Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about calculating lifetime value. They discuss how its done with one time versus recurring revenue and funded versus bootstrapped payback time.
Items mentioned in this episode:
Transcript
Rob: In this episode of the Startups For The Rest Of Us, Mike and I dive deep into the riveting conversation topic of calculating lifetime value. Seriously, it’s pretty interesting. This is Startups For The Rest Of Us Episode 362.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. I want to kick today’s episode off with a question, Mike. What movie would be greatly improved if it was made into a musical?
Mike: If it was made into a musical. Hmm, that’s a tough one. My guess would be the old, black and white Frankenstein.
Rob: Okay. Yeah, I guess it wasn’t a musical but it was turned into a comedy by, what is his name?
Mike: Mel Brooks.
Rob: Yes! Young Frankenstein, is that what it’s called? But yeah, I could see them doing a musical as well.
Mike: Yep, definitely. Mel Brooks is on a couple of others that I think he turned into musicals as well.
Rob: I agree. There’s a lot of completely random questions that catch you off guard right at the start of the show.
Mike: I know. You come up with these things that are just totally off the wall and you don’t even run by me first.
Rob: It’s your new favorite thing.
Mike: My new favorite thing.
Rob: Other than answering ridiculous questions at the top of the show, what’s going on with you?
Mike: I wanted to give a quick shout out here to Tyler Tringas. We’ll link this up in the show notes, but he has a blog article that he posted talking about how he sold his bootstrap SaaS business from somebody that he met at MicroConf. Just wanted to say great job to Tyler and mention it so that people can go over and read the whole story. It’s a really lengthy article on it and where the product started, it’s called Store Mapper. It allows people to embed a map of their stores on their websites, sound like a pretty straight forward thing but he couldn’t find anything out there that did something for his customers so he built it. Fast forward a couple of years and he was able to sell it. I just want to say congratulations.
Rob: Yeah, congrats, man. I read the post, it was really in depth and really interesting and it’s posted over there on indiehackers.com.
Mike: I also wanted to read a quick listener email to us. This is from Zoren, he says, “Love the show, great tips. We’re busting our ass trying to grow [00:02:28] right now, and your show’s been great insight. Keep up the good work and maybe one day we’ll be on your show to tell everyone our story.” Really appreciate that, Zoren.
Rob: Yeah, thanks. For me this week, we actually launched a pretty big feature that took a while. It actually didn’t take that too long to build, it’s a long time to get approved and it’s an integration with Facebook custom audiences in Drip. It means that you can, in essence, have a native action right there in Drip, so that if someone’s at a certain point in the workflow or you can even just have a global automation rule that says when this happens, when anything happens, if it a tag’s applied to this person or if the lead’s core goes above something or they start checking out and they never complete their purchase, then you can just put them into a Facebook custom audience and you can then assess and retarget them when they’re on Facebook and then if they do buy, then you can pull them out of that audience.
It’s a pretty sophisticated, powerful feature, even though it was not that hard to build, but there’s a lot of possibilities to this and there are some use cases that are going live on drip.com right now. It’s a really impactful feature that took a month from the time we were code complete, about a month in order to actually get approval from Facebook because they want you to really have tested it out and you have to jump through some hoops and everything, which are warranted, I will admit. That’s been the habub this week.
Mike: That’s interesting. I’m on the other side of the spectrum with Google where I talked last week about how I was finishing up the [OWAF 00:03:59] authentication for Google to get mailboxes integrated into Bluetick. Because of the level of access that I’m asking for inside of people’s mailboxes, they have to basically fill out this form and they’re like you have to justify why you want this or why you need this level of access, I’m like, oh great. I went through and they’re like oh, it will take a minimum of three to seven days in order to get it approved, and of course I went through the process and I was like, oh, this is going to suck. Three hours after I submitted it, they said, sure, you’re good to go.
Rob: Oh, that’s cool. Good for them then, for keeping that queue short. You totally understand why they do that, right?
Mike: Oh, totally, definitely. That wasn’t the issue. The issue is I didn’t look to see that that was what I was going to need to do. I don’t know, I think the part of it might have just been the stuff that I was asking for and why and the documentation that I had to send in. I was pretty detailed in what I was requesting and why it needed to be done. Though I suppose it paid off.
Rob: Yeah, that makes sense. The other thing for me is the iTunes reviews, we now have 544 worldwide reviews in iTunes. Our most recent one that comes from Honey Mora from Canada and his subject line is: Ton of practical tips and lessons. He says, “I’ve been a listener for about four years now. I love what Rob and Mike share each week, I’m hooked. I’ve been following Rob’s Stewardship Approach since launching several premium WordPress plugins first and a few months back launching my first SaaS. Thank you for all you guys do.” He’s at repurpose.io.
Thanks for that review, Honey. We would appreciate if you’ve never given us a review, hop into Stitcher, Downcast, Overcast, whatever it is you use, or iTunes and click that five star button. You don’t even need an entire review or shout out or anything like that. Just clicking that five star helps keep us motivated, it helps us rise to the top of the rankings, helps us get more listeners, and the more listeners we have, the more we can do at the show, frankly, and it motivates us to keep putting out episodes.
Mike: The only other thing I have is I am speaking at the Cold Email Success Summit next week. We’ll link that up in the show notes but it’s not really quite an online conference but it’s an online summit where you can go and there are 20 different speakers that they’ve pulled from the world of email marketing to talk about various topics and give their insights and discuss what’s working and what’s not and give you actionable tips and things that you can do to help with your email marketing reference.
Rob: That’s cool. We’ll include a link in the show notes to that.
Mike: Awesome. What are we talking about this week?
Rob: This week, I outlined an entire episode around a single listener question from Andrea [00:06:28]. If you have a question that you think could make an interesting or even just a topic suggestion that you think could make an interesting episode for us, you can email that to us at questions@startupsfortherestofus.com or feel free to call it into our voicemail line at 888-801-9690.
Andrea says, “Hey there, thanks for an amazing podcast. I have a question for you. A few times in the show, you’ve talked about customer lifetime value and how important it is for knowing how much to spend on user acquisition. That makes a lot of sense, but how do you calculate your CLV (Customer Lifetime Value)? I’ve seen some examples on how other people calculate it, it would be interesting to hear your perspective on how to do it for SaaS. Thanks.”
And just one quick note, I am going to use LTV for lifetime value. He calls it CLV, some people call it CLV, some people call it LTV, it doesn’t matter what you call it, it is the total amount of revenue that you are going to get on average from each of your customers. The reason that this is helpful to know is it can dictate the whole slew of things. The higher it gets in general, the healthier your business is, the more you can spend to acquire customers, and even the more you can spend to support them, to create educational material for them, more you can spend on feature development. This value grows and your customer count grows, those are the two things that multiply by each other.
If you make about having 500 customers with a total lifetime value of $100, that’s only $50,000. That’s the lifetime value of all those customers that they’re going to pay you the entire time that they are customers of yours. Now if they are a one time customer, you get that all upfront, meaning one time purchase. If it’s a recurring purchase, you will get that overtime but that’s not a ton of money to hire people, pay for server hosting, pay for whatever other – there are a ton of expenses; pay yourself, run ads, do all the stuff you need to do. Whereas if you take the same $500 customers and you just multiply that by 10, let’s say a reasonable lifetime value of $1,000, now we’re talking about $500,000. It’s a whole different ball game of how you can treat your customers.
We’re going to dive in today, we’re going to talk quickly about how to calculate it, and I have just a very simple and very streamlined way to do it. There are different ways to do it, there is more specific, in detail, and advance ways to do it, but especially for a podcast, we don’t want us just reading off a bunch of equations. We can link out to some more advanced stuff, there are some great stuff from Tom Tungus, there’s someone who dives into this really deep and they have five different formulas and it’s the simple one and then they add another thing and then you have the cost of goods sold and then you add this, and the that. It gets super complicated by the end, but for now, we will just dive at a more of an entry level but then I really want to talk, we are going to get in deep into some rules of thumb that I have for payback time on advertising and then run through a couple of examples that are very close to real world apps just so you can get a better sense of why all this matters.
To kick us off, if you think about having a one time purchase business, like a WordPress plugin, or even DotNetInvoice, which is an old product of mine versus a recurring business, there’s a big difference on how you calculate lifetime value. We aren’t going to spend a ton of time on one time purchases, it’s obvious if you are going to do a really simplified version of calculating it, you’re just going to look at your purchase price. To be honest, if you have multiple purchase prices, let’s say you have a $50, $100, $150, and again, these are one time sales, you should know at this point what you breakdown has been historically. You should be able to go back pretty easily, do an export out of Stripe and just basically, you want the average of all the purchases that people have made and that’s what I would start with.
As you get more advanced, you might have upsells, you might have cross sells, maybe there’s an annual payment that comes once a year, there’s all that stuff that you can add in later but this is a five second estimate of what people will pay you on a one time basis. An example, DotNetInvoice is a one time sale downloadable invoicing software, the purchase price was $329, and then we had a bunch of different add ons and we could do the math, it was 20% of people who bought DotNetInvoice bought one of the add ons and the average price of the add ons was $99, you can do that math and then 20% times the 99 is another $29, so it actually raises the lifetime value up to $349, give or take. What you’ll notice with that example is if I had just said DotNetInvoice is $329, and that’s the number I’m going to go with right off the cuff just so I would have it, it’s actually pretty close to the ultimate value.
That’s something I want you to think about is, ultimately, you’ll want to get down to the dollar because once you’re paying for ads and you’re running big time marketing spend, it does matter. But in the early days, when you’re just trying to get a sanity check on things or just trying to get an idea of how much someone is worth starting with one time sale, starting with the purchase price, that’s a fine way to do it especially if you’re prelaunch because you’re not going to have all the numbers that I just threw out right of who’s going to purchase what of which tier, just make a judgment call. If you’re one purchase price, use that. If you have three tiers, I would take the average of the bottom two. An example of the $50, $100, $150, I would take the average of the $50 and $100 and I would obviously say I have $75. That’s the lifetime value I would have going into a one time purchase business. Next we’ll dive into how to calculate it for recurring.
Mike: I think the analogy I might try to draw between calculating the lifetime value and how it relates to your business is that when you’re looking at this, you would think that calculating lifetime value is really straight forward and easy as okay, how much money you’re going to make per customer, but once you start digging into the details as Rob illustrated, if you get into things like cross sells and upsells, those things start to change what your lifetime value actually looks like. It’s very easy when it’s just a flat number and it’s one time payment but anything else, let’s say that you’re paying affiliates, that eats into whatever that margin is. If you’re doing cross sells, or upsells, maybe it adds 20% to the revenue but only for 50% of the customers, then it starts to get complicated.
It’s almost like the very simplistic analogy is okay, this is how you calculate gravity but depending on how close you are to center of gravity or how far away you are, there’s all these other little things that come into play. Then there’s air friction and lots of other stuff. It starts to get more complicated, and there are other things that you can add in that may make a difference or you may decide to gloss over them just based on what it is that you’re trying to get at and why you’re trying to get at that number. If it’s try to maintain profitability or optimize your profitability, you might dig in and say yes, these things actually matter to the calculation. In other cases you may just say, I don’t care, I just need a back of the envelope number so that I know kind of what I’m shooting for. It really depends on where you are in the process of trying to figure out how much money each customer is making you.
Rob: Let’s flip over to recurring which is what we’ll focus on for the rest of the episode. Obviously this works with SaaS, but also works for membership sites, something where someone pays you on a recurring basis. This can be used for quarterly or annual or whatever. We’re going to look at monthly because it makes the most sense for what we’re talking about.
To calculate lifetime value, the simplest formula is to take your average monthly revenue per user, per customer and you divide it by your churn percentage. If your average revenue per customer per month is $30 and you have a 10% monthly churn rate, then you’d have $30 over 0.1 and that means your lifetime value is $300. It’s not complicated, it’s just hard to explain on a podcast but basically your average customer lifetime, how many months they stick with you is one divided by churn. Again, it would be 1 over 0.1, so that would give you 10, and then your lifetime value is your average monthly revenue per user which is also called ARPU (Average Revenue Per User). ARPU times the amount of moths they stick around times the lifetime. The amount of months they stick around is 10 and the ARPU in this case is 30. 30 times 10 is 300.
Again, the simple way to do it, we don’t really need to derive it here like I’ve just done but it’s basically your average monthly revenue per user divided by your churn percentage. There is a more advanced way to do it, we’ll link over to profit wealth. We want to get down to the penny and how all these things come into it. But what’s interesting is you think about HitTail where an earlier SaaS app I had, had pricing tiers that were 10, 20, 40 and 80 and then it went up from there if you got really big. If I would to look at a SaaS app that had pricing tiers of 10, 20, 40 and 80, this is actually similar to what HitTail had. Those were the pricing tiers for that. You could take a reasonable guess. Typically, when I’m looking at a SaaS app, if I’m going to guess what the average revenue per user is, it tends to be one from the bottom. In this case 10, 20, 40, 80, I would from an outside perspective say it’s probably around $20. Maybe it’s $22, maybe it’s $25, something without expansion revenue specifically.
Expansion revenue is like what Drip or people as the ad subscribers goes up quickly, the costs. But in an app like HitTail or app where people choose a tier and stay on it, it’s going to tend to be somewhere on the lower end. If your average monthly revenue per user is $20, you can see how driving churn down drives this lifetime value up. If your churn is 10%, which is quite high, you only have $200 total from the lifetime. But if you cut that in half down to 5%, then you’re looking at to having $400 that you’re essentially grossing from that customer over their lifetime.
Mike: The thing to keep in mind with that churn rate is that as that churn rate goes up, it dramatically starts to affect the lifetime value. If you think about it strictly from a percentage, I think it was 5% churn is the example that I’ve used in a MicroConf talk in the past where if you have 5% churn, then on a year over year basis, you’re churning over 60% of your customer base and it actually gets a lot worse than that because it is 5% per month, not necessarily the total of the entire time because you have to calculate it at each point where somebody could potentially churn out of the application. That 5%, great number to have but you really want it over 5% over the course of the year, not 5% per month. You can get in trouble if your churn rate starts to climb and you end up churning over most of your customers on a yearly basis. That’s a really bad position to be in.
Rob: And I’ll just throw in this little tid bit here, this isn’t even in the outline but it’s interesting, you can get to the point where you have net negative churn, your churn is actually negative because your existing customers are expanding. It’s called expansion revenue like I just talked about. In a business where it is based on something that is constantly growing, let’s say imagine Amazon EC2, Amazon S3.
Mike: I think Stripe would be a good example.
Rob: Stripe’s a good example. Yup.
Mike: Stripe takes a percentage of the purchase price for their customers but as those customers grow and they sell more, Stripe grows their own revenue because of that.
Rob: Right. If they have a bunch of people signing up and some are churning but the ones who are there are growing 10% per month each, just as an example, you can imagine that their churn is negative and that’s crazy multiplier, crazy multiplier on lifetime value.
Why are we even thinking about lifetime value, why do you care? The big deal is lifetime value gives you an idea of what you can spend to support and to build the product and they acquire, but there’s even more interesting aspect that we can drill into and it’s not directly lifetime value but it’s based around payback time, payback duration.
Let’s say that there’s this common mistake of beginning startup founders, thinking that they can take their entire lifetime value and they can spend that to acquire a customer. If you had $500 LTV, I could go out and spend $500 to acquire that customer. That is far from the truth. There are three major reasons why that is, first one is that you’re going to have expenses, you’re going to be paying employees, you’re going to be paying yourself, you’re going to have hosting, you’re going to have Stripe cost, payment processing, there are a ton of expenses that are out there. When you are small you can get those small, but especially as you get big, your expenses will become a larger and larger percentage of that lifetime value. That’s the first thing to keep in mind. That’s where if you want to do the exhaustive LTV calculation where it’s net LTV, you can start deducting out expenses on a per customer basis, just takes a lot longer. When you’re small, it isn’t such a big factor, I wouldn’t necessarily do that earlier on.
Second thing is you don’t want to spend $500 to acquire a customer who’s going to bring you $500 because you want to make some type of profit, you want to have a business that actually generates some type of money that you put in your pocket. The third one is that you are likely to run out of cash. Imagine if you have a really long customer lifetime, people just stick around forever. Let’s say they stick around for 50 months and you get $10 a month from them. The lifetime value would be $500. But if you spend $500 to acquire them, or even if you spend $300 or $400, you don’t get payback for 30-40 months and unless you have a massive pile of cash, you are going to get killed. Frankly, you’re going to go out of business, it’s what’s going to happen, you’re going to run out of cash.
There is this whole concept of payback duration or payback time that doesn’t go all the way up to the LTV, it only goes for certain number of months to the point where you have enough cash to cover it and basically enough comfort to cover it. So Mike, you want to talk a little bit about these rules of thumb that I’ve used over the years for a funded company’s payback time and bootstrapped company payback time.
Mike: Yeah. The difference between them is striking because with a funded company, they have money to burn because they’ve gotten money from their investors and the whole purpose of that money is to not just find the customer but to also leverage the channels that are going to get them more customers. Not necessarily as concerned about profit. They can burn through the money that they are getting and it doesn’t matter as much to them, they’re really trying to spend that money in order to identify the channel that’s going to get them the most customers as quick as possible and then they’re going to use that to start optimizing what the revenue is. Sometimes they don’t even do that, sometimes they don’t care about revenue at that stage at all, they’re really just looking to get users.
If they are looking for a return on their investment though, they’re typically looking at something less than a year because they have the money to burn and they have the money to invest in those channels and the purpose is to get that money in the door overtime so that when the year comes up, then they have the money back in the bank. As Rob had given the example, $10 a month over the course of 50 months, let’s say that it’s $100 a month over the course of 12 months. They want to get that return within a year.
With a bootstrap company, you really can’t do that. Most people do not have the runway in order to be able to make that happen. This is where people are really looking to get that payback within two, three, four months at the most. If you have more cash in the bank, you can stretch it out to six or seven but if you don’t, you really need that payback very quickly, maybe one or two months at the most. This is an area where if you’re selling annual plans, it can make a huge difference in your ability to leverage channels that are going to cost you a lot of money to acquire those customers because if you can sell an annual plan, you get all the money up front, you don’t have to wait for it to come in. Maybe not everybody signs up for an annual plan but if you can get a certain percentage of them to sign up for an annual plan, then that calculates into what your upfront revenue is and what your payback time is on average. It’s not going to say everybody’s going to pay back within this period of time, whether it’s three months or upfront. But you also want to make sure that you have the money in the bank to be able to reinvest in wherever the channel is that you’re finding that’s working.
Rob: Yup. I remember when I first started running ads with HitTail was Facebook ads and my payback time that I was looking for was I think two months or three months because I didn’t have a lot of cash and then I did some deals. I did an AppSumo deal and I got $11,000 in cash from that and then I upped it to a four-month payback. And then I got even better at it, and I realized I wanted to spend more and grow faster so I went to five months and eventually I was at six months payback because I was comfortable with it and I had enough cash coming in from existing customer to cover that. It’s a really interesting thing to see how comfortable you are and how much cash you have in the bank. I would say as a bootstrapped founder like you said, somewhere between two and four months is where most people typically start.
One other thing I wanted to point out is there is there’s this rule of thumb with lifetime value to CAC ratio. CAC is Cost to Acquire the Customer. LTV to CAC ratio, in general is in funded circles but they say it should be about 3:1. Meaning if your LTV is $1,200 that your cost to acquire them should be right about $400. If you go over $400, let’s say you’re at $800, it means you’re spending too much to acquire customers and actually there are funded companies that do this because they’re trying to go after growth and they’re nowhere near profitable. These are the kinds of the companies that I think that a lot of us roll our eyes at because it’s like yes, you’re growing and yes you’re bragging about how you’re killing it but you’re never going to make money until you prove that you could acquire customers for less.
And then in the funded circles, if they say you’re acquiring customer’s, lifetime value is $400 and you’re only spending $100 or $200, then you’re actually missing out on growth. They’re not saying it should be below 3:1, they’re saying it should be at 3:1 or as close as you can get there. Personally, when I’ve done this, I have often not spent 3:1, I have often done below that like 4:1 or 5:1 because the rest is profit. If you are a bootstrap founder, you have to think about that. The less you spend, the slower you will grow but the more profit you will have. You want to balance that, you want to grow really fast, you can obviously have that ratio be even higher.
For the last few minutes of today’s podcast, I wanted to run through a couple examples of some real numbers to wrap your head around what it actually looks like to run ads and to think about payback time. What I’m saying is, as reasonable clickthrough rates and reasonable ads cost at different times, you have to find the right ad network to be able to justify some of these but let’s go back to lower price SaaS, which is $10, $20, $40 and $80 a month with average earn per user at $20 point, churn is 10% a month just to make it simple. Obviously you’d want to get lower than that but it’s easy math, that makes your lifetime value of $200.
Interesting thing, we’re just going to look at two scenarios, back in the day, when I was running Facebook ads, this is 2012, I was getting clicks for $0.30, that is not impossible to do at this point but there are ad networks still today where you could find those. At the time, Facebook was a [00:24:50] ad network and when Google AdWords was [00:24:53], it was cheap clicks that Jason Cohen and talked about getting $0.05 clicks when he first started the SmartBear. You have to go outside these mainstream areas because they are overcrowded with highly funded. It’s where everyone’s playing and so the clicks are more expensive, but if you can find networks or other opportunities for getting inexpensive clicks, be creative with it, that’s where you can get these $0.30, $0.40, $0.50 clicks.
Let’s say we were getting ad clicks at $0.30 piece, let’s say 2% of the people who came to our website converted the trial, that number is high but for a lower priced SaaS app, that’s really curiosity based, it’s possible although we’ll look at the next example as I think is probably a little more realistic these days. 2% conversion to trial and then half of your folks, this is credit card upfront, 50% convert from trial to paid. With that, if you do the math, $0.30, 2%, 50%, it takes you out to $30 to acquire each customer and you would get a payback in 1 1/2 months. You would want to run that all day and all night and you would actually want to pay more per click to drive more traffic faster. I would consider doubling one of those numbers, if you literally were getting 2% conversion rate to trial, that is a pretty hefty rate.
The second example is pretty much the same example, but I doubled the cost from $0.30 to $0.60 and then I cut the conversion to trial in half from 2% to 1%, which I’ll admit is a bit realistic. It’s $0.60 per click and 1% converting to trial and half converting to paid, that gives us a cost to acquire of $120 and that’s a 6 month payback. Realize that if you’re driving 100 customers new customers a month from this ad approach, that’s going to be $12,000 in cash that you’re going to need to do it. It puts into perspective, those are just loose numbers, if you add a higher average revenue per user, not uncommon to have $80 or $100 average revenue per user, then these numbers become very different. You can pay a lot more per click. If you pay a lot more per click, your conversion trial’s probably also going to be lower with a higher price point thing. These things will have to shake out.
But this is the analysis that I have done many times when I’m thinking about are we ready to start running ads and is there a scenario under which this is feasible and then we can reasonably grow a business using ads because every business is not cut out to do pay acquisition.
Mike: I think the most important piece to keep in mind when you’re looking at the numbers and try to figure out whether or not it makes sense to go after a particular advertising network is how quickly you’re going to get that return on your investment back. Because if it is six months, and if it’s costing you $10,000 to pump into that, you’re not going to see that $10,000 that you paid this month until six months out. In order to get yourself to that six month period or get yourself through it, it’s going to cost you $50,000, $60,000 and yes it decreases as you go on because you’re getting more money from the customers in the third month than you were in the first month, but the reality is you need a lot of money to make something like that work. That’s why funded companies can do it and bootstrapped companies really don’t have the ability to. Again, that’s also why the annual plans and getting the money upfront helps so much with being able to grow the business in an advertising space because you get that money and you can spend it, and in fact, almost gives you negative churn as a result of that.
Jason Cohen has talked about that at MicroConf. I think there’s a talk that you can find on the MicroConf website under the videos section from 2013 or so where he talks about exactly that.
Rob: Yeah. To be honest, even though we’ve been talking for more than half an hour, this really is high level introductory. I say introductory and I hope it was easy to understand but I will say that the kind of rules of thumb that I’ve thrown out here are from years and years of experience running this across multiple SaaS apps, many, many small businesses and this is the way that I think about paid acquisition as I’m diving into it. I was trying to think of any networks these days, like ad networks in particular, that would probably have tripleclicks, I think Twitter is one, and I think Instagram is another. I don’t know if Instagram’s up to Facebook cost yet, I know Instagram’s a pain, it’s not necessarily B2B, it’s got to be visual and all that stuff. Those are the two networks I think have a decent reach that could potentially have cheap clicks. I don’t think Facebook does it these days anymore, last time I ran ads, the cheapest I was getting was the $0.60 clicks but a lot of them were mostly between $0.60 and $1, I think it’s even higher than that now.
That is why these businesses like Facebook and Google mint money and why they’re worth so much, why the stock market values them so high because they know that overtime, if they’re successful and if they figure out their ad tech, which is pretty hard to build, if they figure that out, it’s just going to grow overtime and that’s good for them. It’s not necessarily good for the advertisers in the sense of it becomes more and more expensive to run ads.
Mike: I think the one wrench to throw in this entire thing is that even if you’re paying money to get those people to your site, there is the chance that they may not convert right away and they may just end up on your email list and you may need to figure out, okay, it cost me this much to get somebody onto my email list, but later on did they convert into a customer and that’s where you start getting into a really advanced analysis of what your sales funnel looks like. Maybe some people convert, maybe some people never convert or just unsubscribe and they will never become a customer but those are the places where it becomes very difficult to start making some of these calculations because then it’s not as straightforward as I paid $1 for this ad and 1% of the people converted. It’s probably a little bit more than 1% but it’s hard to know overtime, then you end up with problems trying to figure out what your attribution looks like. Attribution is an entirely different world, we could probably spend an entire episode on trying to figure out attribution but it’s complicated to say the least. I’ve talked to a lot of people who said trying to figure out what your attribution looks like is very, very difficult.
Rob: Yup. This is all good points. It’s not necessarily a purchase right off the bat from an ad, especially not from Facebook. They’ve tweaked their algorithms so actually they made that harder. If you look at someone like Brennan Dunn with Double Your Freelancing, he talks about every email subscriber he gets is worth x dollars and I forget what the number is. I imagine he’s been public with it, but it’s something like $10 or $11. He knows that if he runs Facebook ads and can just get someone to opt in, that down the line, if he does all the math, on average, it’s about $10 or $11 based on how much a bunch of people don’t buy and the ones that do buy these many things from him.
It’s interesting, if you can run ads and getting someone on the email list is not that hard, depends on the list, depends on the time and clicks and all the stuff but I’ve done it pretty consistently for between around $1 at the low end up to maybe $5, $6 on the high end. What I was just talking about, it’d be pretty interesting, you could see how you could mint money with the business model that makes money based on people being on an email list.
Mike: I think that sounds like a good place to wrap it up. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you could email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Episode 325 | Building a Killer Email Launch Sequence
Show Notes
In this episode of Startups For The Rest Of us, Rob and Mike talk about building a killer email launch sequence. Drawing from their collective experiences launching various books, software products, SaaS apps, and membership websites they discuss their thoughts and framework on the topic. Some of the points discussed in detail include elements of a sale letter, how many emails to send, and things to do on launch day.
Items mentioned in this episode:
- Metrics Watch
- FounderCafe
- Product Hunt
- Dan Kennedy’s Ultimate Sales Letter
- Rob’s Book: Start Small Stay Small
Transcript
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about building a killer email launch sequence. This is Startups for the Rest of Us episode 325.
Welcome to ‘Startups for the Rest of Us,’ the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: Well, I’m doing some ongoing work to polish up my Zapier integration, and it turned out to be a lot more troublesome than I had originally expected. There are certain requirements that they have about data that they expect back, so I had to go in and make a bunch more changes on top of the ones I already made to the API, and their documentation isn’t very clear on some of the things that you need to do. It’s technically correct, and I talked to someone about this over there, but not very helpful.
Rob: Yeah, that’s a bummer. I think I mentioned last time- because did you mention last time you were working on it?
Mike: Yeah. Especially getting our V1 Zapier integration. We ran into some struggles with it which is surprising because they have so many people integrating with it I would think it would be more of a well-honed process. I know that when I’ve done the V2, and I think we may even have the V3 out now, it got easier. There are still some tricky areas, but overall, once you have something that works it’s a lot easier to iterate on that.
Yeah, I think the issue is just when you go in you don’t even have a baseline and so you’ve done things your own way so you have your way of interfacing with the world and it doesn’t necessarily match up with what their expectation is of their way of interfacing with the world or with all the different APIs so they essentially set the standard that everybody else has to follow at this point.
Rob: Right. Yep, cool. On my end, we are hiring two more developers at Drip: front end and [?] developer, so that’s always fun ramping up those efforts. As you know, it’s very time-consuming to find good people. I think we’ll be pretty much constantly hiring throughout this year just with the trial and customer growth since [?] acquired us. We just have more and more needs to scale and to build more features and just everything that comes with that. I used to marvel- I don’t understand how these teams get so big. Why do you need fifteen people to run a software product? Why do you need twenty people? But I see it now that you get so many systems and then when you’re growing it at double-digit percentage every month, those systems every 4-6 months, they run out of capacity. Whether it’s a database or whether it’s a queue, whatever it is, that code is not built to basically double in usage every, whatever it is, six months. So you have to circle back and in the early days there’s almost none of it so you’re just doing features. But as you start to circle back to all these systems you’re maintaining, we’re finding we need a full-time developer on just one sub-system now just to keep it going, and that’s not even really improving it that much, it’s just to kind of keep up with the needs of the customer base as it grows.
Mike: Yeah, I was going to point out that there gets to a point where some of the different subsystems must need somebody full-time to work on just that. And those pieces get complicated, and as they get more complicated, it makes it more difficult to move from one subsystem to another because it is so complicated and it takes you so long to get back to a base level of understanding how did we write this and what were the different [etch-cases?] that we ran into so when I’m making changes I don’t break other things? And having that one person responsible for that one piece of it makes things a lot easier because then you don’t have to do that context switching all the time.
Rob: Yeah, totally. Other thing on my radar is Sherry and I are heading to Los Angeles this weekend for a quick getaway. I’m leaving Friday, I think my plane leaves at 5 or something, and we’re back by Sunday afternoon. It’s so cool to be in the city. We live in Minneapolis, and we’re twenty minutes from a major airport, and it’s a nonstop flight, less than four hours to LA from here. It’s crazy to have that flexibility, and I think it was like $210 to do it. I’ve really enjoyed that part about being in a larger city because Fresno was always a hop. Basically you always had a stop somewhere, and that stop just adds complexity. Your luggage gets lost more often, that stop always takes an hour or two hours and there’s just so much that can go wrong and you’re up and down and doing all this stuff, and I find that a nonstop flight now, that’s what I strive for. So the fact I would never do like 6 or 8 hour travel day. To get from Fresno to Minneapolis is like seven hours or something because it’s not nonstop, but I would never do that for a weekend because then you lose Sunday and you lose basically all day Friday, but in this case I can get there, especially with the time change around dinner time or a little later on Friday, and then we head back early afternoon on Sunday. I’m kind of marveling at the time efficiency of that.
Mike: You know, I just looked it up while you were talking, and the temperature difference between Minneapolis and Los Angeles is about twenty degrees, so that’s about $10 per degree.
Rob: I know, I know. We’re going for a friend’s birthday party and we’re hanging out with a bunch of people on Redondo Beach. It’s gonna be a blast. But Minneapolis — the polar vortex is coming through — so we’ve been subzero temperatures or 5 degrees has been the high, and all this time in LA it’s been 60s and 70s and we go to show up and suddenly this week Minneapolis is all in the 30s and 40s which is crazy for this time of year, and LA is in the 50s and 60s. It’s like they are meeting in the middle. It’s not the right week to go, but I guess we’ll take what we can get.
Mike: Yeah, I was just going to say turn the heat up a little bit. Whatever.
Rob: That’s what I should do.
So in today’s episode it’s about building a killer email launch sequence, and it was prompted by an email sent to us by [JP Boley?] at metrics.watch, that’s their website. And he says, “Hey guys, love the show and all the stuff you put out there. I’m about to launch a new product in about 2-3 weeks, and I want to have a great launch. I have some things planned, but I fear I might miss some of the basics and really want to get it as right as possible. Do you have any resources that suggest how to successfully launch and what a launch sequence might look like in 2017? The tool we’re launching is the third product of my business Metrics Watch, which is email reports and real time alerts for Google Analytics, and the next one is a freemium tool that scans Google Analytics accounts and tells people if they have spam or fake traffic in Google Analytics and how to fix it.”
So thanks for the question, JP. We’re going to take the next 20 or 30 minutes to talk through how we would craft a launch sequence and this is based on experience launching- between the two of us- books, software products, SaaS apps, info products, [?] Academy, Founder Cafe, which are online membership models- so really kind of the gamut.
Mike: MicroConf too.
Rob: MicroConf as well, right? We have a launch sequence there, an in-person event as well. So we’ve done this a lot, and there are a lot of way to do it, but I want to put out maybe a concrete framework that shows like step by step if you want to take this and run with it, go do that. And we also want to talk through how we think about it and why we get to the conclusion on which emails we send on which days. I also cover this in my book, Start Small, Stay Small in quite a bit of detail. Little bit different conclusion that I come to here because it was 5-6 years ago that I published that and some things have changed. I think the best way to get a sense of how to do a launch sequence is to basically get on someone else’s launch list and see how it feels to receive the quantity and the tone and the style of their emails.
One example is a friend of mine a couple months ago did a launch for kind of a training product, and I was on his list, and it was like irritating as hell. It was a really overbearing launch, and it was very much not in line with his personality. It was odd. I could tell he didn’t write the copy, it wasn’t in his voice, there were way too many emails. He was just hammering us, and if you’re not on the receiving end of those and you’re just sending them, you don’t know how it feels. I think getting on a couple launch sequences from people and seeing I like the feel of this or I didn’t like the feel of that can help you decide what feels right to you and what feels like it is in your voice and what feels like it is probably the right approach within the guidelines and within the layout today.
So we’re gonna give some ranges here. You can send 2 emails, you can send 10 emails. But which one’s right? A lot of it depends on your own personal taste and your relationship with your audience.
Mike: One thing to mention about places you can find products to get on to the different launch sequences because that might be an initial hangup that you have- how do I find some of those products where they have a launch sequence going?
I would head over to Product Hunt to start out with. And then from there you should be able to find a bunch of different products that people are launching, and then I would sign up for several of them, not just one or two because you are very likely to find somewhere they don’t have a very good launch sequence or they don’t even have one. They just basically put the product out there and get a bunch of sign ups on their page, but they don’t necessarily follow up with them and follow through with a full-blown launch sequence, so you’ll probably have to try out a hand full of them, I would probably say 6-12 of them. And then what you can do is take those and throw them into a folder, use them essentially as a Swipe file, and then look through to see how they go through the process of pitching the product or the offering they have.
Another thing you can do is you can go out to, I’ll say some rather well-known entrepreneurs in the software space, and identify what products they have available and get on to their email lists. Another option is looking specifically for book authors or information or training products of authors. So those tend to be dialed in pretty well. Obviously, they are not perfect, but a lot of different people are doing those types of things. Those are places you can start to find examples of what you can do that are very specific to a particular product as opposed to talking about it generally, which is what we’re going to do.
Rob: And my first exposure to a lot of this talk around launch sequences was Jeff Walker’s product launch formula, and I never actually bought that. It was about $2000 and it was at a time when it wasn’t really worth it to me, but in essence he kind of lays a bunch of stuff out anyways, so I kind of took the model that he laid out in his free content and used it to develop early launch sequences for products I was launching. And then I’ve slowly adapted those over time based on the audience and the product that was launching. In essence, what he talks about is doing something called the sideways sales letter. A lot of folks do this these days, but it’s still really [rarely?] effective. The concept of a sales letter, if you haven’t heard of that, in essence, if you think of a long form home page where it’s really just text, it’s almost a big long essay or blog post- the point of the letter is to essentially show you the value of a product and get someone to hit the buy now button. And there are ways to write really good sales letters. I would say that the old Jerk homepage- you can look at that on archive.org, maybe six months ago, that was a really solid SaaS sales letter. I spent a lot of time crafting it. It got good results, it made a statement, it used a lot of you words, it talked to the reader. Then you can write really crappy cheesy [?], and those I’m sure you can find on clickbank or something like that. But there are really six components of the sales letter. First is the opener, and you want something really good, really engaging because otherwise, someone’s not going to keep reading. You want to identify the problem, and during this time you’re using a lot of “you” language. Talking directly to the reader saying you’re a developer, you feel this. You want to launch a product but… you’re kind of putting words in their mouth, and if they’re not that person, they are going to leave, but if they are, it’s going to captivate, and they’re going to feel like, “Whoa, this person is talking exactly to me.” And then you present the solution. That’s the thing you’re selling. Then you want to add on social proof, a moneyback guarantee — that’s the fourth element. The fifth is essentially the stick, and this is up to you, but the penalty if you don’t do this. If you don’t do this, you’re going to be circling around, you’re never going to launch your product, you’re never going to market, or whatever. And the sixth is, in essence, the close, you ask for the sale. Those are the elements, and they can be in different orders and there are different variations of them but those are the fundamental six areas of a sales letter.
If you want more information on that, I would go read Dan Kennedy’s ultimate sales letter. It’s available in Kindle and Print. It’s probably the first book I read on sales letters, and as much as I don’t like a lot of Dan Kennedy’s teachings — I think he crosses the line in terms of … he’s just really old-school internet marketing in a way that is really irritating to me, but with that said, this book is a really good overview of how to write a sales letter and the components that you should think about and the ways to write them.
Mike: Let’s talk a little bit more about the sales letters. Just keep in mind that the entire intent of the sales letter is to help move somebody from where they are today into a position where they are going to take the next step and become a customer. That’s the whole purpose of the sales letter. You can do that in different ways, as Rob said. You can move things out of order, you can change, for example, your presenting this solution, social proof and guarantee. You can change up the order of some of those thing a little bit or mix and match them a little bit. Say here’s the problem and here’s the solution and throw some social proof in there and provide a little bit of a stick or a penalty and say this is what will happen if you don’t and you alternate back and go back to the solution and say by the way, this other problem over here is also taken care of. So you don’t have to go directly in that order, but again, the purpose of those is really to help somebody move their mindset from one place to another.
Rob: That’s a good point. Circling back to Jeff Walker, again, he has this product launch formula, and it’s about writing a sideways sales letter. So it’s taking a sales letter and instead of having it be this long thing of text, you basically break it up and send it out over time. You might send the first three sections in the first email and the second two in the next one. You don’t do that exactly, but you get the idea that each email has a particular point during the launch, and you’re basically covering these same topics: you need an opener, you identify the problem, you present the solution, you have social proof and a guarantee, perhaps you have a stick, and then you have a close, and then you just do those in a sequence of emails however you break it up. In my experience, the optimal number of emails is between 3 and 7 over the course of sometimes one, sometimes two weeks. That’s how I think about it. I personally tend toward 5-email launches, meaning that the launch has 5 emails in it, but it depends on how much your list loves you, and how much of a pain in the butt you want to be. To be honest, the more emails you send in a launch almost without exception the more sales you will make. But the tradeoff is that the more emails you send, the more unsubscribes and then ultimately complaints you will receive, so you have to find that balance depending on your niche. Like stock-picking sites, they send a ton of email. 9, 10, 11 emails, just crazy volume. Twice a day, all that stuff versus if you’re sending to developers, if you send twice a day, you’re going to get people starting to mark stuff as spam. So you have to figure out the relationship you have with your audience as well as the niche you’re in. That’s why I give out the range of 3 to 7. If you’re not sending 3, you’re probably not sending enough, and when you start creeping up in the 6, 7, 8 range you better have some really good content you’re sending out or else people are going to bail.
Mike: The other thing to keep in mind is the timeline has a lot to do with that, so Rob was just talking there about 3-7 over the course of a week, but if you’re going to start putting yourself in front of people 2-3 weeks out or 5 weeks out, you have a lot more flexibility to start sending more emails because there’s more space in between them. But as you get closer to that launch date, you’re probably going to want to ramp them out so instead of sending 1 a week, for example, for 3-4 weeks, you’d send one every couple of days. And it’s really that last week where you send that 3-7 emails in an effort to get up to the point where you’re building that anticipation, and that’s part of what these emails are about: building anticipation for the product launch. And the people who are interested in it are going to be looking forward to those emails, but as Rob said, there are people who are going to be turned off by it or not ready yet or they’re not in a position where they can take advantage of it. And if you start inundating those people with those email, they will walk away. They will unsubscribe. So it is a balancing act. Sometimes you can balance that out by giving them an option: hey, if you’re not ready right now, just click here, and we’ll follow up with you in 3-4 months, so you can sort of head those things off, but at the same time you don’t want to put too many things on your plate if you don’t have time to start implementing things or trying to think of ways to handle too many [edge?] cases. It really depends on the size of your list and what it is you’re going for.
Rob: In terms of the overall launch, a good launch has some type of reward you’re able to offer that people won’t get at another time. So like some epic course you’ve created, a sequence of interviews, something that is valuable to people that could be a discount on the product itself that you only discount for the first few days, or if it’s a SaaS app maybe you get a lifetime discount for the whole time or you get maybe it’s not even a discount, like with Drip we still charge the $49, but we doubled everyone’s- what they got for that $49 because I didn’t want to be selling things for $24.50 a month. I wanted to hit that price point. So you can get creative with it.
So number 1 it has a reward and number 2: it’s time limited. And without both of those components, you don’t create the impetus for people to do it now and people will procrastinate and not do it. So there’s the two things you’re going to be communicating through this process as you step through those six elements I said above.
Mike: The reward itself I’m not particularly a big fan of offering lifetime discounts or anything like that- I think there’s a lot of ways you can put yourself in a position to be providing more value as opposed to capturing less value from a customer for the entire life of that customer. As Rob said, with Drip what they did is they gave away, the ability to send more emails, but there are other ways you can do similar ways as well. You can do personalized onboarding or coaching sessions for example on how to get the best use of the product or help them integrate it into their systems, and that actually serves two different purposes. One: it helps get them into your software and it also allows you to have those direct one-to-one conversations with them to help you learn more information about how they’re going to use the product, when they’re going to use it, how often, and help you to better craft your future marketing messages. So yes, it’s time out of your day you’re going to be spending with them, and it will probably chew through at least a month if not several months worth of the “profit margin” for that, but it does give you the additional benefit of learning from that experience to be able to apply it to the future for the product.
Rob: So let’s talk through this five email sequence, and again, you can adapt this to be three emails, you can adapt to be seven emails, but we’ll just talk through these five and kind of when they’re sent. And I should say the first time I used this kind of structure I was kind of flying blind and I didn’t know what would come of it. It was 2007 or 2008, and then over the years it wasn’t exactly the structure. I’ve honed it based on feedback and results. A lot of people use this formula these days, but there’s kind of been a lot of us for 10 years now trying to hone this thing and get it better. So I will say that this type of sequence tends to convert better than it did in the old days just because we’ve been able to improve it so much over the years. It depends a lot on your copywriting as well.
Let me get into the first one. Typically about a week before the launch day- so the launch window starts on the launch day, I’m going to use that term. And then I like to think of the launch window being 48-72 hours. With MicroConf we do a full week because people- it’s a big ticket item, they’re thinking about making travel plans, they have to check schedules, there’s all types of stuff, but somewhere in between that- I don’t like to go longer than a week. So about a week before the launch day, you’re going to send a teaser email. This is information, a screenshot, maybe a short screencast. You’re kind of being vague about the release date but you say next week we’re going to be launching this thing and here’s what it is and here’s the problem it solves. And you really get into starting to build anticipation. At this point you want to let them know since they’re on the list, they’re going to receive a special price available only to people who are there but that it is going to be time-limited. And this can really dig into the problem the person reading the email has, and kind of show that your product is the answer or at least start doing that.
Mike: One thing to keep in mind before you start going down this process of laying out these different emails is make sure you have an outline of all the different emails so you know exactly what needs to be written and write it as far in advance as possible. The last thing you want to do is be crafting these emails through your launch sequence. If you decide you’re going to launch on the 7th, and you start them on the 1st, don’t wait until the day before to start writing some of those emails because it will either not get done or you’ll not be happy with it that you won’t have the time to go through them. So it’s kind of a preface to all these emails that we’re going to talk about. make sure you do those things well in advance so you’re not waiting to the last minute so that if something goes wrong you have time to tweak it.
Rob: One other thing I forgot to mention about a good launch when I was talking about it above is if it makes sense, scarcity is the third thing that’s really cool. So you have that reward, you have that timeline, but if you add scarcity as well- don’t do fake scarcity. If you’re selling ebooks there’s no scarcity, but if you’re selling tickets to a conference, there is scarcity because there’s only so many tickets that you can sell. So that is what you’re building towards with these emails, so the second email goes out typically 1 day before the launch, and this is where you provide social proof, you’ve mentioned the money back guarantee- you’re trying to remove all objections so that someone’s already thought through the whole purchase and by the time they get that email on launch day, all they are doing is basically clicking the buy button. So you build anticipation and excitement and you try to remove all the roadblocks. So you may need to touch base again on the problem your product solves, but you’re going tell them, especially if there’s scarcity, you’re going to tell them the exact day and exact time they’re going to receive that email and let them know that you imagine you will sell out, assuming you do. You want to say stuff that’s true. You’re going to sell out and if they want to get in, they need to get in early. Again, do true scarcity. If you don’t have real scarcity, then don’t do it. But I like to send this email out 1 day before because it’s long enough that most people will open it before the launch, but it’s close enough that most people will remember. If you send it out two days, it can get a little tricky with people 48 hours later forgetting that this launch is going on. Also, I like to start my launches on Tuesday and so if you go two days before they’re getting it on a Sunday, and I prefer to be in their inbox on Monday morning.
So the third email is your actual launch email, and like I said, I like to do Tuesdays. I’ve also done some launches on Wednesdays. And when we do the full week long launches with MicroConf we have done a few of them on Thursdays. I don’t like to do launches over weekends because people just aren’t on their computers as much. On launch day you’re going to email the list, you’re going to see sales rolling in, and you’re probably going to have your best sales day at least for a while. That’s the whole goal of this is to kind of make your first several months of revenue on that first day to really kickstart your motivation. I’ve seen conversion rates on this launch sequence well about 20% of the list buying. And I’ve seen as low as 5% and I’ve seen even 30% which is just insane. It depends on the relationship you have with your audience, it depends on how big and warm the list is, openers play a big part in that and your price point. But it’s pretty interesting. If you can sell a few hundred customers on $20-$30 a month, not a bad way to kickstart a little bootstrap startup project that you’ve been working on for a few months.
Mike: One thing that Rob just mentioned about having that launch day on Tuesday or Wednesday and then not sending out an email two days before because then it would come out on a Sunday- the other thing to keep in mind is when your launch sequence is going to end and when you’re going to stop making that special offer. So the reason Tuesday works so well is because you can send an email the day before and then you can have that launch sequence last for two days so that people have that opportunity to get in until Thursday. One of the issues you can run into is if you extend that by another day what ends up happening is that now your deals are going to end on Friday afternoon or evening, and by the time 4 or 5 o’clock rolls around on a Friday people have lost interest, their minds are elsewhere, and if you have a launch ending at midnight on a Friday night it is not going to work out so well. I have seen that happen where something goes out for a launch and it ends on a Friday or Saturday night at midnight, and those don’t go very well. So you have to be careful not only to avoid starting it over a weekend but also ending it over a weekend, you don’t want to do that either.
Rob: So the fourth email is the 24-48 hours after the initial launch email. And it depends obviously if your launch is only 48 hours then this kind of has to be at 24. But if you’re doing a 3-day launch, maybe it’s 24-36-48. Basically, this is another excuse to communicate with them, and so you want to provide some value. Probably a good model for this is send out an FAQ email like hey, we’ve gotten some questions and these are the questions and these are the answers. Because you’re almost certainly going to get questions via email and so you can compile those up and just be like, I wanted everyone to have those, and it’s really just an excuse to get in touch again. Remember, email open rates are not 100%, so maybe if you’re getting a 40% open rate on your sequence, emailing multiple times will hit different segments of that, and you can make sure that everyone at least gets some of your emails into their inbox.
Another thing you can do with this one is to add some social proof again, add quotes from people who got in and are really excited, and if you’re selling any quantity you are going to get feedback pretty quick of like, “man, this is a really cool product.” You can include more screenshots. Again, it’s just another touch point, but you also don’t want it to be cheesy and feel like another touchpoint. You want to be genuine with it and have folks feel like your emails are providing value because at this point if they haven’t bought and you keep emailing them, you’re going to start getting complaints and unsubscribes if you’re not providing value with the emails you’re sending.
Mike: That’s why it’s kind of important to make sure that you have an idea of what should go into that FAQ and if you don’t then have the email itself written and then kind of stump that piece of it out and then fill in the details of the FAQ with what people are actually asking. One thing to be careful of especially when a product is very early on, a lot of times — and I’ve done this myself — is you don’t necessarily know the questions people are going to ask so you kind of make some of those questions up, and depending on what it is, it can be obvious from the other side that that those questions were probably not real questions that people were asking and you were using it as an excuse to put something in the FAQ, so do be careful to make sure you’re paying attention to what it is that people are actually asking about, and some of those questions can even come from demos you’ve done previously before the launch to offer beta customers. You can reuse those, but if you’re just making things up completely it can be a little bit forced, I’ll say.
Rob: Yeah, that’s one thing. Like if you’re faking it, people can tell that the days of these kind of cheesy internet marketer stuff working- they’ are rapidly coming to a close if they’re not already gone. There are certain subsections of people who are not as web savvy or not as technical or whatever and you can say things and they’ll believe it, but the folks you’ll likely going to be dealing with are going to be savvier than that. The bar is just raised in terms of transparency and in terms of people recognizing who you are and being able to recognize what’s legitimate and what’s not. So the fifth email in this sequence is the 24 hours before the time limited deal ends. You could do one 12 hours before as well. Not in addition. That would be starting to get quite a few, but either 24 or 12 hours before saying there’s only a few hours left. Sometimes this day has almost as many as the initial launch in terms of sales. Other times it’s just a trickle. The thing to keep in mind is like I said, there are more complex variations than just this whole 5 email sequence, but this is definitely a pretty simple way to do it. It ‘s a proven approach, and if you don’t do this you either don’t send emails or you just send one email- it’s a 5 or a 10 x difference. It’s a huge, huge variation. So I would recommend if you feel like 5 is too many, it’s pretty easy to cut the FAQ email and you’re at four or you can the week before email altogether or the day before. There’s different ways you can vary it to what your comfort level is and the relationship you feel like you have with your audience.
Mike: And you can also go in the other direction where you send more emails so instead of just sending one 24 hours before the deal ends, I’ve also seen a lot of people who send something 4 hours before something ends and then 2 hours before it ends and then 1 hour before it ends. Again, you do have to be careful with how many times you’re hitting that list and whether that list is considered burned after that. There are lists out there where people will build the list and do a launch of some kind to it, and after that there’s not even a point in having the list anymore. Maybe it’s because it’s an in-person event or something like that but again, you will increase sales at the expense of the signups you have.
Rob: Last thing to keep in mind is email open rates, are not 100%. No list is that good. So a solid list should be between 20-60% open rate. So think about that when you’re calculating conversion rates. Let’s say you have 1,000 people on your list. You think my goal is to convert 20% of those. That’s good. That’s a really hard thing to do if your open rates are only 20%. But if you’re at 60% then converting 1/3 of the people who receive the email is actually much more in line with reality. So think about that and check out your list. Maybe even prune your list before doing this. If this is an ongoing list, try to get a more realistic view and higher open rates and making a more realistic concept of how many people you might convert during the launch.
Mike: One thing that can be a little difficult to figure out is when you’re looking at the open rate whether or not you’re looking at a single email or whether you’re looking at aggregate across them. You’re going to have people who open up every single email and then you’re going to have other people who open up one. That’s something else to factor into what your calculations are as well. I don’t think it’s worth getting too worked up over whether or not you reached a particular milestone or conversion rate in your head, but I do think it is worth paying attention to what your expectations were. And how you can improve what that process looks like in the future- what things worked, what things didn’t. And then being able to analyze those so that you can use them in the future for other either mini launches or other marketing copy you can look at some of the different emails you sent right after the launch when it’s done, and find out whether or not certain things probably resonated with people more than others.
Well, JP, I hope that answers your question. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt for ‘We’re Outta Control’ by MoOt used under creative comments. Subscribe to us in iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening. We’ll see you next time.
Episode 265 | The Absolute Bare Minimum You Should Know About Segmenting Your Email List
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the bare minimum you should know about segmenting your email list. They discuss the different stages your customers can be categorized as and how to target them specifically in order to get them to the next stage.
Items mentioned in this episode:
Transcript
Rob [00:00:27]: In this episode of “Startups for the Rest of Us,” Mike and I discuss the absolute bare minimum you should know about segmenting your email list. This is “Startups for the Rest of Us,” episode 265.
Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
Mike [00:00:28 ]: And I’m Mike.
Rob [00:00:33]: – and we’re here to share our experiences to help you avoid the same mistakes that we’ve made. What’s the word this week, Mike?
Mike [00:01:06]: Well, we got a really interesting listener question from Chris Koenig, and he says, “Hi, Rob and Mike, I really enjoy the show. My question stems from your FAQ on startupsfortherestofus.com, specifically the part about transcription. You’ve switched transcription services in the past and mentioned how each one seems to decline in quality over time. When you see a pattern like that, what, if anything, does it tell you about the market? Does significant customer turnover mean these companies are having trouble scaling up? Or, might it be a deliberate tactic to focus their attention on the newest customers for that initial trial period? Hope it’s not too inside-baseball for the show, but I’m curious about the space and would be interested to hear your viewpoint.”
Rob [00:01:39]: My take on it is that people come into transcriptions because it’s easy to enter, and there’s no barrier to entry, and that’s a problem. It’s basically a commodity business, and people underprice themselves at the start because there’s no other way to compete in a commodity business, right? It has to just be cheap; but then they get in three months, six months, 12 months and realize, “I’m not making any money. This is a lot of work,” and they either just bail on it; or, maybe they’ve raised prices, but they’ve grandfathered, and so those grandfathered people, they’re giving less service to because they’re not making as much money. That would be my take on it.
Do you have a sense?
Mike [00:02:37]: Yeah, that was going to be my guess, was the grandfathering of existing customers because if you’re offering a commodity like that and and the price point’s really low, it’s difficult to justify raising your prices to the existing customer base. So, when they find that they need to raise prices because they’re not getting the people to do the transcribing that they need to, or things are just not working out as well in terms of quality, then their pricing model basically goes to heck in a hand basket. So, it makes it difficult for them just to make ends meet. And I think that that’s it more than anything else, because most of these – I think the ones that we’ve gone to tend to be newer. It’s not like there are transcription services out there that we’ve used that have been around for a very long time, so obviously there’s going to be that issue of trying to go up-market with it and keep your existing customers happy while also trying to charge them more. I think that most of them just – I don’t think any of them have ever come to us and said, “Hey, we need to raise our prices.” I think they’ve all just capped it at, like, a dollar a minute or something like that.
Rob [00:03:40]: I know, and if I was doing a productized consulting service or, I guess, even as these guys are, really, at just an hourly service, I don’t think you can grandfather the way that you do a SaaS; because the reason you can grandfather with SaaS is because a lot of the effort and the time is spent up front acquiring the customer and then onboarding them and supporting them early on. After that, the marginal cost to support them is very low, and so grandfathering them at an older, cheaper price is pretty easy to do. But in terms of ongoing consulting engagements, where you’re literally paying someone to do an hourly or a by-the-minute task, I do think that you need to raise prices over time. Just the way it needs to go in order to maintain a viable business. I do think that your better customers are going to understand that.
We did have some pretty reliable services transcribing over the years, and if they had come to us and said, “Look, we need to raise 10 percent, 20 percent,” we would’ve done it; because the switching cost is painful. If they needed to double their price, that might’ve been a problem, but the fact that the quality has declined over time pretty much across the board – I think we’ve used six or seven, different transcription services in the last five years because within about six to nine months, they all eventually flail around.
Mike [00:04:27]: I think the other thing that factors into that is when you are running a service like this, you have employees or contractors that are working for you, and they’re working for a set wage. Let’s call it $10 an hour just for a nice, round number. At some point in the future, you’re probably going to want to pay the people who’re doing a really good job more, and it’s difficult to raise their salary if you’re not bringing in any more revenue from the customers. And that is a fixed cost. If it’s $10 an hour, if you’re only making $11 an hour from the customer, it’s hard to raise what you’re paying that person in order to retain them as a good employee or a good contractor and still make ends meet. I think that also factors into it as well just in terms of the timeline, because you’re right. We’ve gone through a bunch of these, and over time, without fail, they eventually go downhill.
Rob [00:05:23]: That was a good question. Thanks for writing in.
On my end, just kind of as an update, my chaos is definitely subsiding. Some things have wrapped themselves up. There was a big sale I was working on that closed last week, and so I do feel like a nice exhale coming about in my life as kind of the overwhelm has dissipated. I feel like I’m able to get back to focusing on things that matter instead of just rushing around like I was for the past few weeks. Things are clear, and it’s end of the year. Not a ton happens in terms of business stuff here end of November and December, but this is the time when I’m going to take to really focus on what 2016 needs to look like; and I’ll probably be doing my personal/business retreat here in the next, I’d say five or six weeks, taking notes, figuring out what my goals are. You and I need to record a goals episode, where we look back at the goals we had for last year and plan our goals for 2016. I’m going to be honest. I’m kind of looking forward to what I’m hoping is the quiet of December.
Mike [00:05:30]: Cool. Well, on my end, I’m actively taking pre-orders for the new product that I’m working on, and I’ve got about half a dozen pre-orders so far.
Rob [00:05:31]: Nice.
Mike [00:05:48]: The product itself is aimed at automating the process of moving people through your sales pipeline. If it’s a high-touch sales pipeline, it helps to automate the process of moving them through it so that you can essentially focus on your own work as opposed to going back and continually following up with people.
Rob [00:05:54]: Very nice. When you say “taking pre-orders,” do you mean that you’re getting verbal commitments, or are you actually charging credit cards?”
Mike [00:05:56]: No, I’ve actually charged half a dozen credit cards so far.
Rob [00:05:57]: Bravo.
Mike [00:06:09]: Yeah, it’s going well so far. I’ve still got a bunch of conversations that are scheduled over the next couple of weeks, and I’m hoping to reach my internal goals for financial commitments. And once that’s been reached, then going to start breaking ground on the code.
Rob [00:07:00]: Sounds good, man. It’s exciting stuff.
We have a slew of new iTunes reviews, 456 worldwide reviews. Thank you so much for going into iTunes and clicking that five-star rating. We also have some really good comments. Crispin Hennace [ph] says, “Do not launch a bootstrap business without Rob and Mike on your team.” He says, “I recently discovered this podcast and have been listening to old episodes on double speed. There’s a lot of great material, and it’s fresh and relevant each week. Listening to the archived episodes is like picking up gold nuggets on the street. Every entrepreneur, bootstrapped or not, should make this valuable resource a part of your week.”
And then a nice review from Jamie Hillfield in the UK. He says, “Great podcast. My absolute favorite startup podcast, by a country mile.”
So, thanks so much for your comments, for your five-star reviews. This helps us continue to grow the user base, gives us motivation to continue to do it. If you haven’t logged into iTunes and clicked that five-star, we’d encourage you to do so this week.
Mike [00:07:01]: What are we talking about this week?
Rob [00:09:24]: This week, we’re talking about the bare minimum that everyone should know about segmenting your email list. The idea here – obviously, I run Drip, which is about segmenting emails and sending targeted communications to people based on the things they’ve done and what you know about them. It’s actually funny. When we’ve demoed Drip at, let’s say, conferences, or went to the Microsoft Build conference last year, people say, “Oh, so you guys send spam or something?” Developers especially would come up and joke about that, and we said, “Actually, no. We ensure you get fewer emails that are more targeted to you rather than just getting these blasts from these big companies.”
So, that’s really what we’re talking about today, is the fact that one-to-many email, you know, just the broadcast email, sending it out to your massive list, is really dead, or it’s dying. The businesses that are really savvy at it these days are moving towards one-to-few and one-to-one email, and what that means is that the more you know about someone, the more customized that email can be to them, and the more customized the flow that they follow through your app and your email sequence will go. It’s not magic. It’s not like it’s some AI thing cranking out these magical emails. You have to write these emails, and you have to build certain flows and move people in and out based on tags, or based on what they click; but the idea is it’s about sending people the exact message they want to hear at the right time, to encourage them to take the next step.
That’s what email segmenting is about. It’s about figuring out, “How many buckets do I need to drop people into?” because it’s not as complicated as it sounds, right? It’s not like you need 100 different buckets for your list. Really, what we’re going to talk about is there’s essentially four stages, or four buckets, that I start with. You can go more complex than this, but the minimum you’ll want to know is you’re going to have a marketing list. And these are people that have not signed up for a trial. They have not downloaded a sample of your product. They’re people who are just hanging around, and they’re going to want top-of-the-funnel educational content: maybe blog posts and updates on your product from a high level, like feature stuff, but not in detail how to use it. It’s not super educational. That’s the first bucket, or first stage, is marketing.
The next one I call them a “trial user.” This applies mostly to SaaS, but it also applies to – let’s say you’re selling an eBook and you have a sample chapter. I consider them a trial user, because they have downloaded something, hopefully consumed it. You’re going to need to encourage them to consume it via email, and that’s your second book. It is, in essence, a trial user; and your goal there is to nurture them through that trial path to becoming a customer. That’s, of course, the third stage, is someone paying you. Then the fourth stage is someone becoming a repeat customer.
Mike [00:09:54]: I think there’s different subsections of these stages that you can have as well. For example, if somebody’s a trial user at that second stage that Rob just talked about, they could be somebody who basically fell out of the bucket at that point. They signed up for a trial, and then they decided not to proceed, for whatever reason. That, in essence, becomes something of a subset of that particular stage, and you may want to market to them differently. But at a high level, these four stages generally capture the bulk of your audience.
Rob [00:11:50]: Yeah, and if you’re listening to this, wondering who does this actually apply to, I think there’s three or four markets that I thought about when I outlined this episode; and they are, of course, SaaS and downloadable software. That’s the first. Second is consultants and freelancers. The third are people selling information, basically eBooks, online courses; if you have a personal brand, or you’re a blogger, that kind of thing. All of this heavily, heavily applies to you and you really need to be doing this, moving forward or, else, you’re going to fall behind.
The other two that I thought of that this applies to, but it’s not necessarily what I was thinking when I outlined this, e-commerce. E-commerce tends to be quite good at this. If you have an online store, you basically have your friend list and then people who are hot leads, and then you have your customers and then your repeat customers.
And lastly, even – in Drip and, frankly, in HitTail we’ve had a lot of folks who are lawyers and real estate agents, and it’s the more tech-savvy of those groups. For them, it applies as much as it does for consultants, as much as it does for SaaS. You may not be doing it, but it really puts you ahead of your competition if you are segmenting your list like this and really sending people exactly what they want to hear.
So, let’s dive in. Like I said, there’s these four stages. It’s basically marketing, the trial user, customer and then your best or your repeat customers. Let’s start with this first bucket of marketing. These are the people that really you want to be educating about your space, your industry. You want to be educating them a little bit about your product, but you’re not doing necessarily a hard pitch very often. You’re going to be capturing these emails using a lead magnet, some type of opt-in reward. I always recommend an email mini-course over something like a PDF, because the course is nice because it’s over five or seven days, and it gets them used to opening your emails and reading them. People are more likely to consume something if it’s in their email inbox, because they can just do it right on their phone; whereas, a PDF, they’ll typically download it, put in Dropbox and then not read it unless you ping them again and encourage them to do so. A PDF tools list is a really good start to capture that email. But I prefer, if you have the time, to instead put together an email mini-course.
Mike [00:12:32]: The other thing, I think, that is overlooked in terms of the tools, especially in terms of PDFs, is just Excel spreadsheets that allow people to calculate different things. I think when we had Jesse Mecham on the show, he talked about how his very first product was actually just a Excel spreadsheet that people could download and he would charge them for it, and people were more than happy to pay for that because it would help them do their household budgeting. That essentially morphed into youneedabudget.com and the product that he sells today, but it was a tool that people could use. And Excel is notoriously useful in a variety of different circumstances, and if there are ways to build a simplistic tool out of Excel, then you could offer that as a download as well.
Rob [00:13:12]: Right, and if I was going to do that, what I would do is offer the Excel as a download. Just as a reminder, you don’t want to attach that to the email, because spam filters and all types of stuff choke at that. You definitely want to have it up on a server somewhere and then link to it within the email. Once they download that, well, then you put them in a sequence to hear from you the next day and be like, “Hey, what did you think of that?” “Did you notice that cell 35 does this?” “Here’s a quick use case for it.” Then you ping them two days later, and you say, “Hey, by the way, with that thing do you know there’s this other feature you can do in that Excel spreadsheet that I gave you?”
In essence, you turn it into a mini-course even though they really opted in for that core thing; but you’re kind of educating and teaching them how to use it and how to get value out of the thing that they downloaded from you.
Mike [00:13:36]: Why don’t you expand a little bit on that, because I think that some people don’t necessarily realize that just the nature of attachments – not just that they get blocked on a regular basis, but also the fact that you don’t know if they’ve opened it or not? You don’t know if they were interested in that attachment. Why don’t you talk a little bit about the process of, for example, tagging people when they click on those links? Obviously, if it’s hosted someplace, how do you know that they downloaded it?
Rob [00:15:00]: Yeah, that’s right. That’s a good point, actually. With an automation tool like a Drip or an Infusionsoft, you can basically just put a little rule in that says, “If someone clicked on this link in the email, then tag them with downloaded Excel spreadsheet,” right, or, “downloaded X, Y, Z report.” Like you said, you can’t tell with an attachment, so you lose out on that reporting.
What you can do later on with the information of whether or not someone actually downloaded it is if they didn’t download it, then you can send them another email the next day, or two or three days later. You can say, “Hey, I noticed that you got the email and you didn’t actually download the thing. I wanted to give you another opportunity to do so.” If they do at that point, then you’ve now pulled them into your funnel, and you can send them more information about how to use it. If they don’t, then that may be time to write them off. You don’t want unqualified prospects in your funnel, because that just kind of wrecks your numbers and over time, if they’re not opening your emails, not clicking your links – the ESPs are pretty smart these days, like Google and with Gmail and Hotmail on Yahoo, they’re starting to get smarter and smarter, and if people are not interacting with your emails, not opening them and not reading them, over time Google knows that; and they start putting your stuff into promotion and eventually will just put your stuff in spam if you even get a small number of spam complaints.
It’s valuable to know who on your list is doing what so that: a) you can target them differently. That’s really what we’re talking about here, right, is segmenting them; and b) so that your deliverability and your placement in these email inboxes remains high.
Mike [00:15:39]: What I like to do in those cases is, if you see that somebody hasn’t downloaded something that you sent to them that you wanted them to, you just send them a reminder email so it doesn’t say, “Hey, I noticed that you didn’t do this,” because it depends on your audience a little bit, but it can come across as, “Oh, my God. You’re tracking me,” or, “You’re looking at everything I’m doing.” Well, yeah, you are, but at the same time, you don’t necessarily want them to feel that way. So, I like to just send them an email that says, “Hey, just wanted to remind you about X.” But if they downloaded it, then they wouldn’t get that reminder. So, that’s a neat way to be able to get around those. And those are all psychological objections. They’re not technical limitations or technical objections. It’s just how you are interacting with the people that are on your list.
Rob [00:15:58]: Yeah, that’s a good point, actually, is knowing your list and knowing how they’re going to react to this stuff because, if you’re emailing marketers, they know. They know that you know if they opened it or not. But if you’re emailing less technical folks, or maybe developers, or people who aren’t necessarily in tune with all the fancy tools that we have in a tool like Drip or Infusionsoft, then you’re right. You may need to couch it a little differently.
Mike [00:17:09]: Part of what you can do in addition to just tagging people is you can use mechanism for what’s called “lead scoring.” The lead scoring allows you to figure out who is engaging with your emails. You can use that lead scoring mechanism to subscribe them to additional sequences, and you might use that in cases where, if somebody has opened every, single one of your emails. Then chances are good that they are really engaged with the content, and you might want to send them a special offer. So, if their score reaches a certain level, you send them into a different sequence in order to either make an offer for an upsell, or a special bonus or something like that. It doesn’t even need to be something that you’re selling to them. It could just be something that you’re giving to them as a reward for interacting with your emails. But those lead scoring mechanisms can help you to determine who you should be approaching with some of your different products or different services that you’re offering. You tend to not want to send an email to somebody saying, “Hey, buy my thousand-dollar products,” if they’ve only ever opened up one of your emails before. So, in a way, this lead scoring allows you to get a lot more intelligent about who you are targeting with the different emails that are in your different campaigns.
Rob [00:20:45]: Yeah. If you’ve never used lead scoring, it is mind-blowing to basically be able to have a score that tells you how engaged someone is with your website and with your emails. The concept behind lead scoring is you can set a point value that, when someone opens your email, let’s say they get +1 point. That’s typically the default, and there’s kind of a generally agreed-upon marketing automation thing. I think Pardot and Marketo published things, and they said open is worth one point. A click is worth three points, and then visits to your pricing page is often worth five points. And so we have that, of course, all built into Drip. We built lead scoring into it pretty early on.
And then you can configure it as well. Our tour page, we give folks three points if they visit it. If they visit your careers page or your job listing page, you typically deduct ten points, because it’s indicating that they’re probably looking for a job. You can then add custom events, like, hey, they signed up for a trial, maybe, or, even if you had maybe used a tool. Like, if you have a tool where you’re doing a website grader, or a speed test, and they entered their URL, that could be an event that, hey, they pushed that through, and you could give them five or ten points for that. Downloaded a report.
And then you basically set a lead threshold where you say, “This person, when they’re below 65, let’s say – and that’s, again, typically the default – when they’re below 65 points, they’re really considered just a prospect. They’re hanging around. When they bump above 65, now we’re going to call them a lead, and you can do stuff with them.
One thing we do with Drip is if you get on our list and you’re really engaging with our stuff, in addition to the educational content that we’re sending you, we also subscribe you to a second campaign at the same time, that we call our – it’s our RTB sequence, “Ready to Buy.” That one has a little more Drip-specific stuff. It’s less education about marketing automation and less segmentation, and it’s more about, “Hey, this is why Drip is for you,” and, “This is what Drip can do for you,” and, “This is a comparison of Drip and MailChimp,” “Drip and Infusionsoft.” “Here’s how to sign up for a trial.” “Here’s how to click to get a demo.” There’s a little more sales talk. It’s not high-pressure, but it definitely leans in a little bit. The reason we can do that and feel comfortable is because these are the folks who are really engaged with our emails, so it’s indicating that they are actually interested in hearing about us.
The last piece in the marketing stage is something that you can do. Again, this is optional, but it’s interesting that, if you’re asking folks to do a live demo, what you often find is you have a lot of unqualified folks signing up for demos. If you can figure out what that pivot point is, where someone is a really heavily qualified lead, or that they’re worth doing a one-on-one demo, it’s pretty easy to segment them just by – you give them the form where they enter their email to sign up for a demo, their first name, last name. Then you ask them one question that’s basically like, “How many subscribers do you have?” or, “How many invoices do you send per month?” It’s whatever that pivot point is for you that, hey, if they send ten invoices a month, this person is worth doing a real, live one-on-one demo. And, again, when they fill out that form, they’ll select it, and that goes right into marketing automation. Obviously, Drip does this. Infusionsoft does this, ONTRAPORT. Then right in there, you can just say, “Hey, if that person filled out this value, then let’s send them a [Calendly?] link where they can sign up to have a one-on-one demo.” “And if it’s less than that value, then let’s actually send them over to do more of an automated demo,” because you’re going to get – 70 percent, 80 percent of your people are going to be less than that value because they’re just a lower-end tier, and you may not have the manpower to be able to do all the one-on-one demos.
That’s something we actually do at Drip. We’ve had a lot of success with it, and it’s something that you can only do if you’re segmenting. You can’t do this with older-school newsletter tools, like an AWeber, a MailChimp, a Constant Contact. They just don’t have the capability to be able to do this lead scoring and then to very simply, without writing any code, be able to put them in different buckets and send them different emails to move them along into the trial phase.
Mike [00:20:56]: Let’s start talking about the trial phase. What’s involved in treating somebody like a trial user? Obviously, they have to sign up for a trial, or download a sample chapter of an eBook; but what are the different things that you can do in there?
Rob [00:22:30]: Yeah, this is where you make the switch, right? You’ve segmented them into someone who has a lot of interest, and they have interest in your product now, not just in your space. They’re not just thinking, “Oh, I might need an email marketing provider.” They’re actually saying, “All right. I’m really going to dive in. I’m going to either compare you to other things I’m already using, or I’m doing hardcore evaluation.” The goal here is that you want to really convince them to consume the material or try the product, right? So, if they’ve downloaded a sample chapter, you want to switch from that marketing lens of “I’m just trying to educate now.” You want to totally cut that stuff off, in general, and you want to switch to now, “Hey, did you see what was in that first chapter?” “Have you done the exercise at the end of the chapter?” “Here’s some more information.” “Here’s chapter two,” maybe, even, if they’re engaged.
Or, if they’re trying your SaaS app, you need to find out that “minimum path to awesome,” that MPA that I’ve talked about before, which is what does this person need to do during their trial to get that endorphin rush of, “Oh, my gosh. My head is about to explode?” If it means that they need to activate an email campaign with a couple emails in it and get a form installed on their website and get at least one subscriber, then you figure out how to guide them through that. You’ve really switched modes here from marketing and education into much more trying to show them how to use the product.
It’s not an easy problem. It’s not an easy thing to do. Really, if you summarize it, it’s onboarding. You can onboard someone with a sample chapter. You can onboard someone with a SaaS app. You can onboard someone as a consultant to try to get them to spec out their project, or whatever; but each of those things is the mind-frame that you have to switch into when you’re treating someone like a trial user instead of just as a cold prospect, like you would with marketing.
Mike [00:24:01]: I think one of the key pieces of treating somebody as a trial user is essentially giving them an experience that they are going to be comfortable with such that they will give you money, and that ultimately boils down to trust. You want them to trust that you’re not only going to deliver, but that you know what you’re talking about, that your product does what it’s supposed to do, that you’re going to be responsive if there’s any problems. You want to make sure that, if there’s any sort of time pressure or time deadline associated with it, especially for, like, a time-limited trial, that you are giving them all the information that they need in order to succeed during that time frame. The last thing you want to do is give them the product and just say, “Okay. Let me know if you have questions,” because that’s generally not going to work. People are going to need a little bit of hand holding and, in fact, they want that hand holding. So, if you know that somebody has just converted into a trial user, then you want to give them the information that they need in order to succeed.
Along with that, I mentioned this earlier, if somebody essentially falls out of that trial user bucket, you treat them as a lost trial. That’s kind of a subset of this. You can also treat somebody as somebody who is a trial user who may be having some problems. Have they not done certain things? If they haven’t done certain things, you can use that with either lead scoring or tags to essentially notify your email automation system that this activity, or lack of activity, is going on and go back and reach out to those people to try and help them figure out what is holding them back from being successful with the product.
Rob [00:25:17]: Exactly. Those are all really good points. One thing I’ll add, and then we’ll move on to customer communication, is another tactic that you can use with trial users is figuring out which track someone is one. There might be multiple ways to get onboarded in your app, depending on the person’s goals. In Drip, for example, when you first log into your account, the very first time we have a guided setup. It says, “Are you trying to send emails to your marketing list, or are you trying to send emails to your trial users and customers?” There’s two buckets we put people in, and if you click that marketing list, then we send you down a different path of emails because it’s a different setup process, right? You don’t need to connect the API to Drip. You just need to get the form on your website; whereas, if you’re doing trial users and customers, then you either need to do an import, or you need to do some type of API interaction. There’s a number of different ways to do this.
But figuring out early on and then sending that one-to-few or one-to-one communication that I talked about earlier will have an impact on your conversion rates of people who actually do get onboarded. The cool part is I’ve watched it over time with all of my SaaS apps that I’ve worked with. And the number of people who actually do get onboarded and get to that “minimum path to awesome” that you define, it highly, highly correlates with the number of people who convert to paying customer.
Mike [00:25:18]: What’s next after trial user?
Rob [00:26:32]: The next two stages are customer and then your best, or your repeat, customers. There’s actually a lot less to do with these folks. You definitely want to keep them engaged, and you want to let them know how you’re improving the product. That’s something big that we do with SaaS is that, since they’re continuing to pay the same amount month to month and you’re improving the product, they’re actually getting better value over time. I think that’s probably one of the first things that you’ll want to keep communicating to customers, because basically you’re trying to retain them and you want to show them that they’re continuing to get value and that they stick around. So, sending out a feature email every four to six weeks, based on what you’ve launched, showing them what you’re doing for them so that they do stick around is one thing that you’ll want to be sending to your customer list.
You want to send similar emails to your trial list, but it’ll be couched a little differently, right? It’ll say, “Hey, look at the cool stuff we just released. Maybe check it out,” but you’re phrasing it differently than you would, say, to customers, which is, “Look what we’ve done for you,” and, “You should really stick around.” You can send that same email to your marketing list, but with your marketing list you want to go much less in-depth. You don’t want to really show them how to get onboarded with it, because they don’t care yet. Right? They haven’t used your app. They haven’t logged into it. You just want to give them a high-level view with some flashy screenshots of, “These are the cool things we’ve rolled out.” But it is a different thing, so having that segmentation is powerful.
Mike [00:27:03]: And that essentially allows you to reuse the existing content that you’re creating, so instead of just educating your existing user base about what new features you’re adding, you are educating your marketing list about what new features that they could potentially have access to if they were to sign up for a trial of your product and start using it. As you said, it’s a difference in how you present it to them, but, in essence, the basic concept behind those emails that you’re sending is going to be very similar.
Rob [00:28:16]: Right. And then something else you’ll want to do is, if they’ve done a one-time purchase, let’s say they purchased an eBook, then you’ll want to lead them down the product path, right? You want to pitch your next product, because if they purchase an eBook, then maybe they want to attend live training, or a conference, or purchase a video course. You basically want to pitch them on your next product, because these people are much more likely to buy that next, maybe more expensive product that you do have. If you’re a SaaS app, that’s obviously not what you doing, right? You’re not going to tend to pitch them on the next product, but maybe you want to pitch them on an annual plan: get 12 months for the price of ten, and you get all that cash up front so that you’re able to go out and buy ads and do other things.
Basically, you’re offering them some value by showing them how the app’s improving, and then you’re basically pitching them on some other ways that they can become deeper engaged into your funnel, become more committed users and generate more cash for you in the short term.
The other thing that I like to do is to ask for referrals. This is the point where, if people are in and they’re engaged and they’re pretty happy – you don’t want to ask someone for a referral when they’re two weeks into their trial, so don’t do it then. You want to ask for referrals really when they become customers and then definitely again once you’ve determined that they are one of your best or repeat customers.
Mike [00:29:11]: A lot of that capability has to do with the timing of the emails that you’re sending, so a lot of this is going to be based on sometimes just customer actions; but sometimes it is going to be situational, based on what your business is doing. Other times, it’s situational based on what the customer themselves are doing. For example, if their credit card is coming up for a renewal, that might be a good time for you to pitch an annual plan so that they won’t have to worry too much about their credit card expiring. It may be one of those things where you get them to not only upgrade to an annual plan, but you get their updated credit card information as well. Because you’re giving them a discount, then it helps to push them in the right direction.
But all of this is just simply about having a little bit more intelligence about what your prospective customers are doing and what level of activity they have and really being aware of where they are in your marketing funnel.
Rob [00:30:13]: And then to wrap this up, there’s this next level of customer, and these are your best customers, your repeat customers, depending on what you’re selling. If it’s one time, these are going to be your repeat customers who’ve bought a lot of your stuff. You get to know these folks by name. In SaaS, your best customers are maybe people who are on your bigger plans, folks who give you a lot of helpful feedback and work with you and spread the word. These are folks that you want to reward with some stuff.
Something that we do is we’ll often give our best customers early access to new features or inside information, so I have a small group with a tag called “Drip Insiders.” These are consultants who are actively getting people onto Drip, and I’ll send them stuff several weeks before other people are going to know about it. They love to have the inside track so they can look to their customers like they’re knowledgeable. We give them alpha access to new features we’re rolling out; and so, again, you’re giving them value. You’re not just always pitching and asking for stuff.
So, think about what you can offer your best customers in a way that makes them feel like they have exclusive access to something and like they’re maybe getting a little more than just the other customers.
Mike [00:30:39]: And on that note, one of the pieces that you want to make sure of is that you’re treating this like a relationship. A relationship will go both ways, so you don’t always want to be taking. You want to be giving as well. If these people are already customers, if you’re already charging them, then you want to be giving them as much value as possible so that they feel like they’re being taken care of, and they feel like not just a good customer, but they are getting value out of it and it’s in their favor.
Rob [00:32:12]: Right. What you’ll find over time is that you develop a genuine relationship with these folks. You don’t view them as subscribers or some aggregate thing. Everyone on that list is a person. I think that beginning marketers, early marketers often make that mistake of just thinking too much in terms of aggregate numbers. Pretty quickly, you’re going to realize that everyone on your list is a person and that this is about building a relationship. So, by giving these best or repeat customers something exclusive and making them feel good, then you can sometimes ask for stuff. Sometimes you can pitch a higher-end product, or a higher-end tier or a done-for-you, productized consulting service that adds on to your SaaS that’s very expensive, but that these folks are much more likely to use. Or, again, you can ask for referrals. That’s another thing that we commonly do in our best customer lists. We say, “Hey, obviously, you guys rave about us. You tell a lot of people. What’s another way that you can get the word out? Can we do a joint-venture email?” “Can we do a co-webinar?” “Can you tell three friends?”
There’s a bunch of different ways to do this, but this is when it’s valuable to know who these people are. Because, again, you don’t want to send any of those emails to people in your marketing list, or people in your trial list. You have one goal for them, and it’s to get them to the next stage. And by the time they’re here, your goals change, and that’s why we wanted to talk about segmenting your email list today because this is so critical, and so many people are not doing it. And with the tools that are coming out now, these email marketing automation tools, it’s becoming easier and easier to do it.
It’s just a no-brainer. The benefit that you get from this is tremendous. If you’re listening to this, and you’re thinking, “Oh, my gosh. This is blowing my mind,” it really is. The more you do it, the better results you will get.
Mike [00:33:08]: I think the last piece of being able to know who your best customers are is that it allows you essentially a focus group of people who you can talk to and reach out to on an individual basis to ask them questions about what other things that they need. In essence, to them it looks as though you’re reaching out to the to help provide more value; but at the same time, moving forward, if you’re able to provide that value to them and if they are your best customers – however you define “best customer,” whether it’s the amount of money that they’re paying you, or the amount of usage on the product. It depends on what stage your business is. I think later on down the road, you’re more interested in the amount of money versus earlier on, you want the most active people so you can gain knowledge; but that knowledge will help you to direct the future development of the products to gain more of those type of people. That’s really what you want, is you want to be able to identify who your best customers are, whatever the criteria for that is; and to be able to zero in on those people and get more of them.
Rob [00:33:54]: And I was very careful, as I’ve outlined this episode and as we went through it, to not make this just a big sales pitch for Drip because that’s not the intent. The intent is to give you tools that you can take and use with any automation provider. So, there is ActiveCampaign and Infusionsoft and Drip and ONTRAPORT, and there’s others out there. In my opinion, if you’re listening to this podcast, Drip is probably the best one for you. We’ve heavily focused on SaaS apps, downloadable software, consultant freelancers, and people selling online information products, like eBooks, online courses or, if you’re a blogger, selling a digital product online.
So, I’d encourage you, if this does pique your interest and you’re either unhappy with your current provider, they don’t give you the automation you need, or that you haven’t tried an automation provider before, I’d encourage you to come check out Drip: getdrip.com, and we will definitely take good care of you.
Mike [00:34:15]: I think that about wraps us up. If you have a question for us you can call it in to our voicemail number at 1.888.801.9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an except from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening, and we’ll see you next time.
Episode 231 | Breaking through SaaS Plateaus with Ruben Gamez
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike discuss breaking through SaaS plateaus with Ruben Gamez.
Items mentioned in this episode:
Transcript
Rob [00:00:00]: In this episode of Startups For the Rest of Us, Mike and I discuss breaking through SaaS plateaus with special guest Ruben Gamez. This is Startups For the Rest of Us, episode 231. Welcome to Startups For the Rest of Us, the podcast that helps developers, designers and entrepreneurs to be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike [00:00:28]: And I’m Mike.
Rob [00:00:28]: And we’re here to share our experience that will help you avoid the same mistakes we’ve made. So [?] this week Mike?
Mike [00:00:28]: Well we’ve got an e-mail from Trevor Smithland. He wrote in to let us know about a product he has called Enhance Cast and essentially it’s a podcast listening app that allows you to instantly access the content that is coming out of the podcast. So essentially they do some transcriptions and they basically bookmark a bunch of different things and if you’re busy doing something, essentially it allows you to bookmark the content to be able to come back to it later. They do some fancy [pasings?] to make sure that the content is marked up with meta tags, but I looked at it and it was pretty cool. It was almost like a visual representation of the podcast. You can find that at enhancecast.com.
Rob [00:01:06]: Very nice. Lets dive in the interview today. This week we have a special guest on the show. It’s Ruben Gamez with Bidsketch. Thanks a lot for coming on the show Ruben.
Ruben [00:01:15]: Thanks for inviting me.
Rob [00:01:16]: So my guess is that most people listening to this podcast already know who you are. Ruben is the founder of Bidsketch which is proposal software, it’s a SaaS app and started of being focused on designers but now really Bidsketch is more of a horizontal app and it has a pretty [?] market. Ruben when did you launch Bidsketch?
Ruben [00:01:35]: I launched Bidsketch about five and a half years ago.
Rob [00:01:37]: In terms of Saas timelines you’ve been around quite a long time.
Ruben [00:01:41]: Yeah, I’ve been doing this for a while in the interviews that I had I used to say that I was in software. I guess I have to change that up a little bit.
Rob [00:01:48]: Yeah because it changes over time and now you can say SaaS and a lot of people know what that means. Where as five years ago we used to say web based software and that’s still how I kind of talk about my stuff at cocktail parties and I typically get the “what does that mean?” So the reason we wanted to have you on the show today Ruben is you and I talk quite a bit. We’re more in touch about things. We’re actually in a mastermind group as well and one thing I’ve noticed about how you operate is that you are really good at breaking through plateaus. There are inevitable plateaus when you are running a business and specifically with SaaS I am starting to see this pattern of folks hitting a plateau right after launch. So typically in revenue is in we’ll say is about a thousand bucks to two thousand bucks to low four figure amount and people launch and then that launch dies down and they don’t know what to do next. So there is kind of a plateau as they figure that out. And then the next plateau depending on pricing, [insurance?], and all that stuff seems to hit around lets say ten to twelve thousand bucks a month and it often requires an adjustment. Unless you’ve got everything just right from the start and you knew your market and your pricing’s on, you’ll probably going to hit a slowdown about there and then there tends to be this next one, let’s say it’s in the twenty five, forty thousand dollar range that we see folks hitting. There are different causes for each of these but you’ve powered trough these plateaus and I’ve seen you do it using a series of tactics, you’ve a good mind set about it and frankly you seem to have a high level of process. I know you haven’t blogged about it and I haven’t heard you talk about it on a podcast so I kind of wanted to dive in to that today and figure out how it is you think so that others can learn from you.
Ruben [00:03:27]: Sure. One thing I’d like to mention is that what I’ve noticed from certain apps is that that first plateau is a lot higher if the price point is higher for the app or product.
Rob [00:03:39]: That makes a lot of sense. I mean I saw myself with HitTail which was a ten, twenty dollar product on the low end versus Drip which was a 49.99 product on the low end. Although they were slightly different and that I had a launch list for Drip so I could get out to several thousand people quickly. That first plateau, instead of being a one or two thousand dollars it actually was about seven thousand dollars. So which was a much better place to be at. If you were trying to quit your job you’re almost there if you’re already at seven, but I agree. People who are going after ten dollar price points, even getting to a thousand dollars a month is quite a bit of work. So I guess to start when your opinion or from what you’ve seen, because you’ve also talked to a lot of entrepreneurs, founders are asking you for advice and that kind of stuff. Why do you think there is that one to two thousand dollar plateau right after launch?
Ruben [00:04:29]: Sometimes I talk to people that have hit that plateau or say they’ve hit a plateau but actually haven’t hit a plateau. It’s more about that they haven’t got enough product market fit to get any growth initially. So there is a difference between hitting a plateau and just getting started.
Rob [00:04:46]: Yeah, go into that further. What do you mean by that, the difference?
Ruben [00:04:48]: So if you just launched and you have maybe no customers or you have maybe five customers or six customers because I’ve talked to a group of people that fit this profile. They either have no customers or they have 10 or fewer customers. Generally that means they never had growth for them to get to a plateau. So they haven’t plateau, I don’t consider that a plateau. They’re just getting started. They need to get enough product market fit to actually get some interest and get people paying for the product. At that point it’s very questionable whether there is anybody that really values the solution to the problem enough to want to pay for that product.
Rob [00:05:29]: So the question is still “have they built something that anyone wants to use?”
Ruben [00:05:34]: Right.
Rob [00:05:35]: They haven’t even answered that yet.
Ruben [00:05:35]: Right.
Mike [00:05:36]: So at that point that’s very different place than you do have a thousand in recurring revenue or two thousand in recurring revenue so there is some interest there. Right? And obviously getting to product market fit is really hard. It takes a lot of work and there is a lot that you can do to get there. For the people that are in that one to two thousand dollars and they start to hit a plateau generally you see a couple of reasons why they’re hitting that. One of the more common reasons is that they just don’t have enough volume, they don’t have enough trials, they don’t have enough qualified traffic to be able to get to where they want to get. They are trying to get to six thousand or ten thousand and ten thousand is pretty common for a lot of people, but they are working on optimizing their conversions because they think that they need more customers. “Well I’m not getting enough of these trials to convert to customers” or “I’m having to many people cancel”, but in reality they just don’t have enough trials to focus on that just yet. It’s really important to not ignore that but if you’re just getting a thousand visitors a month or two thousand visitors a month your price point isn’t extremly high and you’re converting a hand full of those customers. [And to trial some of those to customers?] then you’re not going to optimize your way in to a ten thousand dollar a month business.
Rob [00:06:57]: Well that’s more of a balancing act because your balancing between getting traffic versus making sure that you’re not leaking everybody out the bottom of your funnel. So how do you go about making sure that you’re balancing that correctly?
Ruben [00:07:10]: Well this is why I mention that there is a difference between the businesses that just have something like ten customers and the ones that have enough to be in the thousands and recurring revenue because they do have some interest. So one of the problems that I see often is that people don’t know where their conversion rates should be or their retention should be. Now every business is different but there are ranges right, there are rules of thumb. So I’ll see somebody working on trying to improve their retention. Let’s say that they’re trying to do somewhere around 5% or 8% or something like that, but they’re working with such low numbers that you can’t really count on those numbers too much. Now I’d look at retention and say “wow, you really need to work on retention!” even in low numbers if a quarter of your customers aren’t sticking around then that’s definitely a red flag for me. But really when it’s just you, you kind of need to switch and focus more on one thing than the other. Especially if you’re doing part time so once you learned what the ranges are and you see there aren’t any obviously red flags to where just nobody is converting into a paying customer and almost everybody leaves after a couple of months then really the next thing is to get enough volume to sort of take you to the next level, but then you also want to go back if your retention is a little high and focus on that and make that better.
Rob [00:08:34]: Yeah I view it as a pendulum. I always swing to one side and then I notice that you kind of optimize something to the point of these numbers are starting to look good. [?] has gone down and now it’s time to insert more traffic into that funnel. I’ve even seen a pendulum swing over, lets say maybe four years ago, I remember Mike and I talk on another podcast about how everyone is focusing on traffic and people weren’t optimizing enough and they weren’t split testing enough and they weren’t doing that stuff. I see it the other way now. I think to many people are trying to optimize to early, but that’s basically what you’re saying here is that you can’t optimize your way in to a ten thousand dollar a month business. Yo need to drive five, ten thousand uniques a month in order to get to that point probably, and it depends on price point and all this other stuff but one or two thousand uniques a month isn’t going to do it.
Ruben [00:09:24]: Right, exactly. That’s one of the more common things. Another one is pricing. So you’ll probably not going to get pricing right when you launch. You’re probably not going to have pricing right a year or two after you got your product out and people don’t spend enough time testing and adjusting their pricing early on. In the early days in the first few weeks and months that’s when you need to test your pricing most. It can be a little bit harder if you’re working with very small numbers, but we’re talking about businesses that do have some customers and have had a little bit of growth. So you should be just testing prices and improving that.
Rob [00:10:02]: Yeah, that makes sense. I’ve done the same, I’ve changed HitTails pricing twice after I required it and with Drip I’ve changed the entire pricing model. It was based on one thing when we’ve launched and it’s now based on a number of subscribers. It’s a more standard marketing automation approach. Then I think I’ve actually changed not the price points themselves but the volume that you can do for each price point. I think I’ve changed it at least twice, maybe three times and all that is based on user feedback and looking at reports and that kind of stuff. I won’t say it’s right or wrong but I know it can be better optimized but it’s something I don’t have time to invest in to much right now.
Mike [00:10:36]: Right, and it’s better than it was when you first started.
Rob [00:10:39]: It is, I’ve moved in the right direction. I think when you first start to it’s hard because lets say you wan’t a 99 dollar a month app. You really need a lot of functionality for someone to pay 99 bucks in any type of volume and so you either have to spend a lot more time building that app or you have to have some type of brand name because over time the more customers you get, the more people are talking about it, you do become that brand and people will say, “Oh, well everyone recommended this to me so I am willing to pay 99 buck.” But when no one has heard about you it is hard to ask as much as your app might be worth up front.
Ruben [00:11:12]: That’s true. In the early days I modeled my pricing after after fresh books pricing because a lot of people just look at ether competitors or alternatives that may be similar and basically copy them in pricing and that’s pretty much what I did. Fresh books wasn’t a competitor, but they were the most similar of the apps that were out there because after someone creates a proposal, once they get a deal then they create an invoice. I went with that pricing mode but it was wrong for my business. I didn’t learn that latter until I started testing pricing and sort of learnt what worked for my business and start talking to people. Once I did that really ignited some big growth for it.
Rob [00:11:50]: I kind of mentioned at the start that we have three plateaus we’re going to talk about. There is that first one that is post launch and sounds like the pattern you’re seeing is most people try to optimize their way up to there, bur really they should be going after more traffic in general. The second plateau if I recall when you hit, that is when you adjusted your pricing, is that right?
Ruben [00:12:08]: Right.
Rob [00:12:09]: Talk to us a little bit about that process. You hit this plateau lets say between ten and fifteen grand a month and you’re wondering why it’s not going up. How did you figure out what the cause was? Did you have to run a lot of different tests and try things or was it pretty obvious? And then how did you go around fixing that?
Ruben [00:12:24]: I launched with that same pricing, so I’ve gone a long time without testing pricing at all. So I had this feeling in the back of my mind that I should make a pricing change, that I should do something there. Also I’ve added a lot of features since then so it was a very different product from when I launched the other thing is I wasn’t charging very much for a B to B app. So if you have a B to B app and you’re charging ten dollars a month or twenty dollars a month for your low end plan, that isn’t necessarily wrong but you can very likely charge a lot more for your lower tier plan. So there are all this things that are coming together and there was some feedback. Feedback is tough with pricing, because a lot of the feedback that you get with pricing is that is too expensive which isn’t right. You have to mostly ignore that unless almost everybody tells you that, you are going to get a certain amount of people just telling you that every single month so one of the things that I did was add a cancellation comments in a free form text field. When somebody went to go cancel, it was required to fill out and add their comment in there and every once in a while I’d see people complain about the price, so I think my lower end tier plan was nine dollars a month and people would say this is too expensive etc., etc. I kind of wondered about that, “should I charge it a little less”, I never did it. I think I charged five dollars a month, but one of the interesting things as I moved up my pricing and ran all different types of tests is that every time that I change pricing, say right now my lower tier is 29 dollars a month, I always get the same number of people saying that it’s too expensive, but if I reduced it by five dollars or ten dollars, they’d pay for it. That never really happens because my product was ten dollars cheaper, it was twenty dollars cheaper, so I always find that really interesting.
Mike [00:14:18]: But I think that it’s difficult for somebody who is starting out to make those mental leaps because you’re looking at this looking back in retrospective and say, “well I was there and you didn’t buy it then and now it’s more expensive and you’re complaining that five or ten dollars would have made a difference”. But for the person who is stuck at this plateau they don’t have that history, they’re not that much further in to the future and trying to look backwards.
Ruben [00:14:39]: Right. I think the important thing for them is to know that it’s normal to get people saying that it’s too expensive. If they’re not getting that then they’re definitely under charging. I think the time to wonder whether it is over priced might be just when a lot of people are saying that, that is one of the top reasons why people are cancelling.
Rob [00:15:02]: I would agree with that based on experience as well. So that was at the back of your mind and that’s why you’ve attacked it early on. How did you go about figuring out what your pricing tier should be and do you actually restructure your pricing or did you just kind of increased the tiers themselves, just increased the dollar amounts per tier?
Ruben [00:15:19]: There had been one or two tests that I ran in the past, early on when I first launched with pricing. Basically I just increased the pricing on the tears I had and I got to a point where I just wasn’t making as much money. So then I lowered the pricing back to where I was making the most money. Later on when I revisited the pricing and I wanted to run these new tests, I changed my approach I didn’t just increased the pricing on the tiers. So that was okay to get me up to a point, but the big results came from just completely just restructuring my pricing. Started of doing a lot of customer interviews and looking at my usage data. So it was a combination of qualitative and quantitative data that I used to figure out what were the key features that people were using and what type of customers were signing up. So I changed my pricing from two plans to three and those three plans directly reflected the type of customers that I get. So one of them is a freelancer plan, the other one is a studio plan, and the last one is an agency plan. All of those changes helped me earn more per customer per month.
Rob [00:16:31]: After you made that pricing adjustment you keep saying you tested it. Now did you run a split test where you had half the people see the old pricing, half the people see the new and then did you just follow it through trial signup or did you followed it all the way through to see how many converted which each price point?
Ruben [00:16:47]: Yes so I actually had multiple tests with pricing, so I tested pricing maybe four, five months, something like that. I started of with some of the more simpler tests. I wanted to isolate for example plan names from pricing increases. I wanted to know that going with three plans was actually making a difference. So I wanted to know that renaming the plans from these generic plan names: basic, premium, whatever I was using to something to what a customer could look at and say this is the plan for me. I wanted to know that that made a difference. I also did that with plan features. Then once I actually got to the revenue number, I’ve let those run a little bit longer, in each case didn’t just look at whether or not more people were clicking on the signup button. I’ve also looked at, “do more people sign up” and then, “okay, now I have a trial”. Then I continued to look at, “do those trials convert”. So at the end do I end up with more money? Same thing with retention, it takes a lot longer to look at a retention because customers some times will be around for a year or two. You can’t always follow on retention until it’s just been several months. I actually had to row back a pricing change that had been in place for three months because I looked at that retention and it wasn’t better. Everything else looked good, it looked like I was making more money, but about three months later when I looked at retention for those [cohorts?] I saw that this is actually worse than what I had before so I [went right back?].
Rob [00:18:20]: It’s crazy. So you really have to look at your data and not just look at how many people clicked that initial sign up button, it can change all the way down the line.
Ruben [00:18:29]: Right, once I decided okay, this is working better I switched it over. So I did split test that and I switched it over but when I rolled back my pricing I wasn’t still split testing that. Everyone was going over the new pricing. The important thing about that is I think that you just have to continue watching it and sort of compare it to what it was before your price increase.
Rob [00:18:53]: Right and are you using KISSmetrics to kind of track that all that way through? Is that longitudinal data?
Ruben [00:18:57]: Yes I use KISSmetrics and then I just look directly in my data base. So I use both.
Mike [00:19:02]: It sounds to me like one of the interesting points that you kind of– I was almost completely glossed over, but you at least mentioned it that testing these pricing points I mean it sound like they’re early on when you hit that post launch plateau, pricing is one of those issues that you really need to look at to make sure that you are charging the appropriate amounts and then at the next plateau you hit, by changing your pricing you are able to essentially accelerate your growth of the product. But in each of those cases it takes a while to get through those pricing tests. I think you have mentioned three or four months of testing in order to just test the price and then in addition to that you said that in order to test retention and basically make sure that you’re not loosing people faster that takes even longer.
Ruben [00:19:42]: Right, but you can capitalize on these pricing changes sooner. So some of these pricing changes are– if they’re working early on meaning if you’re getting more trials out of it, there is a pretty good chance that those trials will convert at a similar rate. So what I have seen with price testing is that that’s what happens, most of the time they will convert at the same rate. The churn will be about the same, there might be some differences but it’s not major, so you can actually switch things over, but if you do that then you do want to watch that to make sure that you are right about the trial to payed conversion rate and that you are right about the churn rate as well.
Rob [00:20:18]: So you kind of make a quick decision and then you back check that and 90 days later you can truly verify that everything turned out the way you thought it would based on your math.
Ruben [00:20:26]: Right.
Rob [00:20:29]: So it’s interesting you know we talk about these plateaus and I imagine that there might be someone in the audience who doesn’t know what that looks like so I was thinking as you were talking that you might have a SaaS app where you’re doing four grand a month and the next month you’re doing fifty five hundred and that feels fantastic. Then the next month you’re doing six grand and then seventy five hundred and you’re just going up. You’re at ten grand, eleven grand, twelve grand, and then all of a sudden it’s twelve two and the month after that is twelve thousand four hundred, and twelve thousand five hundred and literally your revenue just stalls out. I’ve been through it, you’ve been through it, we’ve seen this and it can kind of rattle you because a) it’s unexpected, it’s like, “everything was going so good and all of a sudden it’s not working” and it can also discourage you. So we’ll touch on the mindset in a second because I think that’s important but when you’ve seen these plateaus coming the first time it kind of shocks you, the second time you kind of figure it out and the third time it’s like almost expected, you’re almost anticipating it. How long have most of these plateaus– do you think there is a range, like how long is it taking you to break through each of them? In months.
Ruben [00:21:29]: In months?
Rob [00:21:29]: Yeah.
Ruben [00:21:30]: Generally four to six months. It depends.
Rob [00:21:35]: It depends on how deep it is and how much stuff you have to do to test and all that.
Mike [00:21:39]: I think the sooner you can break out of it the better, I mean the best thing is to avoid them. Do it all together right.
Rob [00:21:44]: Just see them coming and be constantly– see that’s something you’ve done really well. Recently as you have run a lot of split tests now you’re at the point obviously where your traffic tens of thousands uniques a month and you can run split tests and optimize your way to an increase in retention or whatever.
Ruben [00:21:58]: right but even in the early days when you have a lot less volume you can forecast when you’re going to plateau. I think barometrics came out with some forecast tool that — for free recently — that helps you do that. But it’s a really simple calculation you can just do it in a spreadsheet or open up a calculator and looking at a percentage of the customers that are cancelling at what point am I basically going to plateau. [As the number of trials not in customers?] are not going to be enough to upset that.
Rob [00:22:26]: Yes, then you can look and say, “is churn to high” and if so I need to start working on that now, six months in advance of that plateau. Or is it that my number of trials is still at a hundred and fifty every month, but if my churn is low but I only have a hundred and fifty trials, how do I get to three hundred trials in the next six months? Right? Six hundred is sustainable. Or is it a price point? If my average revenue per customer is only fifteen dollars a month, twenty dollars a month, how do I double that in the next six months? Right? Is that the kind of process you go through?
Ruben [00:22:56]: Exactly so one of the more interesting things was that even in the earlier days like I said a lot of times it’s just volumes. Sometimes it is retention. Well, it’s always retention, retention is always part of it, but sometimes it’s churn that they need to focus on. So one thing that I was thinking about was at what point in the early days, lets say somebody has a thousand dollars a month in recurring revenue or so. At what point is their churn to high to actually say, “okay, this is the thing that I need to focus on”.
Rob [00:23:29]: Earlier you said it was a quarter, 25%.
Ruben [00:23:32]: Yeah, even lower than that like if I was starting over again and I had product and my churn rate, even in the early days and even if I know that numbers aren’t all that great when you don’t have that many customers, you don’t have that many trials coming in, there is a difference between having a 15% churn rate and 5%. I have had 5% churn in those early days. If I had a product that had a 10%, 15%, I’d probably pay attention to that.
Rob [00:24:01]: So I think my number would be anywhere over 15%, it would be any twenties too high. The problem with this is that we’re talking about an average and typically your first sixty day churn is going to be a lot higher then everything else and when you average everything in it gets kind of muddy.
Mike [00:24:18]: The other thing that makes that difficult is that it could be a function of what your product is. So for example when Rob and I were testing things with the [?] we noticed that there was a distinct drop of at the forth month. And by that time someone has paid a couple hundred dollars they have to really think about it, it’s like, “am I really going to continue on this path or is this just something I was kind of interested in but not really and I’m not going to follow through with it”. And people were making the decision around the forth month to basically just kind of drop out. So sometimes it’s time dependent as well.
Ruben [00:24:46]: I agree. It very much depends on the type of product. With some products it might be kind of natural like how you mentioned of membership sites and [?]
to where you see a big drop of after a certain point of time. And for that industry or for that type of product, churn reads might be higher, so that’s a good point. Even Jason Cohen mentioned somewhere that he was worried of his churn at 2% for WP engine and then he found out that, “hey, that’s actually doing pretty good, that’s the normal for hosting”.
Rob [00:25:16]: That’s crazy low. Most SaaS operators would kill for that. So that’s the thing I mean I think to talk about an aggregate number is not totally accurate, it would be so much better to have that cohort, that churn grid to be able to look at it, but with Drip I didn’t have the churn grid, until maybe four or five months ago because the data just wasn’t there in order to get an aggregate number. So when I was looking at it when we first launched it was 23% a month or something. It’s because I had a ton of new trials in the funnel and as those moved on and my trial volume kind of dropped of after the launch, that dropped way down, it dropped in to the I think it was at 12% or 13% for a while and then I get a bunch a new trial and it kind of bounce right up because for sixty days your so ruff on churn.
Ruben [00:25:59]: Yeah well that’s the other thing that I like. Drip is a really good example because you can’t solely rely on just you analytics, not to look at collective data. Watching you work on Drip and getting to product market fit so a lot of people just say, “well getting to product market is binary”, but it’s not, it’s a [gradient?]. So you can have a lot of product market fit or just enough to get to a point. What I found interesting watching you work on Drip was that early on you didn’t have really good numbers because the amount of customers you had, but you relied a lot on customer conversations and gut kind of, right? You knew what you were building and what you wanted to see and because you did have that experience on other products and apps it’s sort of a little bit easier to go with gut sometimes.
Rob [00:26:51]: That’s right and I think that if you don’t have that then the customer conversations are huge and then I think finding someone either a mastermind or a mentor or adviser, someone who does have that feeling and who has experience to [?].
Ruben [00:27:04]: Exactly.
Rob [00:27:05]: Cool so we kind of cover the first two plateaus that one to two thousand dollar range, the ten to fifteen. Then there is this twenty five to thirty thousand dollar plateau. Lend you thoughts I mean how did you push past it, do you have thoughts on the general cause of that that you see in other apps? Or do you think it varies widely?
Ruben [00:27:22]: So there are obviously a lot more people who back at one thousand or two thousand dollars a month or ten thousand right then get to twenty or thirty thousand or even forty thousand. So I know fewer people that gotten up to that point and then only some of them plateau there and it seems to kind of be different from the ones that I know so I can’t really say that I noticed really specific patterns but it’s usually a retention. Right? Losing way to many customers still or you just need to get a lot more customers to get in to the next stage. For me it was more about setting up, once I automated my marketing because it’s a combination of some manual processes and automation, but setting up systems and processes to scale up marketing.
Rob [00:28:06]: Kind of moving it up to the next step or the next level.
Ruben [00:28:10]: Right, it’s more about doubling down on what’s working.
Rob [00:28:13]: So you have seen a lot of plateaus, you have gotten through a lot of them. When you see that you are going to be plateauing in how ever many months it is, what’s your process at that point? Like how do you start thinking about it mentally in order to– are you preempted or when you get there to start systematically knocking out the things that are keeping you at that plateau?
Ruben [00:28:35]: Generally if you look at it at the highest level what I do is try to identify where is my problem. Ether I am not getting enough customers or I’m loosing to many customers. It’s always a combination of both, but one of them is going to be a bigger problem then the other. But that’s too broad it’s too hard to tackle. So even if I say, “ok well I’m just not getting enough customers” then what? There is so many different things that you can do with that, so what I do is I break it down to the smallest possible things that I can. So I’m not getting enough customers so “ok, why not?”, am I not getting enough traffic? Am I not getting enough qualified traffic? Am I not getting enough trials? Are those trials not converting into customers at the right rate? What is it that is going wrong? So as part of this process is setting a goal that I want to reach and I typically start with this. I’ll pick my number and I want to get to– it’s usually revenue based to this much recurring revenue, what do I need to get to that number, so then I start to break down how many trials I need at this price point to get there. What does my churn need to be? Maybe start to play around with some numbers. What if I get more trials or increase my average revenue per customer or move down my churn? Typically once I’m looking from that perspective and then I take a look at my problem areas I just start by picking of the lowest hanging fruit. So there are going to be some things that are just a lot easier to do then others. So maybe increasing my traffic will get me more customers but so will dramatically reducing my churn, but maybe my churn is at a low enough place to where it’s just going to be way to hard and way to much work to do that, so the easier thing is to really get more traffic.
Rob [00:30:30]: Got it. And getting those rules of thumb. What kind are the ranges? What should my churn be? What should my trial to paid be? What should my visitor to trial be? But that’s part of the method that you’re using to analyze this and the way that we have come across those values is a) by personal experience of the apps that you run, right it’s your experience, it’s also by talking to other founders weather it’s in a mastermind or talking to people, doing skype calls, talking to people at a conference, maybe MicroConf. I think folks in Founder Caffe or Micropreneur Academy could easily if they brought their numbers, I would happily analyze someones numbers on the forums. There are probably some blog posts somewhere that kind of talk about it but I think there’s so much more value being able to talk one on one or one to a group with other founders because the specifics of the situation always dictate where your numbers should be.
Mike [00:31:20]: Right, right.
Rob [00:31:22]: Any range that you and I could throw out here it’s still going to be a wide range because it depends on your pricing and your market and your this and your that.
Mike [00:31:29]: I think knowing the range is bare minimum that you need to know and there are too many people that don’t know that. So if I didn’t know that it would be almost impossible for me to be able to break out of one of these plateaus. And it would be a guessing game and it would have to be luck, complete luck.
Rob [00:31:48]: I’m going to throw out some ranges and I wan’t to see if you agree to them. Kind of a small B to B SaaS app lets say between Bidsketch which starts at around twenty nine bucks and on up to something that maybe starts to ninety nine bucks a month. That’s the lower end range that we would be dealing in with boot-strappers. I would say from visitor to trial when asking for credit card up front you should be between about 0.8% and 2%.
Ruben [00:32:12]: Yes.
Rob [00:32:13]: Alright, maybe 0.75 I mean one would be great but I think that if you would charge around ninety nine bucks a month I think getting 1% is ambitious and you could do really well. So that’s where I have that loathing. Not asking for credit card – what’s the range there? Is it five to fifteen? Is that too broad?
Ruben [00:32:29]: I went almost a year without asking for a credit card upfront. So I would say that five is too low but you know, I guess it depends on how much traffic you’re getting in and all that stuff. I would go with that. If you’re getting less then 5%, just know that five is low.
Rob [00:32:46]: Right so better have like a ninety nine dollar product if you are doing five. If you have a ten dollar product and you are doing five you’re in real trouble. You should be closer to fifteen. Okay, and trial to paid if you’re asking for credit card upfront I want to be between 40% and 60% conversion trial to paid. I know that some people go higher than that but –
Ruben [00:33:05]: Some go a little lower but if you’re in the thirty’s –
Rob [00:33:09]: Yeah, there’s room for improvement. And if you’re not asking for credit card, I’ve never had an app that I done that with but the range is what like ten to twenty? Five to fifteen? That’s the one I forget.
Ruben [00:33:22]: Yeah so I’d say five is too low. Maybe on the low end eight to twenty. Several people have done this. I’ve done this myself and it’s interesting, I’ve actually moved up that number like 8% to 17% and not have a significant or meaningful increase in paid customers. Simply because of how aggressive or passive I am in converting those visitors into trials.
Rob [00:33:49]: That’s right because if you are overly aggressive then they churn out really quick. Is that right?
Ruben [00:33:53]: Well less of then convert into paying customers, because I’m being super aggressive into converting them into a trial.
Rob [00:34:00]: Into a trial. Got it. Okay, and then churn rates, typically I see the first sixty days combined somewhere between lets say if you’re at 20% I think you’re doing pretty well and I’ve seen churn rates at about 40% in the first sixty days. To me that’s the danger zone if you’re above thirty nine.
Ruben [00:34:22]: It’s crazy that when you look at a business like [Mas?] and they’re like 40% from their first ninety days or something like that. They have a really nice business [?].
Rob [00:34:35]: Yeah I think that’s price point because they started at ninety nine, they had a lot of traffic, but I think forty is where the top end of where I’d want to be though.
Ruben [00:34:42]: Yeah if I had 45%, 50% I’d –
Rob [00:34:46]: [crosstalk] And then lastly post sixty day churn or ninety day churn. I mean this one really depends like you said Jason Colen with hosting with WP engine 2%. And that’s 2% per month after the first sixty that’s phenomenal. I think most SaaS businesses would kill for that. The ranges that I see I feel like 5% to 8% is where I see most bootstrap businesses in our price range landing. Like if you’re at 9% or 10% I’m starting to feel less comfortable with that. That means after your initial sixty day of churn you are now loosing one in every ten customers if you’re at 10% and that’s a lot, I mean it’s tough to replace that.
Ruben [00:35:23]: It is a lot. Typically at most any scale, if you’re loosing that many customers then you’d want to take care of that.
Mike [00:35:34]: So going back to the discussion about plateaus a little bit, once your business comes to this screeching halt, how do you go about making sure your mindset is in the right place because I think it can be incredible demoralizing hitting one of these plateaus and your entire business basically grinds to a halt for basically months at a time and you’re not able to kind of push to and figure out really what’s going on. Because your business it may not be getting worse, but it’s certainly not getting better and you are always looking to make sure that things are going up and to the right. So how do you make sure that your mind is in the right place and that you are thinking about the right things to help push through that plateau.
Ruben [00:36:10]: I think it helps to know that it’s normal, most businesses unless they have 0 churn or negative they’re going to plateau at some point. Expect it if you have a SaaS product, try to predict it, it’s pretty easy to do, so those things help. They help but it still sucks. When you hit it they’re not going to make it so that you feel like, “okay, this is okay, I can do this” and you’ll move forward without being fazed at all. For me it’s frustrating, I think one of the more common things I felt in the past, frustrated with the progress and especially if you try a lot of things, or in my earlier days when I had less experience I had less confidence that I could break through. S o the questions would come up and still to this date they come up, “can I go past this?” these are the negative talk that comes up every once in a while. And I think that one of the things that has been super helpful for me is that just being able to talk honestly about it. First it’s just being honest to myself about it and then having a mastermind group and having friend that I can talk to about it. It’s really easy for people to just ask, “hey how’s it going with the product, how’s everything?” and for the automatic response to be, “yeah, it’s going great” and then just talk about things that are going well. It’s a lot harder to be honest and just say that you’ve hit a plateau and that you’re struggling with the trials or churns or something like that. But I think it’s important to do, it’s helpful, it’s really tuff to just not talk about it and sort of try and deal with it entirely yourself in your head.
Rob [00:37:46]: Awesome. Ruben thanks so much for coming on the show, you’ve dropped a lot of knowledge here today. If folks what to keep in touch with you online, keep tabs on what your up to, what’s the best way to do that?
Ruben [00:37:56]: Twitter probably so earthling works on Twitter.
Rob [00:37:59]: Very good and thanks again hope to have you on the show again soon.
Ruben [00:38:02]: Thanks for inviting me.
Mike [00:38:03]: If you have a question for us you can call it into our voice mail number at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by Moot, used under creative commons. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 222 | The Stair Step Approach to Launching Products
Show Notes
- How Star Wars Conquered the Universe
- In-N-Out Burger book
- DotNetInvoice
- Rob’s old duck boat website
- Baremetrics
- DistressedPro
Transcript
[00:00] Rob: In this episode of Start-Ups for the Rest of Us, Mike and I discuss the “stair- step” approach to launching products. This is Start-Ups for the Rest of Us, episode 222.
[00:08] Music
[00:15] Welcome to Start-Ups for the rest of us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products; whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:24] Mike: And I’m Mike.
[00:25] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, Mike?
[00:30] Mike: Well, last week I had talked a little bit about some of the Twitter and Facebook advertising campaigns that I was doing. Somebody pointed out to me that one of them was using this massive image that had not been re-sized properly so it was like 700k on a page.
[00:44] Rob: Nice.
[00:45] Mike: And I re-sized it. It only needed to be 65k.
[00:48] Rob: Oh, man. Was it impacting page load time? I mean, obviously it would have some impact but it could be negligible. If it’s like three tenths of a second people are not that likely to notice.
[00:59] Mike: The total page size was only about 2.5 megs so you add 700k to that and it’s like 3.2 which is about a third of the size but it depends a lot more on latency at that point than anything else. And I don’t think that it was a big deal but with a file that size, depending on how long it takes to download that one and how your browser is probably only going to download that and maybe one other thing at a time.
[01:24] Rob: Yeah, obviously if someone was hitting it on mobile or something it would be a bigger deal but you’re probably not targeting mobile users, right?
[01:30] Mike: No, for the most part I think I excluded them. Although the Twitter ads, I don’t know if those were excluded. I haven’t really fully reviewed the results and stuff yet because it just ended but I need to go back in and take a look at those things to see if it impacted it at all. I’ve got data so I can go back and adjust things in any way. I’m probably never going to know for sure whether it had that much of an impact but it was a stupid mistake.
[01:51] Rob: If that’s the worst thing that happens to you this week I’d consider yourself lucky.
[01:55] Mike: Right. The other thing I noticed was that on the Twitter ads – because I’m experimenting over there, I haven’t really run Twitter ads before, but when a Twitter ad is finished, if you give it a dollar amount, when it’s done it’s listed as being exhausted.
[02:10] Rob: Nice. I like that. It’s just so tired that it has to stop.
[02:14] Mike: Yeah.
[02:15] Rob: That’s cool. So, continuing with my stretch of reading a lot of books, I have a couple other books I wanted to mention today. The first one, it’s called “How Star Wars Conquered the Universe” and it’s a pretty thick book. I think it was twenty something hours on audio which is more than I tend to attack but it’s by a reporter from Mashable, and he basically wanted to write the definitive history of Star Wars and how Lucas came up with the concept and how he was influenced and then launch of all six films and the re-releases and all the controversies around it. He really goes in depth. I was super impressed with the quality of the research. I’m a Star Wars fan, I have been since I was a kid. I’ve seen the movies a lot of times and I know a lot of trivia but this guy dove in way deeper than anything I had ever read so if you’re at all interested in that, or even if you’re not a Star Wars fan, it’s fascinating to hear how every movie pushed Lucas to the breaking point, whether it was the financial breaking point or the sanity breaking point. It reminds me of launching a start-up. It pushed him to the edge so many times where he struggled even to complete the movie. I highly recommend this book.
[03:30] The other book is called “In and Out” and this is one, if you have considered reading it I would recommend against it. I really love hearing start-up tales and “In and Out” is a hamburger chain on the west coast of the United States and they’ve stayed private. They’re privately owned, they’re not franchised and they still basically have the same menu that they did when they launched in the ’50’s. It’s a really cool story about a business that’s staying small even though there are a couple hundred restaurants around the west coast of the US. The book itself was not very well researched, not very well written and overall I would just say if it’s on your wishlist I would probably take it off. I was pretty disappointed with it. It felt very surfacey. It was like, “this happened next, and then this happened” and the other thing I didn’t like was that it was really pro “In and Out”. It kept saying, “and then, due to the founders’ will and determination they launched another ten stores.” But they had to have done something negative over those fifty years and it really skipped over that. It wasn’t a harrowing tale. It was more of an encyclopedia or a long Wikipedia entry about it.
[04:41] Today’s episode was inspired by a question from Chris Cottham and he says, “I really liked how Rob illustrated his path through small, one time sale products to recurring revenue SaaS apps in his MicroConf Europe talk this year.” So Chris obviously attended MicroConf Europe. He says, “I think it would make a great topic for a podcast. So, what I wanted to do today is talk through the “stair-step” approach to launching really any type of products but we’re going to focus more on software products today. Mike and I have tossed out concepts from this “stair step” approach for years on the podcast but it wasn’t until DCBKK and MicroConf Europe that I decided to sit down and formulate it and make it concrete. I spent five or ten minutes with a slide and demonstrated how I view the “stair-step” approach, how it works and all of that. It seemed to really resonate with people because it’s a framework for getting started and moving from beginner to intermediate to advanced. So, that’s what we’re going to be talking about today.
[05:43] The “stair-step” approach really has three steps that I talked about at the conferences. I’ve added a fourth step that we’ll talk about here that I’m still formulating and figuring out what it means and if it’s even a good step to go to. What I want you to imagine is a set of stairs and obviously step one is on the bottom and step two is above that and step three is above that and each step gets a little more challenging but you step up to that step once you have more experience. Step one is what I think is the approach that I would recommend if you’re just starting out today and you don’t have any products with any revenue because the problem that we see is, folks are coming in and they’re seeing what successful people are doing. They look at Heaton Shaw, Jason Cohen, Patrick McKenzie, whoever, and they say, “well, they’re doing SaaS apps so I’m going to do a SaaS app.” I don’t always think that’s the right choice because SaaS apps– it’s a very long, slow, SaaS ramp odf death to the revenue, it is very complicated to build them and it’s hard to market them, et cetera, et cetera. Instead, I want you to imagine step one as one time sales. Instead, I want you to imagine step one consisting of products with one time sales. Imagine a WordPress plugin or maybe a mobile app or a Magento add-on or a Photoshop add-on or even an E-book. These are just one time sales and the price point is not huge and in addition, think about it as a single traffic channel.
[07:09] Examples of a single traffic channel might be, it gets all it’s traffic from SEO or 90% of it’s traffic from SEO, or it gets all of it’s traffic from WordPress.org from the plugin repo. Or, I know folks selling things as more physical goods but their entire sales channel is Amazon or their entire funnel consists of YouTube. That’s step one. The benefits here are that you are starting small with something simple to get some revenue in the door and learn this whole process.
[07:39] Mike: I think one of the overlooked aspects of this is that it can be a lot easier to sell something that’s a one time sale or something that people just buy into up front and they don’t have this recurring payment that they have to keep paying to keep using it afterwards and people mentally think of that differently than they do the one time sales. It’s easier to convince people to do this and it helps give you that fundamental understanding of how sales work and how you can convince people to buy using different marketing messages. The marketing messages for example for a book are radically different for the customers than you would for a recurring revenue model for just about anything; whether it’s a book or a physical product or any of those types of things, or even a downloadable application or even a mobile app, those things have a fundamentally different message inside of the marketing material and how you go about on-boarding people and marketing to them. There’s a difference between the different types of channels that you’re going to be able to use for those one time products versus something that’s more of a SaaS model.
[08:46] Rob: Right, and that’s the idea here is to get some experience writing marketing copy, supporting a product, just pushing a product out to market like launching and doing something in public. A lot of folks have never done that and it’s really terrifying the first time you do that. I shudder to think of the absolute beginner who has never launched anything in public trying to build a SaaS app and launch that with all of the complexities involved in that; in terms of marketing support, the code, sales, everything that’s involved. This is such a simpler way to do it and cut your teeth in, maybe it’s the minor leagues or maybe it’s college ball instead of jumping right to the pros. We all need to go through that development. You can’t just jump up to the hardest task right away. We see a lot of folks having success with this approach. A lot of Micropreneur Academy members are doing this. There’s WordPress plugins, Magento add-ons, one off e-books; and you may not make ten grand a month and you’ll very likely not going to make ten grand a month from this thing. You’re not going to quit your job in step one but that’s not the point. The point is to get experience and gain confidence in your skills and learn one tool. I always like to think of it as I have a tool belt of marketing approaches. When I first started out the tool belt was empty and I had no tools on that. The first thing I learned, I’m pretty sure it was SEO, so then I had SEO in my tool belt and the next thing was AdWords, that was the second product I had.
[10:10] Then I had SEO and AdWords and I started acquiring and building products that I knew I could market with SEO and AdWords. So, if you learn the ins and out of SEO or AdWords or Amazon or WordPress.org or YouTube or any other single traffic channel, and then you build a fairly simple product that sells for twenty to fifty dollars a pop, you’re going to learn a ton from doing that. And with that confidence and a little bit of revenue that’s where you start moving up into step two. Step two is basically to repeat step one until you own your time. It’s until you make enough money that you can buy out either your salary gig or any consulting work you’re doing. An example of this is, a colleague of mine, a friend of ours has three WordPress plugins now and he has basically bought out his time. He didn’t do it with just one. It wasn’t this big splash and it didn’t happen right away but he learned how to build and launch a WordPress plugin, how to market it, how to do the support and all of that stuff and then got one to market and basically has repeated that twice. At this point he actually quit his job this month. This path from step one to step two is a lot easier than trying to jump straight up to the most complex task.
[11:25] Mike: The nice thing behind doing that is that once you’ve done something once, it makes it a little bit easier to do it the second time, especially if you’re repeating almost the same process because you can use the things that you learned from the first iteration through that process on the second time and the third time and the fourth time. Eventually what you’re doing is you’re growing this revenue base that you’re going to be able to use to essentially replace what your current revenue stream is.
[11:49] Rob: Right. And this interesting thing with this “stair step” approach is that I kept seeing it with people at the academy, people at MicroConf and I kept seeing them start small and then build up and eventually get to the next level and be able to buy out their time. I noticed it was a pattern which is why I started thinking about something to try to classify it or have a higher level theory about it. Then I looked back at my own experience and realized that a lot of what I did fits the “stair step” retroactively and I had no idea about that. If you look back at products I owned I had DotNetInvoice which is one time sale downloadable software, I had “Apprentice Lineman Jobs” which is essentially a job board. It’s a subscription but it’s very short lived. People only look for one or two months but it’s a small price point and it had a single source of traffic, SEO, CMS Themer which was a theming service which was a one time sale, it was a higher price point but it had one source of traffic which was actually banner ads and then I had a couple E-books that I had purchased on random topics like beginner bonsai and there was one about building a duck hunting boat and all of these things had a single source of traffic and none of them made more than, some of then topped out at between three and four grand a month but each one of them taught me one more thing. It was either SEO or AdWords or banner ads or PPC advertising or copyrighting and how much it takes to support a software product versus an info product. So, it’s interesting that I essentially followed this path, kind of stumbled into it.
[13:25] Mike: What Rob has done for example is, he had DotNetInvoice and Apprentice Lineman Jobs and CMS Themer, which are all completely unrelated areas but if you map things out in advance you can make those things into the same business or address different problems inside of the same market vertical such that you are building upon your previous audience. Essentially you have this lower end product that is a one time sale and then you look up stream a little bit and say, “okay, well, what is the next step? What is the product that somebody who has purchased this and actually implemented it would use after this?” Essentially what you’re doing is creating this closed feedback loop where customers that you’re bringing in hopefully purchased the first product and then you may very well be able to get them to buy into the second. So, depending where they come into the process, you may have additional higher end products that you can sell them. Your initial product might be an info product or a book of some kind. Then you might sell some specialized consulting services around that. Then you might have a SaaS app or something along those lines. You’re basically just moving up the sales funnel maybe with higher price points. You don’t have to do that in advance. There are certainly places where that’s not only not warranted but you just simply can’t do that. But that’s an approach that you can think about.
[14:42] Rob: That’s a mistake that I made early on was as you said, I did it in disparate niches so I did not have the advantage of building either an audience or more likely a customer base that I could then sell more things to. That’s the one thing with the “stair step” approach. I wouldn’t say it’s required that you do it that way, that you keep it all in the same market, but it’s definitely going to be easier for you if you can. It’s always easier to sell a new product to your existing customers or an existing product to new customers. But it’s never good to sell a new product to new customers unless you absolutely have to. I think that will give you a leg up if you take that focus. On the other hand, it was either me or the podcast received an email from someone saying, “I want to start the “stair step” approach but I’m thinking if I want it to all be in the same niche then I need to think five years out because what I launch today has to relate to everything I build in step two and the recurring revenue app I’m going to launch in step three.” I think you could put a little too much importance on that initial product at that point. If you’re holding off because you’re just not sure you want to be in this niche for five years then I think you’re over thinking it.
[15:57] Mike: Yeah, I would agree. I think if you’re starting out you don’t necessarily want to try to plan that far out in advance because you may very well launch this one time purchase and it may not go anywhere. It may just be that the market doesn’t want what you have to offer or that there’s not enough money there or that you can’t reach those people. There’s all these problems that I can see with that and if you aren’t sure of all of those things and you’re trying to plan around this vast sea of unknowns you can very well talk yourself out of doing anything at all before you map everything out. At that point you’re basically just wasting a heck of a lot of time planning for things that are just never going to occur.
[16:37] Rob: So then step three is basically getting recurring sales and in our world this typically means SaaS. It doesn’t always have to be that way but I think that’s the direction you move. One of the benefits of SaaS, we’ve talked about it before, is the fact that you don’t have to get a large sale upfront. You can get a smaller sale every month from that group of customers. And there are pros and cons to this that we discussed ten or fifteen episodes ago but the bottom line is, if you want to build a sustainable revenue stream then having one time sales is not the way to do it. So step three is going after recurring sales and examples of this, they’re all around us, an app like Baremetrics or Bidsketch or Drip, Planscope or there’s even recurring info products like Brecht Palumbo who is a Microprenuer Academy member and host of “Bootstrapped with Kids” podcast. He has distressedpro.com which there’s some software to it but there’s also a lot of training. We have microprenuer.com and the Microprenuer Academy which is essentially training. There’s no software involved with that. So, you can go both ways it doesn’t just have to be software. Even productized services I think could fit into this level if you get folks to sign up to a subscription for them.
[17:53] Mike: Yeah, most of this conversation today is limited much more toward the software side of things and getting started but you’re absolutely right that there’s a lot of other ways to have different up sells for people that can buy into, whether that’s with their wallets or with their mentality. If you look at what we’ve done with the Microprenuer Academy, in some ways you can look at it as a complete sales funnel where we’ve got our blogs and I guess I’ll say our online profiles but we’ve also got the podcast which is free to everybody and then if you want to buy into the Microprenuer Academy and those types of approaches and that community, there’s a fifty dollar a month price point with that and then up stream from that is MicroConf and there’s a lot of different ways that that whole life cycle of products could be viewed. The “stair step” approach kind of falls in line with that.
[18:45] Rob: Yeah, I agree. If you just think about our ecosystem as a funnel. I don’t think either of us intentionally did this but there’s all these things that kind of feed into each other. My book is one thing. Certain people hear about my book from the podcast and from MicroConf but other people hear about my book from something else and then they later listen to the podcast or become an academy member or buy a MicroConf ticket. All four of those things really feed into each other. Brennan Dunn is another guy who has done this really well. He has multiple e-books and podcast, a blog and his software product. And he runs training, in person training. So that all fits in and he will actually say that he stair stepped it in the wrong order. He launched the SaaS first and it was so hard to get traction that he went back and started writing e-books and stuff to make money and then realized that the experience he gained there and the audience that he built fed back into it. The “stair step” approach is not about building an audience. I don’t think you need to be a personal brand or build an audience to do this. But I do think that building a customer base and then learning these skills, how to launch, how to market, how to copyright, all of that stuff is the key to it. So, don’t feel like you have to be a big personal brand in order to make that work or even have this big ecosystem of products. I don’t necessarily think that if you got to step two and you had the WordPress plugins and you decided, “I’m going to launch a SaaS app” and you sold those WordPress plugins enough to give you a runway to then go build the SaaS and grow it, I don’t think that’s a terrible decision. I’d take it on a case by case basis but I think that’s an option. You don’t necessarily have to keep everything as you’re moving up the stair steps.
[20:23] Mike: I agree with that point. That’s one option and there are certainly viable reasons for saying,”okay, I’ve already got this one product but I want to do something completely different.” I think both of them are valid approaches. Going back to what Brennan had done where he had kind of done things out of order, we did things out of order with the Microprenuer Academy as well because we launched the academy first and that has a subscription model to it and then we did the podcast which is kind of down stream from that. And then we did the conference which is up stream from that. So we did things in the wrong order as well but it’s not something that we planned out front. We just kind of fell into it and decided, “what is it that we want to do next and what are people looking for?” Sometimes you just need to get into the market to figure out where things need to go or where they should go. And where they should do in some cases may very well be in a completely different market because you don’t want to deal with it anymore.
[21:15] Rob: Exactly. And then step four is something I’m still mulling over. I did not mention this in the MicroConf Europe or DCBKK talk. I mention it offhand. I think step four might be having multiple recurring apps, multiple SaaS apps or something but to be honest, few companies or people that I’ve seen are able to maintain this because basically one eventually takes the lead and makes so much money that the others seem inconsequential. So, if you look at what 37signals did as an example, they just kept launching apps, kept launching apps and then Basecamp, I’m assuming, 10x’ed or 100x’ed everything else and at that point it’s just hard to devote any time to something that’s making you ten grand a month when something is making you a million dollars a month as an example. I don’t know their numbers but you get the idea. There are a few companies, like Wildbit does this, they have multiple SaaS apps. Certainly you and I have multiple projects going on. I have multiple SaaS apps plus the academy and conference and stuff. So it’s not impossible to do but I have definitely found it hard as some of my apps grow and they tend to X other apps in my portfolio. I have a really hard time going back to those apps that are making the small amounts. I think at that point that’s when you want to sell one off or shut it down even if it’s not worth selling. So I’m not sure that step four is aspirational. I don’t know that getting to multiple recurring is really necessary. I do like that it diversifies you. When I had issues, HitTail’s revenue took a hit when Google did the not provided stuff and it was nice that I had other revenue streams but I’m not sure that trying to manage multiple SaaS apps or multiple recurring revenue streams should be a goal for everyone.
[22:54] Mike: Yeah, if you look at what Basecamp has been doing, even over the past four or five years, they used to have, I think it was called “sortfoloio”, they got rid of that, right now they’re in the middle of the process of getting rid of things like Highrise and changing their company name from 37signals to Basecamp and getting rid of all of the other things that they’ve build and they’ve sold and launched and been successful with them but they haven’t been nearly as successful. They spell out in fairly large detail on their blog and in a lot of their communications that “we’re getting rid of all of these other things because they serve as distractions.” I was at the Business of Software, I even met somebody who was heading up one of the business units that they’re spinning off and saying, “okay, we’re going to take this entire product that is making money that could fully support at least a couple of people and just get rid of it because it is taking time away from our core business and that’s where we make our money.” Even in the stuff that I’ve done and Rob, obviously in the stuff that you’ve done, there’s things where you get to a certain point or you just don’t want to work on them anymore because it’s not worth the time or you lose motivation for it, and at that point it becomes a mental drain because it’s always in the back of your mind and you’re thinking to yourself, “oh, I should devote some time to that” or you’re coming up with ideas for it. But if you don’t even own it anymore it’s a lot easier to not think about it.
[24:10] Rob: That’s right and that’s something you always have to weigh is whether to sell it and walk away or to keep it running in the background because there is a mental weight to it like you said. If you’re listening to this “stair step” approach I think you could feasibly be skeptical and say, “well, if I ultimately want a SaaS app, why would I start with a small product?” Maybe you really don’t want to launch a small WordPress plugin, you just want to do SaaS because that’s what the cool kids are doing or something. I think that the optimal way and the way to maximize your chance of ultimately being successful at it is to do something like this “stair step” approach but I think there are other avenues. I think if you were to intern within a bootstrap SaaS app and have someone mentor you and teach you the ropes, that you could feasibly learn it without doing it yourself and then go launch your own SaaS app. So I do think there are other ways around it, they’re just a lot less common. They’re going to be harder to find because how many of those opportunities are there compared to how many people are there who are able to go launch the WordPress plugin and go up the stair step?
[25:11] Mike: Yeah, I almost look at the different steps as learning experiences where somehow you have to figure out the knowledge within that particular arena. The “stair step” approach is obviously one method for doing it. Doing some sort of mentorship would be another method, and then going straight to step three and beating your head against the wall a lot to figure out all the different things that you should have learned in step one and step two, that’s another mechanism for doing it but there’s the risk of going straight to that step and beating your head against the wall so many times that you get frustrated and you just give up. So, I think there’s definitely some inherent risks there but there are also some very clear, exceptional cases out there where people have successfully gone straight to step three. I would say that in some cases, not all of them, but some cases, those are used as examples of “this is exactly how you build a software product and this is exactly how you build a company from the ground up.” I’ll point specifically to 37Signals for that because I think a lot of people have held them up on an alter and said, “this is exactly how you do it. We scratched our own itch. This is the way to do it.” And then you’ve got all these other people who are going out and scratching their own itch for a product that not everybody is going to pay for. So, there are definitely ways to do it and there are I’ll say red flags for other ways that it can be done but aren’t necessarily going to be successful. Success is not something that you can just say is going to happen. There’s a lot of red flags but there’s also ways around some of those red flags.
[26:41] Rob: I think 37Signals would have been successful whenever they had done it. They’re very smart and they’re great businessmen and they build things people want and all that. But I don’t know that they would have grown to how large they are as quickly as they did without their timing. They really hit SaaS at the early stage right as the concept was taking off and they got in first and they really got a first movers advantage which I think is great because they took a risk and it paid off for them. But I think that in the decade since Basecamp was launched, I think it launched around 2005-ish, a lot of things have changed so five maybe six years ago, still going directly into SaaS, I could see that potentially working. I don’t think it was nearly as competitive as it is today. So many people want to launch SaaS. It really is something that the funded companies are talking about, B to B is talking about it, B to C is talking about it, it really is something a lot of people are aspiring to and as a result a lot of people are doing it and a lot of the niches that didn’t have SaaS apps a few years ago have them now. So that’s where it’s just become so much more difficult to do it that I think jumping straight into the deep end of the pool is going to fail more often than not. That’s not to say it can’t succeed sometimes, and as you’ve said there are examples of people who have done it and even examples of people who have done it more recently. But what I tend to find is if you dig into their stories a little more, someone might say, Josh Pigford, with Baremetrics, he launched a SaaS app and it was successful but if you look back at his story he basically had two other smaller apps, he did stuff before that. It’s that ten years to overnight success type thing. You could say the same about me, right? Some would say, “oh, he has a successful SaaS app with Drip” but I have this whole long history of launching things, launching smaller things and then moving up this ladder. So it’s not that it can’t be done I just think it’s done a lot less often, especially these days.
[28:32] Mike: Right, and as you moved up that ladder you’ve built things that are more and more complicated. A duck boat E-book is a relatively uncomplicated thing but you get to something like Drip and that’s very complicated. There’s a lot of moving parts that are constantly moving and shifting whereas selling somebody an e-book on how to build a duck boat is relatively straight forward in comparison.
[28:54] Rob: That’s right.
[28:55] Mike: But if you take that example of how to build a duck boat as an e-book, you can translate that to one section of a marketing campaign that you might run for Drip. All those things that come up in step one and step two basically become these modules of knowledge that you drop into place when you get into things that are a lot more complicated and become a lot more successful because of the modular learning process that you went through before.
[29:22] Rob: That’s exactly right. Each one is, like you said, a module that fits together. I think that’s a good analogy.
[29:28] Mike: If you have a question for us you can call it into our voice mail number at 1-888-801-9690 or email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Out of Control” by MoOt used under Creative Commons. Subscribe to us at iTunes by searching Startups and visit Startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
Episode 218 | Our 5-Step Process for Answering Emails, Managing Your To Do List and Staying Productive
Show Notes
James over at Sweet Fish Media was kind enough to write up a summary of this episode. You can read that here.
Transcript
[00:00] Rob: In this episode of “Startups For The Rest Of Us” Mike and I discuss a five-step process to answering emails, managing your “to do” list, and staying productive. This is “Startups For The Rest Of Us” episode 218.
[00:10] Music
[00:18] Rob: Welcome to “Startups For The Rest Of Us”, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product, or you’re just thinking about it. I’m Rob.
[00:28] Mike: And I’m Mike.
[00:28] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
[00:33] Mike: Guess what I got for Christmas?
[00:34] Rob: What? Did you get another iPad?
[00:36] Mike: No. I got sick.
[00:37] Rob: Yeah, and you guys were laid out pretty bad for several days, it sounded like.
[00:41] Mike: Yup.
[00:42] Rob: Well, for me, I leave tomorrow for a 48 hour retreat in Shell Beach. I have a long list of questions to consider. Once I come back from that I will have a much better idea of being able to solidify the goals. You know, when we did our goals episode I hadn’t yet done this retreat. So I do expect to revise that, and I think if it is dramatically revised I may mention it on the next show. I am definitely looking forward to that, trying to get some clarity for 2015.
[01:08] Mike: Very cool. Anything else?
[01:10] Rob: Yeah, my “trial-to-paid” conversion rate – with DRIP specifically, I mean it’s doing good with all apps, but with DRIP specifically – it dropped by over 20% in the last two weeks of December. And I had a nice big bucket of trials that were checking DRIP out, and then conversions just fell off a cliff. So, it’s such a bummer.
[01:27] Mike: Well, you can probably go back to them and shoot to them an email to them and say, “Hey, I know December was a rough month, in terms of being able to carve out time.” You know, you can extend their trials by another 21 days, or 14 days, or something like that after the 1st of the year, and see what happens.
[01:42] Rob: That’s a really good idea actually.
[01:43] Mike: Maybe try to bring them back. Even on Twitter it’s commented like, December of a terrible time of the year for bootstrappers in general, just because conversion rates just fall of a cliff, and everbody’s leads basically start to plummet, just because people get busy. I’ve actually avoided doing stuff – or signing up for stuff – just because I know that I’m not going to get to it. So I’ve kind of gone off into a hole and started working on stuff, because I know that there’s really not much point in me doing any of that stuff online, and I think that if you go back to them – at least if you have the email addresses, if they did start, you might be able to bring them back.
[02:14] Rob: Yeah, that’s a really good idea. I definitely have email addresses. They’re all in DRIP, and they’re marked as “folk whose trial has expired”. So it’s just a couple of clicks to send them an email. I’ll think about doing that probably next week. I like that idea. Just give them a link to re-enable their trial. Yeah, I’m kind of taking this week to take care of some year-end bookkeeping stuff. And also, I noticed that my Amazon S3 charges are creeping up, because of all of the database backups that we’re storing there. So I’m clearing out a lot of files and putting in a automated process to start clearing those out, because 6-7 months ago, when we really started getting stuff into S3 it’s just really, kind of, all sat there. So we don’t have a script, and we don’t have any type of policy that removes things. The S3 stuff crept over $300/month and I realized that we need to get in there. So, figuring out how to do that. I have a DBA who’s helping with that. So, kind of just doing that year-end stuff I otherwise wouldn’t really focus on during the day-to-day running of the business.
[03:13] Mike: Aside from being sick, the only other official news I have is that I’ve officially closed down Moon River Consulting as a business. And I believe that will be effective as of the 31st. So this episode will be out next Tuesday. So by the time this episode goes live I believe that the businesses will be completely closed, and the only thing I’ll have to take care of is taxes for this coming year. Then after that I can, kind of, wash my hands of the whole business.
[03:35] Rob: Nice. That’s a big milestone, man. It’s got to feel good.
[03:38] Mike: It does. It’s nice to know that going forward I’m not going to have two different sets of books, two different sets of checking accounts, two different lines of business that I have to worry about. I mean, I’ve still got some of that to begin with, but at least I don’t have to also think about, “Okay, well what checking account is this money going to go into?”. I feel like running the two businesses side-by-side has actually been a lot less helpful than I thought it would have been.
[04:01] Rob: Mmmhmm. And it’s not just the time and the decision process – that’s of course a big one – but then it’s the money of maintaining the corporations every year, of filing two separate tax returns. It seems like a pretty big win for you.
[04:13] Mike: Yeah. All of the associated overhead just of running a business is doubled because I have the two. So, It’ll be nice to kind of cut that in half.
[04:21] Rob: So the impetus for this week’s episode is that I’ve been asked about and explained my system for how I answer emails, how I manage “to do” lists, and how I stay productive at least five or six times in the past month. It’s kind of uncanny. I don’t typically get asked about this stuff, but I think since we recorded that productivity episode, folks have either emailed or Tweeted or asked in person. So I realize it’s probably time to document it in more detail, so that I can just refer folks to this episode. And I think you and I have some overlap in our processes too, and in essence, today we’re going to be walking through a five-step process to answering emails, managing a “to do” list, and staying productive.
[04:58] Mike: Cool. So let’s get started.
[05:00] Rob: So the first step of the process is to only check email once or twice a day. It’s to basically turn off all new email notifications, and then it’s to close the Gmail tab in your browser, and turn it off on your phone – so you’re not getting buzzed every five or ten minutes as emails arrive, and then only check it at a certain time. Now I check email twice a day. It may work for you to do it once. You may need to do it three times. But the idea is to not have it open, not constantly being pulled out of your flow. In addition, the times of day, I’ve heard widely debated. You know, people say, “Don’t check it first thing in the morning. Check it right before lunch and right before you go home”. Like 11 am and maybe 4 or 5 pm. I do, kind of, the opposite. I do right when I get in, because it helps set my to do list for the day. Then I tend to do it right after lunch in the early afternoon, because I find that I am not super productive in the early afternoon, and it’s a nice easy task that I can take care of. I do “time box” this when I check email, especially in the morning, because the morning is my most productive time. So I will tend to only spend about 30 minutes in the inbox, get a bunch of stuff into the to do list, and then I move into the to do list. Then in the afternoon I may not “time box” it. If it’s going to take me a couple hours to get through it, I want that to be afternoon time, where I’m going to be less productive as it is.
[06:14] Mike: I’m probably not nearly as disciplined about this as I would like. I almost always check my email early in the morning – sometimes it’s not until 10 or 11. If I get up really early, what I tend to do is I’ll check my email and clear it out, and then either close the Gmail tab, or I use a plugin called Inbox Pause. I find that helpful because it allows me to have my Gmail tab open, and it tells me flat-out at the top, “Hey, your inbox is paused.” So, if I happen to flip over there because I’m looking for that little kick that says, “Hey! You’ve got new mail.” I’ll see that right there and say, “Oh yeah. I shouldn’t be checking my email.” or “I’m not supposed to be in here because I’m not going to get anything anyway.” And sure, I can click that button, but the fact that I have to manually click that button to start getting to my email is a mental trigger, or reminder, that says, “Hey! You should be doing other things, and actually getting real work done.” So I find that helpful. I agree with you that getting things done in the afternoon is helpful. The other thing that I find helpful is clearing out email near the end of the night, because it helps me alleviate the mental strain of having the fact that there are some emails that were sitting there throughout the day, or at the end of the night, and I’m not thinking about them – which is kind of nice.
[07:26] So, if I can clear out my email and get it as close to Inbox Zero as I possibly can, I find that helpful to do near the end of the day, and in the evening. It would probably be better to just not check my email and maybe remove it from my phone, but I like having my email on my phone if I need it.
[07:41] Rob: Yeah. You bring up a good point, because these five steps that I’m using are during your workday. So if you have a regular schedule that you work – 9-5 or whatever – that’s where these steps come in. Outside of that, if I’m waiting in line somewhere, I will check email on my phone, because I consider that, kind of, found time. It is time that I wouldn’t be doing something productive anyways, and so if I can go in and check emails, and get a few replied to, get a few forwarded, and get a few deleted – that to me is actually a good way to do it. I think as long as you’re not compulsively checking your email all the time, and thinking about it, and you have that addiction thing – I don’t really see anything wrong with having email on your phone and checking it. I try my best not to check email or Facebook or Twitter when I’m with my family. I think that’s the big thing. When I’m working I want to be working hard, and when I’m playing and hanging out with my kids and my wife I don’t want to be thinking about work. Right? I don’t want to check email and have it suddenly stress me out, or remind me of something that I then can’t do anything about, so that I’m mentally shifted away from being present.
[08:45] So that’s where that balance — you, kind of, have to know yourself. But again, if I’m waiting in line and my family is not around, I’m not considering checking email and getting things done then a bad thing at all. I think it’s actually a way to be reasonably productive, instead of just standing around.
[08:58] So that was step one – was to check email twice a day. And I guess we would put the caveat in, except for if you’re standing in line somewhere and you’re on your phone. Step two, is to live by the Three Ds. The Three Ds are : to Do it, to Delegate it, or to Delete it. I’m going to start with Deleting it. So I’m not a big believer in saving things for later. In general, I don’t save many things for later. So if I’m not going to read an article now, probably 80-90% of the time I delete it. So I do get emails from Quora, emails from Growthhackers.com, emails from Bootstrappers.io, emails from Foundercafe. And they’re, kind of, showing me threads and conversations, and I’m either going to pop in quickly, comment, maybe skim something – but in general I don’t plan to read things later. That’s not the way that I work, because I find that that adds a big queue of this mental weight in the background, and something that I’m always thinking about.
[09:55] However, if you know yourself, and you do use a read later app – like maybe Instapaper or some other feature in your browser – and you do actually find time in the evening or over the weekend, and you like to have a queue of things that you’ve set up, then that’s maybe where you maybe wouldn’t delete those, right? You would put them in that queue and read them later. If I’m going to do it, I use Trello, and I wind up putting it into a side Trello board of the things that I do want to read later. I do that with FounderCafe threads as an example. If there’s something that I think I can reply to, and it’s going to take longer than a couple minutes, then I’ll actually just put a Trello item in there. But otherwise, I delete a lot of email. I get more than 100 emails a day, and I wind up deleting a lot of them. Even in the old days I probably would have kept some of these around thinking, “Boy, someday I’ going to need that information.” But I’ve found that you can typically find stuff via search, and in general, I’ve found that my productivity has dramatically increased by the fact that I’ve learned to skim, and I’ve learned to skim/read a lot fewer things than I used to. And that has allowed me to maintain a lot of productivity even though I have a lot of incoming stimuli and a lot of incoming emails. So, again, this first of the Three Ds is to Delete it. And I find that I delete very healthfully, and I delete heavily, and when in doubt I delete emails – rather than the Do or the Delegate.
[11:16] Mike: I was just going to mention an anecdote about Instapaper that I read at one point, which I’m sure I could find it, if I looked hard enough. But it essentially said that in Instapaper, if you had not read something, and it’s been more than 2 or 3 weeks or something like that – or maybe even a week – the chances of you ever going in and reading that are slim to none. And I think that the developers had written the article which basically just showed that once somebody gets to a backlog that’s more than a couple of days long, it’s almost like having a hundred RSS feeds coming in. It’s just like you can consume so much information and then have no time left to do anything else. So I do the same kind of thing that you do, but I also use UnrollMe. So anything that comes in from Quora and a ton of these other sources, I just have UnrollMe aggregate all of those. I get a single email with all of them. And I just go in and I very quickly review it. Most of the time it’s things from L.L. Bean or Amazon for various things – you know, most of them are promotional advertisements. And I don’t necessarily want to completely unsubscribe from everything, because I do want certain notifications. But having it as a single email that rolls up 20-30 other emails every single day, it alleviates the sheer volume of email that comes into my inbox. Because I can just quickly glance through quickly within that one email and kind of skip most of it. I don’t have to worry about it.
[12:35] Rob: Yeah, that’s a nice way to do it. I will make a note here that Gmail has the three inboxes with the promotional tab and that kind of stuff – social tab. I don’t do any of that, because it makes me feel like I have three inboxes to check. And I found that if it’s not 100% accurate, then I always have a doubt, “Am I missing an important email, a support email, or something I need to reply to?” And so I found myself checking all three tabs, both on the phone and in Gmail. So, me, myself, I’ve disabled all of that, and I like to have a single inbox view, and kind of do my own filtering.
[13:05] Mike: I do the same thing. I disabled that just because I didn’t like having the three different things. And I think the way you put it is probably the best. I hadn’t really thought of it in that way. You’re right, it’s like having three different inboxes. But in a way I do that now, because I have all these filters set up – I probably have like 50 different filters set up – that will take emails that come in to my inbox that match certain criteria, and just automatically apply labels to them. And some of them are marked as read, and some of them are not. So what will happen is it will end up in my list of labels on the left side in Gmail, and then it will be bolded, and it will show me the number that were sitting there because it was not marked as read yet. So I might need to go in and tweak my filters a little bit for some of them, but for the most part that works out pretty well. And in a way it kind of lend itself to that idea, where I have multiple inboxes. But I know that anything going into those that’s automatically labeled is not critical. So I can just let it go. And the nice part is that it doesn’t show up on my phone if I do that, because my phone only just goes straight to my inbox, which is kind of nice.
[14:05] Rob: Yeah. So an example of how I read through some startup news – or marketing news – this morning. I get a couple of different newsletters – like I said, Growthhachers.com, and the Mad Mark newsletter, and Bootstrappers.io. And if I have a busy morning, or I have a lot of stuff to do, I will just delete those outright as I go through my inbox. I won’t even open them. If I find that I think I might have some time during the day where I’m going to want to look at them, then I might Boomerang them back. We’ll talk about boomeranging in a little bit. But I’ll Boomerang them back in the afternoon, and I will typically timebox about 10 minutes to look through all of them. I skim through the titles and look at what’s interesting, and I open them all at once – so I’ll open six or seven tabs of anything I find interesting. Then I delete all of those emails – as you said, if you do UnrollMe they’re all in one email that you can delete, which is even better. Then I’ll go through each tab, I’ll skim through it, and I’ll figure out, “Am I going to get anything out of this?” or — a lot of these posts I find are so short anyways, that the title basically gets you to click, and then there’s nothing actually of value in them. So, I’ll go through them, I’ll figure out, “Do I want to Tweet this? Do I want to pull it into a podcast outline later?” – in which case I’ll go into the Google Doc and I’ll make a note of it for the next week.
[15:09] “Do I want to make a note in a marketing plan?” Like if there’s a new marketing approach, or it’s kind of a walk-through of like, “Here’s a new tweak to Facebook ads.” or something. Then I will actually pull a link to that and I’ll put it in the HitTail or the DRIP marketing plan. Or if it’s something else that I then want to look into in the future, I will then go put it in Trello, and I’ll say, “Research YouTube re-targeting.” and I’ll prioritize that. So what I’m trying to do is take really actionable items, very quickly, from these things that you could otherwise spend an hour reading through. So I’m trying to distill it quickly down to what action items am I going to take away from this, and not reading through a bunch of “entreporn” that you’re just looking to read some success story of someone that isn’t helpful, and isn’t going to move my business forward anymore.
[15:54] So that was the first of the Three D’s. The Three D’s again are : Do it, Delegate it, or Delete it – and we just talked through deleting it. The second one I’m going to talk about is Doing it. So any email if it takes between three and five minutes – anywhere less than five minutes – I try to handle it immediately. This is where I will Timebox things, and do the most important ones first. But I like to not handle emails more than once if possible. So if it’s just going to take a couple of minutes, and it’s worth doing – and that’s a big caveat there. I found that early on in my career I replied to everyone, all the time, any partnership opportunities. You know, you’re just trying to claw your way forward, and you’re doing any interview people ask about, or doing joint ventures and that kind of stuff. I find that now a lot fewer things move my needle, both on my personal brand side and the software side. So I’m pretty choosy about even what emails I’m able to fully reply to. I try to reply to everyone who emails and maybe say, “Hey, just not interested right now. No thank you.” is sometimes my reply. If I can do that very quickly I tend to lean towards replying no to most things, unless there’s a really compelling reason to reply “yes”. I don’t tend to spend a lot of time thinking about whether I should go forward with a partnership, because unless it’s a “Hell Yeah!” – like Derrick Sivers says, “Unless it’s hell yeah!” – I’m just going to have to say “No”. Because I have so many other opportunities going on, and the opportunity cost of even spending five minutes and thinking about it is just too much time these days. So you have to weigh where you are in your process – early in your career versus maybe later in your career.
[17:24] Mike: I think I have a bit of a harder time doing this, just because there are some things that will take me only a couple of minutes to do, and a lot of times I’ll just batch them up instead. So I don’t take care of them right away, but I’ll say, “Okay, well these three or four things, I’ll come back to them later in the day when I feel like I’m going to block off that time. Some of those things will just sit in my email box for a little bit longer than they probably should, and I do handle them more than once. I don’t know whether there’s a great way to do that. So, for example, I have an email sitting in my inbox right now for renewing part of my Microsoft Partner Network benefits. And I know that I’m going to get another one next month. So it’s like, “Do I even bother with this right now?” And a lot of times those things tend to fall much lower on the priority list, just because I know that I’m going to get another notification, and if I don’t get to it now it’s not a big deal.
[18:12] Rob: Right. Yeah, for that one particular I would either just delete it outright – if I know I’m going to get one – or I would forward it into Trello. That sounds like it’s going to take at least five minutes – or maybe more, by the time you find your login, and update your info, and do some clicks. Then you know there’s something you’ll have to read in “Terms of Service”. So I would probably put it into Trello, unless I clicked through and it was literally one or two clicks and I could be done.
[18:35] Mike: And maybe this is because it leans more towards the higher end of the five minutes – more towards the “I’m not absolutely sure how long this is going to take.” It might take five minutes. It might take me 30. And forwarding it to Trello, though, doesn’t necessarily either because I know that I’m going to get another email about it.
[18:52] Rob: So I probably would have done it by then – my stuff doesn’t stay in my Trello board very long, I mean I get it done pretty quickly. But if it was still in Trello when I got the next email I would delete that right away, because it’s already captured. It’s already in the to do list, and I’m already working out of the to do list. The Three D’s we’re talking about, I do very quickly, and I try to get out of my inbox as quickly as possible. I don’t work in my inbox. Then I will shut it down, and I move to Trello, and I start hammering all of the stuff that’s in there. So for this one, yeah, you can either do it – if you think it’s going to be less than five – I’d do it. If I have a feeling, like you said, it could be 15 or 20 minutes, I’d forward it over to Trello, archive the email – I’d label everything and archive it, it’s all with keyboard shortcuts of course – and then I would move onto the next email.
[19:34] Mike: Sure. That makes sense.
[19:35] Rob: And then the last of the Three D’s is to Delegate it. So if I can’t do it quickly, if I can’t delete it, I delegate it to one of two places. I have a virtual assistant, or I have my own to do list. So, for my to do list, as I mentioned, I used to use pen and paper, and that worked okay but it just got too complicated, so I’ve moved to Trello. There’s a bunch of other to do lists – I know you don’t have to use Trello – but the reason it works for me is because I love being able to just hit the “F” key in Gmail, type in “TRE” and it pre-populates with my Trello email address for my “to do” board. It’s all done very quickly via keyboard shortcuts. The email is gone, and it’s now at the top of my Trello board for when I do actually start doing things, I can prioritize quickly, and get on with my day and actually start being productive.
[20:21] Mike: That you try to get in and out of your mailbox as fast as possible. That’s not something that I probably tend to do, but it probably is something that I should start doing. Because sitting in your mailbox is not necessarily productive. It doesn’t really move your business forward. Unless you’re doing a lot of email exchanges with people, where you really need to do those email follow-ups. But for the most part I think that most of our businesses do not necessarily live and die through our email. It’s all of the other things that we’re doing.
[20:45] Rob: Yeah, that’s right. And obviously email can be a major time suck, you know? I find that since I can’t re-prioritize and reorder emails in Gmail that you’re constantly scanning through all of the emails in your inbox, and figuring out, “What’s the next priority? What’s the next priority?” So it’s this decision progress, it’s a scanning process – that’s what I’m trying to remove. I’m trying to do that once, through this triage – the Three D’s. Trying to get it into Trello, get it deleted, get it delegated – forwarded to a VA if they can handle it – and then try to get to Inbox Zero – I don’t always, but I get pretty darn close, and then move into that Trello thing to actually, in the morning, start to crank to real to do’s that are moving the business forward, then coming back to email later. But again, I think a big rule that I’m trying to do is get out of the inbox as quickly as possible, and not handle emails more than once if possible. Obviously, if I’ve sent something into Trello, and I have to then go back into Gmail to pull up a link or something, typically it’s in the body of the Trello thing itself – because when you forward the email it goes into the Trello card. But if not, if I do have to get back into Gmail, then I will and I go search and find the email and I’ll pick up the link. So I do maybe waste 20-30 seconds there. But it’s not as if I’m forwarding 30, 40 emails a day into Trello. By the time I’ve done my Three D’s and I’ve triaged my inbox, I’ll get my inbox almost to zero – if not to zero – and I will maybe have added three to five items to the top of my Trello list.
[22:09] You know, a helpful scheduling tip from Nate Grahek, who was on the show, he uses “Assistant.2” for helping to schedule appointments. And so I’m still using the old-school way of emailing and asking, “When are you available between 9 am and 3 pm, Monday through Thursday?” Mike, I know you use a service. What is the url?
[22:28] Mike: I use Doodle.com. So what that does is you sign up for it and it gives you a special url. Then what you do is you send that url to somebody and it links into your Gmail calendar. I have it hooked up to my Gmail calendar and my wife’s, so that any time where I’m busy, or where my wife has essentially scheduled something for us. Like if she’s got a class that she’s teaching and I have to watch the kids during the day, then obviously it’s going to be a bad time for me to try and have a meeting for that time. So what will happen is that that time will show up as busy on the calendar link I sent to somebody else. So it, kind of, aggregates the two calendars together, and when I give it to somebody I say, “Hey, choose something between these hours, Monday through Friday.” And that way it will just show up, and it just says, “Mike Taber is busy” and it gives you that time chunk. And then the person can choose several other times that they want to have a meeting with me, and then they just say, “Create a meeting request.” and it will send it over to me. Then I can just – whichever one works the best for me – say “accept”, and then it puts it on my calendar, and sends them an email, and then we’re good to go. So it’s helpful for me because it allows me to send something – because I’m busy. I think Assistant2 is a little bit different, because it helps, kind of, from the reverse angle where you know that the other person is busy.
[23:44] Rob: Exactly. It sounds like either one of those could be a good fit. I think I’ll probably consider starting one of those up. I just haven’t optimized the scheduling part of my whole process. I’m still handling my own scheduling. A couple of notes on to do lists before we wrap up this second step of living by the Three D’s. Because these are some questions – as I’ve explained this to people over the past month – they have these questions, so I want to answer them. The first is I have essentially two to do lists. I have an “A Priority” and a “B Priority”. I also have a doing and a done list. These are called “boards” in Trello, but it’s just a list of things. The reason I like – doing I never use – I like the done list because I can look back for months and see things that I have done. I can also use it – like when we sit down to make notes on what we’ve done during the past week for the podcast – I typically go to my done list of Trello and say, “What have I been working on?”. It also gives me a feeling of accomplishment, just to see that I’ve been getting things done. And at the end of a year I can look back and see how far I’ve come, and it actually gives me things to review, and say, “What did I enjoy this year?” and “What did I not enjoy doing?”. So aside from the doing and done, my “A” list is everything I’m working on, and my “B” list is basically super-low priority. It’s things like, “Watch this video someone recommended that I deemed I should watch.”, “Read this exceptional blog post.” Take care of something that is not high priority. And I only move to my “B” list when I’m fried, frankly. It’s when I don’t have the energy to actually work, and I want to learn something new, or I just want to indulge in some content. And even then, if it’s a video I use MySpeed, which is a 1.5 to 2x player – so I never 1X these videos. I mean, these are not movies. These are actually like marketing videos, or maybe a video interview with someone that I can’t get via audio, or some type of presentation where I want to see the slides, or something. Those are my main “A” and “B” lists, and the structure that I use.
[25:37] Mike: I use a combination of a couple of different things. So, like in Trello, I have an “A’, “B” and “C” tasks set of boards. And then anything I need to be doing that’s, kind of, time sensitive or critical, goes under my “A” list. Then “B” list is for things that can take a little bit more time. And then my “C” list is for things I would like to do, but I will probably not get to in the near future. And the reality is that if I put something on the “C” list I kind of know mentally that, “Hey, I’ve written this down, so that if I ever need to search for it in the future I can find it.” But at the same time, I just know that I will probably never get to those things. And it’s pretty rare for something to go from my “C” list to my “B” list. Things swap back and forth between “B” and “A” occasionally. Things do go back and forth between “B” and “C”, but almost never will something go directly from “C” to “A”. I work from my “A” list. That’s just how I do it.
[26:27] The other thing that I do, to keep track of the things that I’ve done, is that I signed up for Idonethis.com, which basically just send you an email each day which says, “Hey, what did you get done today?” All you do is reply to it. I just give it a bulleted list of all the things I got done that day, and that’s it. What it does is keep track of all of that in a calendar, and I can go back and see all of the different things I have accomplished on any given day. I find that that’s fairly helpful for helping to keep me on track. Obviously, if something goes wrong during a day, and I blow my whole day doing stuff that I didn’t want to do, or hadn’t meant to do, I just throw it into that reply to Idonethis.com and it shows up there and says that I spent the entire day doing that. But it’s also obvious that I only got that one thing done.
[27:11] Rob: Another note on to do list structure. I live by one to do list. I have all my work, my personal, my HitTail, my DRIP, my MicroConf, my podcast. All of those to do items are on a single list. Because when I used to have lists for each one, I would spend several minutes – every time I finished a task – trying to figure out which list I should start working on next. I’d skim through all the lists, and look at them, and re-prioritize them, and five or ten minutes were gone every time I finished something. In my opinion, you want to remove that decision point. You want to make it once during triage, and then you want to roll with your momentum. So I don’t like interrupting my flow with useless decisions, and to optimize productivity that’s something that I do. And I’m able to keep that “to do” list pretty short, because I don’t stuff my “A” list with a bunch of crap. I triage it pretty healthfully, and I either put stuff on my “B” or I delete it or delegate it. I’m pretty guarded about what actually gets on that “A” list, and that’s the step I think a lot of people fail at. They just want to throw everything in there and then prioritize it later. But when you have two or three hundred items on that list it’s just not possible. So even with all the stuff I’m managing, and all of the projects I’m working on, I’m able to make it work with a single to do list that manages both personal and work stuff.
[28:22] I do have multiple queues and “wish lists” elsewhere. So I have an Audible.com wish list, where I keep all the audiobooks that I want to purchase and listen to in the future. So when someone tells me about a book, or I hear about a book on a podcast, hear an author interviewed – even if I’m in the car I can use Siri and say, “Send email to Trello.” It will say, “What’s the subject line?” and I will just put in the title of the book, and then say, “Send.” with no body. That goes into the top of my Trello board. The next time I go into Trello I can very quickly go into Audible, search for it, Boom! – add it in there. I just did that today with Sally Hogshead’s new book, “How the World Views You.” I heard an interview with her last week, and now it’s in a wish list somewhere, and I know that when I’m thinking about that, next time I’m in Audible and I have some credits and I want to get a new book, it’s right there where I want it to be. Same thing with Amazon. Same thing with Netflix. Then I do have some side Trello boards, that are things like projects I want to do with my kids that I heard about or maybe some IOS apps that are teaching how to program, or some science, or something that I want to work on with my kids. I do have those here and there, but these are not to do lists. These are more like lists keeping track of interesting things that I want to revisit later, and so that kind of stuff does not live on my main to do lists, because I don’t want it cluttering up what is my next task to get done for my work or my personal life.
[29:37] Mike: Yeah. So to go back a little bit to your single to do list. When you have stuff on there, do you have like, “Hittail marketing”, for example. Or do you have things, like, “Get a blog post entry for Hittail done that says this…” and then you have like three or four other things that are related to Hittail. Is that on your main list, or do you just have the one line item that says, “Hittail Marketing”, and then off to the side you keep a separate list for all the different things that that would entail?
[30:03] Rob: No, anything on my list is super-specific and super-actionable. Because if I have “Hittail Marketing”, what does that even mean? If I feel like, “Wow! I need to do some Hittail marketing.” I might have a Trello to-do that says, “Check Hittail marketing plan, and pull two or three items into Trello to do” list. Like that would be a “to do”. Then I would go in and think about “What’s next?”, and “What do I want to do?” – I have a contact calendar now, actually, or a marketing calendar. But I would go to the game plan, I would then pull them in, and I would add the three items, and I would prioritize those. Today I have a couple of personal issues. I have to book my son in a camp and I have to send a new contract to somebody and I have to do a final read-through of a WordPress plugin page and add some content to it. So, that’s how specific things are. It’s that when I get there it is an action item. If it is a brainstorming item, then I will put it as such. Like, “Brainstorm new ideas and create them into actionable “to do’s” to loop back to the list.”
[30:59] Mike: Yeah. That’s, kind of, what I was getting at, because it wasn’t clear how you were putting those things into your single to do list. You said that there are different queues or wish lists that you have that are basically just lists of stuff. And I have some of those for AuditShark, and a couple of other things I’m working on, where it’s just, “These are the lists of things that need to get done for it.” And what I’ll do is I’ll put it on my Trello board that says, “Do this.” or “Spend time on this.” And what I do is I say, “Okay. Well, if I’m going to work on that, then I need to go over to this other place where I’ve got a list of 30 or 40 different things.” And I’ll spend two hours executing on some of those things. So I don’t keep that entire list of 30 or 40 things on my main “A” list, because it would just get overwhelming at that point. So I almost have a two-level hierarchy at that point. But not everything in there has that two-level hierarchy. Some of it is just one.
[31:47] Rob: That’s a good point. I have the same thing. I have these marketing game plans for all the different products, and so that may have hundreds of bullets in it. But you can’t have that in your to do list, because you’re not doing all of them soon. So I guess I hadn’t thought about it in those terms, but I don’t want anything on my to do list that I’m not going to get done here in the next week or so. If it’s something that needs to get done months or years down the line then it should be somewhere else. It should be in a goals list. It should be handwritten in my notebook as a goal for 2015. Or it should be – like you said – in a second-tier list of all the things that have to happen for that product that I can revisit periodically.
[32:25] Mike: Yeah, I think the difference between the way we do it is that you have those secondary lists, and so do I. But what I do with them is I work on them and then I leave them in that secondary list, and just mark them off over there. Versus what you do, is you go over to that secondary list, probably delete them or archive them or whatever, and physically move them from there into your “A” list on the Trello board, to say “This is what I’m working on now.”
[32:46] Rob: Yup. That makes sense. So the third step, after Live by the Three D’s is to Aspire for Inbox Zero, but realize that it’s not always feasible.
[32:55] Mike: How many emails are you up to right now?
[32:58] Rob: Right now, since it’s mostly a vacation week, I have 27 emails in my inbox. Today we’re recording. I’m not actually working today, so I didn’t go through this process. If I had, I would probably be down to under five emails in the inbox, and everything else would have been delegated, deleted, or in Trello at this point.
[33:17] Mike: Yeah. I’ve got 21 right now. Then there’s a bunch of them that I can definitely get rid of, but I haven’t sat down to spend the time to go through. I didn’t get a chance to really work today, because I had to take my kids to the dentist, and I had to go to the bank, and I had to file paperwork to close Moon River Consulting, and all of this other stuff. It’s just like I really just have not gotten to my email. I mean, there is a ton of stuff I could have deleted already, but there is a lot of stuff in here that I haven’t gone through that process to actually take care of all the stuff that isn’t going to take me very long.
[33:46] Rob: Right. I think that’s a good point. I don’t view email as this stressful, real-time thing – as I think some people do. They want to instantly reply to every email, and they want to get back to people within a couple of hours. That’s not how I do it. I don’t think that my schedule should be set by a person sending me an email. I don’t think that – they shouldn’t be able to get something on my to do list unless I want it to be there.
[34:07] Mike: That’s a really good point. It was a hard lesson for me to learn early on. I wanted to be super-responsive, and felt like if I was super-responsive to other people, not only would that be reciprocated, but it would also help my business move forward quickly. The fact is that it’s just so blatantly false that it’s hard to comprehend when you’re first getting started. Because those things just do not matter. There’s been emails that have sat there for two, three or four weeks before. At some point they fall off the radar and they become immaterial. They don’t matter at all at that point. If it’s waiting for three days, it can wait for a fourth. It’s not that big of a deal.
[34:42] Rob: Yup. The fourth step of five is to use Boomerang and your calendar liberally. So what I used to do – this is years ago – I used to use a “tickler file”. I don’t know if you’ve ever heard that term, but you would basically have a file that was 12 months of the year, and then you would have another multi-file in each one of those, for each of the four weeks. And if you needed to remember to do something on December 14th, then you would go to your December file and you would go to the second week, and you would place a piece of paper in there that said like, “Revisit this.” But this has become so much simpler with either Boomerang or your Google Calendar – or whatever calendar you use. So Boomerang is a Gmail plugin, and it allows you to not only send email later – which is a cool side benefit – but it allow you to take an email that you do not want to respond to today, can’t respond to today – because you don’t have the information, but you know that you’re going to have the information in a week or two. And you can just – I hit the “B” key, and say, “Next Monday, 10 am”, I hit enter and it’s out of my inbox, and it’s back in my inbox next Monday. So examples of things that I’ve done with this recently are : we’re constantly getting requests to be notified when MicroConf dates are set. We’re still trying to get a contract back from the hotel. I don’t have the dates yet, by I’m assuming that I’ll have them by next Monday. So I have like six emails now that have come in that I’ll reply to and say, “Hey sorry. Not yet. I’ll let you know.”
[36:04] And them I’m boomeranging them back to me next Monday. Now, obviously at a certain point that doesn’t scale. It gets to be too many. It never has. I’ve never had 50 emails Boomeranging back to me in the same morning. These things tend to space themselves out. Another one is, I sell quite a bit of stuff on Amazon. I just like to sell used stuff that I have. I don’t keep it around. And I’ll often be at my apartment near the beach, and I don’t have the stuff to pack it up. I don’t even have the thing that I need to ship, but that email comes in. And I know that I want to be notified of it when I get back to the house, so that I can ship the stuff. So what do I do? Well, I Boomerang that for the day – the morning of – the time when I’m getting back to the house. So those are two, kind of, simple examples. But it’s ways to keep clutter out of your inbox, and for it to come in just in time. You can also – if you don’t want to use Boomerang – just use a calendar event, right. Go in at 9 am that morning and remind yourself, “Hey, this blog post is going live.” I have like a recurring event in the calendar that reminds me “A blog post is going live on the DRIP blog. It’s been scheduled and that morning you need to schedule the Tweet, and do this and do that.” There’s some steps that have to get taken. So, that’s why step four is to use Boomerang and your calendar liberally to keep your inbox clear.
[37:10] Mike: I use Boomerang for basically the same types of things, because I’m getting the same types of emails from people asking when Microconf dates are, so they can plan around them. One of the things that Boomerang does not do is that it does not send you emails unprompted. So one of the things that I like to do – like for our Mastermind group call – we maintain a Google Document that basically outlines all of our previous conversations, and what our to do lists are for the current week, and what we’re supposed to be working on so we can discuss it next week. I actually went into Zappier and set up an email based on a schedule that sends me an email with a link to that document every Monday morning. It actually goes to me and to the other people who are in my Mastermind group. It’s very helpful, because it comes in every Monday, but we only meet every other Monday. So what happens is if I forget to go look at it, and we meet on a Tuesday night, and then the following Monday I get that email. And even though we’re not meeting that week, it’s a reminder “Hey, go check this document and make sure that you’ve at least started working on this stuff.” Because if I were to get it every other week, and I only have a day to work on the stuff because I forgot the previous week, that would obviously be fairly detrimental to my progress on a weekly basis – because I might get sidetracked. But I find that having that email come in every week helps me. But you can use Zappier to send you email notifications on a schedule to do different things. If you have a marketing calendar than that’s fine – you can have those things automatically added. But if you need emails, or anything like that, sent to you on a regular basis for that kind of stuff, I find that that’s very helpful.
[38:41] Rob: I like that. That’s a good hack. Step five is to do the work. It’s to close emails, to turn off notifications, and it’s to move into your to do lists. So, for me, it’s to move into Trello. I prioritize today – pretty much only today. I figure out what has to get done, so I don’t go through my entire to do list every day, but I skim through the top 10 or 15 things, maybe 20. I’ll move the stuff to the top, and then I start looping music and enjoy productivity. And I don’t come back into my email inbox for several hours.
[39:10] Mike: I don’t necessarily prioritize just today. I also try and prioritize things throughout the week, because there’s obviously long-term projects and stuff that you’re working on, that you know that you’re not going to be able to finish all the work on any given day, and it’s going to take several days. So, I will prioritize things a couple of days into the future. So for certain longer-term things I’ll say, “Okay. I’m going to work on it for two or three hours today, and then I’ll work on it for a couple of hours the next day, and the day after that.” But I use that primarily for those things that I know I’m not going to be able to finish in a single day, or a single sitting.
[39:38] Rob: That’s interesting. See, I would break those things up into smaller tasks. So if you had something that’s like a 12 hour task, I would actually break it up into its components, and figure out what 2-3 hour blocks it could be crunched down into.
[39:52] Mike: Yeah, this is writing for my book. Depending on how I feel, or what comes to mind when I’m sitting down to do it, I may feel like writing about a certain topic, and I may not. So that’s where I just start breaking out, and say, block off blocks of time to do this. I don’t necessarily block out specifically what I’m going to be doing during that time. It’s just, you know, “Spend these three hours working on that.”
[40:14] Rob: Yeah. I can see doing that.
[40:15] Mike: But I just, kind of, pull from the outline at that point. It’s like, I get to the beginning of that three-hour block and I say, “Okay. Go to the outline for it, and then look from there.”
[40:24] Rob: Yup. That makes sense. That’s probably how I’d do it as well. So to recap, our five steps to answering emails, managing a “to do” lists, and staying productive are, Step 1 : Check your email once or twice a day, Step 2 : To live by the “Three Ds : Delete, Delegate, or “Do It”., Step 3 : Aspire for “Inbox Zero”, but realize it’s not always feasible, Step 4 is to use Boomerang and your calendar liberally, and Step 5 is to do the work.
[40:47] Mike: If you have a question for us, you can call it into our voice mail number at 1-888-801-9690, or email it to us at : questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Out Of Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “Startups” and visit www.startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, and we’ll see you next time.
Episode 216 | How a Single Founder Launched a 7-Figure SaaS App (with Nate Grahek)
Show Notes
Transcript
[00:00] Rob: In this episode of “Startups for the Rest of Us,” Mike and I talk to a single founder who launched a seven-figure SaaS app with special guest Nate Grahek. This is “Startups for the Rest of Us,” episode 216.
[00:10] Music
[00:18] Rob: Welcome to “Startups for the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’re built your first product, or you’re just thinking about it. I’m Rob.
[00:28] Mike: And I’m Mike.
[00:29] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, what’s the word this week, Mike?
[00:33] Mike: Well, I’ve been to the gym 15 times in the last 18 days.
[00:37] Rob: Congratulations.
[00:38] Mike: I actually don’t feel all that bad. It’s just like there’re certain muscle groups that I didn’t know that I had.
[00:43] Rob: Did it get easier after the first few days?
[00:45] Mike: Well, the first week was the worst, and then since then things have gotten significantly better. It’s not nearly as bad as it was the first week. I mean the first week was really rough, and even my wife said it was like the – I was only three days in, and she was just like, “I don’t think he’s going to make it.” [Chuckles]
[00:59] Rob: So, MicroConf Vegas 2015 – it looks like we finally, finally have dates. So, it looks to be April 13th and 14th in Las Vegas; and then, of course, we always have the evening reception on the 12th. So, that’s really a Sunday night, Monday, Tuesday. We have signed a contract and sent it in. We haven’t received the countersigned contract yet, but my guess is by the time this episode goes live, that we will. So, if you’re interested in hanging out with about 200 self-funded startup founders, single founders, head over to MicroCom.com, enter your email address there, and we will be selling tickets in the next few weeks. Myself and Heaton Shah are confirmed as speakers, and we have basically a full list of all the speakers we’re going to be inviting. We just have not emailed everyone yet.
[01:45] Mike: On episode 214, where we discussed Inbox Zero a little bit, Jack Jones left a comment on the blog, and he said, “For Inbox Zero, I highly recommend FollowUp Then. I tried Boomerang and others, but FollowUp Then works completely via email – no separate app or plugin to use. This means you can use it from wherever you deal with your email. It has lots of cool features, like scheduling tasks, automatically, following up with other people and automatic cancellation when someone replies. Between FollowUp Then and emailing tasks to Trello, I’ve maintained daily Inbox Zero across three businesses and my personal life coming up on a year now.”
[02:15] Thanks for that, Jack. And Tyler also said, “The two tools that’ve helped me maintain Inbox Zero for quite a while are Boomerang and TeuxDeux.” And it’s T-e-u-x-d-e-u-x. “Boomerang’s perfect for getting emails out of your inbox when you want to deal with them later, while the simplicity and automatic task rollovers of TeauxDeux have made it my top to-do and calendar app.”
[02:32] Rob: Very nice. Good tips. We also got a comment from Ben on episode 215, which was our predictions episode in which I predicted that five-terabyte cloud storage would be under a hundred dollars next year. And Ben said, “The five-terabyte cloud storage for under a hundred dollars has already happened. Microsoft announced back in October that OneDrive will be unlimited cloud storage, rolling out in the coming months. Both Office 365 plans of around 70 bucks a year or a hundred dollars a year will also include unlimited storage. And while not unlimited, my OneDrive plan was bumped up to 10 terabytes for a hundred dollars back in November.”
[03:09] So, I appreciate you pointing that out. So, either I’m a genius with my prediction and I was ahead of my time, or I’m just misinformed about present-day cloud storage offerings.
[03:18] I tried out Cascade content based on your mention and basically had them write a knowledge-base article based on a screen cast, and this is for the Drip knowledge base, where I recorded screen casts because they’re faster for me to do. But I’ve had requests from customers that they want to see a written version of those, and so far, so good. They’ve done one video and turned it around in two or three days, and so I think I’m going to send them – I probably have five or six others that I’d like to get done. But what’s nice is this allows me, moving forward, to not have to worry about writing it out myself or hiring someone. I just have someone that I can send a video to as soon as I post it, and then within a few days, get it back – kind of like getting a transcript done or something.
[03:58] Mike: Awesome.
[04:00] Rob: So, today Mike and I have the distinct pleasure of having special guest Nate Grahek on the show, and Nate is a single founder who launched seven-figure SaaS app. He’s also a lifetime Academy member. So, welcome to the show, Nate.
[04:12] Nate: Thank you so much for having me, guys. I’m kind of a little star-struck, to be honest. It’s fun to listen to you guys each week, and to actually be on the show, it’s definitely an honor. Thanks for having me.
[04:22] Rob: Very cool. Well, do you want to start by telling folks briefly who you are, what you do?
[04:28] Nate: Oh, sure. In 2012, I started a company called StickyAlbums.com. It’s a service for portrait photographers to create custom, mobile apps for each of their clients. So, a wedding photographer, an infant photographer, high school seniors – they deliver a subset, like a very simple image gallery, as a mobile app; and it becomes a marketing tool for the photographer. That’s the big problem we solve. We help photographers get more customers.
[04:56] Rob: Very cool. And is your background in development? Are you a designer?
[04:59] Nate: My background was in training and development and corporate training, and very quickly I had to learn how to do web development because all training with the economy around that time was moving to the web. We couldn’t afford to fly people in for corporate stuff anymore. And so I learned HTML. I learned Flash. At the same time, iPads were blowing up, and my boss says, “Nate, we[‘ve] got to put all training in iPads.” So, in the course of figuring out how to put other content on iPads and iPhones and other mobile devices with HTML, I was also doing portrait photography on the side and kind of had that classic, light-bulb moment – like scratched my own itch. “How can I make my portrait clients better at referring me new business?”
[05:43] Rob: Very cool.
[05:44] Nate: And I asked one of my high school senior clients – because I was giving them paper business cards to pass out to their friends, and she’s like, “Yeah, we don’t like carrying paper. What if I give you your own custom app with your face on the icon, and you can just share that with your friends?” They were like, “Oh, yeah. I don’t go anywhere without my phone.” So, that was the crux of the idea right there.
[06:02] Rob: Got it. And so you were a photographer?
[06:00] Nate: Yes. I’ve learned a lot about what it means to be a professional photographer now. I’m very much humbled, as the range is huge.
[06:11] Rob: Sure.
[06:12] Nate: The market’s huge, but the range is also pretty big, and I was definitely considering myself a rookie on that scale. The domain experience really, really was valuable.
[06:21] Rob: So, you started StickyAlbums.com in – was that 2011 or 2012?
[06:27] Nate: 2012. I launched the site and the domain, like, late ’11 and then had my first sale right in January of 2012.
[06:35] Rob: Got it. And so today, towards the end of 2014, where does your business stand in terms of revenue – whatever you’re willing to share – and team size, if any? I’m not sure if you have full-time employees or –
[06:47] Nate: Yeah.
[06:48] Rob: – contractors.
[06:49] Nate: [I’ve] got a lot of competition, so I’m trying to decide what I should share with them. They just flooded the market after I approved this idea –
[06:55] Rob: Oh, jeez.
[06:56] Nate: – and the competition’s been healthy, but it’s all good. So, within the first two years, we grew to 5,000 photographers. Everybody can do the math. It’s roughly a million dollars in annual revenue. That was a blur. To grow that quickly was pretty intense. And now the last year – so, our third year of business, we’ve kind of plateaued a little bit because of the annual, recurring thing, where we have people that are no longer photographers that were. And we’re still replacing them with new photographers at a pretty good clip.
[07:25] And then since this year, I really sat on the decision of growing the team for a while, because I’m really a huge fan of you guys’ podcast and the idea of staying small and flexible and manageable. But I knew that I wanted to grow something for photographers that was going to be around in the next five years. In order to do that I wasn’t going to be able to do it myself anymore, and so this year I invested a lot of energy in growing the team. We now have four full-time employees, including me. We’re hiring our fifth in January. We’re hiring a full-time designer I’m pretty stoked about, and then we have four other part-time employees that are contractors. So, that growth was exciting. It’s daunting to switch gears into being a manager now. A lot of my time goes to managing, but it’s really rewarding to create a remote culture where people can come to work when and how they want to. I get the unique personalities from everybody adding to a much greater sum. It’s pretty cool.
[08:22] Rob: Yeah, that’s a lot of fun. I know that feeling, too – you know, having gone from kind of doing everything on my own to then expanding. It’s good to have a team.
[08:29] Nate: Yeah, it is. It’s daunting. I’ve got two, small kids. I knew the risk involved in growing. Being a manager always takes more time than you think it does. There’s a human element you never plan for. Despite all that added complexity, it’s incredibly rewarding. Like, I got to give people holiday bonuses this year, and that’s felt really good.
[08:47] Mike: So, one of the things that you mentioned early on was that you were talking to somebody. You wanted to give them a business card, and they just said, “Oh, we don’t really like paper.”
[08:55] Nate: Yeah.
[08:56] Mike: And you kind of went down the road of saying, “Well, I could put your face on an app.” What sort of validation did you do for this idea, or did you just kind of dive right in?
[09:03] Nate: Well, it was first, like, the ‘scratch my own itch’ model where I just made these. Technically, I know I’ve got a lot of developers on the call. It’s an HTML 5 web app, so we’ve built it using some open-source and some proprietary tools. We prompt the user to save the web app to their home screen, and we populate it with a home screen icon, but it is just a website that saves offline. And so there’s huge advantages to it being that way, where it’s shared with just a link instead of it being an actual, native app. There had been other vendors in this space that have tried that model and failed because it’s too complex to try to submit that many apps to the app store. The photographer has to have their own developer license and on and on and on. There’s just a lot of complexity there that we short-cutted by making it HTML, and it’s something I figured out. I taught it myself, and I was just making these sites for my own personal photography clients. I gave them to the client, and they loved them, and it brought me new business – and so much new business that I stopped sharing them in my own business, because I knew I wanted to grow StickyAlbums – not my photography business. So, I had to stop using my [chuckles] own product because it was working too well.
[10:12] Mike: Got it. So, this is really not even an app itself. To the user, it looks like an app, but really it’s a shortcut to a website on their phone – right?
[10:20] Nate: Exactly. I can do a link, or I’ll give you guys a URL. I can post my show notes, and people can see an example of what one looks like.
[10:27] Rob: Very cool. And your pricing – it’s 19 bucks a month, 29 bucks a month; and then you have a lifetime, it looks like, that’s $699?
[10:34] Nate: That’s actually going away. The pricing page is kind of tricky. We could spend time there, if we want to, but it’s kind of –
[10:40] Rob: Oh. It’s 19 a month if it’s billed annually, 29 a month if it’s billed monthly.
[10:42] Nate: Right.
[10:43] Rob: Got it. I missed that.
[10:45] Nate: 90, 95 percent of our customers are on the annual membership, and we just find that works a lot better. People commit. Because it’s a marketing tool, we’ve learned that people who do the monthly are just experimenting, and they don’t take it seriously enough. And if they don’t see the results right away in that first month, then they don’t renew; whereas, when they bite off for the whole year, we have that whole year to engage with them and to teach them how to use the product. And they get to see results, and then they’re a customer for the long haul.
[11:14] Rob: And do you find that the sales effort up front is a lot harder? Because you’re essentially trying to get a couple hundred dollars all at once up front, rather than –
[11:23] Nate: I don’t think it necessarily make it harder. I’ve learned that using a discount code, a lot of people do sign up with a discount. And it’s that deadline. It’s a limited-time offer, and we do a lot of partner deals. So, one way or another, people need a reason to buy today. That’s the thing we’ve found, and beyond that, it doesn’t matter if it’s annual or monthly.
[11:45] Rob: Right. And when you said “it’s going away,” did you mean the lifetime membership?
[11:49] Nate: Yeah, yeah, yeah. We’re removing that.
[11:50] Rob: Got it.
[11:51] Nate: That was early on. It helped us grow big and reward some of our most loyal customers, but we’re going to take that away and bring in a two-year plan.
[11:58] Rob: Nice. So, you’ll have monthly, annual and two-year. So, you mentioned earlier that you grew to 5,000 paying users in your first year. Obviously, that’s 5,000 photographers who found you, who decided to buy. A lot of folks listening to this podcast are probably wondering how did you achieve such enviable growth. Was there one tactic? Was it a combination of tactics? What was it that gave you that hockey stick?
[12:22] Nate: It was 5,000 by two years. At the first year, I was at about 3, and then the second year we made it to 5. It’s not just one. I think the one that enabled the crazy speed was word of mouth. It was that I did a couple things really well. I treated my customers well, and then it’s that word-of-mouth referral. We had a tracking form when people first came in that says, “Where’d you hear about us?” and I would celebrate. Once a week or once a month, somebody would write, “Everywhere.” [Chuckles] Like, “Oh, my gosh. That’s so cool.” They were hearing about it from their friends, from other places, from other blogs. So, it was definitely a combined approach. But I think, more than anything, people buy when something’s been referred by somebody else that they trust.
[13:09] Rob: Right. It’s a lot easier sales process if someone’s already been referred, rather than seeing a cold ad and then having to get familiar.
[13:16] Nate: I have a theory. We do a lot of education now, too, and teaching other photographers how to do marketing themselves. And I tell them that paid advertising – I think the only time it works is when you already have a foundation of word-of-mouth referrals happening. Somebody’s like, “Oh, yeah. I heard about this cool photographer, blah, blah, blah. And Julie said she was great.” And then later on that week, you see an ad in a local newspaper. [They’re] like, “Oh, yeah. That’s right! I remember. I wanted to call Julie.” But if you just saw that ad for Julie, and nobody had told you who she was, that ad’s not going to really do anything.
[13:50] Rob: Right.
[13:51] Nate: And we found that to be true in our business, too, where our paid advertising is only icing on the cake when we have that good word-of-mouth buzz happening first.
[14:00] Rob: So, obviously, once you had a thousand or 2,000 people using it, then word of mouth is going to help. But how did you get those first few hundred users?
[14:09] Nate: I got really lucky with a – this was even when it was first Concierge. We didn’t even go to the actual builder code that was written, that is the base of the business today. I went to market without that. I went to market where I was selling this as if, when photographers were uploading their pictures, like a machine was doing it; but it was actually just me. [Chuckles] I was taking people’s pictures and building these one-off albums one at a time. I had a friend help me build some automation so I could be faster for myself on my local computer. I used to take, like, ten, 15 minutes to build each one. And now, with the app he made for me – he made this small version of an app that took it down to five minutes per album, and that let me go to market. And I did a paid blog post review, and that got us our first 15 to 20 customers.
[15:00] But then there was a site called Photo Dough; and they had, like, a Groupon for our industry. Their meteoric rise also. And so doing a deal there was perfect, because everybody knows Groupon. I didn’t have to pay to be there. They just got a cut. The timing was right. For that first three days, we did $10,000 in revenue. And, ironically, I had at the same time been shopping for developers. I’d met with three different developers, and they’d all estimated the MVP was going to be about ten grand.
[15:32] And so my wife was pretty excited. It was a fun, exciting day to refresh the web page and just watch the sales go up. And she was like, “Oh wow! When do we get some of that?” I was like, “Actually, now that we have 200 customers, I have to get this thing automated ASAP.” And, luckily, the team was able to build it in 30 days; because that month I think I built 400 websites by hand until the automated builder was done. And since then, we’ve made close to a million, I think, apps.
[16:02] Rob: Wow. Yeah, that’s really impressive. So, you definitely pulled the MVP approach – kind of the lean startup approach of just getting out there and selling something, seeing if it caught fire. And with you, it obviously did, and then you had to use human automation to get you through it.
[16:16] Nate: Yeah, it was terrifying. I risked $300 of my own money –
[16:19] Rob: Yeah.
[16:20] Nate: – and then after that, it was building with the customer money. And I was definitely nervous. I said to myself, “If this fails, I will just give people their money back and apologize profusely.” But I wasn’t ready with a mortgage and – we had just had our second kid. He was a month old. I wasn’t ready to risk $10,000 of my own money yet. I wouldn’t recommend anybody do something like that at that stage of their life. The lean startup stuff was – I wasn’t even familiar with what I was doing, that it was called “lean startup” until I found podcasts like you guys. I was like, “Oh, there’s a name for what my wife forced me to do.” [Laughs] She was like, “There’s no way you’re spending that kind of money! Figure it out – how you’re going to do it without it.” And that’s what I did.
[16:58] Rob: Very cool.
[17:00] Mike: So, it sounds like there wasn’t very much time between the time you had the idea and you realized that this really had legs. I’m curious to know what your mentality was going into it, thinking that you were going to do all of this stuff by hand versus automating it first, because I think that’s a common situation – where people run into something, and they have this idea, and they say, “Oh, we’ll, I’ll build some code,” because, naturally, most of the people listening to this are developers. And that’s what they do.
[17:25] Nate: Yeah, right.
[17:26] Mike: So, their first instinct is to write code to solve the problem. You clearly went in a different direction, and that’s one of the things that lean startup advocates – is testing the idea to make sure that it has legs before you do a lot of investment. And I’m curious to know what your mentality around that was. Or, was it just, “My wife said so”? [Chuckles]
[17:44] Nate: Yeah, right [chuckles]. The first idea was sitting around the fire – it was October of 2011 – with my neighbor, who was a developer. I knew education – right? So, I was going to sell a product. I was like, “There’s this huge market to sell informational products to photographers. I’m going to sell videos,” because that’s what I did in my day job, “teaching people how to make these HTML apps.” Thank goodness for one of my good friends now. He was like, “Dude, there’s such a small subset of people that will actually take the time. Photographers don’t want to deal with HTML. You’ve just got to build a builder for them, and it’s not that hard.” I was like, “Wow. Really?”
[18:18] So, that’s the idea. And then four months it took to flush it out. I put my energy into the marketing site so that I could validate the idea with sales. That was where I put all of my energy and then was just going to continue being the – like, the builder was just the concierge, like human labor – a model first to test it. But I quickly learned there was a lot of things that I thought I would have to build from scratch. I built on WordPress, and then I bought a membership plugin. So, I thought I was going to have to hire developers to build all of the membership stuff, too; but that was already just, like, a hundred-dollar S- – I think I used an S2 member plugin for a hundred bucks. And it let me go to market with PayPal integration right away. Within two months, I was able to put up a sales page. I knew sales was the first thing I had to show before I was going to invest more money.
[19:12] Rob: That’s really cool that that was your intuition, because obviously, with most people – developers, designers, or otherwise – the typical inclination is to build something first, to go into your basement and build it. But you obviously wanted to get sales first. Where did that come from? Why was that your number one before you built anything?
[19:31] Nate: I had the idea – right? It had worked for me already in my business. And other photographers, I had shared the – quote/unquote – “product.” They saw the finished albums that I was making. That was it. That was the MVP there. I can sell making these for photographers. So, flushing that out – that was actually the first thing. I was just getting creative in my own photography business – like, “Oh, what could I make for my customers in photography? Oh, this is cool. Oh, wait. This might be a huge market for other photographers – not just my own business.”
[20:06] And when I made the switch from making something for my own photography business to being a service for other photographers, that’s where most of the energy went into building a sales page; because I had already put in the work building the – quote/unquote – “product.” I put probably three, four months into researching what the format was, what different tools we were going to use in the JavaScript and the HTML format of the album. So, there was definitely some time there. Luckily, I think, I switched gears off of the product. I had dreams about making it amazing, but luckily my first developers that I hired – they were really big 37Signals fans, and they were good at coaching me to keep the MVP actually an MVP.
[20:52] Rob: And you had kind of a Cinderella story early on. I mean it’s kind of a rare idea that gets this much traction this quickly. I’m curious. You had to have run into some hurdles, some roadblocks within that first year. Does one come to mind that really made you pause and think like, “Maybe this won’t work”? If you don’t have one that made you think that, maybe there was a darkest-hour time.
[21:17] Nate: Yeah. I think probably the biggest challenges were personal, to be honest, like the fact that I had two children. My wife was like, “Are you serious? Now is when you want to launch a business? We have a two-year-old and a[n] infant.” So, deciding when to quit the day job was very daunting. There was so much going on, because I was still working the day job those first four, five months and coming home till two in the morning, working on building these for people. So, that was very, very taxing – to work a 40-hour day job and then come home and put another 40 hours a week into launching it. That was not sustainable. I burned bridges with friends and family in those first months so that I could make the leap and quit the day job.
[22:03] And then once I was able to quit the day job, then the challenges after that were staying focused on sales. I’ll share my revenue chart. I would have a record month, and then the next month would be like half the size. And then I’d have a record month in sales, and the next month it’d be half the size. And it repeated this pattern because I was doing support also. And as soon as I was able to hire a good support rep, that’s when we had consistent growth, because I could stay focused on sales and marketing and partnerships, and she could stay focused on engaging the customer. As soon as I would pull away – and it was good. Again, I’m glad I did that. It was good for me to stay super close to the customer and know their issues and really understand what problems I was solving and which ones I wasn’t. It was instantaneous. That’s the point I wanted to make – is as soon as I took my hand off of sales, I could see it impacted in the numbers right away. As soon as I stopped selling and marketing and building relationships with other people, sales would drop off. And that’s a constant today. As soon as I try to slow down and focus on something else, sales slow down, too.
[23:07] Mike: So, it sounds to me like you’re constantly pushing down on that pedal to make sales and marketing work for you. But aside from the word of mouth, what’s your most successful marketing channel that you’ve kind of stumbled on or identified so far?
[23:21] Nate: Yeah, absolutely. As I transitioned into this, like the marketing piece, it’s also been tempered with learning over time that there’s always more features to build. I love building new features, and the majority of features we’ve put in have come from customer requests. That’s never-ending. I could fast-forward five years, and there’s always going to be more to build. And my goal has been to make sure that we have the ability to build features, like, we still have a business to build features for. And I’ve luckily focused on sales to make sure that we just keep the lights on, I think, is what’s important. There’s a lot of other competition in our space that’s come into the space and price really cheap. They come in, and they fizzle.
[24:04] This is one story I like to share, this very humbling call. This was an early challenge. When you first launch a product, there’s this terror. I would wake up every morning, like, “Somebody else has my idea. Somebody’s going to rip this off and steal it.” And that was a pretty constant challenge. And then after six months, we had one. It would really stress me out at first, and it took me a while to really get over the early, like, “Stop being worried, so focused on the competition. Just focus on your own business and our own customer base.” And I finally got better at that.
[24:36] There was this one vendor that I stumbled across. I think he was in month two or three. And it ruined my day. I was so sad. They had so many more features. They had the HTML site. They had the app side – the native side. Their marketing video was really well done, better than what I thought ours was. And the moral of the story is fast-forward three years. I actually got an email from this company saying, “Hey, Nate, we love your marketing and follow what you’re doing. We’re actually looking to sell and wondering if you’re interested.” And I had the whole conversation really wanted to understand what worked, what didn’t; if there was an opportunity for me to buy them. They had ten customers the last three years. While they had built this amazingly robust, feature-rich solution, they hadn’t put any energy around marketing it and educating people about how to use it in their business. They wanted to recoup some of their money that they had invested in, like, contracted development. I felt terrible. I really empathized with these guys, but it’s one of these classic cases where they focused too much on building one more feature with their own dollars instead of building it with the company.
[25:44] And that comes from my commitment to my customers. I want to be around here in five years so that we still have a service to provide. And I do that by making sure we’re growing a healthy company.
[25:55] Rob: Right. And their story is the more common path – right? That’s the more common story we hear of people launching a startup – is that they err on the side of too much product rather than too much sales.
[26:06] Nate: Yeah. But it’s so counterintuitive. I was like, “Oh, we’re done.” It was one of those things where I found it on a Google search, or somebody said, “Hey, Nate, have you seen this company?” And I was like, “Oh, wow. That was fun. We’re done.” I really thought [crosstalk].
[26:21] Rob: They were going to put you out of business. Yeah, that’s actually really common in terms of competition coming up. You always think they know more than they do, and especially if you’ve been in a market for any length of time and you’re good at it, you typically are way, way ahead of them in terms of revenue, customer count and in terms of your intimate knowledge of the market.
[26:39] Nate: Right. There was an analogy I made early on that I had to relearn my mindset of what the Internet is before launching my own online business. A lot of the things I consumed online were trending things. Every once in a while, something trending comes up, and I go, “Oh, yeah.” And it feels like we all know about the trending things that are happening. We all know about Uber. And instead, what I’ve learned is the Internet is like a big room – a really, really, really big room. And you can yell about something for years, and the majority of the Internet still won’t hear you. And that is what took me some time to realize – that it’s all about getting other people to talk about you and getting your message out, because people don’t need to hear about you just once. They need to hear about you over and over again. And just because you’re yelling in your corner doesn’t mean anybody’s hearing you yet.
[27:26] Rob: Right. Wise words. So, Nate, back in May of 2012, I did my first Mixergy sometime around there. And you emailed me afterwards, and you said that you saw that I had the Micropreneur Academy, and you asked me a few questions about it. And we had a short email exchange that I hadn’t remembered when you and I reconnected later. And then in June of 2013 – so, that’s about a year later – I did a Growth Hacker TV interview, and you sent me this email, and you said:
[27:55] “Hi, Rob. I just watched your interview on Growth Hacker TV. Great stuff. It’s been just over a year since I emailed you and then joined the Micropreneur Academy. While I feel I was so busy executing that I was only able to implement about 10 percent of the full course content, the little that I did implement was invaluable. The majority of my customers are on annual plans, and with the first few months of renewals being decent, May was my first $100,000 month.’ So, you said, you know, thanks. And you felt a lot of gratitude [to] both myself and Mike for the podcast and then others who are so willing to share what we’ve learned.
[28:27] Nate: Yeah.
[28:28] Rob: That was cool. I love hearing that kind of story, because you kind of came out of nowhere. I was just like, “Whoa! Who is this guy having so much success?” And I’m curious if you recall any specific times where you may have used either advice from the podcast, or from the Academy, or stuff that Mike and I’ve shared that helped you out as you were growing.
[28:47] Nate: I think I heard you talk about the point of just execution early on – how important executing is. And when I started in the Academy, I think I downloaded all of the MP3 courses right away and just listened to them on fast mode whenever I was commuting. And the one that sticks out for me – I think you did a class on joint ventures, or marketing partnerships; and I think that’s one that’s just been probably – when you asked earlier my most successful marketing tactic. It’s just been relationships – building relationships with other people. Like Marketing 101. It’s finding a reason for other people to talk about you and what your service is.
[29:27] And so some of that was easier. It was a brand new product. And think about a blogger, somebody whose job is to educate and share good ideas to their audience. They love having something brand new and shiny to show off and talk about. So, getting my foot in the door was relatively easy earlier, but now it’s had to transition to building the partnership based on the audience that we now have. We can kind of swap back and forth, and then also focusing just on really good content, just really educating people. And I also learned the value of education, obviously, through Micropreneur Academy. It was just invaluable.
[30:05] Rob: Very cool.
[30:06] Nate: There’s a couple podcast episodes that I find myself forwarding to other early-stage entrepreneurs a lot. The first two are the product test and the founder test. It really helped. The founder test especially helped me look at my own blind spots, or my own opportunities for growth and not feel so bad about it. And through growing the team, it helped me identify key personalities I had to hire for. And one of the best lessons I’ve learned – I also was really fortunate to find a mentor in Clay Collins, who’s the founder of LeadPages. He’s here in the Twin Cities. He told me the best lesson in hiring is you want to hire early in your business people who are good at doing a thing instead of a jack of all trades. That way, you don’t have to stop and teach them how to blog, or how to podcast, or how to do webinars. If they’re already doing those things somewhere else, they can come in day one and start generating revenue for you.
[31:06] Like, my first hire was customer support. I almost hired somebody that was just good at knew photography, but didn’t know how to do tech support. And, luckily, [at] the last minute, the last person to apply – she had done customer support somewhere else. That would’ve probably broken my business had I made that wrong decision. Luckily, I chose the right person who could come in day one, and she started handling most of the support tickets, like right away.
[31:30] Rob: Very nice.
[31:31] Nate: And I’ve learned that lesson on both sides ever since. And then, finally, the episode 141, “Five Elements of Effective Thinking,” where you guys did that book review. I love – I quote that on, like, a weekly basis, I feel like: just really focusing on doubt. And I really get worried about people who are certain about things. Having the guts to question and to be skeptical – it’s so true that in politics and other areas we devalue that. We feel like somebody’s wishy-washy. But when I’m hiring, and when I’m building partnerships, it’s like a huge red flag if somebody is absolutely certain about a thing. It’s like wait a second. If you’re certain, that means you probably just haven’t been doing that for long enough. [Chuckles]
[32:14] Rob: Right – to see the nuance of it.
[32:15] Nate: Exactly.
[32:18] Rob: It’s too black-and-white. Very cool. Well, thanks for sharing that. So, those were episodes 133, 134 and 141 you mentioned. I think all of them are in our little “Greatest Hits” area of our website, and we’ll link them up as well.
[32:30] Well, thanks, Nate. We really appreciate your time, coming on the show and sharing your story. I think it’s been inspirational for folks listening. If someone wants to keep up with you on the Internet, where would they do that?
[32:43] Nate: I like wrapping all of my podcasts up as a reward for people to listen to the very end. I love the feedback of, “What part of this interview was the most valuable to you. Send me an email: nate@stickyalbums.com.
[32:57] Rob: Awesome. Thanks again for taking the time to come on the show, Nate.
[32:59] Nate: You bet. Thanks for having me, guys. It was a pleasure.
[33:02] Mike: Thanks, Nate.
[33:03] If you have a question for us, you can call it in to our voicemail number at 1.888.801.9690, or email it to us at: questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. Subscribe to us on iTunes by searching for “startups” and visit startupsfortherestofus.com for a full transcript of each episode.
Thanks for listening, and we’ll see you next time.
Episode 211 | When to Consider Outside Investment for Your Startup
Show Notes
Transcript
[00:00] Mike: In this episode for Start Ups for the Rest of Us, Rob and I are going to talk about when to look for investment money for your startup. This is Start Ups for The Rest of Us, Episode 211.
[00:06]Music
[00:14]Welcome to Starts Ups for The Rest of Us, the podcast that helps developers, designers, entrepreneurs be awesome at launching software products, whether you built your first product or you’re just thinking about it. I’m Mike.
[00:22] Rob: And I’m Rob.
[00:23] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the good word this week, Rob?
[00:27] Rob: I am putting the real finishing touches on an audio documentary about the 9-month process of kind of getting Drip off the ground. So I mentioned this in a previous episode, but then I left because I had, you know, 11-hour flights between each of them. I spent a lot of time editing, and I took 9 hours of audio down to about 2, and I added music. Then we added – we just added an epilogue this week, kind of a summary discussion recorded a year after the final recording for that. The audio documentary itself will go live on my blog. How about you? What’s going on?
[01:01] Mike: Audit Shark Version 2.2 is officially released. And I got a few comments on Twitter. Somebody said, “If you’re not embarrassed by it, you know, then obviously you launched too late.” And my reply was, “I’ve been extremely embarrassed till now. My level of embarrassment at this point has dropped from 8 to about a 6.” I’m really excited about it. It’s, you know, there’s a lot of new enhancements. Not even really new features, just, like, stability enhancements, and adding an installer, like a lot of the cleanup stuff that just never got done earlier. And then there was some, you know, some things that people have been asking for that just haven’t been there, like reporting, and the scheduler. People were kind of pointing to is objections before, and they’re just like, “You can’t do this. You can’t do that.” But I’ve got most of those major things addressed. So at this point that becomes a much easier conversation to have because I could say, “Oh, well, it’s right here. And maybe it’s not exactly what you want, but, you know, it is there.”
[01:52] Rob: Yeah, it’s tough trying to sell your product when you’re having a conversation about it and everything they ask, you’re like, “Yeah, we’re going to build that soon. Yeah, we’re going to build that next.” It’s not mature enough to support the customers you’re talking to.
[02:05] Mike: Yeah, and that’s kind of what was happening in several cases. It’s a nice feeling to be at that point now.
[02:10] Rob: Yeah, and what we’ve noticed with Drip is that we hit that point, maybe, it was somewhere in the last six months, where I stopped saying, “Yes, we’re about to build that,” and I started saying, “Oh yeah, you can do that,” and then it was like, “Oh, you can do that in two different ways depending on your preference.” And now what we’ve noticed is that – Derek was just telling me this the other day, that we get these big groups of feature requests that are kind of all very similar. And so, people come in to the app and start using it, and then everybody realizes, wow, you know, this is working. But you need reporting. Like your reports aren’t there. And so we probably within a week, we got 4-5 people requesting the same thing, and so then the next week we built reports. And then after that, it was something else. But it’s crazy how the same people kind of progress through the app and as we launch the new feature, then they all realize that this next thing is not there yet, and we have to build it. So I definitely feel like Drip has matured to a place where it has fit with a certain market, but there’s always kind of that next thing.
[03:11] Mike: Well, I think it’s good that, you know, you get that group of people that are all asking for the same thing. And then when you implement it, they ask for, they all ask for like the next thing, which is kind of identical. I mean, maybe they ask in different ways, but it means that you’ve got that, you know, that product market fit, where you’re attracting the right people of a specific type, and they all have a similar problem. So when they come in, they use it, they all need that similar feature set, which makes those future conversations with people from that particular market much, much easier to have.
[03:40] Rob: And the other part that’s nice is you start to learn who your good customers are, your helpful customers are, who request the good features and request them well, meaning they give you an idea of what they need and they ask for it respectively, and they’re willing to wait for you to build it right. They don’t need everything today, you know. And they’re not threatening to quit, or they’re not kind of being jerks about it. Like the vast minority do that. Right, every once in a while, you get a customer like that. And it is nice because when you have this group of customers who’s requesting it, it makes it a little easier to figure out what you should build next. Right, because you have a pipeline and you have basically a weighting of how important each feature is, and it does, but it makes it easier to figure what to build next, rather than when you have no customers, as we know, it’s a big challenge to figure out what feature to focus on.
[04:31] Mike: So what else is going on for you?
[04:32] Rob: Well, I listened to the book “Zero to One” by Peter Thiel. I’ve now listened to it twice and the reason I did that is because it just contains a lot of pretty deep and insightful conversations and essays. And Peter Thiel, if you don’t know, he’s one of the PayPal mafia. He’s one of the founders of PayPal and then he went on to start – so that was a business that sold for $1.5 billion to eBay. Then he went on to found another business that is also worth more than a billion dollars. But Peter Thiel is so amazingly smart that I find that I just re-listen to these chapters that he wrote and he makes comments about, you know, where the world is headed, where he thinks technology is going, how to start a company that revolutionizes stuff. And I find that even though he’s not speaking to me because I am not starting a billion dollar company. I’m not starting a groundbreaking, you know, paradigm shifting, just completely world rocking company, and I never will. I have no plans to do that.
[05:30]Even though I’m not, I still find that a lot of the stuff he says has some application to me and my business and the way that I like to think about things. The book Zero to One is about building these massive ideas and trying to revolutionize. You know, it’s like trying to fix a massive technology problem of say, not having water, not having enough food, or something like PayPal, where they’re trying to replace a currency. It didn’t actually succeed, but that was their goal. It’s having a big view and being able to live up to it. Even though that’s the focus, I still think there’s some good nuggets.
[06:04] Mike: Very cool. I think last thing for me is LinkedIn has been irritating the living hell out of me because every time I get a new connection, it asks me to go through this ridiculous process of confirming all the possible ways that I might have an email account, like Gmail and Outlook.com and Yahoo, and asking if it’s okay to like for me to log into those things so that it can reach in and suck out as much data as it possibly can. I made the mistake of letting them do it with my Gmail account. They’re like, “Oh, we don’t do anything,” and it’s just like, ugh, it’s awful.
[06:32] Rob: Well it’s weird because it’s not doing that to me, so I wonder why it’s – why it would be doing that to you.
[06:38] Mike: I don’t know. I have a paid subscription, so I don’t know if that’s it.
[06:42] Rob: Ah, yeah, I do not.
[06:43] Mike: But yeah, maybe I should cancel it. Maybe it’ll stop.
[06:46] Rob: Exactly.
[06:48] Mike: So real quick before we get started, we got a email from Niles from MicroConf Europe, and he said, “Hey Rob and Mike, thanks again for all the information and inspiration at MicroConf. It was amazing and I really enjoyed and learned from the crowd. Also, you might enjoy knowing this: the money I spent on the conference is already back in my pocket with an ROI of greater than 100% because one of my customers heard about me attending MicroConf and is paying me for a workshop to summarize everything I learned. Thanks again, and keep up the great work.”
[07:13] Rob: That’s awesome. I love to hear stuff like that.
[07:16] Mike: Well thanks, Niles. Glad to hear that that’s working out for you.
[07:19]Today we’re going to be talking about kind of a topic that came up at an ask me anything session that Rob and I tried out at MicroConf Europe. One of the questions that was asked of us was essentially along the lines of, “Have you ever thought of going after angel or VC funding, and would you ever do it?” And I thought it was an interesting question, not just because Rob and I kind of have very similar views on it, but also because I think people do have kind of a mistaken impression that, you know, Rob and I are completely against angel or VC funding in any way, shape, or form, because there are definitely cases where it makes a lot of sense to do, but, you know, obviously that’s not really our platform. It’s not what we do. It’s not our background or anything. But I wanted to do was talk a little bit about the times where we think it would be warranted to go after funding and what sorts of things that we would look for.
[08:03] Rob: Yeah, you know, and the first couple paragraphs of my book, and I said, I don’t want you to think that I’m anti-funding, I’m just anti-everyone thinking that the only way to start a successful software company is to raise a bunch of funding and to get big. And that’s really the approach we’ve tried to take, right, is that you don’t have to go that route, that it’s one possible path. And it doesn’t even need to be the path up front. Like, some people have the connections to do it from day one, to raise a big chunk of funding, and other people bootstrap until they have traction, product market fit, and they start growing, and then they raise some funding. There’s a lot of different ways to go about it. And I guess to give one disclaimer: Mike and I have never raised funding, so there’s a lot of ins and outs to it that we’re not going to dive into. There’s actually a good book by Brad Feld called “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.” And if you really want to know the ins and outs of venture funding, then that’s the book you’re going to want to read about nuts and bolts. What we’re going to talk about today are kind of the considerations, the things you need to think through if you’re considering not raising, raising at a later stage, or, you know, maybe raising just an angel round or a VC round.
[09:11] Mike: So I’d like to start off with, what we’re going to do is we’re going to talk about some of the situations where we think that going after funding of some kind is warranted. And when we talk about going after funding, there’s a couple of different primary levels of funding. You’ve got angels, that are kind of at the lower end, and then you’ve got VCs at the higher end. And I’ll say that the estimates range. It’s hard to give it an exact number of what exactly constitutes of somebody doing an angel investment versus what dollar amount is qualified for VCs. You know, the ranges are anywhere between like half a million dollars up to, some people say 2 million, some people say 5 million for angels, you know, and some people will say, well VCs will go down to 2 million or down to a million. It kind of depends on who it is that you’re talking to. You know, you essentially do a progression from angels at the lower end to VCs at the higher end. And then you can also have people like family members or friends do lower end investments as well. There’s different rules for those kinds of things, so we’re not really going to talk about any of the specific rules because, you know, we don’t necessarily know what those are.
[10:09] Rob: And specifically we don’t know what those are for every country in the world. And since our listenership is worldwide it would just be too hard to even try to address them even if we could comment on the ones here in the states. I think of like friends and family as kind of being the lowest round because typically if someone has no funding and they want to raise something from friends and family, it’s typically a very small amount. It might be 50 grand or 100 grand. And then angels, I consider like a professional angel someone who is investing their own money. It’s not institutional funds, but it is someone who has had a large exit or who has just a lot of cash in the bank, and they are then divvying out their angel funds, their own funds, in typically in amounts of between 10 and 50 thousand dollars per investment. And you get a group of angels all to invest at once. And these investors tend to be what you might call smart money, right. You try to seek them out in an area of expertise where you’re entering so they can actually give you advice, whereas friends and family, if you’re going to do that, frankly, it’s not something I’ve ever done, nor would I recommend doing it, but you’re not going to get much good advice from your family. And then venture capitalists of course are folks who are investing institutional money. They’ve raised money from a bunch of limited partners, they’re called, and they’re trying to put a lot of money to work at one time. And so, you know, like you said, some VCs will come down into the million dollar, you know, two million dollar range. They typically have so much money in their fund, that that isn’t even worth doing for them. And that they want to do a series A, in the let’s say, 2 to 5 million dollar range, and a series B in the 10 to 20, and then, you know. When I’m saying A and B, these are the rounds, right. Series A is your first round of funding. Series B would be your second round after angel.
[11:51] Mike: So let’s talk about some of the different situations where we think it’s warranted for people to go after funding. And I think the first one that came to mind for me was essentially a land grab of some kind is necessary. So, you know, companies like PayPal or AirBnB come to mind just because if you’re their first, then it makes it a lot of easier to stifle all sorts of competition, you know, in that particular space. It’d be very difficult to compete with the likes of PayPal or Amazon or AirBnB at this point, just because they’ve dumped so much money and investment into that that they essentially crowd out all other contenders and are able to shove them out of the market, or just outright acquire them. And it’s not to say that being acquired by them is necessarily a bad thing, but you’re not going to have this massive, out-of-the-park success that you might’ve been shooting for initially. The reason you would go after funding in the case of a land grab is because you want to grab as much of the market as you possibly can before anybody else gets there.
[12:48] Rob: Right, and these land grab businesses are the ones that are super, super risky, and maybe 1 in 1,000 works, or 1 in several thousand works, so it’s not super repeatable. It’s not reliable. There’s not a high rate of success. But if you do succeed, then obviously you can be worth 100 million dollars or several hundred million. So not particularly the approach that I espouse, and it feels to me, I’ve always thought this was much more of a lottery ticket. And frankly, if you go and try to do a land grab business and you’re going to raise funding, you need some type of team that is really good. No one’s going to fund just some Joe Schmo nobody’s ever heard of to go and do a land grab business anymore. Like, the late 90s maybe, but these days you need to have either some kind of tractions, or some kind of team or both if you’re going to go after this kind of market, and then you’re going to have to commit to moving to wherever the venture capitalist is, and that’s maybe one of maybe 5 cities in the world, where you’re going to find somebody to give you this much money. And you’re going to have to work incredible hours. You’re going to have to grow a big team. You know, you’re not going to do it with 10 employees. This is the kind of business that goes to 100 employees in a year or two, if it succeeds, and then it goes to several hundred after that. So this is the one I agree this is where you need to raise it if you’re going to do it. But if you’re going to do that, then this is not the podcast that you’re looking for.
[14:09] Mike: The next time we think it’s warranted to go after funding is that you have problem solution fit and product market fit. I think the best thing to do here is to kind of step back a little bit and describe what both of these things are for all the listeners. So why don’t you talk a little bit about problem solution fit?
[14:24] Rob: As concepts, they are very powerful. And there’s something that I use in everyday conversation as I’m talking to other founders, as well as in my own business to try to gauge where I am.
[14:35] Mike: Because in my mind, the problem solution fit is like you’ve found something that people are experiencing as a problem that needs to be solved and they’re willing to pay for it, which is slightly different than the product market fit, which is you found an audience that is willing to pay for it. Because there’s a difference between finding a couple of people who want the solution, versus a lot of people, I think.
[14:56] Rob: Right. Right. And finding a lot of people, that group of people, and being able to reach them inexpensively enough that you can actually make a profit at, is part of profit market fit.
[15:05] Mike: Yes. Yeah. Because the first part is really about the customer discovery phase. And the next piece, which is the product market fit, which is more about like validation and somewhat scaling, I think, but, you know, making sure that you got the price points and everything else.
[15:18] Rob: Right, and I think the key part with that, that you just pointed out, is problem solution fit comes before product market fit, but first you have to solve a problem, and then you have to turn it into a product, and then you have to find the market for that.
[15:31] Mike: Next, I think, if you’re going after funding, you need to know all the important metrics that people who are going to invest are going to be interested in. And you need to know them cold for your business. So you’re going to need to know like your cost of acquisition. And you’re going to need to know the lifetime value of your customers. You need to know what your turn rate is. You’re going to need to know what your profit margins are. And you can use those calculations to figure out whether or not you’re going to be able to expand the business. I mean, has it become a machine where you can put a dollar into it and you get two dollars out, because that’s what the investors are looking for. They’re looking for a way to accelerate the value of their money, and your business is the mechanism for doing that. And they want to know if they throw money into it, are they going to get more money out on the other side. And I think that that’s probably the best position to be in. I don’t necessarily know that you need to be in that position always in order to get funding. But I think that if you are in that position, you can solidly demonstrate those metrics and those numbers to them, then you’re in much better negotiating position to be able to get the most value for, you know, the equity that you’re essentially giving them in exchange for the money.
[16:32] Rob: Yeah, that’s the key part of what you said there is that you don’t always need that. You don’t always need the traction, but that’s where you’re going to be able to give away the least amount of your company for the funding that you’re raising. You know, I don’t know of any venture capitalist that’s going to write a multi-million dollar check to someone who doesn’t have product market fit. I think it’s going to be a very rare instance. It’s going to be a repeat founder who’s already had a success. It’s going to be someone with an exquisite pedigree and a great team, or it’s going to be someone who has a real in, in a market or a patent or something like that. But if you’re just coming on the scene and you’re trying to solve a problem for a group of people, you’re going to need traction if you want to be taken seriously. If you don’t want to do 50 pitch meetings in order to find your one investor. You know, if you actually want to use your time well, you’re going to need to know these numbers cold and you’re going to need, basically, to be ready to scale.
[17:20]So you know, when I was getting started, like around ’99, 2000, I thought the only way to launch software products and startups was to raise funding, and I went down that road for years. And I’ve talked about that in the past. And around 2007 is when I really kind of switched and realized that I could do it with smaller products. And at that point, I really became kind of anti-funding, and I just thought it was all a big game. And then some time in 2008-2009, I was at Businesses Software and I was talking to Dharmesh Shah, who previously before HubSpot, I’m pretty sure he had bootstrapped his first company. And so, he was talking about raising funding. Or he’d either just raised it or was talking about it, and I asked him, “Why did you do that?” And it felt like kind of a betrayal of his bootstrapper ethic. And he said, “You know, we hit a point where we saw that you can put 1 dollar in and you can get 4 or 5 out, and it was a repeatable, scalable process, and so at that point, you want to put in as much money as you can in order to get 4 or 5 times that much, much larger amount on the other end.” And for the first time, it really clicked with me, that there, especially within our B2B space, once you’ve solved the problem and you’re able to scale, there is a really good time to raise funding. It doesn’t mean you have to, and doesn’t mean you always should, but if you are going to, that is the optimal time, once you’ve hit that place where you know how to scale a business up and all you need are the funds to put it in basically just grow faster than your competition because especially with SaaS businesses, if you can climb that long, slow SaaS ramp of death, and you can build up that large customer base by having a big influx of cash, it will just throw off cash for years and years after that. And whether you raise investment or not, whoever owns part of that company is going to be doing well.
[19:04] Mike: And I think that’s a very different story from a lot of the people who are kind of coming out of college, or going through Y Combinator, where, you know, people are investing in the people and an idea, but they have absolutely no product. They don’t even have a product yet, let alone product market fit or product solution fit.
[19:20] Rob: That’s a really good point. Like, we are talking about – we’re not talking about B to C stuff, like I don’t even think that’s on our radar, right. I’m not talking about the guy who’s going to start the next Uber or the gal who wants to start the next Twitter. That’s just a totally different ballgame. We’re really talking about repeatable businesses that solve problems for other businesses, and therefore are much easier to build and more predictable.
[19:41] Mike: Right. So I think if you’re trying to find that engine that’s turning that dollar into more than a dollar, then, you know, going after funding is probably not wise at that point.
[19:49] Rob: One other thing I wanted to add here is that typically if you take angel investing, you are implying that you are going to take a Series A, round of Series A from venture capitalists, then a Series B, and enough funding needed to get to a hundred million dollar or more valuation. That’s typically implied. It’s not always. But if you plan on raising angel funding, and you do not want to grow to that size company, that is something that you would need to be very specific about with your investors up front. And some investors will want no part of that. They only want to go after the big homeruns. And others are okay to invest in companies that may get to a 7 figure or a low 8 figure valuation. And, in fact, it’s becoming more common, to be honest. I heard the term fund strapping, and I really liked it. It was from Collin at Customer.I0, and they essentially raised, I think it was around, $250,000 of angel funding with the intention of making it to profitability and not raising a Series A, B, and C. And they did it. They succeeded. Raise some money in order to get your company to the point of profitability. And so that’s not everyone’s path, but I do think that’s a viable path. And I’ve talked to a couple entrepreneurs in the past six months, actually several people who are trying to do that, and they don’t want to go down the old rabbit hole of trying to grow into a bazillion dollar company. But they just want to, they’ve found that growth engine, they’ve hit the point of product market fit, and they just need some almost growth capital to get to that next level. So keep that in mind if you are at that point because I think it’s becoming a more viable option.
[21:21] Mike: So now that we’ve talked about the times that we think it’s warranted to go after funding, what are some of the things that we would look for when we were going after funding?
[21:29] Rob: There’s kind of two terms for investors, right. There’s smart money and dumb money. And typically, smart money is from an investor who is going to bring a lot of value to you, and a lot of advice and some guidance, and maybe some connections and some introductions. And then, the pejorative term is dumb money, and that’s typically when you go to the local doctor or dentist and they have some money in the bank, and they give it to you, and they’re not actually going to help your business at all. It’s just money that you’re going to use to grow. So my hope would be, you typically want to take smart money because that’s the one where their specific experience or network of connections are going to be able to be leveraged by you and hopefully, you know, there could potentially be introductions to acquires down the line. There’s just a lot more that they can bring to the table to help your business grow faster, rather than just writing that check.
[22:13] Mike: I think there’s also some rather obvious things you should be looking for as well, such as honesty and integrity, you know, kind of a history of not screwing over people that they’ve invested in. Those are things that, you know, I think in some cases may be difficult to find. But, you know, you should be able to find a list of the different companies that somebody has invested in and be able to ask the people who they’ve invested in, you know, what was it like to work with this person? How did they help you out? Are there any places where you ran into problems or disagreements and how were those handled? Because I think you want to know that you can work with the other person. Are they going to just railroad you into decisions that are not good for you or for the business? Because at the end of the day, yes, these investors tend to invest in multiple businesses with the attempt to get money out of at least one of them that’s going to make up for all their investments, but at the same time, you don’t want to get the short end of the stick here. I mean, yes, you’re taking money from them, but at the same time, you don’t want to be in a position where they’re trying to pull money back because they need it for something else that they see is going to be much more profitable for them in the long run.
[23:15] Rob: Yes, some advice that I was given once, was not to take money from a first time angel investor, to look at someone who has some kind of track record, because first time angel investors are going to be really gun shy, and if they only have one company, they’re going to be kind of be all up in your business, right? I mean, you really do – you want advice and you want help. You don’t want someone’s who’s emailing you once a week, asking you about the status, or really trying to offer advice, or going to your website and giving you feedback on the headline or anything. Not unless you ask for it, and you consider them an expert in that area. Typically, if someone is doing a lot of angel investing, then they know the boundaries and they know what’s good for the founder and the company, and they’ll give you the leeway to kind of go out and do it on your own, realizing that you’ll come to them when you need the advice and the help.
[23:56] Mike: The next thing I think you’d look for is somebody who’s got a shared vision for the product, the company itself, and your working arrangements, because if you’re listening to this podcast, chances are really good you’re probably bootstrapping your business. And you’re going to have a certain way that you operate the company, that you work with the employees who are working with you, so maybe you have a distributed team, maybe you guys talk once a week, or once a month, or something like that. Maybe you take long, afternoon breaks, and you work in the evenings or something like that. But, at the end of the day, you want to be able to continue working in whatever way has made you successful. You don’t want to have to conform to, I’ll say, arbitrary rules about how the business should operate just because they think that, you know, you should be doing things differently. But there’s a difference between having them make suggestions to you versus mandating that.
[24:44] Rob: The folks who I’ve seen raise funding well, especially that initial angel round, they basically were very deliberate about who they invited in, and they tried to stack their team with someone who knew a lot about, you know, maybe online marketing. And someone who knew a lot about growing a sales team, and someone who knew a lot about acquisitions and selling, and someone who knew a lot about some other piece. So they actually kind of built this team, a dream team of investors, who not only gave them money, and therefore have some type of, essentially an investment in your company, but they have an expertise that they can lend. And it wasn’t a bunch of overlap. It was complementary skills. And all of these skills are something you’re going to need at one point or another if you do actually make it to profitability and hope to, you know, one day get acquired. So, Mike, you know, the original question at MicroConf Europe was about funding and it was also for us specifically, and the question was, would you ever consider raising angel or VC funding, and I’m curious what your thoughts are on that?
[25:45] Mike: I’m not opposed to it. But I think, for me, I would have to get to that point where I do have, you know, the problem solution fit and the product market fit, and making sure that, you know, as I said, I’ve got all those numbers in place and dialed in, so that I know how much it’s going to cost me to acquire a customer. And not to say that I’m at the very beginning of a growth curve or something like that because I think it’s foolish to get to the very beginning of a growth curve where you know that you’re putting money into it, you’re going to get a lot of money out of it, and maybe trying to get that. You’re not sure whether, how long that growth curve is going to last for that particular channel that you’re trying to leverage. I don’t know what the hard numbers are for me for saying, “Hey, I’m going to go get money.” I’d have to be in that situation to kind of put the parameters around it. I’m not opposed to it. I don’t agree with the stance of going out and raising money to build a company because I think that you can get a lot more leverage out of it if you have something that you’ve built and are pushing forward and you’re being successful already, versus going out and saying, “Hey, I have an idea for this, or I have some small product that I’ve built. You know, can you give me money for it.” I think those are two entirely different scenarios. But I’m not opposed to it. I just haven’t been at the point where I think that it’s warranted it yet.
[27:00] Rob: I’ve definitely entertained the idea. I think ever since 2009, when I talked to Dharmesh about it, I realized that there’s a smart point at which it is perhaps a good choice to raise some funding. I don’t like saying never, but I don’t ever think that I would raise a venture round because I just don’t want to turn my life upside down. It’s not worth giving up the lifestyle that I’ve built over the past 15 years in order to try and go for some big homerun and go for 100 million dollar exit. Because what I have already is probably what I would do if I had a 100 million dollar exit. I mean, don’t get me wrong, my life would change, but it wouldn’t be so dramatic. You know, I wouldn’t go out and buy a yacht or anything. I’m already pretty happy with the choices that I’ve made, and kind of the life that I live. With that said, in recent years especially, you know, as I’ve built apps with larger and larger markets, and especially with Drip now that I feel that it’s hit product market fit or it’s very near that, and it’s starting to scale up,
[28:04]the question became for me, not should I raise funding, but under what circumstances and terms would I raise funding? And as I started talking to some folks I trust, who have gone down this road, they said, “Why wouldn’t you do it right now?” And I said, “Because it would really impact my lifestyle.” And they said, “Well what if you could raise from people who don’t care about that?” And that, you don’t need to move. And they don’t care that you take a month of vacation. You know, there is no board, right, so you don’t lose control of your company. And you don’t give away more than 15% of your company and it allows you to grow faster, and da da da. And suddenly, it was like how interesting that it’s not an either/or question, it’s under what circumstances would you or would you not raise funding, and that’s the question that I’ve mulled over. You know, that’s kind of – it’s been on my mind for, you know, definitely the last several years. Would that be an option? So I don’t know if I ever will. I think that funding allows you to get somewhere faster. So if you want to get to that 7 figure or low 8 figure revenue mark, funding is definitely going to get you there faster,
[29:04]but it’s all a matter of how patient are you, and do you think you could get to that even without the funding. Or are the competitors in your space too far ahead and perhaps better funded, and that’s, I’m asking these theoretically, but I mean, these are the things I’m thinking through with Drip, right, because I’m in market automation now. And there are some big players, and there’s some well funded players, and there are people who are definitely ahead of us. And so I’m trying to figure out, you know, am I able to build a really solid small business without funding and will I succeed in the long term? Or do I need a little bit of help getting to a point where I’m just a bigger player in this space? So I don’t have any decisions, but, for sure, I’m not anti-funding. So it’s an interesting question.
[29:44] Mike: I mean, even at MicroConf Europe, you gave a really great answer to the question, and I was just like, “What he said.” Because I didn’t have anything to add. I mean, it was just- it was dead on.
[29:53] Rob: Right. I would say though for most people that I know, like most founders that we deal with and talk with, I don’t think it’s the right decision. I just don’t think it’s helpful. I think building a bootstrap software company and self-funding it, and all the learning that goes along with that, even if takes a while to do so, I think that’s the right choice. It really is an epic time that we live in, that we are able to do that, because even 20 years ago, it was barely possible to do that. And these days, we know a lot of people who are doing very well just building self-funded little software companies. I think that’s really amazing.
[30:29]If you have a question for us, call our voicemail number at 888-801-9690, or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from Out of Control by Moot, used under Creative Commons. Subscribe to use on iTunes by searching for startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 204 | 9 Tactics for Aggressive Time Management
Show Notes
- Sweet Fish Media wrote a nice recap of this episode in their post 9 Insanely Effective Time-Management Tactics.
- ConversionCast podcast
- GoToWebinar
- RxRemindMe iPhone app
- GTD – Getting Things Done
- Trello
- SimpleNote
- AnyList
Transcript
[00:00] ROB: In this episode of Startups for the Rest of Us, Mike and I discuss nine tactics for aggressive time management. This is Start Ups for the Rest of Us episode 204.
[00:08] Music
[00:15] Welcome to Startups for the Rest of Us, the podcast that helps, developers, designers, and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or are just thinking about it. I’m Rob.
[00:24] MIKE: And I’m Mike.
[00:25] ROB: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Mike?
[00:29] MIKE: Dear Skype, you’re not actually improving my Skype experience when you just randomly upgrade in the middle of the day for an hour.
[00:35] ROB: Oh, and then the UI is different every time they do.
[00:39] MIKE: It drives me nuts. I mean I understand there are certain types of software and there’s time where you need to do it, but it seems like every single time I fire it up it’s just like, “There’s something new! Here you go. Learn it all over again.” It drives me insane.
[00:53] ROB: Yeah, that’s not cool. On a lighter note, we have pictures from MicroConf 2014 in Vegas and those are live at microconfpics.com. So if you want to check out some of the fun, speaker photos, attendee photos, and all kinds of tasty goodness, it’s over there microconfpics.com.
[01:09] MIKE: Cool. I’m upgrading my iPad to iOS 8. I read the other day that iOS 8 adoption is apparently really low and I think it would be a lot higher if it didn’t take forty-five hours to download and then midway through it decides it can’t finish the connection so it just dies.
[01:24] ROB: Did it?
[01:25] MIKE: So you have to start over.
[01:26] ROB: Forty-five hours seems like an unusually long connection. So I haven’t upgraded because I’m heading out of the country tomorrow and the last thing I needed was to either be in the middle of an update or to get an update and have it break something. And I bring multiple devices, you know, this year we decided not to bring – we pretty much aren’t bringing any physical books. Trying to bring as little paper with us as possible, just purely because we’re moving around so much in Thailand and don’t want the weight.
[01:51] MIKE: Yeah I don’t blame you. It’s nice with the Kindles, you can just put lots and lots of books on there and if you get bored you’ve got your whole library. It’s awesome.
[01:57] ROB: It’s crazy, yup. And they don’t take up much room and then the nice part is you can also put PDFs in there as well. And you can download them in advance and you don’t have to worry about – Because sometimes Dropbox will download something but then it’ll restart and nothing will be there. Whereas with the Kindle if you’ve download it into your library it should be there when you get there so that even if we don’t have internet access we should be able to practice music and do some of the independent study stuff we’re doing with one of our kids who’s in school. That should all be in tact.
[02:24] MIKE: Do you do that through the Kindle app or just through an actual Kindle?
[02:29] ROB: No we have Kindle app on iPhone and then you email the PDFs to your Kindle app address that you can get from Amazon.
[02:37] MIKE: So, the only other thing I’ve got is that I held my first webinar this past week. You know, it didn’t go nearly as well as I would have liked. I didn’t get much in terms of attendance. At the same time, I had a very short time window to promote it and I’m still trying to figure out how to promote it. That’s one of the big things that’s kind of on my list is to figure out how to start promoting the webinar because over time, I don’t want to saturate my list with the same webinar over and over again so I’ve let them know and told them and I have to figure out how to scale that up. Try to do that.
[03:05] ROB: I’ve heard a couple of approaches; the one that I hear most often is to use the Facebook newsfeed and you can actually put a short video in there. There’s one recent recording – I think it was ConversionCast – and I would listen back a couple of episodes and someone talks about promoting webinars directly using Facebook newsfeed ads which kind of talks through the process that they use and that’s where I would start if I was going to do it. I have not actually done it, but they have a lot of success with it.
[03:29] MIKE: I’ll have to take a look at that. I did try to record it using GoToWebinar’s built-in recording and they just completely mangled the entire thing. I don’t know what happened. The webinar itself went fine but then the recording itself, it was all messed up. All the transitions and stuff, it just hung up –
[03:44] ROB: Oh no.
[03:45] MIKE: And then I tried converting it to other formats thinking that was it but it’s the source that’s messed up. This past week has just been a total bust for me.
[03:52] ROB: Yeah, that’s a bummer. Do you have an alternative for recording your webinars? Are you going to try to do it through Camtasia or something?
[03:59] MIKE: I’m just going to try to do it again. If I do it again the next time I do the webinar and it doesn’t record again what I’ll do is I’ll give the webinar separately and just record it through Camtasia and that way I can polish it up a little bit. And there are services that you can use where you can send them a webinar or a podcast or something along those lines and you can have white papers and eBooks and stuff created out of them. So I have to take a look at that; I learned about it at the Business of Software so I’m going to take a look and see if I can generate some content out of that kind of thing.
[04:28] ROB: Very good. Well let’s dive into our topic for today. We’re going to talk about nine tactics for aggressive time management. A listener of the show emailed me and he said: “I just read a good article in Entrepreneur Magazine on time management in an age of information overload. This is a topic I’m very interested in because I think I lose a lot of time in my effort to be responsive. I suspect that this is something that a lot of folks in the startup tech community struggle with.” So I gave this a bit of thought and what I didn’t want to do was record an episode where we say the same things you’ve already heard about time management which is: don’t check email in the morning, only reply twice a day, take notes, and have a to do list, and all that kind of stuff. So I really wanted to try to get a little more aggressive with it and maybe talk a little deeper about some of the ways that you and I manage our time in a way that I’ve found to be more effective over the years.
[05:18] So we have nine points here and I think I’ll just dive into the first one. The first tactic is to answer email in the morning even though everyone says not to. The key here is to have the willpower to prioritize, to move things out of your email into your to do list, and to not sit there and kill two hours managing your email. Because if you lose the morning – which tends to be most people’s most productive time – then you’re doing this wrong. But over the years I’ve realized that not checking it in the morning doesn’t work for my particular work scenario because I have urgent support requests that are sometimes there, I have issues that come up that I need to triage and I need to be able to prioritize and if I try to come in and do something first that doesn’t involve email, I will often leave the most important thing until lunch time at which point it’s too late.
[06:03] MIKE: Yeah, I answer email first thing in the morning as well. I have a tendency to have a lot of emails come in overnight that I have to deal with and if I don’t deal with them then somewhere in the back of my mind there’s this little voice saying, “Hey you’ve got a ton of email that you have to do something about.” And then I’ll check it kind of periodically throughout the day but I don’t spend a lot of time on it. I do the same thing as you: I spend some time first thing in the morning, get most of my email cleared kind of out of the way, and then deal with it as it comes in throughout the day. But there’s also times when I’ll just pause my email and just ignore it for several hours at a time before I need to come back to it.
[06:35] ROB: Yeah, that’s what I do as well: I check it first thing in the morning, I triage everything, if it’s a quick reply, I reply instantly. I delete most of it, frankly, I put some of it into Trello, I try to get to inbox zero – I don’t always. And then I will just close the Gmail tab. I have no pop-up notifications, nothing that notifies me when a new email is sent. And then I’ll sit and try to get – now that I have my day prioritized and laid out, the agenda set – then I try to get at least a couple of solid hours of work in before lunch.
[07:05] MIKE: Now, do you answer emails in the evenings too or no?
[07:08] ROB: I do answer emails in the evenings but not every night. Typically if something requires a quick response, I will do it on my phone if I’m out and I’m able to check email. When I’m with my kids in the evening, I typically try to put my phone in another room so I don’t check it for a few hours, but then I will check it, let’s say eight or nine o’clock after the kids have gone to bed and if there’s something that’s either a quick response or that’s urgent I will reply. But if there’s anything that requires more thought or a little more work, then I try to triage it, get it out of the inbox so it’s set on the agenda either for the next day or for down the line. And I do use the A and the B priority stuff in Trello, so if it’s something that can wait I will kind of kick it down the line and expect to get to it in a week or two when I have time.
[07:54] Second tactic I want to talk about, which is something that I’ve already touched on a little bit, is to turn off email, Facebook, and Twitter notifications and any other social network or any other thing that can interrupt you during the day. Text messages are a big one as well. I think a big exception, of course, is if you’re kids’ school is going to call or there’s something you really have to be alerted to. But, frankly, I turn off all notifications and people know that they should text me or they should call me if it’s urgent.
[08:22] MIKE: So by Facebook and Twitter notifications you mean, you have these apps installed on your phone or your iPad or whatever and you have the notification to pop up to the screen turned off? Like the banner?
[08:33] ROB: Exactly. I know people that every time they’re mentioned on Twitter, their phone buzzes like it’s a text message. And every time that someone likes one of their posts or does something on Facebook – shares their post, I don’t know what it is, but they do something – then they get a buzz on their phone. Frankly, if you’re trying to get work done that is awful.
[08:51] MIKE: Yeah I know what you mean. I actually got to the point where I turned off a lot of them. I still have one, that prescription app I think it’s from Walgreens – Rx Reminder or something like that – and what it does is it just reminds me every two hours to drink a glass of water and the primary use of it is actually to remind me to drink eight glasses of water a day.
[09:08] ROB: Yeah, well that makes sense. And every two hours isn’t actually that bad. I have things like, obviously calendar reminders if I have a call, or if I have something where I need to be somewhere, yes, those are going to buzz because I need the reminder ten minutes before. And then if you’re doing a Pomodoro technique where you’re working in twenty-five minute stretches, obviously you need a timer or some kind of alert to alert you to the end of that. So I wouldn’t say turn off all notifications of any kind, but it’s the things that are interrupting, the things that take your focus away. What I find is that people slip in and out of this, I do as well, where sometimes I find myself just leaving my Gmail tab open because it’s like my lizard brain wants me to get distracted and it doesn’t want to sit down and do the hard work. And I have to actively think, “Close this down. Shut off the notifications, really get to work” and force yourself to do it. Because your mind doesn’t want you to do it because that’s the hard work and you’re kind of trying to trick it into focusing.
[10:05] MIKE: I’ve found myself doing that sometimes where I’ll be flipping over to my email every once in a while – every couple of minutes – and it’s like, “Wait.” If I’m working I’ll actually close down the tab, like you were just saying, and put a pause on the email box so that even if I go to my phone the stuff just doesn’t show up.
[10:21] ROB: Third technique I want to talk about is to stop watching, listening to, reading, or otherwise consuming mainstream news. If something important happens, you are going to hear about it – someone’s going to talk about it, someone’s going to mention it – you’re going to hear about it. Instead of news, I choose to focus on listening to audiobooks or podcasts that actually educate you, or listening purely to fiction. Stuff that’s actually going to relax you and kind of get your creative juices flowing. Instead of news of your phone, instead of sitting there and thumbing through news stories from the day which is just… It’s strange, it’s similar to Facebook and Twitter where I’ll find myself… I’ve actually deleted Facebook from my phone. And the reason is because I would find myself going to Facebook and the top two posts are interesting and relating to me: it’s my wife saying something or my mom or something. So I read through it and then before long I’ve been on there for ten minutes and I’m looking at people from high school and I really don’t care what they’re up to; I don’t care what their kid’s doing, or whatever. And yet, you get sucked into this thing. And that’s what I feel like the news on my phone turned into; the New York Times alerts and it would have news that was interesting at the top but then I’d spend fifteen minutes reading it, and it’s just a way for your mind to kind of try to occupy itself instead of actually being calm and actually either centering yourself for the day or thinking about things that are important.
[11:39] Instead of reading news on your phone, think about being productive like answering emails, or write a blog post, or write notes for a blog post, or schedule a Tweet for that matter, engage with your audience a little bit. There is very, very little value that you will get from mainstream news whereas you can actually get some value out of certain audiobooks, podcasts, and, potentially, listening to fiction.
[12:01] MIKE: I totally agree with you. I notice different people have their favorite news websites and stuff like that, and I do as well, but the one I’ve sort of gravitated towards is CNN.com and MSN.com and I’ve found that just by not going there ever, it’s wasn’t as if I ever missed anything. And you’re right – other people will mention it to you if it’s important. And the reality is that most of the stuff you see on mainstream news is just clearly not important to you. It just doesn’t matter. It’s not going to materially affect your life. And I’d say that’s the real problem with them; they’re sucking away your time and not really giving anything back to you.
[12:35] ROB: That’s the issue I have with it. I’m not saying that news is not valuable, I’m not saying that being informed about the world, and politics, and what’s going on is not valuable. But doing it every time you’re standing in line or every thirty minutes compulsively checking the news – and I’ve got friends who are news junkies – it winds up being a tremendous amount of time and it’s a bit of a crutch or an addiction of sorts, just like Facebook and Twitter and social networks and all that stuff can be. Or email can be for us, where we actually want to seek that interruption and it kind of relaxes us. It’s getting away from that stuff that you’re doing impulsively and I think news is a big one.
[13:09] So the fourth tactic I want to talk about – I mentioned already – is to put your phone in the other room when you’re with your family. And the reason I say that is because when you’re working, you should be working. You should be working really hard. And when you’re not working, when you’re with your family, you should be with your family. And you should be doing that really well. So you either need to figure out a way to not take your phone out of your pocket – which I do almost instinctively every ten or fifteen minutes. And so putting it in the other room, out just getting it out of arm’s reach, is a good way to really step away from something for a few hours.
[13:41] MIKE: You know, when I carried my phone around in my pocket a lot I had this natural tendency to pull out my phone and check my email and Twitter and all this other stuff just because I had my phone with me. Even if the phone is just not in your pocket, if it’s somewhere else – like if it’s on the microwave, or it’s on a shelf, or something like that – it doesn’t even need to be in the other room. As long as it’s inconvenient for you to go get it, that’s generally enough of a hurdle for you to not do it.
[14:05] ROB: Tactic number five is: don’t say “Email me” or “Call me” unless you really mean it. And what I mean by that is, at the end of my talks, I used to say, “Here’s my email address. Email me if you have questions.” Or when I’d meet with founders, we’d have a discussion over lunch and I’d do something to help them out and at the end I’d say, “Email me if you every have questions.” If you do that long enough, suddenly you are going to get too many emails and you’re not going to be able to answer them all and you’re going to feel guilty. So I’ve now taken a little more of a strategic approach to this and when I’m at the end of a meeting with founders or with people asking me advice, I typically say, “Well, I wish you the best of luck with it.” And, you know, if they do email me, that’s cool. And if they ask, “Can I email you with questions?” I’ll always say, “Yes,” because I still answer a lot of these emails. But I’ve stopped putting it out there because at a certain point, it just becomes a little too much to keep up with.
[14:59] The sixth tactic is to say, “No” a lot. This requires quite a bit of discipline, actually. I get multiple requests per day for my time for different reasons: people want to jump on calls, people have questions, people have… there’s just a ton of different things it could revolve around. Whether it’s MicroConf or any number of projects or apps that I’m working on, and the way that I’ve found to guard my time is to say “No.” And I have to say no to stuff that I want to do, even stuff that will help people out, there’s some local stuff where people have asked me to speak and I really have wanted to, and it would be fun, and it would give back to them, and sometimes I do do it. But other times, you just have to say “No.” And you can’t just weigh the time. If somebody says, “Hey, can you come do a twenty minute talk somewhere,” or “Help us out by just writing a little bit of code or doing two hours of tech support for this local Nonprofit.” If you have the time, that’s awesome, but you also have to think about the greater ramifications of that. A twenty minute talk means you then have to prep it, you have to practice it, you have to show up, you have to be there for whatever, the full hour, you have to talk to people afterwards, you may get invited to do other things. It always turns into more time than you think it’s going to. And, I’ve always made it a point to donate quite a bit of my time and money to charities and Nonprofits and I value those things. At a certain point, you do have to learn to say “No” to people that you really want to interact with.
[16:21] MIKE: Yeah, I think that most of the time your default answer should be “No” unless there’s a very compelling reason to say “Yes” to that kind of stuff. I think one of the underlying reasons for that is that if you start saying “Yes” to a lot of things, then what tends to happen is that you get asked to do more things. And it’s not to say that those aren’t helpful for other people but, at the same time, at some point you’re probably going to find yourself overcommitted. And when you’re overcommitted, that’s when you start to feel guilty because then things start to fall on the floor. And you feel more guilty about letting other people’s stuff fall on the floor than your own, so what will happen is that you will end up helping other people instead of doing the things that you really need to do, and you’ll start pushing those off.
[16:59] ROB: I also think this depends on where you’re at in your career. I think early on in your career you should say “Yes” to more because you tend to have more time available and you are seeking opportunities. You’re looking for ways to interact, to be around more people, and to build a network and all that stuff. But as time goes on, I see people overcommitting themselves. Actually, most people overcommit themselves in general, both in their personal lives and in their professional lives, and I think that learning to say “No” – I like what you said about making it the default response and then only reconsidering if there’s a compelling reason to do that. And that compelling reason doesn’t just need to be a selfish reason. It could be a compelling reason like, “Wow, this is a really good cause” or “These developers are really going to get a lot of value out of it.” I drove up to Mountain View – which is three hours from Fresno – and I gave a talk at the Googleplex to a Google developer group or something. It was a long drive and stuff, but I realized A) I really wanted to do a talk at the Googleplex, that was kind of fun. B) there were a lot of folks there; like, if there had been twenty-five people there, I wouldn’t have gone, but there wound up being 100-150 people. And the third reason: my parents live up there and my brother, so I was able to tie all that in and convince myself, “You know what, this is a good cause, I’m going to donate my time, it’s going to be fun, people are going to get value out of it, and I’m going to be able to work a family trip into it too.” So there are compelling reasons to do it but, especially as time goes on and your time becomes more and more valuable, I think leading with “No” and figuring out if you should say “Yes” is the right approach.
[18:27] Seventh tactic is to schedule time for Twitter like a mad person. Either don’t do Twitter at all or, if you do it, schedule it and do one, maybe two times a day. Schedule your Tweets in bulk. There’s a bunch of systems and ways for doing this, I’m not going to go into them here, but I find that Twitter can be – just like Facebook – a real time suck and a real default thing. If you’re not able to block yourself from doing it, there are tools you can download that will keep you from doing it. But I’ve found that just getting on there once in the morning and once in the afternoon, looking through, responding to everyone, and then scheduling some Tweets, personally, has been a really good approach for me and it keeps me from thinking about it all the time, it keeps me from interrupting myself with it, but it also keeps me engaged. It’s not like I log in every three days or four days and then people feel like you’re ignoring them.
[19:16] MIKE: Yeah I’m a little bit worse at this than you are, I think. I’ll log onto Twitter kind of when I get bored. Anytime my email hits where it says “So-and-so sent you a message,” that’s when I tend to go and look at Twitter. I like your approach of just hitting it once in the morning and then once in the afternoon, because that way you’ve got scheduled times for it and you can dedicate that time for it. But I know a lot of people will use it for, essentially, conversations back and forth. To me I find that extremely interrupting, I’d rather just use email or just use a phone call or something like that.
[19:46] ROB: Yeah I rarely do the conversation thing. Every once in a while it will happen but, when I schedule time for it, I try to keep it to less than ten minutes – and that’s both for the reading and responding and scheduling stuff. And I’m managing multiple Twitter accounts so I’m moving pretty quickly when I do that.
[20:01] Tactic number eight is to remove the mental burden of remembering things and let the cloud handle it. So this is similar to if you’ve heard of GTD, getting things done. Basically it’s to use a written to-do list of some kind, whether that’s on paper – I recommend using something in the cloud, like Trello, is what we use. Shopping lists I used to have on paper; we did away with that and now we have a doc in Simplenote and it’s shared between the two of us and any time any of us brings up something at the store, one of us adds it. There’s a system in place, basically, to capture that information. Let’s say I’m at dinner, I’m in a conversation and someone mentions something that needs to be an action item for me, they’re like, “Oh hey, did I mention I saw a typo on your website the other day?” or “There’s this fantastic new movie or this new iOS app that you need to download.” I never try to remember it, I always say, “I’m totally going to email that to myself right now.” Pop open email and I just have Trello as the contact name, and that’s my Trello board, and it goes to the top of the board and the next time I go in there I move it to the appropriate board and I actually have an iOS app queue and I have a movie queue and I have all this stuff that I do. One step beyond that is to actually have different email addresses for each of those boards so I don’t have to touch it twice, because realistically I shouldn’t have to touch that issue twice.
[21:14] MIKE: Similar to you, I think you said you use Simplenote? We use a program called AnyList and my wife and I are both signed up for it. That way if we’re at the store or something like that and the other person thinks of something they can add it and it pops up right on the list so that we need to go get whatever it is. So if we’re missing milk, or eggs, or whatever, if for whatever reason it didn’t end up on the list, you can check it and it will show you what is crossed off so you can almost see where in the store somebody is based on what they’ve checked off. We have a process in place where once you’re done shopping, before you go and start adding other things to it, you delete the list so that way you see all the deleted entries get removed as well. It’s just a process and as long as you have that process in place, to manage that information you don’t have to think about it anymore. And that’s the key thing, not having to think about it or try to remember stuff that you really have no business trying to remember.
[22:09] ROB: The ninth and final tactic that we’ll talk about is to eliminate meetings. There’s this concept of the maker’s schedule versus the manager’s schedule, something that Paul Graham talked about in an essay. The idea is that makers need long stretches of quiet productivity and managers tend to chop their day up with a bunch of meetings. And I think salespeople are like that too, they need to have a lot of meetings and they have to work around client schedules, so they will have very interrupted schedules. In my opinion, trying to be both a maker and a manager at the same time is incredibly unproductive and if you can avoid it at all cost, I would do so. This is one of the reasons that I have slowly weaned myself away from development, because as much as I love developing and I love creating and building, you need a maker’s schedule to do that and I just have too much going on with all the projects that I’m working on and everything that I’m doing. So I’ve had to hire people who can have maker’s schedules, and I respect their maker’s schedules. There are no meetings ay our company, the only thing we have a weekly lunch that we all go to and talk, but other than that we interact and we take care of things as they come up. But I never want to time box these guys’ time because I know what it’s like to be a developer and be working on something and realize, “Wow, in fifteen minutes I have a meeting and I have to stop what I’m doing.” It’s incredibly bad for productivity.
[23:27] MIKE: Yeah, I’ve been trying to wean myself away from that as well so that I’m not doing any more of the development tasks. I would say I have more of a manager’s schedule. How do you resolve the discrepancy where you’ve got to do a maker’s schedule in order to do things like Ad Words and things like that? Because, obviously, there’s content creation, there’s website tweaks, and maybe you’re not making anything but you’re doing things that do require some concentration in order to do it.
[23:54] ROB: Absolutely, like writing copy. The long-form homepage on Drip took me an hour to do the first round and then like four hours of revising and then I’ve written a couple of blog posts recently that have been several hours in the making. And when I did those, I basically went off the grid. I turned off all notifications, I blocked out about two hours to get the initial round done, and I did my thing where I drank some caffeine, I turned on loud music in the headphones, and I just went into the zone, and I totally cranked it out really as fast as I possibly could, and I totally blocked things off. If I have any type of call or anything scheduled, I can’t do that because I know that if I’m time boxed on the outside that I’m going to get interrupted, there’s something in the back of my mind that won’t let me get into flow because I’m thinking about it. So when I say I blocked off two hours, what I actually mean is that I put two hours on the calendar, I mentally said, “Alright, I’m going to try to sprint for two hours,” but I had nothing scheduled for three or four so I knew that if I ran over and I kept being in the flow, that I would just continue to crank on that. In fact, one day I got so motivated that I wrote the complete blog post and I still had another thought and I started another one and got a complete draft done, and then I went in and revised my sales letter all in one day. And, typically, I just don’t have enough good glucose that is available to create that much content, but some days you’ll find that if you do, in fact, get in the zone that it can carry over like that.
[25:14] MIKE: So, to clarify, this isn’t necessarily about maintaining a maker’s schedule or a manager’s schedule, it’s being able to interleave them between each other such that maybe on one day you do one and on a different day you do the other. It sounds like it’s not strictly about eliminating one and just doing the other instead.
[25:31] ROB: Yeah, perhaps. If I could help it I would not have meetings ever. I would not do Skype calls, I would not do the podcast interviews and stuff, but I enjoy them and they help me in my business. So I do, In fact, find it a necessary thing that I have to balance. I don’t know that everyone has to, though. I think that, if at all possible, if I didn’t have these podcast interviews and the other stuff that I do via Skype that I would try to have much, much more of a maker’s schedule. But I think if you are forced into it then, yes, it’s the ability to switch between them quickly, because to try to block out that time and to get into the zone quickly is hard, it’s a learned skill and you need to figure out what your triggers are for that. We’ve talked about that a little bit in the past; I’ll often loop a song over and over and over and listen to it straight for two hours and then, for weeks, anytime I play that song it will trigger me into the zone. And that’s the way that I’m able to sometimes get into the zone in three or four minutes, which is kind of unheard of. Typically it takes you fifteen or twenty minutes to really get into the flow, but if you figure out your triggers, you can switch back and forth between makers’ and managers’ schedules faster.
[26:34] MIKE: I like the idea of just scheduling two, three, or four hours or whatever on your calendar so that you’re not interrupted for other things. But obviously that’s also going to take – You have to start turning off your phone and doing various things and schedule that in such a way that you know you’re not going to be interrupted. Because the second you’re interrupted when you’re trying to establish that maker’s schedule, everything just goes right out the window. You take such a hit in your productivity that it almost wasn’t worth even scheduling that time to begin with.
[27:02] ROB: That’s right, that’s exactly right. And you really have to do most of the previous eight tactics we’ve talked about in order for this last one to work, and that’s why I put it last.
[27:10] So to review, our nine tactics that we talked about are to answer email in the morning; number two, to turn off email, Facebook, and Twitter notifications; number three, to stop watching, listening to, reading, or otherwise consuming mainstream news; number four; to put your phone in the other room when you’re with your family; number five, don’t say “Email me” or “Call me” unless you mean it; number six, to say “No” a lot; number seven, schedule time for Twitter; number eight, remove the mental burden of remembering things; and number nine, eliminate meetings and figure out if you’re going to have a maker’s schedule or a manager’s schedule.
[27:39] MIKE: If you have a question for us or a suggestion for a podcast episode, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at Questions@StartupsfortheRestofUS.com. Our theme music is an excerpt from “We’re out of control” by MoOt used under Creative Commons. Subscribe to us on iTunes by searching for Startups and visit StartupsfortheRestofUs.com for a full transcript of each episode. Thanks for listening; we’ll see you next time.
Episode 167 | How to Organize & Run a Startup Mastermind
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 167.
[00:04] Music
[00:11] Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
[00:19] Rob: And I’m Rob.
[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Rob?
[00:24] Rob: You know, things are going pretty well. I’ve been spending some time in the code. I’ve been working on the HitTail keyword algorithm. I mentioned that since not provided came through. I found it through the Google web master tools, there’s another source of a bunch of keyword data and so I’ve spent a lot of time repurposing, tweaking that algorithm and it’s actually given me a better – before HitTail could say hey, here’s a keyword and yes it’s a suggestion you strut about or not.
[00:52] Now I actually have a gradient where I can give it a score and it’s a number on like a 1 to 100 scale. So it’s been fun to get back in the code ready to kind of get this thing out. Right now it’s in alpha and I have four different people who’ve sent me spreadsheets and I’m uploading them and seeing how it goes but it’s nice to be moving forward with the goal of getting HitTail back on track basically. Growth had really stalled and things starting to go sideways with it as the value that it provides is a lot less than it did 4 or 5 months ago.
[01:24] Mike: That’s really cool that you’re able to assign a score to those things that you use so people have some sort of ranking to help them decide what they should do next. That’s one of the things that people had asked me to do when Audit Shark was there like this information is great but I need you to score it so I know what to concentrate on. The analysis paralysis that people tend to experience when they just really don’t know what it is that they’re looking at and they don’t have a basis for comparison, that really hurts. And giving them those benchmarks or those ways to sort the data can be really, really helpful.
[01:56] Rob: Yeah. I agree. So hopefully, getting that out into production in the next couple weeks, I’m going to need to get a designer on board to make some minor tweaks to some stuff and then I’ll probably hire a developer. It’s just enough work. I think it’ll probably be 20 to 30 hours of work because there some complex stuff to actually implement it at scale. I’ve realized these days man, if I need to get 30 hours of coding done, it’s going to take me like a month to do it because I can’t get in the flow ever because there’s so many little things going on but hopefully fingers crossed, another few weeks maybe end of February have that all up and running.
[02:29] Mike: Very cool.
[02:30] Rob: How about you? What’s going on?
[02:32] Mike: Well I got an email from Wes O’Hare who put together a resource website for people who make web products and the URL, we’ll link it up in the show notes is produx.co. So check it out if you want. There’s a lot of good information on there. There’s a few couple things I’ve never heard of before. So if you’re building a web startup of any kind there are definitely some good resources there.
[02:55] Rob: I wanted to call out two things. The first is I was on a podcast this week. It’s the Linchpin podcast and I was talking all about email marketing and creating email mini courses so linchpin.net/podcast if you want to check that out. It’s a short one. It’s probably 25-30 minutes. The other thing is Brandon Dunn, lifetime academy member, he and I were emailing about some stuff and I loved the story he sent. He said hey, I set a new personal record. I had an idea for a WordPress plug-in last Friday, learned how to write said plug-in over the weekend because I’ve never really dug in a WordPress before. I’ve run paid ads today plus some inbound from my blog and so far I’ve admitted two new customers who weren’t friends or in my network. I love it. It’s like a super fast implementation. Talk about taking action. It’s at wordpressconversionfunnel.com.
[03:48] And if you do nothing else, checkout that URL because look at the way Brandon puts together this sales page. It’s a long form sales later. Its written from his perspective and it’s all about how the tactics that he’s included in these WordPress plug-in has helped his own business very elegant, well put together, very folksy, it feels like you’re just having a conversation with someone and they’re kind of just telling you about something while you’re sitting at a bar. I wanted to share that with the audience and kind of give an example of a way to get something done well and to do it fast and execute like Brandon did. So congrats sir.
[04:18] Music
[04:22] Mike: We’re talking about how to organize and run a startup mastermind. Over the past couple of months, I think that you’ve probably gotten just as many questions as I have if not more about what is a mastermind? How do I go about putting one together? What sorts of things go on? How can it help? So what we’re going to today is we’re going to take some time and set aside the entire podcast episode for talking about a startup mastermind and some of the different experiences that you and I have had in running our own.
[04:49] Rob: And to give you some background, the term mastermind as far as I know is first mentioned by Napoleon Hill in the book Think and Grow Rich and if you read through that, it’s going to almost barely resemble what we’re talking about today because A) things just have developed so far in the past 75 years since he wrote that book and B) we do some very specific things that work very well because we’re talking about a startup mastermind. It’s not just a generic group of people getting together to talk about something but really focus on a startup right on the startups that you’re all running with other founders. And so I think that’s something to keep in mind.
[05:25] The other thing I’d like to mention is that one of the reasons we’re doing this episode is because Mike and I have realized the value of masterminds in our successes and just the power of community through MicroConf and through the Micropreneur Academy and that’s one of the big reasons that we are revamping micropreneur.com this year and we’re going to put an extra focus on community.
[05:47] And this mastermind stuff will be part of that. I mean we want to foster, help people get involved in mastermind and help them run them well whether they setup local Micropreneur meet ups as we’re seeing spark up. Last count, they were approaching maybe 10 worldwide of these Micropreneur meet ups just people getting together. That’s a little different than a mastermind but there’s overlap there. I mean the flipside is setting up Skype masterminds, as we’ll surely talk about in this episode.
[06:13] Mike: So the first question that somebody might have is what is a startup mastermind? To me, a startup mastermind is a group of people who are business owners or have applications that they are selling online and they want to talk to other people who are in a similar boat, other people who are encountering similar problems have a similar type of business because if you’re talking to somebody who’s running a brick and mortar type business, they’re going to have very, very different problems than you would as somebody who’s selling software over the web. So you really want to make sure that you’re talking to people who are in at least a similar situation as you and these types of people will help you make decisions. You can open up to them. You can talk about the types of problems that you’re having. They can give you suggestions. It tends to be a lot easier to talk to these types of people than it is to talk to your customers or your employees.
[07:04] And as a business owner it can be very I’ll say isolating when you’re running a business and maybe you have employees or contractors and you need advice but you don’t necessarily know where to turn. And a startup mastermind can really help with that because you can open up and you can talk about a lot of different things and essentially lay all your cards on the table and get the feedback that you really need in order to move your business forward. And if you don’t have a mechanism for doing that, then you may very well reduced to talking to your spouse or talking to your friends who if they don’t do that sort of thing, then they don’t have any basis for making decisions or offering advice. It becomes very difficult to get anything out of those conversations.
[07:44] Rob: Your spouse, your employees and your non-founder friends will never ever understand what it is you’re doing at the level that you need them to actually provide you with helpful support and feedback. You must have someone who understands that founders are a different breed and what we’re doing in startups is such a unique thing that talking to your parents or god forbid your employees about this, it almost never yields helpful information.
[08:12] I think the point that you brought up about isolation is a big one and I just double underline that on the notes I’m taking here. Isolation is something you need to avoid. I’ve gone through it. I think a lot of founders go through it. I see a mastermind as a way to get a group of supportive people around you, a way to have accountability, a way to have people invested in your startup not financially but just mentally invested without having a cofounder. So if you do have one or two cofounders, I don’t know that you necessarily need a mastermind because that’s kind of you have your mastermind there. But especially if you’re a single founder, I just view the startup mastermind as a semi-replacement for having cofounders.
[08:52] Mike: So the next question you might have is how many people should you have in your startup mastermind and this number I think can vary quite a bit. I’ve heard a lot of people say 2, 3, 4, 5. I think I heard one group that had I think 6 or 7 people in their mastermind. I feel like that’s way too much. My mastermind group has three people in it and with three people, we each get about half an hour to talk and we talk about our own products and we used to talk about our own stuff every single time we meet so it’s not as if you’re going 2, 3, 4, session or something like that without talking.
[09:24] Half an hour seems like its enough time for you to be able to get through everything that you’re talking about. And if you go a little bit long, it’s usually not a big deal but to me, I feel like three people is a good number to have. I think it can work well if you have two people. I think that once you start getting to a 4 or 5 people I feel like the mastermind gets too big and people don’t necessarily have enough focus and you spend more time waiting than you do talking about the things that you’re working on and getting the feedback that you need to move forward.
[09:52] Rob: Yeah. I take a pretty hard line on this. I think a mastermind, its best startup mastermind only works with 2 to 4 people and I’ve been in one that was 2 people and it worked great. I think 3 is the ideal number because then you’re getting two perspectives on things instead of just the other person. You want someone to have 20–30 minutes to really get in deep because if each person has 5 minutes to talk, you just can’t understand really what’s going on with their business.
[10:20] Now I have heard of masterminds like you said with 5, 6 I’ve heard of 8 person masterminds. Those are just run entirely differently than what you and I do. Those are run where it’s like every meeting 1 or 2 people get to speak for a longer period of time. Maybe you get 20 minutes when you’re on the hot seat and everybody else only gets a 5 minute update. I can’t imagine being part of a group like that. That’s not called a startup mastermind. Maybe that’s some other type of meet up or something else but it’s not at the level that we’re talking about when we’re using the term startup mastermind.
[10:53] Mike: So the next question is how often should you meet? I’ve heard of a lot of other groups that will meet once a week or even a couple of times a week. My group meets once every other week and I feel like every other week is the right amount of time because with half an hour allotted to each person, you get to talk a fair amount but at then at the end of it there’s an accountability area and that gives you – or the week in between each meeting gives you enough time to really buckle down and work on those things. And if you run into any sort of issues, you still have time to be able to get some of that stuff done from one week to the next. If you’re meeting every single week, it almost feels like any sort of commitments that you have or that you’ve set for yourself, it may very well be very difficult to meet some of those commitments just because you don’t have enough time to do it.
[11:40] It’s like okay well I’ve got things that I’m going to work on and its going to take me 2 weeks to do or 3 weeks to do and your report for the week is for 3 or 4 weeks straight is going to be well yeah, I’m still working on that. I’m not done yet. I’m sure you can go into a lot of detail about it but to me it seems like meeting every other week has worked out really, really well for us and with that sort of schedule, you can still move it around a little bit during the week. It’s not that big a deal. I think that we’ve only had to move ours I think twice but we still resorted to email updates on those weeks where we just couldn’t meet. There are ways around that sort of thing but to me it feels like once every other week is probably ideal. I think you could get away with once every week. I think Rob you’re in one that meets every week right?
[12:23] Rob: No, both of mine are every other week and it’s for the reasons you’ve outlined. There just isn’t enough time to bite off a large enough chunk to make it interesting if you’d meet every week. Plus if your mastermind like you said, yours run 90 minutes and mine typically run between 90 minutes and two hours and that’s a big chunk to bite off every week just to sit down and talk about work and not actually work. And so to bite off two hours a week, I want to kill that time but certainly it’s helpful in the broader sense but to not be able to be productive for those hours would be a big deal.
[12:55] I agree with you pretty largely that every other week since to be the ideal tempo. If struggling kind of with your business or with the mental side of it that then it would feel like too long and that there’s not enough accountability that you could feel isolated so that’s where I feel the two week touch point that even if you’re having a rough time, that’s often enough that it can kind of get you back on track.
[13:17] Mike: So here’s another question for you specifically. Since I’m only part of one mastermind group, you said that you’re in two different ones. How does that work and how does that I guess correspond to when you were a member of just one because I imagine the experience is a little different but as you said, dedicating that time every week would be really hard but again you’re in two so you’re basically dedicating twice as much on those weeks where you do have the meeting and then none when you don’t. Do you find that it’s more helpful to have a second one?
[13:48] Rob: That’s a good point because since I’m in two every other week it’s kind of like I’m in one a week. The reason that it works for me is because I’m not in two Skype mastermind groups. I feel like for me, that would be too much time because that would essentially be two hours every week on Skype. One of them’s in person and one of them’s via Skype. And the Skype one is with some more experience founders who are in other parts of the country and we really dig into a lot of nuts and bolts and detailed stuff that literally maybe 10,000 people in the world have any interest in at the level that we’re talking about. I mean it’s just such a small – maybe it’s 50,000 but it’s just a tiny, tiny number. And so there are just aren’t that many people who can discuss the intimate metrics that we’re talking about and really understand the design element. So that’s where the Skype comes in as just finding people to do it is tough.
[14:36] The in person one is a little more casual, it’s a little more fun and we almost always do it at happy hour. And so we go to a pub and we’ll have a few drinks and we’ll have appetizers and then we’ll chat. Sometimes we’ll do it in my house and I’ll host but it’s basically the same thing. I’m pouring drinks and more hanging out in the evening. So that’s where I almost use it as its both a social/have fun type thing but we also, we do get into the nitty gritty of our business but our businesses aren’t as closely aligned as with the Skype mastermind. I think I’d have a tough time being in two intense hardcore masterminds like my Skype mastermind is.
[15:13] Mike: Do you find that you actually get anything done while you’re drinking like that or no?
[15:16] Rob: Yeah. We do. It’s not like we’re frat boys doing keg stands. I mean we’re having conversations. We’re reading from notes, taking notes, asking opinions. Definitely making decisions and helping each other. Yes. We definitely get things done. The nice part about being in person is a couple guys come over and we’re sitting there chatting and having drinks for three hours, it doesn’t feel that long because we’re just hanging out. But being on a three hour Skype call is pretty irritating. It just gets old and you’re sitting or too long and we can be more casual with the time and even at times go into more depth on certain topics just because you have the luxury of being there in person.
[15:57] Mike: So one of the things that we did which was actually a recommendation from you was when we were setting up our startup mastermind, one of the things that we did was we essentially setup expectations for what that mastermind should be and what we expected from everybody. And two other things that really came out was 1) an expectation of complete confidentiality from everybody. Anything that you talked about during that meeting or during those various meetings would not go beyond the people that were there. It was kind of regardless of the topic whether it was personal stuff that came up or whether it was business related or contracts and stuff like that because there are legal issues that you may need to discuss with people and those are the things that you don’t necessarily want going out to anybody else or discuss outside of your circle.
[16:40] The second thing that also came as a recommendation from you was having an opt out clause after some sort of a trial period. I think it was something like eight weeks to say is this working for me or is it not because eight weeks, it sounds like a long time but it was really just four meetings and I think that if you don’t really gel as a group within four meetings or so, it probably isn’t going to happen and you might want to go off and find other people to be part of your startup mastermind group. Are there other rules that you setup in your masterminds?
[17:09] Rob: I can’t think of any but the confidentiality I think is one that I want to underscore because if I’m going to do this, if you’re going to be serious about this, you need to bring it to the table. I bring everything. I bring my lifetime value, my customer churn numbers, revenue, net profit, super decisions I make. I bring stuff in there that I don’t talk about with anybody else and that means there has to be confidentiality. They can’t go talking to other people about it. I think that’s a key. And then you mentioning the out clause, that’s something that I’ve done with both of mine and I think the important thing is that you’re going to probably be setting this up with people you know. Right? It’s kind of friends. And so if it doesn’t work out, there really needs to be a no hard feelings opt out period for 6-8 meetings or whatever.
[17:56] So as you said, yours was four meeting and I think that’s the ideal duration to really figure out if you’re going to get value out of it because think about it. If you get in there and you’re talking and maybe let’s just say you think you know these acquaintances or these friends and you get in and one person just dominates and doesn’t really offer a lot of information and you feel like you’re wasting that 90 minutes every two weeks, you need to feel comfortable that you can say you know what guys, this just isn’t working out for me. I’m sorry. And be able to back out and have that no hard feelings thing. Just as anyone else who comes in, maybe they just don’t feel comfortable. They want to be on their own or whatever that you don’t have the judgment of them if they decided to leave.
[19:34] So I think those are some pretty key aspects of it to keep it less stressful because anytime you’re setting something like this up with friends, it always has the potential to kind of go downhill.
[18:44] Mike: So in terms of logistics, we talked previously about the schedule and for us, we have a very regular schedule. We meet every Tuesday night at 8:30 and it’s from 8:30 ‘til about 10 or 10:30. Do you use a regular schedule or no?
[18:59] Rob: So the Skype one is a regular schedule every two weeks Wednesday morning and then the in-person was regular for a while and now we’ve kind of let it flux and I’ll find that we, unless one of us thinks about it, it will go three weeks and its even over the holidays when I think a month. I was thinking the other day that we need to get it back because it used to be every Thursday afternoon at three o’clock at this one place. There’s a happy hour and so we probably just need to kind of pencil that in the game. I think there’s a lot of value to making it regular because if you have to plan it individually every time it’s so frustrating but if everyone just blocks this thing out for the next year and blocks out that same time on Tuesday or Wednesday or whatever, that’s really the way to go.
[19:36] Mike: Yeah and I think that you and I found that even just recording this podcast very, very early on, just setting that regular schedule really helps because it was like oh well, at this time and every single week I know that I have X planned so I can’t plan anything else for that as oppose to saying okay well I can move this around or always trying to find a place for it and it’s just logistically it’s hard to think and plan for stuff when its constantly changing every week. So I really feel strongly that having that regular schedule is extremely helpful not just for mastermind but for other things that you’re working on.
[20:08] So the same point, using the same type of media mechanism every week to prevent technical issues or from cropping up and switching let’s say between Google hangouts and then to Skype and then to something else, always trying to new things just because they’re new, I feel like that’s not really conducive to having a mastermind or we use Google hangouts every week. I think you said you use Skype?
[20:30] Rob: Yeah. We used Google hangouts for a while but they kept changing the interface and it was causing us problems. Just the technical part of it. People weren’t getting invites and all this stuff so we have switched to Skype. I paid for – you know you have to pay for a pro account for a year. It’s like $50 but then you can do the multiple video Skypeing with multiple people. And so I just forked it over and now at 10 AM we’re all there and I call both people.
[20:55] Mike: Yeah. We’ve definitely had some issues with Google hangouts. It depends on what everybody’s comfortable with whether you use Google hangouts or whether you use Skype, I would definitely recommend this and I think Rob, you’ll probably agree with me that you definitely want to use something that has video. I think that’s something that people might overlook when they’re beginning to build up a startup mastermind and I think that people don’t necessarily think about it but I think having that phase in front of you where people are talking and you’re actually seeing them talk and facial expressions and having them be able to hold stuff up and show you things, that is such a valuable experience because it just adds so much context to the things that they’re talking about. If you’re just hearing this voice on the other end of the line, it’s a little bit disconnected and it doesn’t necessarily give you the same impression that you get when you’re talking to somebody through video.
[21:44] Rob: Invaluable. Yup, I echo that.
[21:47] Mike: So what about accountability? We have our own mechanism for accountability but what do you do in yours?
[21:53] Rob: So we use Google docs. We have a single Google doc with bullet points and the three people’s names in the doc and then we talk about what we’ve done and what we’re planning to do over the next two weeks and challenges that we faced or stuff we need opinions on. I’ll admit that as of late, we’ve started to fall off the wagon with that. I have just started it up again with the most recent mastermind meeting and started updating their Google doc again but we did that for maybe six months and then just kind of we go from the top of our head now and it’s not quite as valuable I think to be able to look back through the history. It’s really interesting to look through the history and see what you’ve talked about and to think wow, you know, I remember when this was making $1,000 a month and now it’s making – that’s just crazy that I was actually at that point. It really gives you a sense of accomplishment and a sense perhaps of what the group has done for you.
[22:43] Beyond that, I know you guys touch base between or you have a message that comes out between your meetings and I think that’s a really good idea. I’ve never done that but I think it could be really helpful. Why don’t you tell folks how that works?
[22:55] Mike: Sure. So as I said before, our startup mastermind meets on Tuesday nights between 8:30 and 10 to 10:30 or however long it goes. And what I do is I essentially assign myself to be the scribe for the startup mastermind and what I’ll do is I basically keep track of who is supposed to be speaking and what the schedule is. So there’s three of us and everyone’s got I guess an assigned slot. And then if I spoke first this week then the next that we meet, I would speak third and I would speak second and then I would speak first again. And we just rotate so that everybody starts in different slots. So it does rotate and that’s definitely helpful.
[23:36] The other thing that we do is there’s essentially three different things that I take notes on. The first one is what people’s previous commitments were and those are generally copied from the previous week so whenever I start a new meeting, I fire up Evernote. I throw everything in there and I basically just write down everything that they said they were going to accomplish last time. And then I have a section for what people’s accomplishments were and then what they have said that they were going to accomplish the following week or the following time that we meet.
[24:04] And then what I do is once the meeting is done, I take the three sections for what people have committed to doing by the following meeting, I throw those into an email that I send out using boomerang that I schedule for the following Tuesday. I might do it on Monday. I forget which. But it’s basically early on the following week so that once about a week goes by you may have kind of forgotten about what some of your commitments were to the group for the next meeting and that email in your inbox basically becomes a trigger that says hey, these are the things that you said you were going to get done. Where are you?
[24:33] And I started this I don’t know, it was probably about after 6 or 7 meetings because I started to realize hey, I’m waiting until Monday to start working on some of these things and go back and look and see what it is that I should’ve been doing for the last 12 or 13 days. So instead, as a trigger to myself I was like well let me remind myself of the things that I should’ve been working on and I said well why don’t I just send this to everybody? And people loved it. I mean nobody complained about it. Everyone said hey, that’s an awesome idea. Thanks a lot for doing that. And it’s worked out really really well and I actually even get requests here and there for me to resend it on occasion if we move a meeting or if we have to skip one because of the holiday or something like that.
[25:16] Rob: Yeah. I really like that idea. I can see the value of it. When we’re having our masterminds, I’m taking notes and then I typically put them in my Trello board when I say here’s what I’m going to do over the next two weeks. I put them in Trello to do but that can get lost pretty easily if I come back and there’s a bunch of email and I really don’t get back to Trello because I’m too busy churning through a bunch of fires. It’s easy to forget that so I could see a lot of value and have that email sent out off week.
[25:40] Mike: The one thing that I liked about what you said was that you guys use Google docs and I don’t know, I guess I didn’t really think about that because I throw all of my notes into Evernote and then I just have a separate note for each of the meetings that we have but it probably makes a lot more sense for me to switch over and take everything, throw it into a Google doc and then share it with everybody so that everybody can see the entire history of everything as opposed to me just having the history in Evernote.
[26:04] Rob: Right. And then other people can modify if maybe you misquote by accident or you put some in there and they decide they want to add some extra things, it’s kind of nice to be able to collaborate.
[26:16] Mike: So next major question that I think somebody might have is how to find people for your mastermind and I think this is a hard question because you really have to look at who your peers are and you have to know the people that you’re going to invite. I mean you at least want to have some sense of what it is that they do. You want to make sure that they are doing the same types of things that you are and for me, I met the people who are in my mastermind group at MicroConf. So for me that made it extremely easy. If you’re going to MicroConf, definitely look around for people to join a startup mastermind with. But what about you? How did you go about finding the people who are in your startup mastermind?
[26:51] Rob: Pretty much the same way. It was through MicroConf and the academy and just kind of the stuff we’re doing. I can’t imagine starting a mastermind with someone I had not met in person. I received this question. How do you find people for your mastermind? And I’ve heard suggestions like well, go on forums or get to know people via email and this and that. And that might work but there’s always a large part to how to people interact and the intimacy of a startup mastermind and what you’re sharing, it really depends on interaction style. Do people listen? Do they always want to talk? Do they want to dominate? Do they just want to give advice? There’s a lot of subtlety there that you can’t pickup over a forum or another non in-person mechanism. So personally I would go to an in-person event.
[27:33] The most masterminds I’ve heard come out of anywhere is out of the MicroConfs. We’re these Micropreneur meet ups and masterminds just springing up out of MicroConf Europe a number of them have already come out of it and same with the Vegas one. And I think the other place where I have seen stuff start to spring up is of course the academy. It’s our membership website so there’s a community there. And like I said, this year we’re going to be doubling down on that and really focusing on building that community and expanding it and so that’s the kind of place that I think you can go.
[28:02] I don’t know if you can go to a public forum like the old business is software stuff or answers down on startups.com or those kinds of places. I don’t know if you can go and do that. I’ve never done it and I haven’t heard of it being done. I’m sure it’s possible but I really think that you kind of have to go to that in person aspect. The other thing I’ll say is when you’re looking for the types of people to invite, you really want to find people that are ahead of you.
[28:30] In an ideal world, the other two people would be just enough ahead of you that they still remember what it’s like to be where you are but that they can give you advice based on what they’ve learned. Now obviously, that’s not possible if there’s three people. Everyone can’t be a head of the other. But what I have found interesting is that in the masterminds I’m in, there’s typically some expertise in a certain area. So one guy might be really solid on UX and ahead of everybody else and another person might be a head in terms of high touch sales and another might be ahead in terms of content marketing, another ahead in terms of paid advertising. There’s these different aspects of it.
[29:04] And so I think when you’re setting up a mastermind, don’t just grab the first three people you know who are your friends who are also founders but think about who is doing what I’m doing? So if you’re running a Saas app, try to find two other Saas founders. If you have a WordPress plug-in, try to find two other WordPress folks and if you’re doing info products, try to find info products etcetera. It’s not to say that’s the only way to do it but I think that in the ideal scenario, if you’re B to B, they would also be B to B and the type of software and they would be relatively close to you within let’s say a year ahead or behind you in terms of the path you’re traveling as a founder.
[29:39] Mike: I found that even when you’re working with other people in the mastermind group it’s really nice to get that additional perspective because other people have different experiences than you especially if their background are different. So I don’t know as I would necessarily shy away from people who are not Saas founders for example because Audit Shark is a Saas based business and the people that are in my mastermind group, none of them have a Saas based business right now. So I still get a lot of good information from them though so I don’t necessarily know as I would shy away from them. I’ve gotten a lot of great things out of it and even just in how to deal with a recurring revenue business, they’ve had some really, really great ideas that I’ve been able to take and implement. There’s other sides of it as well.
[30:21] Rob: Absolutely. It can work both ways for sure.
[30:23] Mike: It depends a lot on the type of people but I mean we’ve kind of talked about that is like you need to have the right types of people and make sure that the personalities don’t clash and get that trial period or opt out clause in there so somebody can walk away with no hard feelings as long as things are working.
[30:38] Rob: I think what you’re saying is personality may trump similarity of business and I would agree with that. The personality mix in your mastermind is going to have 80% to do with whether or not it’s actually successful because again, if you get people, if you come into the mastermind and you feel judged or you feel put down or again you feel like someone dominates, you feel there’s personality clashes in any direction and people are trying to pull away, it can really degrade the experience of the mastermind and it ruins the trust.
[31:08] I’ve also heard that mastermind’s going downhill because certain people just don’t show up or they commit to stuff and they just never do it. I mean there’s a bunch of things that can really kind of degrade the experience so you have to think to yourself are these folks reliable and are they someone who I want to spend two hours talking to every other week and really invest this time? Because that two hours is valuable. As a founder you can do a lot with that and I think you really need to think hard before you get into a mastermind relationship and I think that you will need to make sure that the folks are going to be compatible with kind of your working style.
[31:40] So that’s our show for today. If you have question for us, call our voice mail number at 1-888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.
