million, $15 million. You’re basically a bootstrapped and mostly bootstrapped company.
None of these things are your fault, but it’s your responsibility as a founder or as someone who owns the company and is driving it forward to figure out how to make that work.
When things go wrong and bad things happen, you can absolutely be set back. You can absolutely feel that. I’m not saying be impervious, be a Superman or Superwoman, and never feel the pain, the anxiety, or the stress of it. But then take that step back and decompress.
Take a deep breath. That deep breath may need to last many days if this setback is large. Like when one of my apps’ HitTail was completely decimated 3 times in 24 months by Google purely on accident. Every time, it was devastating when it happened. It was an eye roll. It was like, why do I still own this business? I’m focused on Drip, and it’s growing so fast. I don’t have time to deal with this.
It wasn’t my fault, but it was my responsibility. Each time, I took a step back and I took a deep breath. Again, that deep breath sometimes lasted six hours as I was trying to not be so mad, not just throw in the towel, and just shut this whole thing down. Then, I say, all right, how do we fix it?
This is something I also think you should be thinking about instilling into people on your team because this is not something I remember being taught. It was a painful lesson that I learned over the course of growing these companies.
No one’s coming to save you. You’re the founder, and the buck stops with you. That’s something I think more of us can hear.
Like I said, whether it’s teaching your children, whether it’s communicating this to your team, some things will come along that may not be your fault in particular—support person, customer success person, or salesperson—but we have to take responsibility for things at this company.
Obviously, I’m not saying you shouldn’t get outside counsel or that you shouldn’t have advisors, mentors, or even a community like MicroConf Connect, The TinySeed Batches, or a mastermind group who is along with you on this journey, giving you input and insights, and serving as a sounding board and a sanity check for the ideas and thoughts that you have, but no one else will have the context of your business, your industry, and your space like you will.
Ultimately, these hard decisions do often come down to coming up with options and presenting them to your advisors, your mastermind group, and anyone else who you consider your outside counsel. But then it comes back to you as the founder. The buck does stop with you, and the decision ultimately rests on you or you and your co-founders as the case may be.
We have a new sponsor this week. If you’ve attended a MicroConf in the past or seen one of our YouTube videos, you’ve likely seen one of the founders of Software Promotions. Dave Collins has spoken seven times at different MicroConfs.
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They’ve worked with a lot of folks in the MicroConf community, they know what they’re doing, and they consistently produce results. You can head to bit.ly/tamegoogle or look in our show notes for a link to softwarepromotions.com.
The second topic I want to cover today is this phrase that occurred to me during the Summer Olympics this year where I saw an injured gymnast sitting on the sideline essentially not able to compete.
One of my sons asked me, even if you’re injured, couldn’t you pull it together for this one event? Couldn’t you go and do how many vaults you do in the Olympics total? It’s not that many compared to how many she’s probably done in her life.
What I told him was, it’s not the games that are hard on your body. It’s the practice. Because showing up for the game, the meet, or the competition is a brief moment compared to the number of hours that you practice.
I ran track for nine years. I was a hurdler. I ran in high school and then in college. In the 400-meter hurdles, the race is about 50 seconds long.
It’s not the race that beat up on your body, destroyed your knees, and hurt your hamstrings. It was the two hours plus of practice six days a week for four or five months before that to get in shape to play in the games. A lot of people don’t realize this.
I remember getting injured. I would hurt my knee. I would hurt something. I wouldn’t be able to race. It wasn’t that I couldn’t get out there and run one race. It was that I couldn’t practice for the two or three weeks before that. Therefore, I was not in any type of shape to compete.
The reason I’m bringing up this sports metaphor is that startups have a major similarity in that we see these brief moments. We see the Product Hunt launch of a new SaaS app. We see that something made it to the top of Hacker News. We see that something got a great PR mention, a writeup on TechCrunch or Inked Magazine. We see someone just crushing it in their outbound sales. We see a blog post summarizing their content marketing efforts.
You sit there, read it for 20 minutes, and you think, wow, everything’s going well for them. We feel like building and growing a startup is just these brief 20-minute, 30-minute, or 6-hour moments of what we see on the outside, but it’s not. It’s the hundreds and thousands of hours of practice that happens in the weeks, the months, the years, and sometimes decades before those moments happen.
I did a talk at MicroConf a few years ago called 11 Years to Overnight Success. I talked about selling Drip in 2016 and being able to retire at 41 or 42—however old I was then. I talked about how that wouldn’t have happened or how I couldn’t have personally done that without the 11 years of entrepreneurship building up to that moment. Those are the 11 years that most people don’t see.
Today, if you come across this podcast, you read an essay, you read a book, you see TinySeed, or you see MicroConf, you might say, they really know what they’re doing. They’re executing well. They have a great community. I could build this too. This doesn’t look that hard.
Usually, people who are making it not look that hard are either really good at what they do or they’ve had a lot of practice—years, if not decades.
I’d like you to take away two points from this. The first is don’t be confused or fooled into thinking that building and growing a startup is all pivotal in these little moments. Sure, these little moments come along and sometimes, you do very rarely launch that one feature that changes the trajectory of your startup, but it’s not usually the case. Usually, it’s months and years of building towards that.
Even if you do finally launch that one feature, it’s because you launched 100 before that, and you launched 100 after that are actually building the business. It wasn’t like you could shortcut it and do that just because someone makes it to the front page of TechCrunch or the top of Hacker News, just has some big, flashy launch, or product of the month on Product Hunt. There was a lot of hard work, luck, and skill that probably went into that.
In your mind, we think in terms of years, not months as bootstrapped and mostly bootstrapped founders. In addition, this has to then mentally prepare you to go on this marathon. Do not treat it as a sprint and do not get discouraged when you try the silver bullet hack of the week that you read about in a startup SaaS email newsletter put together by XYZ random venture capitalists content marketing company that they’ve hired.
That doesn’t change your trajectory. That’s where you have that managing-your-own-psychology moment of this isn’t working and it’s never going to work. This stuff is bogus, I can’t do it, or this isn’t real. There’s all manner of thinking that you can go down that isn’t true. It’s just a long journey. Some stuff is harder than it seems, and some stuff is harder for particular people than it seems.
I have heard a few people say, I tried AdWords and it just didn’t work. It doesn’t work. I don’t think AdWords works anymore.
That’s a preposterous statement. AdWords is absolutely working for certain companies in certain spaces with certain budgets and certain lifetime values who invest a bunch of time. They put in the hard work, they gain the skill, and maybe get a little lucky. I don’t know if luck applies to AdWords actually.
Same thing with content marketing. Content marketing is […] just too crowded now. Yes and no. Yes, it is crowded. No, it’s not too crowded.
It’s easy to get discouraged. It’s easy to want to think of wins in terms of weeks, that I want things to change next week or next month. But really, this stuff just builds and snowballs over time, and you have to put in the reps. Don’t show up to start a software company if you’re not willing to put in the hard work, to try things that are hard, to try things that are likely to fail, and then to double down on them and triple down on them.
I can’t tell you how many months I spent messing around with Facebook Ads before I got them to work with HitTail. People were telling me Facebook Ads don’t work. They’re too expensive. Maybe they wouldn’t have worked. Maybe I got lucky. But I built an incredible lifestyle business on that. It was because I just wouldn’t give up. I refused. I was brute-forcing that approach to make it work.
I’ve digressed a little bit from my point that it’s not the games that are hard on the body. It’s the practice. But I want you to go away thinking that this is a long-term game.
If you’re going to be unhappy during the journey, if you’re going to be unhappy today, next week, and next month, then you’re not going to be happy if you exit. You’re not going to be happy when you hit $1 million or $5 million ARR, or you sell for $20 million. You’re still not going to be happy. You have to be mentally prepared to put in the time for weeks, months, and years, and enjoy the journey while you’re doing it. It’s easier said than done, but I think it’s a good reminder for all of us.
Lastly, I wanted to cover a couple things that I’ve discovered about my own dietary patterns that I wished I had known 10 or 15 years ago because some of them negatively impacted me as I was building these companies and basically building the dynasty, so to speak.
These are some simple things that may or may not apply to you, but what I learned was the advice that I was reading in books on physiology, the advice you see on the Internet or hear in podcasts, whether it’s the 4-Hour Body from Tim Ferriss, the keto diet, or whatever diets. We’ve seen paleo. All these things come and go even within our family. I would look at things that Sherry was reading and doing and were helping her. Then, I would try them, and they wouldn’t work for me or they would actually make me feel more tired.
Something that really hadn’t occurred to me was how much body physiology, your body type, individual genetics, and all that can play a factor in it.
I have five bullets that I had responded to in a private Slack I’m in. Someone had said, what are some dietary things that you’ve adjusted?
Maybe some of this has happened as I’ve gotten a little older, but to be honest, I remember that the first one is I really stopped drinking coffee. I like coffee a lot, but I stopped drinking coffee about two or three years ago.
I remember a lot in my 30s while I was growing Drip that I had really high anxiety often. I would feel my heart pounding. I was like, oh, I’m so stressed.
It turns out I would drink coffee—again, which I love. I would drink ½ cup or drink ⅓ of a cup because if I drink a full cup, it would just send me to the moon. My body reacts very sensitively to caffeine.
Eventually, I found out that black tea doesn’t have that impact on me. Not only does it have less caffeine, but then I don’t crash afterwards. If I drink a cup of coffee in the morning, about three or four hours later, I completely crash and I need to go to sleep.
It’s great that caffeine has its impact on me. I would say I’m lucky. But if you’re out there, you are having yourself feeling high anxiety, and drinking a lot of coffee. I wish that I had discovered this sooner because it definitely had a negative impact on my quality of life and probably on some of my decision-making over many years because I just didn’t think anything about it.
I was tired so I drank coffee because that’s what everyone else did. That’s what was around the house. That’s what Sherry had. We had an espresso machine at the office. Again, I enjoy the taste of it, but now that I’ve switched to black tea, my ability to stay awake for the whole day, have a high energy level, and all that has really changed dramatically.
Second thing is I don’t drink any caffeine after about 1:00 PM. I think it is pretty common knowledge. I know most people don’t do it, but I have found that drinking after that, while I can still go to sleep, impacts my sleep quality.
The third thing is I tried skipping breakfast because people talk about intermittent fasting which I know is skipping breakfast. People joke that it’s just skipping breakfast. It really didn’t work for me. I’m pretty sure that’s because of my body type. I’m more tall and lean.
But what I found is that eating carbs in the morning—any type of carbs—makes me tired so I have to try to drink more caffeine which would then make my heart pound.
What I found is for me, it’s high protein plus tea in the morning. It happens to be two eggs and maybe some bacon if we have it most mornings. I’m fine with having a relatively boring diet. I don’t need a bunch of change.
Even when I was at MicroConf, I could order whatever I wanted at the Hotel Palace in Dubrovnik. It was an omelet and some baked beans. I love that European-style breakfast. Then, I feel great. I have amazing energy and I don’t get tired in the afternoon.
Two more things before I sign off. One is I realized the negative impact—I’m still trying to sort it out if it’s gluten or if it’s carbs—that gluten and carbs have in terms of my energy.
I don’t know if it’s because I’m older, but good grief. I love myself a good turkey sandwich slathered in mayo, mustard, and guac. It has some cheese, lettuce, spinach—just all the things. I eat and I basically almost need to go to sleep within an hour after that. I don’t remember this happening when I was younger. Maybe I just had a bunch of energy.
Again, I’m trying to figure out lately—if I had French fries which are gluten-free, is it just the carby nature of it that makes me tired? It’s not that I don’t eat carbs or don’t eat gluten anymore. It’s that when I do, I know that I’m going to be tired later and I’m basically biting the bullet. It’s like having a big dessert and being like, well, I’m not going to feel great, but man, it’s going to taste good. That’s something I’ve been really trying to attune to in my own energy level as I’m managing that.
Last thing is a hack I learned six or eight years ago that someone had mentioned to me. I think it was a doctor at one point that said, oftentimes, it’s not how much alcohol you drink in the evening. It’s how late you drink it. The later you drink it, the longer it takes to get out of your system and the more it disrupts your sleep.
I have my own personal rule that I don’t drink alcohol after 10:00 PM. It’s very, very rare that I break this. When I do, I almost always regret it the next morning. Not necessarily with a hangover, but oftentimes, I’m just a lot more tired than I should be based on how much I consume.
Since implementing this whole post 10:00 PM thing, it’s been extremely rare that I’ve had any type of negative impact like a hangover or something the next day.
Some people like rules like this and some people don’t because it feels constricting and they want to have fun. That’s awesome. But for me, when I know that my whole day can be ruined if I wake up super tired, I can almost fall into a temporary depression. I can have this outlook that everything’s going to […] just because I’m tired.
That’s something I hadn’t realized 10 years ago. But now, when I wake up that tired, I don’t make any long-term decisions. I noticed that in myself and I’m able to manage that. I either take a nap because I work from home. I take a short nap if I really need it, which doesn’t happen very often anymore because of these things that I’ve implemented. I’m able to just do the work and come back another day when I feel perhaps more focused, more high-energy, and more motivated to do things.
Those are just five quick things that I wanted to throw out. Like I said, I’m not saying that these particular things should or shouldn’t apply to you, but what I’m saying is be aware of your energy levels and your moods based on what you’re eating and how you’re sleeping.
There are all these patterns that are so important that we don’t think enough about whether you’re a software developer or an entrepreneur. I was always so focused on growing the business. I wasn’t paying attention to a lot of things like this.
These are things that I really only had time to discover after leaving Drip. Then, I had all this headspace to start realizing the impact that these things had on me.
From someone who wishes that he had discovered these things a little earlier, I hope that you might take a moment to think about them in your own life.
Thanks so much for joining me this week on another Rob Solo Adventure. I appreciate you tuning in every week to Startups For The Rest of Us whether it’s been an episode, a month, or a year. I’ll be back in your earbuds again next Tuesday morning.
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In Episode 568, Rob Walling talks about MailChimp selling for $12 billion to Intuit, the largest exit for a bootstrap company, ever. Not that all founders aspire to grow to this scale, but it’s truly an incredible day for bootstrapped founders to know that we have the potential to get to this level without raising institutional funding.
The topics we cover
[1:41] $800 million in ARR without outside funding
[4:14] Acquisition multiple
[7:42] Everyone sells, eventually
[9:31] Respect for MailChimp
[11:49] Disappointed with the UX
[13:21] Equity vs higher salaries and bonuses
[18:00] Long term outlook for existing Mailchimp customers
[21:21] Never say you’re never going to sell
[21:42] Being an email service provider today is hard
Links from the show
- Episode 519 | Profit Sharing, Stock Options, and Equity (A Rob Solo Adventure)
- Rob Walling (@robwalling) | Twitter
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
This is truly an incredible day for not only bootstrap founders. Not that we aspire to grow to this level, but to know that we have potential to get to this level without raising institutional funding.
I saw it mentioned in several places that the cofounders of Mailchimp, Ben and Dan, didn’t raise any institutional funding. I am curious about the stories behind that. Did they raise friends and family? Did they raise a fund-strapped round? Certainly, they didn’t take money from accelerators because they launched before accelerators existed. Y Combinator was the first one of course in 2005 or 2006, and Mailchimp was born in 2001.
This is such a testament to the profitability and the scalability of not only software but subscription software because software before—let’s say Mailchimp, Basecamp, the other SaaS models that we see today—was a really expensive on-prem software. The companies that grew big selling these contracts were Oracle, Microsoft, Adobe, and other companies that charged literally seven figures or eight figures for multiyear contracts. Companies like Mailchimp were really the early drivers of this lower monthly subscription fee software.
No fewer than a half dozen people have reached out to me over the past few days asking for my opinion, not only because I’ve been a long-time fan of Mailchimp, but because I started Drip and entered the ESP (email service provider) space.
Essentially, people say Mailchimp is a competitor of Drip, and I would always say that Drip is a competitor of Mailchimp because let’s be honest, Mailchimp was sending a billion emails every weekday. While I had thought that they crossed $1 billion in annual recurring revenue, it turns out the most recent numbers—I believe—from Forbes are $800 million in revenue.
I just want to pause there for a moment and think about that. This is not $800 million in valuation. As many startups we hear about these days, growth of $800 million, $1 billion in valuation, and still doing literally $10 million, $20 million, and $30 million in ARR, what an incredible feat to reach that level of revenue without taking any substantial outside funding. It’s just really unheard of.
There are no confirmed numbers on this, but the best estimates I’ve heard on Basecamp’s revenues is that they are low nine figures, that they’re $100 million, $150 million, and highly profitable because they only have 50 employees. They’re throwing off—Jason Fried said from the MicroConf stage—tens of millions of dollars in net profit per year. That’s an amazing business.
If all of that is true or in the ballpark, Mailchimp is the next level. It’s almost another order of magnitude larger. If you say Mailchimp’s revenue is around $800 million and they sold at $12 billion, that’s a 15 times ARR multiple, which is good. That’s a nice, healthy multiple, I would say. Obviously, it’s higher than the 4–6 or 4–10 multiple you might commonly see in SaaS apps that are growing and doubling each year in between $130 million and $140 million.
As you get bigger, the multiples tend to increase. You can ask my co-founder of TinySeed, Einar Vollset, who is in that space and knows so much about SaaS exits because he’s been part of advising so many SaaS founders in exiting. A 15X ARR multiple at this level is high but not unheard of. This is realistic.
Someone wrote into this very podcast. I forget if they were at $500,000 or may even have been just a couple $100,000 in ARR. They sold for a 30 times ARR multiple. At that point, it’s more of a strategic acquisition and the multiples become meaningless at small numbers, but this is quite an exit.
I’m going to start with my first thought on this. I think the multiple is good. They could have gotten more on the public markets probably, but in their shoes, going public is not an exit.
A lot of people don’t understand that going public is just another funding event. It is a liquidity event for a portion of your shares. You can sell some of your shares once you’re public, but that doesn’t mean that as founders, you get liquidity on all your shares. It doesn’t mean that you’re bought out. It doesn’t mean that you walk away. Usually, you’re then running the company.
So even if they could have made $5 billion or $6 billion each and they could have made $7 billion or $8 billion each doing an IPO, if you don’t want to deal with Sarbanes-Oxley and all the craziness around being a public company, then why would you do that?
I heard some people commenting on that, of why wouldn’t they just go public. It’s just a different animal. I’m going to be honest, I’m surprised that Mailchimp sold. In my head, I never thought that they would sell or IPO. Not because anyone told me that, it was just the impression I had.
I used to use Basecamp and Mailchimp as the examples of (I would say) the statement everyone exits eventually. Everyone sells eventually. That’s usually the case. Then, I would bring up the counter examples except for Basecamp and Mailchimp really. Those two have been around a long time and haven’t sold.
Usually, founders—whether they bootstrapped or raised funding—eventually get tired of what they’re doing, and they want to move on to the next thing. The millions of dollars in liquidity from these assets we build is so much better oftentimes in cash in your pocket.
I also used Drip and Baremetrics. These were two others that I remember saying probably are never going to sell, and yet both have sold at a certain point whether it’s getting burned out, whether it’s getting tired of it, or whether it’s seeing a number in front of you that can pay for both your kids’ college funds and mean you never have to work a day in your life again. Even if you know you’re going to work, you don’t have to. You have the freedom to work on what you want.
When you see that number on a piece of paper, it’s a really interesting choice. That was my first reaction when I heard it. I was surprised that they were considering it.
I actually saw an article of a rumor that they were considering selling a few weeks back. At first, I didn’t believe it. Then, I thought, you know what, something must have changed for the founders because if you think about it, let’s say they were operating at $800 million ARR.
I just chuckle because it’s just so crazy. They only had 1200 employees. If we do even lose math and just say $200,000 or $300,000 a year was the cost for each of those employees, you’re talking $240 million–$360 million. We throw a server cost and we throw whatever other costs on, but SaaS at scale can be 30%–50% net profit margins. If we say $800 million, we’re talking $240 million–$400 million a year being thrown off. It’s mostly bootstrapped as I often say on the show.
The founders certainly are not hurting for money. I don’t feel like they sold for the money. My guess is they each have enough in the bank that they never have to work again. They probably had that a decade ago or more, so something must have changed.
Obviously, they haven’t talked about it, and they can’t right now. They have to make the employees feel okay. We’ll get into that a little later. There is some anger and outrage around that that I’ve seen reported. They have to make customers feel okay. They have to make Intuit feel okay. I think the deal doesn’t close for six or nine months. That’s par for the course.
Realistically, when I read the article or the rumor, I thought, you know what, this is right. Everyone sells eventually. I’m not saying that to say everyone should sell. I’m not saying if you run a great business that you should sell, but the pattern that I see is that at a certain point, ambitious, creative, and motivated startup founders want to move on to their next thing having that liquidity or not having the thing that they have to manage.
Maybe they’re bored of it. Maybe they just want to get onto the new phase of their life. It’s incredibly hard to build these companies—that’s what we talk about here every week on this show—to be able to cash out, and then move on to the next phase of your life.
Whether that next phase is starting another app, starting a nonprofit, instituting worldwide change, trying to beat malaria like Bill Gates, or whatever it is, in my opinion, founders who have worked hard on their businesses, who have taken care of their employees hopefully—again, we’ll talk a little bit about that—who have given back to their community like I know the Mailchimp founders have, who have built an incredible business, and worked hard for 20+ years on it, for me, I don’t begrudge them as a thing.
I’ve had limited interactions with Ben Chestnut. I think he’s a stand-up guy. I respected him when he was a blogger. Somehow, he, I, Dharmesh, patio11, and Peldi were all blogging at the same time. This is 2005 to (say) 2009.
I noticed them. Somehow, I’m on their radar. I’ve emailed Ben Chestnut a dozen times in the past 10 years. Oftentimes, it’s to invite him to speak at MicroConf which he gracefully declines. But he has entertained the idea and said, look, I’d be interested, but I have this thing that is at that time.
I also emailed him around the time that Drip was going to be acquired because we had inbound interest from several parties. I did email him, essentially let him know that, and said, hey, if this is something that’s on your radar, if you’re interested in talking about it, let’s do it. He said, do you know what? We’re not interested right now, but we’ve had a lot of inbound acquisition over our lifetime. I’d be happy to give you advice if you have any questions.
Again, to me, my impression and all of my interactions is that he’s a stand-up guy. He takes care of his employees. I know that they get back to the community in Atlanta. I have a lot of respect for what they built, and I always did.
There were competitors that we had with Drip where I thought their product was […]. I thought they ran […] businesses. I thought they took advantage of their customers, auto-upgrading and not auto-downgrading. Just doing otherwise shady things—copying competitors, claiming it their own, whatever. I never thought Mailchimp did that. I had respect for them as competitors and just respect for them as a business.
As with any big change like this, anytime a lot of money changes hands or someone gets rich suddenly, someone’s going to be angry. Someone’s going to blame that person or find out perhaps why they don’t deserve it.
I don’t know if it’s jealousy. Maybe it really is, but I’m going to be honest, the anger and outrage that I saw around this made me a little bit angry and a little bit outraged. I think people on social media oftentimes go there to vent.
I get it. Again, Mailchimp is a great company to work for. I’ve had a couple friends I know who work there. They love it.
If suddenly I found out I was going to work for Intuit, I would be upset too because I don’t like Intuit. I don’t like that they lobby the US government to keep us from having easy, free tax filings. I think QuickBooks is a really crappy piece of software. I think most of what Intuit makes is pretty crappy.
Mailchimp, I’ll agree, has gone a bit off-brand in the past few years. Freddie is chimp himself. I don’t see him as much. I feel like the software got more complicated. I feel like the UX got much more difficult to use. I haven’t logged in in years because I use Drip. I haven’t used Mailchimp in years.
I logged in a few months ago. I believe it was to export some subscribers. I was disappointed with the UX. I always thought that they were pretty good with UX before then. They had some mixed bags. They did try to bolt on automations around the time as automations came up and Drip became a thing.
It hasn’t all been sunshine and rainbows, but I’ll admit that the last few years, I’ve stopped recommending Mailchimp to people just getting started because of the complexity of it. But I think that’s where they wanted to go. I have no inside information, but I’m guessing they topped out.
You can only get so big. You just have to start […] and get other pieces of the market because they added landing pages and they added a Facebook ad builder. They just kept going pre email and after email in terms of marketers and what they needed. Instead of acquiring it, they built a lot of it in-house and kept adding bolted things on.
That feels a little more pejorative than I want it to, but I definitely felt Mailchimp being different over the past 3 or 4 years than it was the prior 15 years in terms of the quality of the product and the complexity of it.
The bottom line is they built a great and incredible business. How many other bootstrap businesses have reached this amount of revenue and zero others have sold for this level of purchase price? It’s my understanding.
If I worked for Mailchimp and then suddenly, I learned I was working for Intuit, I would feel bad. I understand that. I can understand being angry and wanting to vent.
From the other side, it kind of becomes cool or popular to hate rich people or to hate when people get rich. It’s not like Ben Chestnut and his co-founder inherited a bunch of money like they won. They built an incredible business and they were the folks who figured out free. They figured out how to do freemium in ESPs and no one else was able to do that before them. A few were able to do it afterwards, but not to the same degree.
One of the complaints I heard from employees or I heard people quoting—this is second or third hand—said, when I was hired, we didn’t get stock options. We didn’t get equity because they said we will never sell or go public.
I’m going to guess that that isn’t what they actually said. My guess is if I were in their shoes, pretty calculated, and pretty careful with words, I could see saying I have no plans to sell. We have no plans to sell this company, so equity doesn’t make sense.
Because if you start giving folks equity, they do want a return on that eventually. Usually, it’s 4 years, 5 years, 7 years, or 10 years. There’s a number. A lot of people don’t want to wait 20 years to cash out on some equity that they got 20 years ago. Usually, once you start giving equity, that is a signal that you’re going to sell. If they didn’t plan to sell, then profit-sharing, bonuses, higher salaries—which is what Mailchimp did—is what I would be doing.
I don’t plan to sell. Plans can change. In startups and in business, any of us know the flexibility and the willingness to not hold onto something. I’m not of the fixed mindset in this. Well, I said that once so we can never change it, I think, is a naive perspective.
I know that folks working at Mailchimp—this is according to news reports—got really good salaries, got really hefty bonuses (15%–30% annually of their annual pay), and the working conditions were good. It wasn’t the craziness of a startup in terms of working long hours and low pay for equity.
As someone pointed out in a Slack group that I’m in—it’s a private founder Slack group—he said, I see enough of these articles that talk about the downside of equity, how Silicon Valley companies issue equity, and then pay people lower than they otherwise should. Then, it goes bust and it’s a big trick, so equity sucks.
In this case, everyone is getting cashed out all the time. People were getting (again) these above-market salaries, plus a bonus, plus whatever other money flowed their way. There was a really generous 401(k) matching. This is the kind of stuff you expect from Fortune 500 companies. They were doing that. They were putting out the cash as it came in. They had the profit so it’s cool that they did it, but I think of that as being in lieu of having stock options.
I also read that $300 million in stock will go to the employees. While I don’t know how that will be divided, that’s $250,000 per employee. Obviously, I’m imagining that some will get more and some will get less.
It’s a non-trivial amount of money. If I were a naysayer, I would instantly say, well, $300 million is nothing compared to the $12 billion that the founders got. You’re right. It’s not. They built the company. It’s the way it goes with startups. Everything is not equal and fair. There was more risk, more years put in, more work—whatever you want to call it.
I do see that side of the argument, but I think if you’re working there, that’s what you’re onboard for. I can imagine being disappointed that it’s sold and that you don’t want to work for Intuit, but I don’t think you can then go back and say, oh, I really wanted equity. It just doesn’t work for me. To be honest though, the real bummer is folks who maybe worked there and then left.
Let’s say you left 10 years ago, 5 years ago, or 2 months ago. You walked away with nothing. That is one of the trade-offs with granting equity, granting stock options, or profit-sharing.
I talked about this in an episode. Just go to startupsfortherestofus.com, type in profit-sharing, and that episode will come up. It was maybe six months ago. It’s actually become one of the more popular episodes where I walk through the pros and cons of each of these.
One of the pros of profit-sharing is that people get cash. They don’t have to sit around and wait for this funny money. Realizing equity in a private company is illiquid. It means nothing until there’s an exit or liquidity event versus here, there’s some cash. But the downside of that is if you leave and then the company sells later, you don’t get any more money because you got your money out as it was going. That is one of the downsides of it. That’s the trade-off.
Again, I do feel for some folks. I can imagine being someone who worked there for 10 or 15 years, got their pay while they were doing it, left, and then didn’t get any rewards at the sale. That’s tough. Also, I guess I keep coming back to the same thing. You can tell how I feel about it. I feel like I’m saying my same opinion over and over.
I get it. I don’t think the founders did anything wrong. Knowing what I know of the founders, I think they will do great things with the money. I think they will make sure the employees are taken care of. I think to the best of their ability, they will make sure the customers are taken care of. I think that they’re not going to sit on this money and go sit on a beach in Tahiti.
My guess is they will invest in their community. They will invest in causes that can change things. Whether it changes things in their city, their state, their country, or the world, it’s a lot of money and you can make a huge difference with that type of money. I think they will.
As with most exits, in the short-term, it won’t make a huge difference. In the long-term, it will probably not be a net win for Mailchimp’s customers. I haven’t seen Intuit treat its customers particularly well over the years. I don’t think their software’s that great. They just happen to be mostly in a monopoly position.
Mailchimp has always competed well and like I said, had good software. With some changes over the past three, four, or five years, I think they deviated from that initial vision, but I don’t see how this makes Mailchimp a better product. I don’t see how long-term it’s going to be a win for its customers, which is unfortunate, but this cycle of business or software.
You build software, you can move fast, and add all these great new features in the early days. Then, as it becomes more mature, it becomes a teenager, it becomes an adult, and then (frankly) a software. By the time it’s even 10 or 15 years old basically, it’s like dog years, it just gets old. It gets hard to make changes, especially as a team grows, as the code base grows, and that legacy. You can’t undo that technical debt. You can’t change winds up tying you to a specific way of doing it. That is a cycle of business.
Then, a new wave of products comes along that is able to do a little better. They’re able to move faster because they’re nimble in their early days, and then those products age over time. That’s just the cycle of business.
I don’t feel like this is catastrophic certainly for the space. I’m glad that there are a lot of competitors in the space. It’s a very large space—email marketing and marketing automation—but that’s my thought. If I was a Mailchimp customer right now, I’d be thinking, I’m going to stick around for a bit but obviously, as time goes on, we’ll be able to see the impacts that this has on it.
A couple more points and then I will wrap. One thing that I’ll say is if you’re starting a company, never tell people that you’re never going to sell or go public. I’m not saying they did that. Other people and employees said they were under the impression they would never sell and go public. My guess is they didn’t say that.
That would be a mistake if you were to do that because do you know what? Everyone sells eventually. I don’t mean everyone in terms of 100%, but 95% or 99%. We just sell. We want to move on. I think I’ve already covered that.
Don’t make a promise or don’t make an implicit commitment that you don’t want to live up to. You can say, I’m growing this business for the long-term. You’re going to get asked in an interview, what do you plan to do with the XYZ Company you’re starting? It’s a plan to grow for the long-term. I want to work on it for a decade or more. That’s what you say because that’s usually what you believe and that’s the way to build a great business.
You don’t build a business to flip it but also, you don’t want to promise someone internally or employees as you hire them that they’re not getting stock options because we’re never going to sell. It’s just not a smart thing to say. Take that as a lesson and be careful with that type of verbiage.
My final thought is that being an email service provider these days is getting hard with inboxes looking more and more at privacy, blocking, and open pixels. The effectiveness of email marketing will continue. It’s certainly better than social media, but it’s not as effective as it used to be. It’s like doing SEO and having Google Analytics. It used to tell you which keywords people were using to find your site, and it doesn’t anymore.
Similarly, email marketing is going to have less and less data to go on. You can always track clicks because they click through to your website, but a lot of things are being blocked. Spam filters are getting better and in fact are getting so good that they’re actually getting bad. These days, some of my emails are going to spam and that hasn’t happened in a long time.
There’s a promotions tab. There are all these things that are creating an uphill battle for email marketing so I do wonder—again, I have no inside information—if I were them running it. I believe the founders are in their late 40s. They’d be thinking about their next act after having worked on something for 20 years.
I have not worked on anything for 20 years aside from my marriage. That’s it. MicroConf is 11 years. Drip was 5 ½ from start to finish. I don’t know if many of you in the audience have worked on anything for 20 years. It’s a long time and it’s a hard problem.
Being an ESP is a non-trivial thing. At one point, after Derek and I had sold Drip, I told him I’m never doing something that sends email again. There were just a lot of headaches with it and I can’t imagine what it would be like at that scale that Mailchimp is out with those billion emails a day during the week.
What I can imagine is that in their shoes, maybe there’s just a major life change that one of them is going through. Who knows? But I can see market forces being in the thought process of what is the future? What does it look like in 5, 10, or 15 years? If anyone can see it coming, they can. They’re right at the bleeding edge of the President being able to see the effectiveness. Maybe they’re seeing across the entire company—all the emails being sent, lower open rates, lower click rates, whatever.
But the bottom line is it’s a tough business to be in, I will admit. I can imagine that that could play a part in it. Possibly, they’ve taken the business as far as they can or want to. Into its market cap, I believe, is $120 billion maybe or $110 billion. Being able to go under the wing of that does give you more resources and a much larger customer base. I know Mailchimp has a big customer base, but I believe Intuit companies have quite a bit more than that.
Honestly, I remember when we sold Drip thinking that the leadpage’s customer base was substantially larger and we’d have a lot more resources. I was actually motivated by that. It was super interesting. Obviously, the liquidity for the founders was great, but I was also interested to learn more things and to be on a bigger playing field. Maybe that could potentially have been appealing as well.
I think it’s a story that will unfold in the coming years honestly. My guess is we’ll hear from Ben or his co-founder, whether it’s through a talk at an event that we attend, podcast interviews, or elsewhere. I think the story will come out ultimately, and it’ll shed more light on why this all went down at this time.
That’s it. Those are my thoughts. Congratulations to the Mailchimp team. Props to them and frankly to everyone who’s involved in building such an incredible business.
Again, it continues to show you the power of B2B SaaS, the power of building an incredible business with not that much cash, and then the value of those businesses because of the subscription revenue, the repeatability of the sales process, and the momentum as you build that brand. We really are in the golden age of entrepreneurship, especially if you can figure out a way to build software. You build it once and you sell it over and over. It’s just a matter of scaling things. There’s never been a better time in history to be an entrepreneur.
That’s it for this week. Thanks again for joining me. I’ll be back in your ears again next Tuesday morning.
In Episode 562, join Rob Walling for another solo adventure to talk about enterprise sales, mental frameworks for founders, undoable decisions, and how to handle being approached about an acquisition.
The topics we cover
[2:33] Enterprise sales advice
[5:48] Measure twice, cut once for SaaS
[10:56] Holy Grail of SaaS: Expansion Revenue
[13:12] Holy Grail of SaaS: Virality
[14:25] Holy Grail of SaaS: Big space with slow-moving incumbents
[15:46] Things to keep in mind when being approached about an acquisition
Links from the show
This is Startups for the Rest of Us. I’m your host, Rob Walling. For more than 10 years on the show, we covered topics relating to building and growing startups using an ambitious but sustainable approach. We’re not willing to sacrifice our health or our relationships to grow a company. We want to build real businesses with real customers who pay us real money. Welcome back to the show. Thanks so much for joining me this week. It’s a Rob solo adventure
I’m going to be diving into a couple of things that I found on Twitter. It’s actually a tweet that I sent out a couple of weeks ago. As well as a really interesting thread on enterprise sales from Josh Ledgard of KickoffLabs, and talk about a couple of other mental frameworks and things that have been on my mind recently.
As I’ve said before, a lot of these topics that I talk about in these solo adventures 10 years ago would’ve been a blog post or a chapter of the book. These days given everything that I have going on with MicroConf, TinySeed, and this podcast, I don’t have as much time to write as I would like. But I’m still exposed to so many new ideas on a weekly basis as I look across 60 companies that I’m invested in.
A chunk of those is through TinySeed, and a chunk of our private angel investments that I made before starting TinySeed. I’m seeing a lot of patterns. I’m talking to a lot of founders who are facing things like massive growth, not enough growth, planning for an exit, getting an offer, or considering selling and wondering what they might sell for. Having to fire an employee. Having to break up with a co-founder. Having to deal with getting hacked. Having to deal with lawsuits. These stories are incredible.
As I walk through these with these founders, give them advice, and a lot of empathizing, I just realized that there are so many commonalities and so many mental frameworks I think that can be helpful. That’s what a lot of these solo adventures are.
I want to start by letting you know that yesterday, TinySeed applications for our Fall 2021 batch opened. It’s our fourth batch of companies. It’s going to start in November and this should bring us up to about 60 companies funded through TinySeed. If you’re a bootstrapped SaaS founder who is interested in potentially getting mentorship, advice, guidance, and just the right amount of funding, head to tinyseed.com and check it out.
My next topic for today is a tweet thread from Josh Ledgard about enterprise sales. It came out in March of this year. He says, “Here’s a thread with lessons learned for SaaS companies looking to sign “Enterprise” deals at higher price points for customers…” I will obviously link this thread up in the show notes. This is advice from Josh Ledgard having done enterprise sales with KickoffLabs, I believe.
“1. Get a lawyer to draft you a SaaS agreement. We interviewed a couple firms to find one that had a lot of SaaS experience. Typically they already have a good boilerplate agreement you can start from.”
The beauty is 10 years ago, to try to get a SaaS agreement, there were a handful of (if any) lawyers who really had experience with it. We are at a great time to be running a SaaS company because there are just more people with experience. Whether you’re looking for a customer success manager or a salesperson with SaaS experience, there is more every day. Again, 10 years ago, trying to find a SaaS sales expert or a SaaS customer success person, that world didn’t even exist back then. That phrase came about maybe five or six years ago, it was really hard.
Back to Josh’s tweet. “2. Define clear limits and have a way to monitor and enforce them. When something goes wrong bc a customer under bought you should be able to demonstrate “Here’s what you bought and here’s where we enforced the limit.”
Don’t list anything on your standard pricing as “unlimited”.” This is advice I often give the founders. “Even if you don’t call out every limit in bold text… always define limits in your TOS. You’ll find these limits are helpful when customers think they will want to go over them.
Default to saying no to legal changes. Every single company that looks at your standard enterprise agreement is going to send back their own agreement or 50 changes. All lawyers want to get paid and prove they add value.”
Yes, this is very common. The moment someone says they want to edit your TOS, they want a custom TOS, they want their own, your price skyrockets instantly into the enterprise. If you have a $100 or $200 a month plan and someone says, I need to run my terms of service by legal, that’s when you’re like that’s our enterprise plan. That’s $25,000 a year. That’s the minimum. It has to be that because you know that this procurement process is going to be painful. Back to Josh’s tweet.
“4.1 We’ve found a little bit of pushback saves a lot of money. Most of the time you’ll find out “ok, we’re good with only this one smaller change”.So it is a negotiation.
“4.2 Charge for changes. We default to a base charge to “Implement” an enterprise agreement on top of the monthly fee.” That’s what I was referring to, “and require a min 3 month commitment. This is to cover the cost of having our team and lawyers review even the small change and any signed agreement.”
I would take it further and say annual. If you’re going to be an enterprise and you’re going to go through this painful procurement process, I don’t want someone sticking around for three months. They should stick around for a year if they’re going to put you through this ringer.
I don’t want to read through his entire tweet thread. It goes all the way through another dozen points or more. Actually, his last point, if you take away one thing from this thread, it should probably be the classic advice from MicroConf of charge more than you think you should. Really nice tweetstorm from Josh Ledgard. He is @joshaledgard on Twitter. As I said, we will link that up in the show notes.
My dad worked construction. He was an electrician for 42 years. He became a project manager and a supervisor and all that, but really at heart, he is a person who builds things with his hands. My brother still works in construction as a project manager. I worked for an electrical contractor my summers and breaks. And then for a couple of years out of college, I was wiring up office buildings, basically. I was a guy with a tool belt and a drill. We’re doing office buildings and sometimes manufacturing facilities that made chips and all kinds of crazy stuff out in the Bay Area.
Something that folks would say—I heard it actually a lot from the carpenters—is a phrase, you may have heard it. It’s measure twice, cut once. The idea behind this advice is that once you’ve cut, you can’t go back and uncut. Before you cut that piece of wood, before you cut that piece of rebar, before you cut that piece of wire molding, you want to be sure that you have the right length. It’s easy to measure twice, but once you’ve cut it, you’ve wasted the material, in essence. This is especially important when it’s something that’s very expensive.
What I’ve realized is that in construction, that advice is good. It’s sensible to be a tradesperson who is being deliberate and being thoughtful about what they’re doing. What I’ve realized is that in startups, this advice applies really only to those more permanent decisions that you have to make. Most decisions you make are undoable. There are things you can undo.
Making a decision to hire someone, you can fire them. It may suck to undo some of these things, but they are undoable. If you signed an office lease for two or three years, it may be a bummer and you may have to pay some money, but usually, you can negotiate your way out of it later if you decide to move. You can find tenants to sublet it. I’ve seen all of these things happen to startups. If you build your infrastructure on Heroku, it’s a big decision to move away from it, but it’s possible to move them to AWS or Google Cloud.
A lot of this stuff is undoable. Again with pain, a lot of these are undoable. Then there are decisions that are mostly set in stone. Maybe a life decision like usually getting a divorce is done. In theory, yes, some divorced people get married again. But it’s unlikely. Once you make that decision and the pain of it, it’s going to be very hard to undo that decision.
Selling your company. In theory, could you buy it back years later? Yeah, that happens 1 in 10,000 times probably. Selling your company is another, and I would say taking investment is one that is hard to undo. You can always buy out investors later, but these big financial transactions and financial decisions are ones that I think are a lot more difficult to undo.
I think another one is spending money on things that basically don’t hold their value. In a personal context, that’s buying that expensive brand new SUV. In a professional context, that’s renting an office and buying a bunch of furniture that you’ll never be able to get the money out of. Those are undoable decisions.
You can sell the SUV and take a hit. You can sell the furniture and take a big hit because you’ll sell it used. It’s partially undoable, but those are decisions that I would think long and hard about before doing a big capital expenditure. Depending on, of course, how much money you have to invest in it. If you’ve raised $500,000 and you’re making decisions about $1000 here, $5000 there, you are able to throw that money around and basically move faster. You don’t get the decision fatigue or the nitpick fatigue that you get when you are truly bootstrapped.
I felt this when we were bootstrapped with Drip, then we were acquired by a company that had $38 million in venture capital and suddenly, I made a lot fewer decisions that involved $100 here, $1000 here. I remember sitting in a meeting in the first couple of months after the acquisition and I was agonizing to the CEO and the COO about whether we should do something with our AWS hosting. They asked me how much does this cost.
I spent time with Derek talking it through and figuring out some ways around it and workarounds that we’re going to take a weeks’ worth of engineering time and it was $1000 a month. What I realized as a bootstrapper, we had thought this is important and they laughed. They said, you’re wasting your time, just do this because we have the money. Just go ahead and spend the money, basically, instead of spending engineering time because that was the more precious commodity.
In summary, measure twice, cut once, but only in those undoable or more permanent decisions. It’s a learned skill in my experience to identify which decisions are undoable, and what you’ll find is 80% or 90% of them are. Usually, at some cost. It’s either a personal cost where you have to come back and negotiate, apologize, or undo something that may hurt your pride. Or there’s a financial cost where you don’t lose all the money but you’ll lose 20% or 30% on the resale of it.
But I think it’s easy to get stuck in basically indecision, perseverate, and overanalyze decisions that are not that important and are decisions that you can undo later. And those ones you should make quickly and then fix down the line once you have more information.
Someone asked me the other day if I was going to start another SaaS company, what my mental criteria would be around it. I realized there were three requirements that I would absolutely want in any SaaS app that I was going to start today. Now, take it for what it’s worth because I’m a serial entrepreneur with successes under my belt. I would be able to raise funding. I mean there’s a lot here. I’m not on step one of the stair-step approach.
But there are these things that I think are the holy grails of SaaS, and I don’t think they’re talked about enough, to be honest. I started harping on these a couple of years ago, but I still don’t see people trying to either implement them in their own SaaS apps or to consider going in the markets with these. Number one is the high potential for expansion revenue. That is where, for example, with an email service provider, if I’m charging based on the number of subscribers you have, people who are successful are going to get more subscribers over time. It’s just what happens. Your list just grows if you’re successful.
You charge per subscriber or per 1000 subscribers. That means that in any given month, even if you add zero customers, your revenue will go up. Your MRR will go up. This leads to this unbelievable holy grail called net negative churn. That is where you can literally add zero customers in a month and your MRR goes up.
As you add customers, we always think of it as like I have 3% churn, I have 8% churn. When we sold it, Drip had net negative churn more months than it didn’t. If it was minus -1%, -2%, -3%, these are the businesses like the Salesforces out there, like the MailChimps, maybe the Basecamps (they don’t talk about the financials), but those businesses mint money. They mint money because they grow when you do nothing. Therefore, when you do something they grow even faster.
In terms of Salesforce, I talked about ESP, having subscribers. Salesforce has seats. Over time, successful companies hire more salespeople. They hire more employees and so they need to buy more seats. Again, I would only enter a market where there are expansion revenue possibilities, which could then lead to a net negative trend because to me that is the number one. There is a reason it’s first when I’m talking about these three things because that is the most important.
The second one is I would want some element of virality. I don’t mean in the old school like refer a friend or viral like one of those old Facebook games that invite your friends or whatever. I’m thinking more about some type of link that is shared. Think about SavvyCal, which is a Calendly competitor. The more people who use SavvyCal, the more people are sending out links to other people. They start to think, this is interesting. I wonder how this is different from what I’m using today.
Docsketch which is now SignWell, signwell.com is e-signature. Every time we at TinySeed or MicroConf send out a document for signature, that person sees signwell.com. There’s a viral loop there. Even if you were starting, I’ll back ESP because I have so much experience there. If I had a free plan with my ESP, certainly, my company name and link would be in the footer of those emails. Even without a free plan, if you have any type of interface, a popup that appears on your customer’s websites, an email capture widget or what have you, I would want that powered by my company linked in there.
We definitely saw people click through. We had a power by Drip link back in the day and we saw people click through and become customers. Then the third component that I would want in a space is I would want to go into a big space with slow-moving incumbents so that I can get customers to switch versus educate. That’s not to say that you shouldn’t consider going into a smaller niche without big slow-moving incumbents. You can go to tinyseed.com and scroll down and see all 41, 42 companies that we funded and you click through and there’s construction management, software for home improvement contractors.
There are three apps in the security niche. There’s one that offers financial data to MSPs, which are managed service providers. There’s a news API. There’s affiliate software. A lot of these are niche, and so I’m not saying don’t go niche, never go niche. But I’m saying, myself, these days, if I was going to go, I would go after a big opportunity. I would want to be in a space with slow-moving/hated/despised competitors where I see people complaining on message boards or on Twitter, and I can see an angle to doing a better job than them.
To go back to earlier examples, I mean, that was one of the reasons that Drip was successful is we had that in the ESP and in the marketing automation space. That’s something that SavvyCal has. That’s something that SignWell has. Given how long SaaS has been around at this point, it’s not something that’s impossible to find.
Finally, it’s relatively frequent that I have conversations with a founder who is considering selling, who has been approached either by a competitor or a strategic acquirer, sometimes private equity, about a potential acquisition. I mean, it’s probably once a week. Again, across my investments, but also just people reaching out because I have advertised on this podcast that—talk about undoable decisions.
I said, I’m not willing to do consulting. I can’t advise founders open-ended, but I can absolutely have a conversation for founders who are at a critical, critical point where hundreds of thousands, if not millions of dollars are on the line. It’s important to me that founders have, I guess, someone to bounce at that off of. I have a lot of conversations around this and eventually a particular bulleted list. I think this was in an email, maybe it was a Slack thread in the TinySeed Slack.
These are just a couple of things to keep in mind when a competitor, strategic, or private equity approaches you about an acquisition. The first is, this is way more common than people think. Across our first two batches of TinySeed, I think it’s north of one-third of the companies that have been approached about an acquisition over the first 18 months of the accelerator. It’s common that people start this conversation, most don’t go through.
That’s my second point. Remember that the most likely outcome is that no deal happens for one reason or another. Often it’s valuation. Someone wants a really good deal. They want to buy you for 1X ARR. They want to do an acqui-hire where here’s $500,000 in company stock, invested over this many years for you to shut your company down and come work for us.
Point three and my usual advice to people is have the conversation but work really hard to avoid being distracted by it. That’s one of the biggest mistakes you can make is to sink a bunch of time or a bunch of mental headspace into a deal that again is unlikely to happen. For every 10 or 20 conversations that start, maybe one deal closes. It’s just not likely to happen.
The second most likely outcome is that someone’s trying to acqui-hire you. As I said before, they offer you a few hundred grand to come be an employee. Most of the offers that I see, I’d say the majority—it’s not 90%, but 50% or 60% that’s really what the companies are trying to do. Know upfront whether that’s interesting to you, my guess is it’s probably not but I suppose it depends on your situation.
My last piece of advice, I’m not a lawyer, this is not legal advice but I would always sign an NDA before disclosing financials. Before I start tossing out my MRR, my customer count, or anything else. You also need to be aware that they may be asking for information that they will use to compete against you later. I mean, that’s the risk you take with a conversation like this. You have to weigh that.
An NDA is just a contract. It doesn’t stop someone from being a jerk. It doesn’t stop someone from lying. You would have to prove and enforce that they took what you said and use that against you, and you would probably have to do it in court. An NDA is really just a piece of paper. It’s a backstop, but there still needs to be a level of care that you need to consider.
When we were considering selling Drip, we got inbound interest. I think we had five inbound over the course of about 18 months. Every time, I had to evaluate how much do I tell them and will they use us even though we signed NDAs? Will they use this to someday compete against me? I had to just say, I guess anything I tell them, I need to be able to out-compete them.
That’s it for today’s episode. Thanks so much for joining me again. As a reminder, TinySeed applications for our Fall 2021 batch have opened. Head to tinyseed.com if you’re interested. If you have left this podcast a five-star review, I would really appreciate it. That’s a wrap for this week and I’ll be back in your ear buds again next Tuesday morning.
In Episode 558, Rob Walling chats with Einar Vollset about bootstrapping versus funding and the many options that exist in between. No longer is it a decision between a bootstrapped or venture path. With their unique perspectives, Rob and Einar talk about all of the funding options that exist. They also share some things to consider when deciding whether or not to take on funding and, if you do, how much you should plan on raising.
The topics we cover
[04:24] When funding makes sense for bootstrappers
[11:54] Raising pre-revenue vs raising with revenue
[15:29] Risks of raising as a platform (e.g. Shopify) business
[20:40] Funding options available to bootstrappers
[27:57] Convertible notes & SAFE’s
[29:16] How much should a bootstrapper raise?
Links from the show
- Episode 496 | “The Press Covers Exceptions, Don’t Compare Yourself to Slack or Zoom”
- Episode 411 | Bootstrapping vs. Funding: 19 Questions To Ask
- Einar Vollset (@einarvollset) | Twitter
The fun part about our conversation today is we bat around funding for bootstrappers and really specifically, there’ve been a couple conversations I’ve had over the past couple of months that have got me thinking about talking about this on the show, because obviously this funding has become much more viable for bootstrappers. It’s not just bootstrap or venture paths. There’s this whole thing in the middle that we talk about. TinySeed is obviously part of that. I think there’s still confusion and misconceptions. It’s just amorphous and often hard to understand what’s going on and of some of the realities of it.
We spend this whole episode batting around when should a bootstrapper think about raising funding? When should they not? Why is it a good fit? We talk a little bit about terms and how much founders should think about raising, and just everything we’re seeing. The cool part is he and I have pretty different perspectives. I guess we share perspectives on a lot of things being the cofounders of TinySeed but I also have a lot of experience with other angel investments that I made before TinySeed that are still around, and I see different examples there. He has experience with his Discretion work and even the companies that he started before TinySeed. My hope is that it is helpful in just providing a little more of a level set and some more thoughts on this topic. With that, let’s dive into my conversation with Einar Vollset.
Einar, thanks for joining me once again on Startups for the Rest of Us.
Einar: Good to be on again, Rob.
Rob: We get to talk about funding and thinking through bootstrapping versus funding, or even these days it’s not just two options. It’s not just should I self-fund? Should I bootstrap? Should I raise a venture? There are all these avenues you can go down, whether it’s a TinySeed-like accelerator raising a small angel round for a couple of hundred thousand dollars. To me, my take is it’s gotten more robust and easier for founders who are in the MicroConf, Startups for the Rest of Us–type community and they’re in that situation to raise money on terms that make sense to them. Because 10 years ago, I didn’t know of a single company in our space that could raise money, not from essentially institutional folks who wanted them to become unicorns.
Einar: There’s equity and there are different types of investments too now that weren’t a thing five years ago. Things like non-dilutive revenue based financing, PIPE, that sort of thing.
Rob: Yeah, a lot of options. I know when I did my MicroConf talk in Vegas, it was US growth, maybe it was 2018. It might have been 2019. Who can keep track with Covid? Everything before Covid and everything after. I did a talk and I was talking about the state of bootstrapping and how I saw more companies raising funding not to go venture track but to raise one around maybe two, $200,000–$500,000.
I pointed out customer.io. I’m an angel investor in Churn Buster, WriteMessage, CartHook, LeadFuze, all these folks who are like, we’re not looking at IPO. We’re not going there full weight. As I saw it happening, obviously TinySeed came out of the need, where I only had so much of my own money to be able to put that in. We did TinySeed because there was a need on that side. It was pretty obvious to me that more bootstrap-ish capital-efficient founders want to raise money these days.
Einar: I think so. One of the missions for me, the reason why I love doing TinySeed is because I think that kind of investment and that kind of founder really enables them to quit their day job, and there can be many more founders like that if you have the capital going to these places.
Rob: I want to be clear. Obviously, Startups for the Rest of Us, we’re almost to 560 now. We’ve talked a lot about bootstrapping, but we also talk about funding. Even going back to 2013 or 2014, I talked about fund-strapping with Collin from customer.io. Mike Taber, the co-host emeritus of Startups for the Rest of Us, and I had several episodes on when to think about taking angel investment on funding versus bootstrapping, 19 questions to ask, that was episode 411 back in 2018. It’s not right for everyone. I think that’s one thing we want to talk through today is when does it make sense?
I’m going to be honest, I don’t know if you and I have ever talked about this, but I’ve seen founders who I just thought would just be bootstrappers forever and never raised rounds take funding. They have very good reasons for it and they don’t regret it. Folks like Craig Hewitt with Castos. He was in TinySeed batch one. I just thought he was going to bootstrap everything. Ruben Gamez with Bidsketch, and now Docsketch […] took money from us. He did it to move faster. He did it because it makes some things just a little easier. It hasn’t changed his business other than having more resources to work with.
Einar: I think you mentioned Collin, too. He’s doing incredibly well now. He’s open about his numbers. I think he’s doing $22 million ARR right now.
Rob: But when you talk to him, he’s totally along that line too, like I don’t want to be a unicorn. I want to build a real business, a $22 million ARR SaaS company in the email space. Now, I think they’re doing a crowd fund. I know they’re doing a crowd-funding thing right now to raise money. I believe they’ve raised two smaller rounds before that. The very first round was a couple of hundred thousand dollars. I don’t know if the second round was, but I think it’s probably all in Crunchbase.
But you’re right, it’s founders like that who see it. There’s bootstrapping, there’s VC, and then there’s this whole thing in the middle now. It’s still amorphous, I think. That’s what we’re leaning into obviously with TinySeed. We’re going to cover some topics, like why I raised if you want to.
And again, this podcast is not about raising funding. If you don’t raise funding, you’re not in the club. It’s nothing like that. It’s just another tool in the tool belt. It’s another option, revenue-based financing, this type of funding, whatever, to help you get there faster which has really been a mission of MicroConf, Startups for the Rest of Us, all my writings from day one. How can we help more entrepreneurs succeed, more founders become self-sustaining, and this is another option.
I may have mentioned a few of them already but when you see founders raising these small amounts of money, let’s say through TinySeed or through doing other angel rounds, when is that a good call? When should they think about that? How are they using the money to essentially accelerate their business in the best case?
Einar: I think when we first started, one of the main ways that I thought about it for TinySeed founders would be people who had enough, had some kind of revenue coming in but it wasn’t really enough to make it their main focus. I still think there’s a good chunk of the founders that we backed that are like that. They’re at $3000, $8000 MRR or something like that. Particularly, $8000 MRR or two founders are probably not self-sustaining at that point.
I think taking money in order to effectively pay yourself and say I’m not going to burn through all my life savings or remortgage my house to take this risk. I want basically to offload that risk to someone else who has a higher risk appetite than me. I think that’s one of the better reasons to do it.
I also think one of the most surprising things is how many people are at the point where probably they don’t use the money that we give them to pay themselves but they use it potentially to accelerate the channels that are already working or feel like this gives them the leeway to just be a little bit more experimental with the growth channels they can go after.
If you’re totally bootstrapped and you’re basically just about self-sustaining, how keen are you going to be, like I’m going to hire an STR service and run that for three months for $15,000 and then potentially hire a sales person and try that channel out. Or a re-up, start a Google Ad campaign to try out this new channel. I think it offloads some risk and it enables the founder to take more risks and potentially grow their business substantially faster.
Rob: I like that thing about offloading risk because there have been several founders who I know who have taken money, Derek Reimers is an example. After the Drip acquisition, he has enough money that he could basically angel fund himself. But he took TinySeed money back in batch one and when I talked about it like why did you do that, because you have that much money plus some in the bank. He said it takes some risk off the table. It’s more runway but it’s also less of my personal risk and I don’t give up control. It’s just not a huge loss except for a few points of equity, in essence, which I figure if it’s successful, that’s probably not going to matter in the end.
Rob: I like that idea. That thought of taking some risk off the founder. True bootstrapping, as you said, there’s a ton of risk on you personally and it can be stressful.
Einar: It’s going to be stressful. I also think it is a certain level or privilege to be able to bootstrap a lot of the time. It means that you have a bunch of savings, you made a ton of money doing something else, or a lot of the time your spouse makes enough money so that they can cover the whole household. I think just enabling this kind of funding means that more people who necessarily aren’t already in that situation can take the risk that’s just inherent in starting something like a software business.
Rob: That makes sense. From my end, the folks that I see raising and doing well with the money, they want it to move faster, they want it to decrease risk as you’ve said. Usually, not every time, they want it to make a key hire that they can’t afford.
Actually, these days with a lot of big companies are remote now, talent is more expensive than it used to be. Correct me if you’ve seen other situations, but the main hires I’ve seen are to hire a marketer, somebody to have run DemandGen or an agency to do the marketing. The other one is more development talent, like a senior developer who can technically lead so that the founder can maybe step away, or if it’s a nontechnical founder that they have, that person now who’s running the show. I think those are the two big ones I’ve seen.
Einar: I think it’s telling how different our approach is, the founders that we talk to because that’s not what I see.
Rob: What do you see? That’s why you’re here, right?
Einar: Yeah. I see people mostly hiring a customer success–type person, just to take customer support load off either key engineers or the founders. Then I see people hiring sales. They’re trying to either just STRs in order to fill more of the funnel for the founder to do the close, or for the founder to say I’m ready for an account exec who can do demos so I don’t spend all my time doing demos.
I see a bunch of those things, too, where it’s like they would have gotten there to where they needed to hire (say) customer support or other sales people but maybe that would take another 18 months. Just the fact that they can hire now just means business moves faster.
Rob: I think to look at it from the opposite side, what are the scenarios or the situations where a bootstrap founder probably shouldn’t raise, probably should think about just continuing to bootstrap? I’ll throw it out right from the start. My sentiment is that if you don’t have or are pretty dang close to product/market fit, meaning that you’ve built something people want and are willing to pay for, I think you should keep grinding until you get really close to that.
Now, I’m not saying you have to have a sustainable marketing channel and a bunch of leads coming in and a whole built out funnel, that would be great. It gives you a better valuation. It makes for investors interested. But if you’re at $2000 MRR and you’re getting onesie-twosie people coming in, some people are churning, and it’s an early product still, my sentiment is that’s not something I’m personally interested in investing in and I don’t know a lot of investors who are willing to bet that early. Do you agree or disagree?
Einar: I think there are a lot of investors looking to bet that early. Your story has to be different. If anything, I actually think it’s easier to raise money when you have no revenue, if you have a good story.
Rob: In SaaS? I don’t think in B2B SaaS.
Einar: Well yeah, but even so. We’re going to do this thing. You’re six months in and you have a 20% monthly churn that people can look at. It’s hard to explain. The difference I think is if you’re going to go to market and try to raise with no revenue, just a plan or a vision and stuff, that plan or vision has to be much larger because the kind of investors who are interested in investing at (say) $12 million pre, without a product, and just two or three engineers, because the risk is now so high, it needs to be something that they believe can be a unicorn. You’re in unicorn territory.
If your story isn’t up into the right, they’re going to be like, meh. We see a lot of pitches for people who haven’t proven anything yet. They really have to believe and be excited about the story in a way that if you’re doing $8000 MRR and you’re growing 10%–15% month over month with no churn, it’s a very different thing for people to invest in.
Rob: I don’t know any investors and I’m friends with 12 or 15 angel investors. These are all former founders, so people I met at MicroConf. I don’t know anyone who invests in a SaaS app pre revenue. You know what, there’s a couple.
Einar: […] I know a lot of them.
Rob: See, I think that’s the difference.
Einar: You’re telling me like let’s talk. I know tons of people who will do that. But again it has to be a big vision.
Rob: It has to be a venture scale business.
Einar: Venture scale, IPO, take over the world, changed this. Those kinds of investors typically do well. If anything, I do think it’s sometimes easier to sell the dream rather than trying to explain the numbers in this regard.
Rob: I would agree with that and I will just say, and you and I by the way don’t agree on everything on this podcast. That’s why you’re here, otherwise I could monologue this whole thing and just do a Rob solo adventure.
Einar: We’re just talking about marketing hires and things like that. Nobody’s talking about marketing hires ever.
Rob: When I’m talking to them, it’s like don’t talk to Rob if you’re going to do sales hire. Talk to Einar. My take is with B2B SaaS, if you want to build a $10-, $20-, $30-million business, if you have a really good network—let’s say you’re a second time founder, you’re a Josh Pigford, you’re a Derek Reimer, whatever, anybody, Rand Fishkin—can you raise pre revenue? David Cancel right on his fifth one. I don’t remember how much he raised, but he was $5 million out of $15 million or $20 million valuation with just an idea because it’s David Cancel.
But most of us aren’t that person. Most of us are doing this for the first time. If you don’t have a strong network or some type of in and you’d want to build a B2B SaaS company $10-, $20-, $30-million, I have not seen someone be able to raise around at that point pre revenue.
Einar: Crucially, the thing to think about is I do think you can raise. Like I said, I know several investors who want to do this. You can raise with just an idea, a deck, just a team, or whatever, but then the vision has to be big, and that does usually excludes you or precludes you from actually doing the exit at $20 million or $50 million. Just the mechanics of the way that investments are being made in that case with liquidation preferences, valuations, and rights for investors to block things and things like that, means you’ll end up in a situation where you have to really go for $100 billion, $500 billion exit or nothing. There is very little middle ground there.
Rob: Another type of business that I think should probably not raise is step one business if we think about the stair step approach. Step one businesses are usually oftentimes built on a platform, like a Shopify add on, a Heroku add on, a WordPress plugin. Usually, they plateau at some point that is far below what any investor, even bootstrap-friendly investors want. And there’s platform risk to the, you built something big enough, Shopify comes knocking and bad things happen. You build something big enough, Heroku hasn’t done this as far as I know. But any platform can kill you or just say pay us 20% or 30% of your revenue all of a sudden.
Einar: I do see break up instances on both building platforms. That does happen, but I certainly think the risk is higher. I think investors will be more like what happens here if they build this in house or cut you off in some way, shape, or form.
Rob: We, being TinySeed, have invested at least one and I’d say a few businesses that have platform risk including Rails Autoscale—Adam was on the podcast just a few weeks ago, and that was a conversation we had early on. How does this scale? Because Rails Autoscale be a $5 million or $10 million ARR business as it stands now? Personally, I’m pretty sceptical and Adam is too that the space maybe just isn’t that large. Then we said, how do you reduce platform risk and how do you get to X million in revenue? As long as a founder is thinking about that then at least there’s room to grow there.
Someone asked me on Twitter—maybe it was eight or nine months ago—why is there no TinySeed for info products, or course creators, makers? It was an honest question. I appreciate it. I answered it and basically said, because they don’t scale like SaaS. Because they’re often reliant on a single individual, not all the time, but often rely on a personality or personal brand, and the exit multiples aren’t there. That’s a part of why this works, is that SaaS sells for such a crazy high multiple. Not that everyone has to sell, but that is one driver of returns.
I think another time when founders should probably not raise money is if they want that true four-hour work week lifestyle business, if they want to work part time. I did this. I did this for a couple years with HitTail. It was great. I worked 12 hours a week. Not that suddenly your investors are your boss, because that’s not how it is. I think bootstrappers think investors are probably a lot more involved than they think they are, or managing their time, or like send me your time clock and your timesheet. That’s not how it is.
But I do think if you want to work 10 or 15 hours a week, go bootstrap an amazing business and make it a lifestyle. I’ve had several of those. I think the moment you think about getting external funding from someone else, to me it’s a commitment to no, I’m going to grow this. I’m going to be committed to this business full time. I’m not going to go start other side projects during this time.
Not that you can’t do anything. You could set up a blog, a podcast or whatever. But if I invested in a founder personally and they were doing a SaaS app, and suddenly they started another little side project SaaS app, I would have a conversation about what’s the plan there? Do you plan to focus or do you plan to split time? What’s the deal? Do you agree with that or what do you think?
Einar: There’s always a pivot. I don’t know. Most investors come along, there will be IP assignments and stuff from the company. If you start a company and then you work on those products and then you start a side business, now is your investor part owner of the side business too? Is that a pivot? What is it? There are certain things to think about.
I think you’re right. Running a B2B SaaS business was most of the time we’re talking about. It’s a full time job if you’re planning most of the time. If you’re just planning to do a four-hour work week, then I probably would look at info products or some of the more smaller scale.
Rob: Step one plays are great. I did this with HitTail. But HitTail was like a single feature, almost. It had multiple streams but it was not the place that we’re talking about. It was SEO pure tool. I just had a couple channels that worked mostly on autopilot. It didn’t have to do sales. It was self-service. Churn was high because the price points were low but that didn’t matter. I got up to $25,000–$30,000 a month, a great lifestyle business.
But that would have been dumb for me to then go out and say I’m going to take investment for this. Unless I wanted to then double down to be like, look, I’m going to make this into an SEO suite or a rank track. There are things that can expand the market, but I personally wasn’t interested in doing that in that space.
Einar: In some cases it makes sense to go after the bigger thing after a while. I still remember when PagerDuty launched. I was like PagerDuty, what? Is this a business? What the hell? And now, they’re a publicly listed company. Okay, I was wrong. Sometimes there are things that are bigger than you think (I think) a lot of the time. Early stage investors, despite what some investors will tell you, I think it’s almost impossible to really, really have a good sense of what’s going to work. There’s just a lot more randomness and luck and things in there that accounts for a lot of it.
Rob: Yeah. When I think of funding options for bootstrappers these days, obviously there’s accelerators like TinySeed, there are other funds that do similar stuff. I’ve heard of the Weekend Fund which is from Ryan Hoover who’s the Product Hunt founder. I don’t know if they’re bootstrapper friendly or if they’re venture only. I think that’s a conversation to have with folks. If you’re going to take funding to be like I would sell if I got an offer for $20 million, to be up front about that.
If the investors want to invest then I don’t think you should take the money because you’re going to have this conflict now when you get that offer for $20 million that’s going to change your life, and you push back on it. The investors are going to say no, $100 million or $1 billion, or bust. You have to be on the same page. There are investors out there—I know angel investors—who are willing to take that 3X, 5X, 10X versus the unicorn play.
Einar: I think this boils down to the trade-off in terms of valuation that you take too. I think this is more traditional […]. The higher valuation you can raise the better. Look at us, we raise a $20 million pre or $12 million pre. You raised a $12 million pre and you sell for $20 million, even if you have the right to do so, and you do it, your investors are not going to be happy. That’s not what I wanted. That’s pretty much a failure for people. Just because of the economics of how the investors and their investors operate. That’s the trade-off, really, when it comes to what optionality are you taking off the table by taking a super high valuation and raising a ton of money.
Rob: That’s a really good point. Most of the more bootstrapper-friendly funding sources that I’m familiar with, the valuations are lower than if you went to Sand Hill Road at Silicon Valley and it’s two people in a garage with two laptops, they have a product, they can get whatever—$5 million or $10 million—then coming out of YC, everybody doesn’t get the $10 million thing, whether they’ve launched or not, which is just crazy.
Einar: Last I heard on a pre-product launch, on demo day, it’s like $12–$20 million pre.
Rob: That’s insane.
Einar: But here’s the thing. What has changed (I think) in the last 10 years up in the Valley is because the dark days of 2008 and 2009 and almost nobody was investing, which turned out to have been the best time to be investing in things like Airbnb, Dropbox, and things, fundamentally, I think what has changed is and I think this is debilitating for founders who are struggling with this because you read all these stories about there’s so much money in this space now. You should go out and raise money right now because there’s never been more money in the ecosystem.
If you look at the inflows into venture, that’s true. There’s a ton of money going in but they tend to go after fewer and fewer deals. You end up with a very binary outcome where it’s like I know you’re superhot to the point where venture capital associates are cold calling you on a Friday night or there’s crickets. There’s nothing. That’s very, very tricky to deal with. Particularly if you’re trying to raise a lot of money and you’re in the crickets camp, and then you read all these stories about it’s the easiest time ever to raise money. I’m like, it’s the easiest time to raise money for a particular kind of company, opportunity, and founder. If you don’t want to do that or it’s not what you’re after then it can be very hard.
Rob: I think that’s a really good point to think about. So let’s say today Einar, you had a B2B SaaS app doing $5000–$100,000 a month in MRR and you decided that you did want to raise that round. Obviously, I would love it if you’d come to tinyseed.com and your email address. We are now having open applications. We’re now running two batches per year, so every six months, we open applications. We’d love to chat. We even have a mid-batch application if you’re doing anything north of $5000 MRR. We have those coming through when we’re having conversations so we can fund people as it makes sense for their journey.
But let’s say you were doing $10,000–$20,000 MRR and you decided for whatever reason that you didn’t want to go through a program like TinySeed and you’re going to raise it on your own. You want to raise $200,000–$250,000. In my head you got to work your network. If you don’t have one I’m not sure what to do. When I thought about raising six or seven years ago, I was like, I don’t know who I will talk to or who will give me money.
But I would then look at using a convertible note or a safe. People can Google; we’re not going to define it here. There is a way you don’t have to do a price round now and get stuff on your cap table. That can take more time. There’s more due diligence in that, but a convertible note or a safe is a promise of essentially future equity to investors. Is that the approach you would take?
Einar: Probably so. I’m more pro selling equity, too. I think that’s fine. The problem with selling equity is a lot of the time it ends up. Most investors—people don’t know these either and this is not true for us—will make the founders pay for their legal fees. Part of the reason why safes and convertible notes took off in things is because it’s cheaper on the legal front and that is doubly valuable because most of the time, traditionally at least investors have been like I’m going to have you pay for my lawyer.
If you’re taking $250,000 and it becomes a protracted back and forth with legal views on either side, you could easily be in a position where like, you got $250,000 investment, but now $40,000 $50,000 of that is in legal fees for you and the investor that you both have to pay out of that $250,00. But if you can deal with someone who can very effectively and efficiently do a priced round, then I don’t think there’s a huge downside to that.
Rob: That’s what we do and we do it efficiently, right?
Einar: Yeah, it is. There’s some tax benefit and there is some clarity there (I think) a lot of the time, in terms of who owns what. It’s less of an issue with more of the TinySeed–type companies or bootstrap–type companies where you’re not doing fundraising every 18 months, but some of the challenges with the safe notes and the convertible notes is if you multiple rounds of this and one after the other and some bridge stuff in there, it actually comes quite difficult after a while to figure out how much your company’s left, because they convert at different caps at different times and different triggers and all that stuff.
There is something to be said […] I’m buying equity and valuing your company and if we think it’s worth $2–$3 million and we’ll buy 10% for whatever. I do think there’s a nice sense of that. The challenge, particularly, if you run into unsophisticated investors or maybe investors who are used to larger rounds or later-stage stuff, you can get stuck and blow easily $50,000 in legal fees, which is obviously counter-productive for a $250,000 round.
Rob: To untangle that and I guess my advice there is don’t raise a bunch of different caps and valuations. Keep it simple.
Einar: That’s the problem for people. This is the thing. If you’re going the more traditional venture route, then while you’re raising money, you erase money, so you burn hard. You burn hard, then you’re running out of money, and you have to raise more money, so you can keep burning hard. There are people with 13 safes and they’re like, is there someone with software that can help me figure out or an analyst that can help me figure out how much the company is left?
Rob: Yeah, don’t do that. If you’re a bootstrapper, you’re not going to be raising all the time. My advice would be not to do that. As a bootstrapper, you don’t need to be raising all the time and it’s a distraction. You’re not on a venture treadmill where you need to raise every 18 months. I would chill out a little bit, I’ll keep it simpler.
One last note on safes and convertible notes is that if you truly are thinking maybe this might be my only round, you’re essentially committing to giving equity in the future, usually at the next funding round or if there’s an acquisition. If you do plan to run the company, you want to run it for 10 or 20 years and take a profit, safe and convertible note.
That’s not legal advice. We’re not lawyers like that’s a disclosure. But it’s not the best. I mean it can screw investors. To be honest, it’s top […], I believe, where they raise the money on safes and convertible notes, they never raise another round, they haven’t sold, so all the investors don’t technically own the equity, and the founder can actually literally legally take money out of the company and put it in his own pocket. Him or the other founders, I guess, whoever owns the equity. It’s a weird situation.
I think if you are thinking about doing it longer term, then equity probably makes a bit more sense to think about that. The other thing is there was the pre TinySeed. I did angel investments; wound up working out very well, but the founder used convertible notes. At a certain point, he just said all right, we’re just converting to equity at this rate. We’re just converting this at the cap or something like that. He just decided he wanted everyone on the cap table. He wanted to clean it up and he didn’t want to keep his interest involved in this and that. It was just a decision as a founder he meant that to simplify everything.
Founder thinking about raising money, what do you think the dollar amounts? Where should they land? I guess should is a strong word, but there’s a minimum that makes sense. I don’t think you should go try to raise a $75,000 round because the time and the legal fees alone are not worth it. On the top end, what are your thoughts on small and large?
Einar: It’s a little different if you’re just taking a pre-specified money from us or YC or whatever, it’s like $120,000, $180,000, $200,000 whatever. In general, if you’re going to raise money, it’s probably worse to raise at least $150,000–$200,000 I would say. At least that’s true I think in the US. It becomes one of those things that if you can’t raise that much, is it really worth the pain going through and having investors at $75,000? As an example, just costs. If you were to do special-purpose vehicles, this is one of the ways that you can put a bunch of people on a single line item on your cap table.
AngelList will do that for the investor. On the investor side, it’s going to cost $8000 to do, which is actually reasonably cheap. But if you’re raising $75,000, that’s the material part of the actual investment that comes through. This is pretty significant dilution for the investors to take. I do think that it has become a stage where this doesn’t make any sense. I think that’s probably about $150,000–$200,000 or something like that.
Rob: We should point out that accelerators like TinySeed are different from that. Most founders who get funded by us, I’d say the vast majority is $120,000 to about $250,000 is the general range. But since our process we fund 20 companies at once and we fund the entire round, this is very different from you going and trying to find four investors at $25,000 each and then trying to close a round. There will be a bunch of costs on you and more complexity trying to wrangle them than dealing with a fund like TinySeed.
Einar: I think that’s true. It’s just much more efficient for us and we pay our own legal fees, so we’re incentivized to make it an efficient process instead of something that just drags on and on.
Rob: Then AngelList has an RUV or Roll Up Vehicle. I don’t know so much about it, but I think the idea is it’s a no fee RUV. It’s to help with convertible notes and safes. But I think it’s pretty new. Have you heard about this?
Einar: Yeah. It’s not entirely clear to me. I should probably look at how it’s different from an SPV. At AngelList, the SPV fees are about $8000. RUVs are similar to that. It’s certainly the same deal. The reason why you would have an SPV is because you want to be able to say there are 25 people who want to throw in $10,000 each, but I don’t want 25 people on my cap table for assorted reasons. You put together an SPV and then the SPV is the one that invests. I think a Roll Up Vehicle is the same. It’s entirely unclear to me how they’re technically different.
Rob: Here’s one thing about RUVs is they basically say you have to be a US C-Corp in order to do it. That’s going to cut a lot of folks, bootstrappers who want to stay LLCs want to be in corporate in different states. They basically say if you’re raising safe and equity round, you’re likely eligible for a no fee RUV with zero care for investors. But again, I haven’t dug into it to know how that all works and how AngelList makes the money, or if they’re just doing it out of the kindness of their heart. You think that’s the reason?
Einar: It could be.
Rob: No, I don’t think that. Not that AngelList is bad, It’s just their business, they have to make money on this stuff somewhere. In my head, I agree with you. I think $150,000–$500,000 is the most common. That’s the most common range that I’ve seen across. We have 41 TinySeed investments and between Sharon and I, 18 private angel investments pretty much made before TinySeed. That’s almost 60 companies and that has by far been the range, $150,000 up to $500,000. There are obviously exceptions. There are people who have a really great network, they’re a second time founder, and they can go out and raise $600,000 in their first round. But that has been pretty unusual in my experience.
Einar: Yeah, I think that’s true. There are people who do it. It’s just a matter of what are you trying to do with it? What are the trade-offs in terms of optionality? If you raise $2 million or $3 million, then investors are expecting you to spend it. It’s not like we don’t expect you to spend it. In some cases, we have to tell founders why are you not doing this? It seems expensive. I was like, we will give you money. You should spend it. It seems like a good use of the money. But that’s even more pronounced if you’re raising $2 million or $3 million.
If you’re raising $2 million or $3 million then investors will not be pleased if 12 months later there is $2 million or $3 million in your account. Unless that’s because it’s been growing crazy.
Rob: I think with that in mind the idea is the more you raise, the more of your company you have to sell. It all depends on valuation as well. Valuation is really set by the market, but the market looks at what’s your traction. Oftentimes, what’s your MRR? What’s the story you’re telling? What’s the certainty that people think that you are going to be able to provide a return? What is that return? We’ll get into it.
The second is, is an exit down the line or is it taking profit out of the business? If you say I’m going to be an LLC and I want to take profit out of the business and run this for 10 or 20 years, you will significantly reduce the pool of investors who are willing to invest in you. I’m not saying that’s a good or a bad thing, but just realize that there are far more investors who want you to exit.
Einar: I think fundamentally, one of the things there is if that’s your goal, if your goal is to keep it forever and then pull cash out and distribute cash over time, then honestly what you should be looking at is more likely things like revenue-based financing. The investors who are looking for more dependable cash flows are more likely to be putting their money into those kinds of vehicles. Equity-type investors typically are looking for higher potential upside than what comes from just profit distributions.
The fact that with revenue-based financing–type things, it’s a little bit more determined how this has to work and it’s a bit more predictable in terms of the cash flow that investors can expect versus if you’re taking an equity investment and you’re saying I’m just going to pull profit out and distribute it over time, effectively what you’re saying to the investors is trust me, I’ll do that. Don’t worry. I’ll do it.
But if you take more revenue-based financing, you’re entering into a legal contract to do it. The incentives are slightly different there. Now, the problem of course is the stage we invest, like super, super early, the earliest stage, it’s almost impossible to get revenue-based financing because your revenue is so low.
Rob: I think at this stage we invest which is early, a lot of founders don’t know. They don’t know who if longer term they want to run it and pull profits off. They don’t know if they will get an offer for $5 million or $10 million. When you see that number on a check or in an email, it changes your perspective. I’ll tell you what. You suddenly realize, wait a minute. Let me get this straight. I can pay my house off. I can fund all my kids’ college funds. I could feasibly never have to work again or never have to work in anything I don’t want to again.
That […] changes your whole outlook on life overnight. They may want to go raise a venture round later. That’s where something like TinySeed comes in. That’s one of the reasons we started this. We wanted folks to have that option. To be able to buy themselves some time to build the business to the point where it becomes maybe a little more obvious of where it should go in the direction the founder wants to take it.
Einar: That can work out different ways, too. We have founders who tell us that if I got $10 million, I’d sell it. Now, they’re doing very well and they’re like, no way will I sell for $10 million. It goes both ways. It’s just nice to have that optionality I think. We do have founders who are like, this is a big opportunity. I just want to go and raise a ton of money and go the venture track. I’m like, great. Do that.
Rob: That’s the fun part. That’s what I like about it. Anyone who’s known me, listened, read, or just been involved in any of the content I’ve been putting out for 15 or 16 years now, knows that the bottom line mission for me is to help more founders succeed faster and have a sustainable business of any kind. A sustainable business may mean that they’re able to sell it for millions or tens of millions or enough money. Maybe their life-changing money is $500,000 because that changes your life in the short term and they’re able to go start another business.
But that’s why I love doing this podcast. That’s why I love being part of MicroConf because our community is focused on helping each other. That’s why TinySeed is such a part of the mission, why it was so cool that you and I essentially agreed on that, that this needs to exist in the world.
In 2018, as we were talking about this and figuring out, should we start TinySeed? Does it work? I knew there was a desire on the founder side because of all the people that I had invested in. It was like, all right, I’m out of money in terms of writing more checks to startups. I need to keep my allocations between Bitcoin and Ether and public equities and all that reasonable. What I didn’t know is would investors, in essence, be willing to invest in this asset class? That other side of the market place came together pretty quickly, which has been nice.
Einar: We started seeing that on the buyout side, too, with Discretion Capital. We started seeing that 5 or 10 years ago, it was like, if you had $2 million or $3 million ARR B2B SaaS business growing reasonably well but clearly not going to be the next Airbnb, there weren’t a lot of interests on the buy side, versus that has really changed on the buy side as well.
That makes it more feasible to basically get money from investors who want to come in at the early stage there. Potential exit market and it’s just they see that people are selling for 4, 5, 6, 7, 8, 9, 10 times ARR at $1 million, $2 million, or $3 million. That becomes a viable thing to back at that point.
Rob: What’s good today is if you are building SaaS, it’s so capital-efficient. It can be extremely profitable if you decide to keep it. It can be extremely lucrative if you decide to sell it. If you gain traction, there is money out there. You and I’ve talked a lot about TinySeed here, but we’ve talked about pipe.com, revenue-based financing. There’s a whole world. Just type in RBF or revenue based financing into Google and you’ll see 20 or 30 players in. There are a lot of options out there. Then there are again other funds that are thinking about this stuff.
I just think we live at such an amazing time. If you want to bootstrap, awesome, do that. That’s what I did with all my SaaS apps. But you know what, one of the reasons I started TinySeed is I wanted just the fund to exist for me because during the Drip years, we needed money and we were doing all types of crazy stuff to cut costs and it was super stressful. I wanted to really quickly raise a couple of hundred thousand dollars. It would have been a big difference but I just don’t have the time to do it, and I don’t know if I have the network, which in retrospect I probably did. I don’t know there was all this indecision around it. I think almost de-stigmatizing it or perhaps normalizing it just a bit more I think is helpful in the space.
Einar: I just want to back more founders. I think more people should be doing their own thing—wherever they’re based in the world—rather than feeling like the pinnacle is to go work for Google or something.
Rob: I think that makes a lot of sense. Well sir, I think we’ve covered this pretty well. If folks want to keep up with you, you’re @einarvollset on Twitter. Of course, they can keep up with us at tinyseed.com if they want to hear more about it. You blog prodigiously on your dot-com, don’t you? Do you have one blog post in the past year?
Einar: einarvollset.com? Yeah. It’s a table that shows IRR versus multiple for the […].
Rob: Amazing. Says the guy. I’m not shaming you. I mean, the last time I blogged was probably two or three years ago.
Einar: At least, you put things out. I was thinking about this. I was like if you follow me on Twitter, you’re mostly going to see me complaining about the Giants. Like I said, I’m not the marketing guy side of things here. I’m more the background dude.
Rob: You are headed to the UK. You’re actually going to be in or around London for two or three weeks, four weeks here, sir?
Einar: Four weeks. I will be there through the end of the summer and then come back for the kids’ school to start here. Then I’m probably going to be in around Europe and London throughout the fall, really.
Rob: Part of the reason you’re there is personal, but part of the reason is because we are raising a European TinySeed fund. If you’re an investor, whether you live in Europe or whether you just want to have exposure to essentially assets of early stage B2B SaaS located somewhere in the EU, Europe area, they should reach out to you. They should go to tinyseed.com/invest. There are a few questions there that pings you directly, and you’ll be able to meet in person because you’re fully vaccinated. That is super cool. Awesome. Thanks again for joining me, man.
Einar: Thank you.
Rob: Thanks again for joining me this week. A lot of good ratings. Five-star ratings are rolling. It’s been super cool. I think we’re approaching 920 worldwide ratings. I want to get to four figures. If you haven’t given us a rating or review, I’d appreciate either or both.
We received this great review from Gilmore Golf from the UK. Five-star, refreshingly honest, and relevant. I’m a fairly new listener who’s now working their way to the back catalog of episodes. But I want to leave this review to thank Rob for all the value, insight, and education he shares for free. I now have a renewed energy and inspiration to pursue my entrepreneurial ideas without compromising on the most important things to me, in other words my family. Thank you, Rob. Please keep going.
Thanks again. This is the kind of stuff that makes me want to keep going in and makes the whole team behind Startups for the Rest of Us make us want to keep going. Thanks, Gilmore Golf. If you haven’t left a rating or review, I would really appreciate it. That wraps up for the week. We’ll be back in your ear buds again next Tuesday morning.
In episode 551 of Startups For the Rest of Us, Rob does another solo adventure to talk about hiring owner-level thinkers, the fallacy of an autopilot passive income software business, and more.
The topics we cover
[1:25] Hiring task-level thinkers, project-level thinkers, and owner-level thinkers
[07:43] The fallacy of an autopilot passive income software business
[15:21] Our bootstrap community
[20:45] Questions you should ask yourself when building/growing a company
Links from the show
- FE International: Professional M&A Advisor
- Quiet Light Brokerage
- MicroAcquire – Startup acquisition marketplace. Free. Private. No middlemen.
- Empire Flippers – Website Brokers
- Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork
- Invent and Wander: The Collected Writings of Jeff Bezos, With an Introduction by Walter Isaacson
This episode is sponsored by Rewardful, turning your biggest fans into your best marketers.
Get 30% off your first 3 months by heading to getRewardful.com/startups. Offer expires May 31st.
We value things like being meticulous, being disciplined, having a process that’s repeatable, and not relying on so much luck or a one-in-a-thousand chance to build a business that can change our lives or the lives of those around us. We know that starting a company is hard and more than half of being a startup founder is managing your own psychology, as well as making hard decisions with incomplete information, where the right answer is impossible to find through math or data.
It’s great to have you back. Thanks again for joining me this week. I am flying solo this week at Rob solo adventure, as I like to call them, and I’m going to bounce through a few topics that have been on my mind recently. I’ve used these solo episodes almost as ways to communicate things that 10 years ago I would put in a blog post, but now I like to put them in a podcast and potentially turn them into a Twitter thread at some point. Someday if I have more time, I would love for each of these to be a blog post.
One thing I want to cover is something I’ve covered briefly, danced around it in Q&A episodes, but it’s around hiring folks with different mindsets. Most specifically—I need to think of a good name for this—I think it is a task-level thinker, project-level thinkers, and owner-level thinkers.
Back in the day when I was hiring virtual assistants—it’s fresh off before our work week, this is 2007 or 2008—I realized I could try to replace myself by hiring a $5 an hour virtual assistant in the Philippines. They were very much task-level thinkers. I would record a screencast and it would take me 30 minutes to upload to a website and then send it to them—this is before Loom and all those things—but I could outsource some (I guess) rudimentary, truly just repeatable tasks, almost things you could almost automate with code but maybe they would take you too long to do, or things that were just easy to throw in a Google Doc or a screencast.
For years, I operated with task-level thinkers, and I was happy, basically a solopreneur with seven or eight, I think I actually peaked at nine contractors who are helping me. These are folks who were doing design work, folks who were doing administration, folks who were doing email support, developers, and it was like, all right. Here’s your next task. Take care of this.
But what I realized is I was then doing all the owner-level thinking which was longer-term stuff, and the project-level thinking which was this project needs—this is project management—seven things to happen, so now I get to manage all those people. That was fine when I was small, that was fine before I wanted to grow a multi-million company, but there was a turning point for me—let’s say it was around 2010–2011—where I hired a couple of people who were more project-thinkers. I can hand an entire project and they would then either manage the resources for me or they could do the whole thing themselves because they were essentially full-stack employees. That’s a developer term; I think most of you know it. It’s someone who can design, who can code, who can do database work, and maybe even DevOps work, but is someone who has a multitude of skills.
That’s when I realized this is the achievement that I’ve unlocked here. This is why when folks do raise a lot of funding, they will hire individual contributors who you could say they’re thinking about their own task, but you’re also able to afford project-thinkers which I was not able to afford prior to that point because I never had a business that generated enough income.
Beyond that after we were acquired—we sold Drip in 2016—I started seeing folks working inside a company who were not the C-suite, they were not owners, they were not founders of the company, but they really owned an entire segment and they thought creatively around it. So someone who’s a marketing strategist who ran this whole team of people, wasn’t just thinking about projects.
Actually, each of his people have their own projects, but he was thinking long-term, what do we need to do in 12–18 months? Coming up with new ideas, listening to the audio books, listening to the podcast, reading the books, and being what I call an owner-level thinker where it’s not about the equity that he owned but it was about ownership of the the results—soup to nuts—from the vision to the implementation, and working with the team to do it. So task-level, project-level, and owner-level thinkers are how I now classify in my head. That’s my mental framework.
The hard part is, of course, we want owner-level thinkers, these are senior-level people who can get a lot of things done but they’re very expensive. They tend to be (a) hard to find, and (b) out of the price range of a lot of bootstrappers. If you’re going to hire a contractor or someone who’s going to work for you part-time, I haven’t seen that work. Actually, I’ve seen it work in a couple of […] but it’s very rare. In general, I think these roles need to be thought about more full-time. I saw it again in the latter days of Drip when we had funding.
Of course, with TinySeed these days I get this question, Rob, you work on so much. You work on TinySeed, MicroConf, and a podcast. You do other stuff on the side. I hear you’re working on a book or whatever. How do you do all that? The secret, really, is that we have a great team. I don’t actually implement most of what happens with MicroConf. Producer Xander, who’s been on the show—you should follow him @ProducerXander on Twitter—he is that owner-level thinker of MicroConf.
He and I (I would say) share that role in essence, where we are both thinking about the vision, the brand, and the long-term, then we start getting to the short-term and the day-to-day. Producer Xander is able to go off, implement, and be a project-level thinker, even get into the nitty-gritty of it, be a task-level thinker and be that individual contributor who grinds it out and gets the task done.
The same thing on the TinySeed side, with Tracy Osborn who is the program director of TinySeed. She not only keeps the trains running on time. She’s not just thinking about how can I run this accelerator batch for this next month or two, but in conjunction with Einar and I, we’re all thinking what we need to do to make improvements and what does this look like a year from now, what does this look like five years from now, and really, what does it look like we’re running multiple batches in parallel.
This is a lot of things to be thinking about and it’s great to have someone who is committed to it and is thinking about it at that high ownership level. Again, its ownership of the results of wanting this to be successful. Tracy, you’ve heard around this podcast many times. She’s @tracymakes on Twitter if you want to follow her.
That’s really where I’m at in terms of a mental framework, is that having moved from hiring task-level thinkers—$5 an hour in the Philippines—to project-level thinkers, and then being able to work with owner-level thinkers. In the Silicon Valley parlance, it is just really senior folks who can drive entire efforts, both see strategy and tactics, get things done in the early days, then hire people to get things done, and manage them. That’s a lot of skill sets. Those are my up-to-date thoughts on hiring.
What’s interesting is until you’ve worked with or hired a project- or owner-level thinker, you usually think they don’t exist. Oftentimes, they are not cheap. When I think of inexpensive $5 an hour, it’s a $30 an hour contract or something, these folks require more budget and often funding to hire them, but it’s the way that you can often move faster and grow a bigger organization, if that’s something that you need to do or want to do.
My second topic for today is around this idea of an autopilot business or a business that you run on the side, don’t pay any attention to you, and it just generates income forever. I want to go on record saying there is no such thing. There is no such thing. Now, you can have an autopilot business for 6 months, 12 months, maybe 18 months. This is both from my direct experience where I used to have (I think it was) about a dozen small apps between $1000 and $10,000 a month, usually, and they all combine to make more than a full-time income for me. I had a bunch of those and I was trying to manage them all at once.
This is also the experience of folks that I see—MicroConf—and even folks who apply for TinySeed or who have talked to us on his podcast. There’s this sentiment where I’ve seen someone post a business for sale. It’s doing $10,000 a month. I want to sell it for this. I spend an hour a month on it or an hour a week.
There’s always someone who chimes in with, if it’s doing $10,000 a month and you’re only spending an hour a week, why not just keep it forever? The answer is because it’s not going to generate revenue forever on one hour a week. It’s in a maintenance mode, and what will ultimately happen is a competitor will come up and eat your lunch; or the organic rankings that you have in Google, YouTube, the app store, Amazon, or whatever will go away and you’ll lose your traffic overnight; or your ads that you’re running will stop working and you have to dive back in; or that API you’re connected to and relying on will change, go out of business, or quintuple their prices.
Things change. In this tech world that we live in, things change. That’s why I always say you can have an autopilot business for about 12–18 months, has been my rule of thumb. Again, I could probably name five examples of my own where this has happened, where the Google ranking stopped working, the Google Ads stopped working, the API broke, a competitor came into the space started eating my lunch because I wasn’t paying attention to it, because I was focused on Drip instead of my previous efforts.
I’m not saying you should never strive to have something that generates “passive income” and be an autopilot business. What I am saying is don’t delude yourself into thinking that you will be able to put something on the side and just have it running for years and years and years, generating income without you being involved or without an owner-level thinker driving it. If you just have folks doing task-level and maybe project-level work, you have your leads coming in, and you have your money coming in and such, that will work for a bit. But the odds of that going more than 12–18 months…
Look. If you have a dry cleaner or a grocery store, that’s not what I’m talking about. I’m talking about a tech business, a software business, something that uses a website to generate leads, usually, and it’s something that is in a space, like ours, that is pretty rapidly evolving. I’m mostly thinking about businesses that generate between $500 a month and maybe upwards of $40,000–$50,000 a month, some range of that.
I think, at a certain point if you have a $5–$10 million business, yes you can hire a CEO. Again, an owner-level thinker who maybe can run the business as good as you can or better. In that case, this is no longer autopilot. You’ve replaced yourself with a GM or a CEO.
What I’m really talking about, these businesses like the software product doing $5000 a month and it just kind of sells automatically because of these channels that are coming in—the Shopify addon I built, this Heroku addon I built. A lot of these are step one businesses. Although I have seen people try to keep on the side and be unwilling to sell it because it’s still generating so much income. Once I sell it I have this money in the bank that I’m essentially drawing down.
I get it. It’s a hard decision. It’s a hard decision to let that go and let the income go. But what I’ll say is then be prepared for every 6–18 months, 12–18 months to be drawn back into that business. You’re going to get drawn back in because the business is going to start to decline. That, of course, is the hard time. You’re not going to get drawn back in to tweak something or optimize SEO. You’re going to get brought back in because your traffic got cut in half, or your revenue got cut in half, or a key component of the business is failing—whether it’s an API, a long-time virtual assistant, a developer, an employee decides that it’s time for a change for them. And it’s tough.
I guess the bottom line is, again, I’m not saying don’t do autopilot businesses. I had them, they were great. They just all had a lifespan. That is a reason that, as I started moving on to larger efforts like I moved on to HitTail, I moved on to Drip, I either shut down or I sold those at a certain point. Now, some of them I held onto too long and I thought this is autopilot and the income’s so great, and they did get crushed by Google. I didn’t have the focus, didn’t have the time to go back.
Other ones I was smart enough, at least looking back, to get rid of them and get the cash to then invest in my future efforts. Both the purchases are okay. Keeping them around for income for a while if you play it right, I don’t think that’s a bad call. But again, just realize that there are trade-offs here. You will get pulled back into the business and be mentally prepared for that. That was always a big struggle for me. If I was focused on something, I had a really hard time going backwards and looking at this “old business.” It was a business that made me super happy three or four years earlier, but which I had kind of gotten over.
This is why I think it’s great that there is now this whole ecosystem around reselling apps. We have from FE International to Quiet Light Brokerage, Empire Flippers, and now we have Micro Acquire. There are ways to get value out of an app you’ve built if it has revenue. This was not really the case 10–12 years ago where I would buy an app at 18 months net profit—it was crazy—and to try to sell it for even 2 years was not easy.
Obviously, the multiples you’ve heard me talked about on the show are much higher for the types of products we build. That is (I think) a real benefit to those of us who do build businesses and either hit a point where they plateau and maybe we lose interest, or maybe we do need an influx of cash, or maybe we do want to move on to our next effort, at least these days we can get some type of reasonable compensation for these companies that we’ve built.
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My third topic is around two books I read recently. One is called Billion Dollar Loser, and it’s a story of WeWork. The other is Invent and Wander, which it says it’s essays from Jeff Bezos. It’s his shareholder letters, which are (I’ll say) not super interesting, but then there’s an interview at the end that I found was pretty fascinating. It was excerpts from interviews.
Overall, I don’t recommend Invent and Wander as a read. It was interesting for me to read both of these books, and Billion Dollar Loser I would recommend if you want to be really angry at just the stupidity and this whole charismatic founder who convinces one person to give him a bunch of money and continues to just everywhere, the press is saying this isn’t going to work, it’s just real estate, and you know it’s a new way of doing things. This stuff is infuriating. It’s infuriating to me that people fall for this.
That said, I struggled with both these books and it was interesting as I listened to it because Adam, who is the founder of WeWork, was dating Gwyneth Paltrow’s cousin, and when he needed his early money he had these contacts in New York. He borrowed a million dollars from his girlfriend’s parents, buy the first building. I just couldn’t relate to that. I struggle with stories like this where, yes, he built something that winded up being worth something, but he didn’t start where the rest of us did.
The same thing with Bezos which I don’t know that I had realized that he mentions, when I was at Princeton and blah-blah-blah, and instantly I’m like, oh wow. Yeah, I went to a public university in California, University of California Davis, and I don’t even remember $3000–$4000 a year that I attended, and that was it. There were 25,000 people there and I went there to get an education. I didn’t go to Princeton, I didn’t go to Harvard.
He talks about, my parents were my first investors. They took out a bunch of money to make Amazon go. Again, unrelatable friends and family rounds, I always shrugged my shoulders, just like I didn’t have friends or family with money when I went to start things. I had to work a day job making $17 an hour, then I taught myself modern programming because I had graduated from public university. Everything was 10 or 15 years behind, so I was checking out books at the library to learn Perl and HTML because we didn’t learn web stuff.
I guess all that to say, this is why I like our community, the mostly bootstrapped MicroConf founder community that really is people coming together with the desire to build ambitious things, to provide value to the world, to change their life through frankly raising themselves up from making $4.50 an hour at their first job, or coming from a public school, or not even going to college. It just matters so much less in our circles and I’m really thankful for that.
I mentioned this in an outro of an episode the other day, but in case you didn’t hear it there was a study published in, and I forget the exact numbers, but it was like 80% of venture capital, maybe 90% of venture capital in any given year goes to people who’ve attended Harvard or Stanford. I was curious in that, in TinySeed, we’ve now done 3 batches of companies, 41 companies we’ve invested in, and I posted, I’m curious. Did anyone here go to Harvard or Stanford? I was like, no criticism if you did. I’m just curious out of all the founders that we have. I didn’t even know the founder count is now. It’s probably north of 70 if I were to guess.
Then I said, I went to a public university and a public high school, a public grammar school in junior high. People are weighing in and laughing, like, no, I went to this junior college or I didn’t even go to college. This (I think) is why people start to talk about founding startups being a meritocracy.
While I do see insiders making it, Jason Calacanis is a good example, I like the fact that he was from Brooklyn, didn’t know anybody, just hustled, became a journalist, an investor, and a founder. I just have a lot of respect for what he’s built. You can like him or you can not like him, you can agree with him or not, but he’s worked really hard and built himself a pretty incredible life.
I admire that about him and other folks who have done that and truly did it without going to Princeton, having your parents as the first investors, traveling in circles with Gwyneth Paltrow and borrowing a million dollars from your girlfriend’s parents.
Am I saying that these folks, that Jeff Bezos or Adam don’t deserve it, they didn’t work as hard, that they shouldn’t have used those things? Of course not. Use every advantage you have. But I did find myself struggling with the stories of the early days of WeWork and Amazon. I struggle to relate to them because I’ve never been in those situations and I’ve never had the advantages that they have. I’m guessing if you listen to this podcast, that might resonate with you as well.
I like this community, I love being a part of it, and frankly I’m glad you’re here as well. I hope that this podcast or MicroConf or just something that I’ve worked on or touched over the years has been an inspiration to you enough that you are able to, hopefully in the long-term, change your life but in the short-term just keep going, just keep putting one foot in front of the other, and using whatever advantages you have to get that product off the ground, to get that next customer, to make the next sales call, to do the next sales demo, to ship that next line of code, and to build a business that brings you freedom, purpose, and allows you to maintain healthy relationships.
My fourth and final topic for the day is a question (I think) you should ask yourself as you’re building, launching, and growing your company. So much for being a successful founder is knowing yourself and a question that took me a really long time to answer—in fact is still in flux and maybe for a lot of you in terms of getting your app off the ground, getting your company launched, getting traction—is what are you really good at? What are you naturally gifted at? Or what do you really want to get better at and something that you find yourself drawn towards? Other people often say that’s really hard, but you’re exceptionally good at this.
I want to say that in terms of shipping software, of course, being a good developer counts, but in terms of building a business, unfortunately, it doesn’t count for this question because there are a lot of good developers who can write code and ship code. There are even a lot of good (I’ll say) developers and UX folks who can ship a good product, so being good at product, let’s set that aside. What are you good at aside from that?
I want to give you a few examples. You may know Matt Wensing. You’ve seen him on Twitter, he’s a TinySeed batch one founder, and he’s working on Summit. That’s @usesummit on Twitter and usesummit.com. As I’ve watched Matt build, ship, and iterate, even evolve his product, what he seems to be really good at is connecting with other people, networking, and building relationships.
He’s a developer, day-to-day writing code. He came on this podcast and said, I don’t love doing sales, but I’m good at it. He’s good at having conversations about partnerships. He’s a phenomenal business development guy. He came to one MicroConf and he met all the people that he needed to integrate Summit with. I think it was Baremetrics and ProfitWell. I guess the original from ChartMogul there, but he didn’t even ask me for intros. I knew these people. I think he just went up and started building relationships. Suddenly, they had integrations and they were cooperating.
That is a super power, and it’s a super power I don’t have. But some people do, and if that’s you, you should take advantage of every advantage you have, and therefore set yourself up for success by getting into a space where business development, enterprise sales, partnerships, and networking can be an exponential driver to the business.
If you go into something where it’s all SEO, Facebook ads, and you’re selling for $10–$20 a month, I guess you could do partnerships and affiliates. There are ways to do it, but it’ll be a real exponential driver if you have larger contracts. There are just certain spaces where […] makes sense.
Another example is Ruben Gamez, who has been on this podcast several times. He’s building DocSketch and he’s TinySeed batch two founder. He’s good at building and managing teams. He’s good at a lot of stuff, but he’s really figured out marketing. As a developer who taught himself how to market 10–12 years ago, he has really doubled and tripled down on SEO.
He still runs Bidsketch but went to start his other app, which is again DocSketch, electronic signature. He was looking for a space with massive keyword volume, and less worried about the difficulty because he knew that that was a super power that he had developed and he had built, and thus wanted to get into a space where that would have a massive exponential upside for his business.
There are all kinds of things you can be good at. You can be good at building an audience. You can be great at having stage presence and maybe building a podcast following, being on YouTube, public speaking. Maybe you’re a great writer and it’s going to be a big content marketing and SEO play. Or maybe you have skills that don’t translate to SaaS apps and maybe you don’t go that route at all. Maybe you decide to launch courses.
There are other ways to use your gifts, but if you’re great at doing webinars and being on camera, then I would lean heavily towards getting into a space where doing webinars, getting on camera, and doing conference talks are going to exponentially move the needle. This is something that took me way too long to realize and recognize it myself, so I think a lot of these solo adventures when I have frameworks to make points, I’m talking to myself from five or six years ago.
To cap off this topic, of course, I will name the exception that proves the rule, and it is Derrick Reimer who’s building SavvyCal. Derrick is exceptional at product. He can design, he can build, he ships features like a team of five people. If you look at how often he’s shipping, it’s amazing. You could say his gift is building in public. He’s developed that.
Obviously, he’s developed an audience on The Art of Product podcast with Ben Orenstein. You could say he’s good on the mic. He developed that. If you go ask him, he wasn’t good at it when he first started. He was very nervous about it. But he’s someone who is so far off the charts in terms of his ability to not only write code but to design amazing features, ship the right things at the right time, and build them quickly as a one-person-team. He is using that to his advantage by competing in a space with a number of large competitors, essentially using his velocity to outmaneuver them, and then hiring out the things that maybe are not his core gifting.
As you probably know, he’s hired Corey Haines, who’s helping him with all the marketing efforts these days, and they’re obviously seeing positive results from efforts from both Derrick’s ability to ship features quickly and Corey on the marketing side.
To put a bow on that, so much of being a successful entrepreneur is knowing yourself. I do think it’s worthwhile asking yourself the question, what are you really, really good at? Then looking at building products that can exponentially benefit from that unique skill set.
This is the final week of our Rewardful sponsorship. I really want to thank Rewardful for supporting Startups For the Rest of Us and supporting independent SaaS founders. We haven’t had many sponsors of the show and it’s not something I plan to do every month, but sometimes there’s just a really good fit, it makes a lot of sense to do it, and helps us have the budget to continue with the transcripts. You may have seen us putting more effort into social media and video clips, and all that takes time and money, so it is helpful to have support from companies like Rewardful.
As a reminder, Rewardful has everything you need to start referral marketing for your SaaS, your membership, or ecommerce business. You can get 30% off your first 3 months by heading to getrewardful.com/startups. The offer expires in just a few days—May 31st—and I like to roll their final ad spot here.
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Thank you so much for joining me once again for this Rob solo adventure. I’ll be back next week in your earbuds with our regularly scheduled program, probably a conversation with an interesting founder, maybe bootstrapper news roundtable. I’m really enjoying the variety of the show these days and I hope you are, too. I’ll be back in your buds again next Tuesday morning.
In Episode 543 of Startups For the Rest of Us, Rob is joined again by co-host emeritus, Mike Taber as he gives an update on all things startups and they analyze top tactics for superhero success.
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Welcome to Startups for the Rest of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing startups. Whether you built your 5th startup or you’re thinking about your 1st. I’m rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the mistakes we’ve made. Where are we this week, sir?
Mike: Not much, hanging in there. Just catching up on some TV these days and trying to relax a little bit in between various things that are going on. Have you heard about a show called For All Mankind?
Rob: I’ve heard about it on a couple of nerd podcasts I listened to, but I don’t remember what it’s about.
Mike: It’s pretty cool. Have you heard of Man In The High Castle where it’s kind of like an alternate history?
Rob: Yeah. I watched the first season of that.
Mike: It’s similar. It’s about the space race between the United States and the Soviet Union. The main difference is that in the very first episode, what they did is they had the Soviets end up getting to the moon first. There’s a lot of historically accurate things in there, but then they obviously take extreme creative liberty with a bunch of different historical facts or pieces of things that happened.
It’s fascinating how they put that spin on it because a lot of it is very true to history and realistic like Buzz Aldrin, and Neil Armstrong, and people whose names you would recognize. But then they changed certain aspects of history as they went along. It’s just really interesting, the way they do it. It’s got a lot of twists and turns, especially if you’re a history buff and you like history, you don’t actually know what to expect next because they are changing things.
Rob: Wow. That sounds really cool. Is it a TV show like 10 episodes?
Mike: I think it’s in its 2nd season now. We’ve watched nine episodes. It’s on Apple TV+. It’s like Disney+ but it’s Apple TV+. It’s there and we’re at the 9th episode. We just finished the 9th, and we’re about to watch the 10th. I think the 2nd season is out and that’s the only reason why I actually even tried to give it a shot. But after the 1st episode, I was hooked. I was like, wow, this is really good.
Rob: That’s super cool. I need to check it out. Sharon and I were talking and we need to find a new show. We talked about Game of Thrones a few weeks ago and it was like, I like when that was on because they had something every week during the summer or whenever it came out. We watch This Is Us as well, which is good, but it’s only 44 minutes a week and I think it’s going to end soon as well. I have to check it out. I, of course, love the sci-fi alternate-history type of stuff. I’m just a fan of that kind of thing.
Mike: Yeah. It definitely plays the whole what-if scenarios of history, obviously. You have your own preconceived notions about what could happen, but you can always discuss like, oh, how would this turn out if this happened instead?
Rob: Exactly. That reminds me actually, one of my kids watched Frozen II again, like two weeks ago. Have you seen that movie? Have you seen either of the Frozens?
Mike: I have.
Rob: Okay. The main character, Elsa, has ice powers where she can shoot ice, and make snow, and do all these things? Well, two of my kids started getting into this argument about who would win in a fight and I don’t know how they got there. It’s kids, right? Elsa or Spiderman? I was like, obviously—
Mike: —Elsa, of course.
Rob: Wait, what? Seriously?
Mike: Yeah. Why?
Rob: Because Spiderman would smoke her. Are you kidding me? He has the spider-sense. She wouldn’t be able to hit him at all. Can you imagine her trying to shoot her snow rays at him and him knowing where they’re going to be? That’s really what the spider-sense is. It’s almost like a predictive mechanism.
Mike: Yeah. But she’s got superhuman strength, and reflexes, and endurance. It’s not really a whole lot different. You could almost say that she’s got a form of spider-sense as well.
Rob: Wait, superhuman strength? Does Elsa have that?
Mike: Well, it’s superhuman agility. It’s not really a strength, but yeah.
Rob: How does she have superhuman agility?
Mike: Well, it takes that to be like sliding around on those ice runners and stuff that she puts together.
Rob: No. My kids will grab a piece of cardboard and they’ll go down the slide standing up at this park here near us.
Mike: I’m sure that looks very elegant.
Rob: At least they don’t fall and crack their head open. They’re not wearing a helmet. I disagree that she has superhuman agility. She’s not a superhero. Spiderman is. He’s the friendly neighborhood Spiderman.
Mike: She’s not a superhero? She got all these different powers. She can control ice, can create ice, and control water—
Mike: —manipulate the weather, freeze people’s brains and hearts. Come on.
Rob: Was that in one of the movies? Did I miss that?
Rob: Here’s the thing. I don’t think of her as a superhero. I think of her as like a person who can do some stuff and maybe more like Storm or Iceman—if I’m going to go back to the superhero genre. Did you read Marvel’s Secret Wars from the ‘80s? The comic series?
Mike: I did not read it. They recreated a bunch of those in the last 8 or 10 years.
Rob: Yeah. They had something called Secret Wars in the last 10 years that they published. My understanding is it’s different than the one from the ‘80s. I probably need to read some of those just so I can tell the difference because growing up for me, it’s called Marvel Superhero Secret Wars. It ran, I would guess ’84-’85-ish and it was like a 12-issue limited series. It was the best story that I had ever read in comics up to that point for me. In this, all the superheroes and supervillains get brought to this battle planet. I forgot what it’s called, Battle Planet maybe. It’s made up of all these pieces of planets from the extended universe or whatever. They’re told to fight one another by this guy called the Beyonder, the supreme being in essence like he’s god.
Mike: Cosmic entity.
Rob: Cosmic entity, yeah. In it, issue three, Spiderman is listening to the X-Men. I think I have a summary right here. He happens to come up on the X-Men—I’m reading this off of marvel.fandom.com—comes upon the X-Men who are holding private counsel with their leader, Professor X, while they discuss the distress they are receiving from the other heroes because they’re mutants.
Professor X has decided that his team is going to leave to join up with Magneto who’s actually a bad guy. Spiderman hears them and then the X-Men tries to grab him, and sir, he clowns them. It is embarrassing. It’s Storm. It’s Wolverine, Cyclops, Rogue, Colossus, and Nightcrawler, all against Spiderman. He just slaps them around like they have no idea what they’re doing. When I imagine him fighting Elsa, it’s no contest for me.
Mike: I feel like you’re glossing over a glaring detail of that whole thing which is the fact that he was infused with some of the Beyonder’s powers.
Rob: I don’t think he was.
Mike: I think he was.
Rob: You’re just saying the opposite of what I’m saying. That’s where you say, am not.
Mike: Are, too.
Rob: What evidence do you have of that? You haven’t even read it. He doesn’t have the black costume yet. This is actually in issue eight where he gets the black costume that later becomes Venom. It’s an alien costume. I’m really spoiling this 35-year-old thing. If you want to know more about Secret Wars, I can tell you how it ends, too. But no, I don’t think he had the extra powers dude. I just think, hand-to-hand combat, he clowned the X-Men, and I think he would do the same to Elsa, sir.
Mike: Direct from Wikipedia, “These tales include him receiving the Beyonder’s power and creating a new Parker City. Spiderman and the thing, spying on Dr. Doom in a story featuring Spiderman’s suspicions concerning the Hulk.”
Rob: Wait, what? That was Wikipedia? That was the Secret Wars in general or this episode?
Mike: Marvel Superhero Secret Wars. They do specifically refer to 2010. Maybe it’s not original.
Rob: Got you. Zing.
Mike: But this is also from 2010, the one, I believe, it came from Spiderman’s point of view.
Rob: That’s interesting. I do need to read that. It sounds like.
Mike: Yeah. I think you’re wrong sir.
Rob: I don’t think so. Okay. From Quora, “Who would win, Spiderman or Iceman?”
Mike: Yeah, probably Spiderman.
Rob: Well, actually this is funny. Really the only main answer since this is a hypothetical scenario which I just laughed about, of course, it is. It’s two superheroes.
Mike: No, it’s not.
Rob: Since this is a hypothetical scenario, I’ll be ignoring the morality, the core of these characters, et cetera. Basically, who would win if it was a fight to the death? First things first, analyzing their powers. Spiderman can easily lift 10-30 tons and can run and move at a speed above 200 miles an hour. I didn’t know that. Spiderman is faster, stronger, more agile, more intelligent, and more skilled than Iceman. Also, his spider-sense warns him of any danger and he also has a near-omnipotent awareness about his surroundings. He can also jump up to 7-10 stories across or upwards. How are you feeling about Elsa now, sir?
Mike: Elsa has the ability to strike a person with an icy blast that does not harm them physically, but magically freezes their heart or mind.
Rob: That could be a problem.
Mike: Magically freezes their heart or mind.
Rob: What range does that attack have?
Mike: I don’t know, but given that she turned the entire countryside into a frozen wasteland, I feel like it’s probably fairly high.
Rob: Yeah, if it’s in D&D, terms at 60/120, 12/24 squares, how is she going to get close enough to throw anything?
Mike: I think it boils down to who wins initiative combat.
Rob: Yeah. No doubt. They rolled D20s, they’re at their dexterity. I’m going to give him a big dexterity bonus. Hey Mike, do you think people know what day it is?
Mike: I don’t know. Maybe. Probably not.
Rob: If not, they should look at their calendar.
Mike: That’s probably a good idea.
Rob: This is not a regular episode of Startups for the Rest of Us.
Mike: It’s not?
Rob: It’s not.
Mike: I’m going to stop. Should I come back tomorrow?
Rob: Yes. Come back tomorrow. Let’s tell them the backstory. This stemmed out of a conversation that we had two MicroConf Europe’s ago? The last one was in Croatia, right? 2019?
Rob: And because there wasn’t one in 2020, obviously, due to the pandemic. We were at dinner, special thanks to Benedict and Christoph for treating us to dinner that evening, and somehow you and I after a couple of old fashions, wound up getting into this conversation for real. Do you remember that? I have no idea how we got there though.
Mike: I vaguely remember, but I know you were wrong. I remember that.
Rob: I remember. I was completely sober and you weren’t. It makes sense why you wouldn’t remember.
Mike: Oh sir.
Rob: But yeah, and we started arguing this, and it was funny, and then the people around us were laughing. We got way nerded out. We didn’t even bring up Wikipedia and Fandom. But I think it was Christoph or Benedict who said, you guys should really record that at some point. We said we should do it next April 1st. Somehow, we missed last year’s. Probably the pandemic stressed us. I wasn’t paying attention, but I’m glad that we were able to finally get that out, Mike. I still think Spiderman would win unless she just froze his heart. If she could freeze his heart or his brain, that feels like cheating.
Mike: Cheating in a battle of the death?
Rob: Cheating in a battle of the death.
Mike: A hypothetical battle of the death? Okay.
Rob: I want it to be hand-to-hand.
Mike: That wasn’t in the guidelines. It was not in the rule book.
Mike: Page 7, section 35B.
Rob: For what? The outline for this conversation? Yeah.
Mike: No, the battle of the death handbook.
Rob: Yeah. Thanks for spending some time with us and lighting in the feed up here. I appreciate you taking the time. I really enjoyed chatting about this. That was fun.
Rob: Take it easy.
Mike: Alright, take it easy. Bye.
Rob: Thanks again to Mike for joining me on today’s episode. In case you’re listening to this years down the road, this episode was released on April 1st of 2021 and that is April Fool’s Day celebrated in 11 countries around the world. I hope you enjoyed this slight deviation from our normally serious content and I’ll be back in your earbuds again next Tuesday morning.