This week is a conversation between Rob and Jordan Gal, the founder of Cart Hook. We dig into the six stages of SaaS growth. We compare our journeys 1:1 between growing Drip and growing CartHook. It’s shocking how well the journeys line up with each other. Some of the differences in the journey are also quite striking. This episode is part one, and part two will go live later this week.
Jordan started CartHook as cart abandonment software and became a checkout replacement solution for Shopify. He has been on the podcast a few times answering questions, and he has spoken at MicroConf a few times. He is also the co-host of the Bootstrapped Web podcast.
The finer points of the episode:
- 6:00 – Stage 1: Prelaunch
- 8:33 – How to create your own luck when your SaaS app is in the prelaunch phase
- 13:37 – Stage 2: Post Launch
- 14:25 – The journey to finding product-market fit
- 22:25 – The most challenging parts of the journey for Rob and Jordan
- 23:29 – Stage 3: Product Market Fit
Items mentioned in this episode:
This week’s episode feels like it’s going to be one of my favorite episodes in a long time. It’s a conversation with myself and Jordan Gal, the founder of CartHook. He and I dig into the six stages of SaaS growth. What we do is we compare our journeys one-to-one between growing Drip and growing CartHook.
What’s interesting is that we took different paths to get there. He raised money, we didn’t, and yet there are so many parallels between the two journeys and the stages line up shockingly well in terms of MRR ranges, of pre-launch, to product-market fit, and to escape velocity. I was struck by (a) some of the parallels, and (b) some of the deviations.
When we started, I figured it would be a normal-length episode. We wound up chatting for almost 1 hour and 15 minutes, so I’ve broken this up into a part one and a part two. Part one is what you’re listening to today, and in part two, we’ll go live on Thursday. I would kick it next week, but of course, episode 500 is next week, and I’ve been planning for that for several weeks. We’re just going to do a twofer this week. I didn’t want to drop a 70-minute episode in your feed today.
We cover the first few stages of SaaS growth in this episode. What’s interesting is I was going to call it the six stages of SaaS growth, but you’ll hear me, towards the end, realizing these aren’t the only six stages. There are stages after this. I have the parenthetical, the first six stages of SaaS growth as defined and discussed in the conversation you’re about to hear.
A little background on Jordan, in case you haven’t heard of him before, he started CartHook, which was cart abandonment software and became a checkout replacement solution for Shopify. It’s doing several million dollars a year in ARR. Jordan has been on Startups for the Rest of Us four or five times answering listener questions, walking through his journey. He’s just a founder in the space. He’s come to several MicroConfs, he’s spoken at multiple MicroConfs, and he’s executing well and doing what a lot of us are trying to achieve. He’s done a really good job executing over the last six-plus years as he’s grown CartHook. The time flies quickly. He’s also the co-host of the Bootstrapped Web podcast, so you may have heard him on there. With that, let’s dive into our conversation.
Jordan Gal, thanks for coming back on the show, man.
Jordan: Absolutely. Great to be here.
Rob: It’s always a pleasure. I’m really stoked to be talking through our journeys, our entrepreneurial journeys, and looking at these six stages of building and growing a SaaS. What’s a trip, what I like about this is I floated this idea to you, like would you be interested in coming on to talk about your journey because you’ve just made it so far so quickly. I know it probably doesn’t feel that way, but I was thinking back to growing Drip, there were some pretty distinct stages. There was the pre-launch, the post-launch, trying to find product-market fit and all these things. I was wondering if ours would at all match up.
When I typed mine out in an email, I shot it over, and how do these match up with what you have, it’s pretty close. The revenue numbers are not exact but the general headspace and what you’re trying to do at these stages, at least at this end of two is shockingly overlapping.
Jordan: Yes. I think because we both started at zero. We were forced into going through these individual stages. It is really different from stage to stage. I’m excited to go back into it. I’m a little worried about all the memories and emotions that it’ll bring up because it’s been a hell of a ride. A lot of it is good and plenty of challenges.
Rob: I’m wondering how much PTSD this is going to bring up for either of us. It’s as you said, of course, there are some great memories. I can reminisce and say oh, man. Remember the good old days? Remember when it was just two of us doing this thing? But you know what, it was super stressful when it was just two of us because we didn’t know if we were building anything people wanted. It was six months of just grinding it out with no market validation and all that. It’s easy to romanticize any of these stages.
Jordan: Yeah. It’s also easy to forget how far you’ve come. Rok and I had a moment the other day. Rob’s my CTO and really my co-founder at this point. We’re really partners. He runs the tech team, I run the rest. We had a moment because we hit 100X from the time he joined. We were like you know what? Let’s take a little time out, get on Zoom, have a drink, and have some laughs because we just keep going through these milestones. There’s so much to worry about and think about, it’s tough to even look back at what we’ve done.
Rob: I’m glad you guys took that time. That was something I was not good at with celebrating the wins and celebrating the transition, and oftentimes, even realizing we were making the transition from one stage to the next. It was Sherry, my wife, who encouraged me to slow down and be like you realize you just built a million-dollar business the day that we crossed $83,333. I was like wow, that really is something that I’d been wanting to do for a while.
Jordan: Yeah, and they change. Recently, this week I had a new milestone. We closed our biggest deal ever, and I never talked to the prospect at all.
Rob: Wow.
Jordan: The team did everything. We’ll get into these stages and the stage that we’re in now. Let’s get there. Let’s start at the beginning.
Rob: Six stages. I’ve named each of these stages because what I’ve noticed is I’ve already (and a lot of folks already) used terminology around this, like pre-launch, post-launch, pre-product market fit, and post-product market fit, but I’m tapping into your and my later experience. Have a couple of stages that I think are cool to define and think about because I think if you do get into the multiple millions of dollars, that you will enter those. We’ll get to those in a bit, but pre-launch, we’re going to start there.
Obviously, I could tell a bunch of stories of pre-launching different stuff, but I’ll stick to Drip for my examples here. Obviously, you’ll stick to CartHook. Pre-launch, for me, was a bunch of customer development, and it was a bunch of validation. That was even pre-building. It was going out. I had 17 email threads going with founders saying if we build this would you pay this much for it? I got about 10 or 11 people said yes, I would at least try it out.
For me, it was a lot of marketing as I had a contract developer who was building into the background first half-time, and then he switched over to full-time. That contractor is a guy that a lot of folks may know. His name is Derrick Reimer. At the time, he was just a 1099. He was a friend of mine who wrote Ruby, and he was a good developer. This was going to be really the first app that I had built that I wasn’t going to write any code on. It was partially an intentional decision to pick a language I didn’t know.
My memory of that was me and this contractor both working remotely. We would chat on the phone once or twice a week, and we had met once to basically spec out what the original version of Drip was going to be. I was thinking about that, I was building the marketing list, I was going on podcasts, and I was running some Facebook Ads to landing pages to test value propositions, I mean all the smoke test stuff. I was also doing some MicroConf stuff, speaking, and the podcast. I was staying busy, but it was very much one of many irons in the fire that I had going on. I’m curious to hear how your experience with pre-launch compares to that.
Jordan: Similar in that your real pre-launch started years prior. What allowed you to really hit the ground running was years of work prior, and yes, the same for me. I ran an ecommerce company with my brothers several years prior to starting CartHook. My customer development was my own experience. My pre-launch was consumed with figuring out how to get a product built if I am not technical myself. Going through all these different options, talking to agencies, looking for freelancers, looking for employees, and looking for co-founders. I just went through all these different options.
I knew the product that I wanted to build. It was a cart abandonment app. It was something similar to what I used as a merchant. I knew it made me money and didn’t cost too much. The ROI was great. I knew I wanted to build something that specifically generated new revenue for merchants so I could price based on a percentage of revenue. I had all that, and my pre-launch challenge was how do I get someone to build this? As often happens, it was preparation plus luck. The luck for me came in the form of bumping into an old family friend of my wife’s.
We were doing our 18-month excursion where we lived in a different city for a month or two to figure out where we wanted to move. While we were in San Francisco, I bumped into the younger brother of one of my wife’s friends from back in Connecticut at the laundromat. I had just known him through the years as the computer whiz kid. It was just a coincidence. We ran into each other, then we started having coffee, and then it turned out that he had been doing a bunch of freelance work. He really wanted to basically learn more on the business side.
We just had this match between I want something to build, he wanted to build something, and that’s what happened. I gave him a piece of the company, basically took three months off from freelancing, built the first version of the product, and then handed the baton over to me to start selling. That was my version of pre-launch.
Rob: Wow. The younger brother of a friend of a sister in a laundromat? Sounds like you’re making it up. It sounds ridiculous.
Jordan: Look, his line item on the cap table will speak the truth. That it’s very real, it’s there, and I hope it really works out for him.
Rob: Quite a trip. A lot of questions for you actually because I haven’t heard you talk much about this stage of your business. As an investor, I guess I should have said that upfront. I’ve invested a couple of times in a couple of rounds in CartHook. I’ve been along on the journey with you, but I wasn’t involved yet at this point. I’m wondering, did you validate this idea? I’m imagining this already existed at the time. Why did you decide to build something that already existed, if that was the case?
Jordan: I liked the low-risk approach of that. I used to use a product just like this, and it was a terrible product. It made me money. When I looked at software ideas after selling the ecommerce business, what I did was I looked through our credit card statements. In the ecommerce business, where were we spending our money? I just identified that app as really high value and really low quality. What I said was okay, what if I build a better version of that?
At this point in time, I don’t really have the intention to build a company. My intention is how do I make $10,000 a month so I can do whatever I want. I don’t know where the software thing is going to go, but I like the idea of recurring revenue.
Rob: Life’s now business.
Jordan. Exactly. I wasn’t full-time on it, I was just exploring. I had worked in a previous business where I was a partner that had this quirk. It generated revenue about a year after doing the work. I had about a year of income without doing any work. That’s when I just said okay, I need to register to replace this income, so I can maintain this freedom to explore. I wanted specifically low risk. I didn’t want to come up with something new and not know if it was going to be wanted by the market.
I had my own validation. What I did, really, as part of being able to convince Charlie, the developer that joined me as the original co-founder, I did the legwork to show him that he wasn’t going to waste three months of his time.
Rob: That’s what I was going to ask you.
Jordan: That was the big thing to convince him. I said look, I’m the business person. I’m not just talking. I used to be a merchant, and I’ve been emailing. I did the cold email thing—30 different people a day—I had an inbox full of people saying, yeah, that’s interesting. I would be interested in looking at that. I would pay for that.
Rob: We get emails in the podcast and I get just emails to me personally about how do I find a developer, a technical co-founder if I’m not technical? I always say you prove your worth as that non-developer side. You prove that you can market, you can make sales, that you will hustle, and you will do work alongside that developer so that they’re not working for three months, like you’re saying, while you’re sitting around doing your thing, and then suddenly you’re going to magically market this thing. Most people aren’t able to do that. I didn’t know that.
My next question was going to be how did you convince him to do it? I love that you basically lived that. You showed him that it was worth it and that you could potentially build it. It’s interesting. You thought that you could build something similar but just better because the UX, the user experience of the other one wasn’t good?
Jordan: Yeah. The design was horrible, the UX was horrible, and the onboarding was terrible. It was a bad piece of software but it made me 3000 or3000or4000 every single month, and I paid them $79 a month. I would never cancel it because it kept making me money. I basically said I want to be that guy. That was where I landed. I had a few other ideas. That’s my pre-lunch.
Rob: What’s cool is the parallel of when I launched Drip. I say ‘I’ because at that time, I viewed it as another one of my apps. As we get later on, it’s we because it was Derrick and I as co-founders, and then it was a team of people. When I launched Drip, I absolutely viewed it as a lifestyle business. Similar to you, I was thinking I had already grown HitTail to about 25,000 or25,000or30,000 a month. That wasn’t super interesting to me anymore, I wanted it to be bigger, but I didn’t expect it to grow as quickly as it did from a start.
Once we got into it a little bit I did, but I was really mostly thinking about it like you were just like hey, I want to freaking build a business that throws off a bunch of cash. It’s funny that we wind up going down similar about different paths.
Let’s talk about post-launch. For us with Drip, as we were working on this, it was from about obviously zero in MRR. We built for about six months and then started a slow launch where I would launch to 300 people on the list. I think the total list was 3400. It’s about 300 people every couple of weeks. Getting them and we were trying to get onboarding set. We were trying to not churn everybody out. By the end of that launch, we were between 7000 and7000and8000 a month in MRR.
Over the next six months, we were flailing trying to find product-market fit because I was driving traffic, I was marketing it, and I was doing all the things that I had done in the past that had worked and they weren’t working. Churn was too high, trial-to-paid was not great, and it just wasn’t working. From about 0 to around0toaround10,000 or $12,000, I view this as a pre-product market fit stage, post-launch/pre-product market fit.
For those you’ve heard product-market fit on the podcast a bunch of times, I have a text expander in my head of product-market fit equals you’ve built something people want and are willing to pay for. That’s how I think about it. And are able to reach them at scale and have a bunch of leads because to me, that’s escape velocity, which is two steps from now. That’s the stage I’m […] to. But at this point, it was me and I believe Derrick at that point I’d say hey, I’m thinking of buying a house, I need a couple of pay stubs, W-2 in order to buy a house. We switched him over from 1099 to W-2, and I think he was making about the same amount of money, but it was more of an accounting thing.
At the time, I believe, Derrick and I were the two W-2 employees, in essence, working on it. It was still super scrappy, we had no office. Derrick would come over to my house. There was a […] on my property and we would sit there, chat, map this stuff out, and talk about what we were building next. It was totally freewheeling. It’s just week-to-week, day-to-day. I was doing the email support for the first few months until we brought someone in. That’s my post-lunch, pre-product market fit story. I will add, this was perhaps the hardest part because it was the mental game of not knowing if we were going to find product-market fit.
It took us from November 2013 until about it started changing in May, but it really peaked in terms of churn just plummeted, trial-to-paid doubled, and just every sign of product-market fit you can imagine happened in a 90-day span from May to August of 2014. Depending on how you measure it, it was somewhere between six and nine months from launch to where, oh my gosh, the unit economics on this business all of a sudden are amazing. The ROI of dumping more leads into the top of this funnel is going to scale this thing. That was the moment that I feel like that was product-market fit. That’s that stage three, so I won’t go into there yet, but I’m curious to hear similarities and differences of your post-launch, pre-product market fit stage.
Jordan: Look, good for you because mine was an extended torture session of 12 months, I guess. It was not pretty. This stage, like really good off the ground, launching, and generating some revenue was really no fun. What happened was Charlie passed the baton over to me. He built the product to a point where it’s good enough and now let’s start to sell it. I started with cold email and it worked. I got it to 500 MRR, then500MRR,then1000, then 1500. And then, Charlie got the offer of a lifetime for just his dream job at1500.Andthen,Charliegottheofferofalifetimeforjusthisdreamjobat1500 a month. I had to just tell him you have to take this job. I’m not going to let you stay with me. I’m not even doing it full-time. It’s making $1500 a month. This is your dream job. You have to do it.
He agreed and he took the job and committed to continuing to help nights and weekends. Then I was alone again. I was doing it half the time, I didn’t really know if it was going to go anywhere, and I was just filled with doubt on it. I just kept going. I figured out a cold email system that allowed me to grow faster. I had information built with, got sent over to a VA, then they qualified, and then they sent those records over to another VA that loaded them up into the cold emailing software. What got spit out of the process was scheduled demos for me. Then I would just do a few demos a day and then we started to grow. That got to about $3000 a month and then a little bit more luck came my way.
For me, this first phase really ended when Adii Pienaar, God bless him. We know Adii from the MicroConf community and just from the startup scene overall. He’s a great guy. He built a company called Conversio that just recently got acquired by Campaign Monitor. He’s obviously from WooThemes and WooCommerce prior to that. When Adii was starting his new company, Conversio, he emailed me and effectively offered an acquisition/partnership. He said look, I think what you’re doing with CartHook is interesting. I have this thing going on. At the time, it was called Receiptful. He said would you think about joining me?
I knew that it was too early to have any financial impact, but the conversation got me thinking. It made me perk up and take the opportunity more seriously with what I was doing. By coincidence, I was in New York at the time and started telling some of my friends about this potential partnership/acquisition interest. That’s when my friends, who all went into finance and made far more money than all of us, said why would you do that? It’s so early. Why don’t you just take a few bucks from a few of us and really give it a go?
That’s what started the next chapter for me because when I entertained really taking money, I knew I needed a full-time technical co-founder. That’s when I found Ben Fisher and that’s when we teamed up and the business changed trajectory. That first phase was just 12 months of doubt, pain, taking every credit card over the phone, and just doing it that way until it got a little bit of interest. Then I used that interest to parlay up into investor interest and then raise money. That’s when the next stage started for me.
Rob: That is crazy. That is also another case of serendipity in essence, right? Just a weird conflux of ATP and are asking you all that stuff and not getting you talking to some friends who decide to convince you guys around. What’s a trip is that’s when, at least the way I have it in my Google spreadsheet that I track my angel investments, I have September 2015 of writing the first check. My memory is you were around $5000 MRR at that time. Did you raise me on this?
I probably told you this in the past, this was a pre-Drip exit for me, so I had some money, but I was not in a place to be crazy with cash. I was still trying to grow Drip, and I was honestly trying to conserve cash. I had done a couple of angel investments prior to that. One of the things that I liked about what you were doing because we knew each other, you’ve definitely done Attendee Talks. I don’t know if you’d spoken at a MicroConf yet or not, but we had definitely hung out at MicroConfs.
The way that you executed, you just hustled. The whole cold email system that you explained to me at the time (and I was super impressed by that), the fact that you had scrapped as a non-developer founder to $5000 MRR in SaaS, which I knew is hard enough to do if you’re the one writing the code and doing everything. The other thing is the Bootstrapped Web podcast. I listen to you talk every week or most weeks, I guess. Three weeks out of the month. I was like this guy’s sharp. He just thinks about things in a way that I think makes sense. It felt to me like you were going to be successful. It was literally a bet on you more than even an abandoned cart.
I was like, an abandoned cart? Cool. I don’t know the abandoned cart space, I don’t know if there are 10 apps, I don’t know ecommerce. But if you’re telling me you think there’s an opportunity there—I’ve seen you execute on this—I want to be involved in this. That was a big piece of it for me.
Jordan: Thank you for saying that, by the way. All of us have these serendipitous moments come through. What I got good at over the years was just identifying how to take one small little thing and just keep parlaying that up into bigger things. That is a theme throughout the company. The way I found Ben Fisher, the co-founder, is he signed up for my product. He just had a cool email address, then I looked him up, and he sounded legit. I got on the phone with him and then impressed him enough to join me as co-founder. It was, again, a tiny little breadcrumb. I think all of us are surrounded by these things.
Building up the radar on knowing I should pursue this little tiny thing because there might be something bigger. I don’t know if it’s talent, skill, luck, or some combination of them.
Rob: I had said that post-launch/pre-product market fit for me was the most painful, agonizing part of the journey, do you share that sentiment, or were there times later that have been worse?
Jordan: Two stages from now was the worst for me. I’ll explain that. For me, stage two—post-launch—just felt like an extended torture session that I had to go through on the way to the next thing. I didn’t like it. It wasn’t for me. I would love to skip it on any other company in the future. It’s just something that I had to just deal with until we got somewhere better.
Rob: If you look at the State of Independent SaaS Report that we did or just look general on the internet and see revenue reports, most people don’t make it to the next stage. Stage one was pre-launch, stage two is post-launch/pre-product market fit, and stage three is product-market fit. Again, build something people want and are willing to pay for. For me, with Drip, keep in mind I also had an advantage that I had an audience at this time. That’s a big part of what got me to 10,000–10,000–12,000 without having to do the hustle and send the cold emails. I was able to lean on that audience for that initial kick-start.
Stage three I have as product-market fit. The numbers that I wrote down—this is starting to be from memories, so you got to give it a little fuzzy around the edges—is from about 12,000 MRR is up to about12,000MRRisuptoabout25,000 MRR. That was me and two W-2 employees. It was me and Derrick. As we were going through this phase, this is when Derrick and I started talking like you’re indispensable here. Derrick was starting about going off and doing his own thing because he’s entrepreneurial. That’s when we had to have that conversation about let’s figure out a way to make this work for everyone and make it worth your while, basically, to stick around so you don’t feel like you’re working a day job.
During that time, we hired a second developer. We were just building the product out. We were playing catch-up. We were first at launch to try to compete. We were just going to be like an email capture thing and autoresponders, then it’s like we’re going to compete with MailChimp and AWeber, and then we realized that the real market with the real money in it was—not that MailChimp’s not a real market with real money—that we could go up-market and compete against the Infusionsoft. At the time, it was Office Autopilot that later rebranded to Ontraport. It’s really not on most people’s radar anymore. Then ActiveCampaign was just coming about. They had been I believe white-labeled software, downloadable software. They were not really SaaS for that long before then.
We realized, wow, there’s so much more money the higher price points there. This product-market fit stage was from 12,000–12,000–25,000. We were building out the product and I was just trying to find repeatable marketing channels that extended beyond my audience because I really had exhausted just the usual my things. I call it a concentric circle marketing where it’s like first I’m going to talk to everyone who listens to me—my email list, Twitter, and podcast list. The next one out is my friends’ audiences, so I go on podcasts, I do that. The further out you get it’s like can I make content and SEO work? Can I drive cold traffic from pay-per-click ads? Can I do webinars?
This was a very scrappy phase of just trying to find repeatable channels that drove repeatable traffic. Again, at about 25,000, that’s when I felt like we had started hitting our stride, which is stage four. I won’t go into that yet, but I’m curious to hear how your product-market fit, essentially25,000,that′swhenIfeltlikewehadstartedhittingourstride,whichisstagefour.Iwon′tgointothatyet,butI′mcurioustohearhowyourproduct−marketfit,essentially5000–$20,000, how that went, and how you think about it in retrospect.
Jordan: I remember when Drip launched. The power of getting off the ground. I remember because I was in the struggle at that time. I don’t know about the timing but I’m pretty sure we were under 10,000 in MRR. Once you get to10,000inMRR.Onceyougetto10,000 MRR in 60 days really shows the power of an audience. We still see that these days. We see my podcast co-host and friend Brian Casel launching something with an audience. We see Adam Wathan and Steve and how much value they give. Whenever they launch a product it’s so much easier. I will remember that for the future.
For us, this stage, that 5000–5000–20,000, was bookended with success at first and then failure toward the end of the stage. Right around 5000 is when we raised some money. We raised friends and family’s money. It was like5000iswhenweraisedsomemoney.Weraisedfriendsandfamily′smoney.Itwaslike275,000, and that allowed us to go full-time, focus on it, and hire two engineers. It was myself, Ben as co-founder, and two engineers. Those two engineers are still with the company, by the way. One of them is Rok who’s the CTO. The other one is Jan who is now on infrastructure.
We built something actually worth paying for. We improved the cart abandonment product and then I went on a search for a flywheel. Just something better than the cold email because as soon as we left the Volusion market, which is where I built my ecommerce business and it was really easy to email the owner of the company, cold email stopped working. Then we had to figure out a better way. What we ended up figuring out were partnerships. What we would do is we would do the integration with a platform, then we would try to do some co-marketing, and we hit onto this perfect situation with a platform called Cratejoy.
Cratjoy was a brand-new ecommerce company run by Amir. He used to work at Zynga, who’s super smart, and they were growing like crazy. Full-on hyper-growth was just crazy. Every one of their merchants kept asking them for cart abandonment email. They didn’t want to build it themselves, and I just stuck my head out at just the right time and said we will build it for you, and then you could just tell her customers that they could use us so you don’t have to worry about it. He was like that’s exactly what we need to do.
We did the integration and then what they did is they took us and just built us directly into their admin. Everybody that created a new account saw CartHook right in front of them and then a lot of people signed up. That ended up being so critical to the whole life of the company because as we started growing in this way, the failure bookend of this phase was really coming to terms with the fact that cart abandonment was just not going to do it for us. The market started to get crowded, everyone started to go cheaper, our differentiator started to get worn away.
Our thing was that we captured the email as soon as it was typed into the field, and only the larger, much more expensive solutions were doing it, and then everyone else started doing it. I just did not like the future of the company in cart abandonment, and that’s when we made the decision to build the second product. But we couldn’t have done it without the flywheel, specifically from Cratejoy because what it allows us to do is spend six months building a new product while the revenue just kept growing anyway.
Rob: You self-funded yourself out of revenues in essence. I remember the conversation where we talked on the phone and you said I see this opportunity that’s not cart abandonment, and I want to build a second product. I was like, shiny object syndrome. I was like you need to convince me. Every founder ever wants to build a new product, why? You convinced me. My memories were like look, this is super risky, it’s another product. You now have to go find product-market fit again, but you’re mired in this every day and you’re thinking about this 100 hours a week. This is where you want to go with it, then you got to trust your gut. This is that founder gut-check moment.
Jordan: Yeah. It was very risky but I pretend to be more risk-loving than I really am. I always want to protect the downside. In many ways, I’m risk-averse, but I want the cake and to eat it too. I want to take additional risk while also protecting the downside. That’s the situation I found myself in when we said at the very worst, this thing’s just going to keep growing but slowly, because of the flywheel we’ve built. Even if we take this risk, at worst, I pare everything down. It ends up as two people doing 20,000, and we can survive. It was definitely a huge risk to take to build a second product with a team of four people and20,000,andwecansurvive.Itwasdefinitelyahugerisktotaketobuildasecondproductwithateamoffourpeopleand100,000 in the bank.
Rob: You had this cart abandonment app that was thrown off, let’s say, $20,000 a month and you used it to build the second product. You want to tell folks what that was and why you saw an opportunity there? Why was it unique? There was timing involved in this.
Jordan: Yes, there was. That’s right. Here’s what was happening. Everyone knows Shopify now and the incredible success story rocket ship like ridiculous performance that they’ve had, especially since going public. When we were in the ecommerce market, this was four years ago, Shopify was becoming successful and being talked about, but it was not the clear, straightforward, obvious winner in the market.
What was happening was as Shopify got better at making it easy to launch a physical product business and the ecosystem around it of fulfillment and importing from China, all these things started coming together in such a way that made selling physical products almost as straightforward and hands-off as selling digital products.
What that did is it started to attract all the marketers that were traditionally in the digital marketing space selling courses and e-books, it started to attract them into the physical product world. It is much easier to sell a physical product than it is a digital one in many ways. You put a picture of it on the site, you write some copy around the benefits, you put a price, and then there’s a buy button. It is much more straightforward than a digital book that explains how to do X, Y, or Z. That started attracting people, and at the same time, ClickFunnels was exploding.
The reason ClickFunnels was exploding was because it was building products in the market of those traditional digital marketers, but it was showing them how to very easily build things that sell physical products. The problem with ClickFunnels was that it didn’t have the infrastructure on the backend like inventory, fulfillment, and shipping. It just had a great system to just put up a landing page and be able to sell, most importantly to sell with post-purchase upsells. What people were doing is they started selling physical products on ClickFunnels. They would find success, but then they would run into the issue of not having enough infrastructure to do fulfillment, shipping, and so on.
They were dealing with CSV exports and losing their minds. Then they went over to Shopify, which had a much better system for selling physical products. But when they did that, they lost a lot of the marketing strategy functionality around the checkout and post-purchase upsells. There was just this huge pool of marketers that wanted to sell on Shopify with the post-purchase upsell functionality. That’s what we saw as the opportunity. If we build post-purchase upsells and a customizable checkout for Shopify, all of these people that are currently on ClickFunnels and want to come over to Shopify will come over along with our ability to provide them what they want. That was the moment right there in the market.
Rob: That was the right bet based on your growth since then. It’s a trip, and you no longer have the cart abandonment functionality at all, right?
Jordan: That’s right. We sunset it from the public eye, maybe 6 or 12 months ago, and we just left some of the merchants that wanted to stay on. It is amazing how long people will keep software around if you keep making them money. We haven’t touched the thing in three years, but we still have people paying us $100 a month because it keeps making them money.
Rob: It’s back to your initial premise of I paid 3000 or3000or4000 a month, or I made 3000 or3000or4000 a month from this software, and I was never going to cancel it as a merchant. That’s the thing.
Sorry to break in here but that is the end of part one. To recap, Jordan and I talked through the pre-launch stage, the post-launch/pre-product market fit stage, and the product-market fit stage. Part two that comes out in about 48 hours, we will cover the remaining stages of SaaS growth. Thanks for listening. I’ll talk to you then.
Episode 425 | How to Launch a Product Into a Mature Market
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to launch a product into a mature market. They give a definition of what a mature market is, list some examples of established players in different markets, discuss how to tell if you should enter a particular market and how to execute on it.
Items mentioned in this episode:
Mike: And I’m Mike.
Rob: 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: It’s the end of the year, so I’m just doing a lot of end-of-year paperwork that’s—mostly required government filings and getting ready for taxes and stuff like that. I had to submit, I think it was a affidavit of eligibility for my health insurance and it had to be done before the end of this year for my health insurance to be able to be renewed in April or something like that. It’s like, come on, you have to be kidding me. This far and advance and at the end of the year they’re requesting it but whatever you have to do it.
Rob: Yeah, that’s fascinating. The end-of-year stuff is always a pain in the butt. Because I’m always taking this time off. I take a week off, sometimes a week and a half off but it’s not fully off. I’m recording podcasts and doing a few calls here and there but a lot of thinking and planning scheming for the next year, and so it’s a bummer to have to think about government filings and that kind of stuff during this time.
Mike: How about you? What’s new with you?
Rob: Well, you probably hear I’m a little sick right now. Happy New Year everyone. This episode goes live on New Year’s Day. I hope your hangover is treating you well, and that Mike and I can be there for you. And for me, it’s another year, man. My birthday is December 28. So I turned 34 this year.
Mike: Did you say 34?
Rob: Yeah, I’m glad you caught that. Good. So listeners may or may not know how old I am. But everyone knows now that I’m definitely not 34.
Mike: I’m surprised you didn’t try to shoot for like 29.
Rob: Yeah, now that would have been good. I still get carded here in Minneapolis. So they’re funny. In California, they don’t card you very much at bars once you look old enough, but they still card everyone here. So it’s kind of not. It’s something you say, like, “Oh, I still get carded.” But it’s like, everyone kind of gets carded here.
Mike: Yeah, certain places I’ve seen where, like it’s just as a general rule. They’re like, hey, it doesn’t matter. Like, you have to card everybody. And depending on where you are, certain states or jurisdictions, they’ll say that if you have a violation of any kind, like you immediately lose your liquor license, and then, like, your entire business is gone. So I think that’s the case of the next town over here in Massachusetts, and they’re like, they’re not willing to take the risk. So there’s like, “Yup, we card everybody and if you don’t have ID, too bad.”
Rob: Yeah, that’s funny, you know, I found a retreat in California, and I walked into a bar and they carded me and when I walked an interval said they didn’t card him and was just laughing and laughing because they were like, “You look so old dude,” and he went with it but I think that’s funny when one person in a group gets carded and it’s kind of obvious you’re all the same age and I believe he’s like a few years younger than me as well.
So we have three new iTunes reviews. Three Mike, three in December. This one is from MJ SFS, says best Startup podcast. I’m on my fourth software, venture to battlemaps.co, and this podcast has been invaluable. Keep up the great work guys.
Another reviewer says a podcasting masterpiece filled with actionable product focused insights. It’s never moved from the top of my podcast list. Robin Mike are always full of enthusiasm, insights and great knowledge acquired from years of actually building products.
Thanks so much for those five star reviews. If you have not left startups for the rest of us a five star review. I would invite you to log into Stitcher or iTunes and help us get a few more listeners help us stay motivated and help us on those long, lonely winter nights when we’re sad and considering crying ourselves to sleep, and instead, we actually read our iTunes reviews to make ourselves feel better.
Mike: Because we’re not actually 34.
Rob: That’s because we’re not actually 34. So this week’s topic is interesting. I was going through our listener questions and there was a question that I felt like almost warranted an entire episode. So, I started just hammering out a quick outline. It turns out, it’s at least an entire episode and could probably be a book chapter. But the question asked, his name is Eric Roberts and he’s asking about how to launch into a mature market. He says, I know from listening to you guys, the competition in place is a good thing. But what about an overly mature market? How can you tell if a market is primed for a new solution to an old problem? And I think there’s a lot of nuance to this. I mean, there’s the idea of, what is a mature market, then how can you tell when you should or should not enter one, and how do you execute on that those are kind of the three angles that I was thinking it through. And so, that’s what we’re going to talk about today.
Mike: Cool. So where do you start?
Rob: Let’s talk about, what is a mature market, a give a little definition and some examples. So when I think of a mature market, I think of a market that has established players that are well known. So, think of examples in CRM, it’s definitely mature market, there is Salesforce, there’s HubSpot, there’s Base, there’s Pipedrive, there’s a long list Trigger, CRM, long list of folks there.
In addition, I think in a mature market, there tends to be maybe two or three really obvious choices. So if I say CRM, a lot of people think of Salesforce, HubSpot, maybe Highrise maybe Base or Pipedrive, in email marketing, in ESPs, people think of MailChimp, they think of AWeber, they think of Infusionsoft. I mean, there’s this kind of short list, it’s the opposite of the long tail, it’s the fat head, it’s called where there’s a cluster of companies, be it one, two, or three that have the vast majority of the market and kind of sit at the top of the market share. In addition, I think the third piece of that is that there are these product norms that have developed.
So if you think about CRM, there’s this nomenclature of leads, and deals and contacts. And if you think of ESPs, there’s this, these norms that are developed, like lists and subscribers and forms. And so, while this may not be an exhaustive list of everything that defines a mature market, those are the three pieces that I think of, in my mind, that kind of defined it, that’s having established players, it’s having two or three obvious choices, and then having kind of norms or nomenclature that have developed through those products – and then in the other products that are also entering the space.
Mike: I think the easiest way to recognize whether or not something is a mature market is if you go out to a handful of people and say, “Hey, do you know of any companies that are in this particular software vertical, whether it’s you know, CRMs or mailing lists,” like if the people that you know, or who are in your circles who have any familiarity with that can name at least two or three or four different companies that are in that space then it’s probably a mature market, obviously, like if they’re if it’s a not well-known industry, for example, let’s say like virtual tabletop software. If you talk to a bunch of people who are in that particular industry, they’re going to know very well like who the players are. But it doesn’t necessarily mean that it’s a mature market.
Rob: Yeah, I think that’s a good point. I mean, anytime you see a forum post that’s like, what do you use for CRM, you know, and then you’ll get dozens of responses and almost everyone’s using a different one, or what do you use for your to do lists? And, you know, there’s, there’s dozens and bug tracking and issue tracking and all these things. So what’s interesting is, I don’t think, you know, a mature market doesn’t necessarily mean it’s a big market.
Mike: I was just thinking that.
Rob: Yeah, because to even think about like more aware software where they have a mature product in a market that has been around now for more than a decade. They build a SaaS app for countertop installers. People who install the actual physical tile that goes in a kitchen or bathroom and that’s not a huge market, right? That’s not a $100 million market. And yet if you were to try to enter that now they are so far ahead, the market has matured because they launched in, I don’t remember what it was like 2006 or 2007. And they’ve just kept adding things in and maturing the market during that time.
Mike: Well, I guess it makes – tt begs the question like, is it considered a mature market? Or is it like mature players in that market? How do you differentiate between those two things like CRM, lots of people use it so by definition you could call that a mature market but for table countertop installers, they are more aware as is very mature player in that market. But the market itself is small. So do you consider it a mature market? Because it’s not like there’s a lot of competition or a lot of people in that market? So like, is that a mature market. Do you consider that?
Rob: Well, I guess by my definition, I have three points or is there an established player or players in the countertop installer market? Yes, because there’s more aware. Is there one, or two, or three obvious choices? Yes, there’s more aware and I think they own most of the market, but there’s obviously at least one other competitor and have they developed product norms that may not have existed before software into the space. I don’t know their space well enough, but I’m guessing that there’s nomenclature in things in their product that they came up with that that didn’t exist before then.
So I would say yeah, I would say even a small market I understand your differentiation of mature product versus a mature market but I feel like once there is a mature product or two in a market the market becomes mature at that point yeah.
Mike: I was just kind of thinking about the product norms piece of it because if there aren’t a large number of products in that market and obviously like there’s room for that software to grow and for the products who are already in place to grow that’s fine but do the majority of countertop installers know about them? How many of them are actually using software of any kind or how many of them are looking for it? Do you see kind of the direction I’m going with that because like if there’s 100,000 countertop installers, but only 500 of them are using software of any kind. Does that establish a product norm, because that’s only five percent.
Rob: That’s a good point, yes, and imagine if they’d been around for, you know, if you’ve been around for 10 years. So you’d say, “Hey, this is a pretty mature product. There’s a lot of features, it’s stable,” all those things, but you only have five percent market penetration. Is that a mature market? I don’t know. I don’t know that I have a good answer to that, other than that either means that they’re not marketing very well. And we’ve now removed from more of our software that we’re doing a hypothetical at this point. But in that hypothetical where this company has been around for 10 years, they only have five percent market penetration, and there’s really no one else, it’s only five percent of market is even using software, then either that’s a really tough market. It’s a market that is highly resistant to technology, or that company is not marketing themselves very well, right? They’re not penetrating the market past five percent.
So I would then ask myself – If I wanted to enter that market, which of those is it, because if they’re not marketing very well, we’ll come in and out market them. But if the industry is just highly resistant to it, then that’s probably not a good market to throw yourself into.
Mike: And I would say that that’s probably a general rule. If it’s hard to get into them, then it’s because they’re resistant to change and resistant to adopting technology, then I would probably would avoid them in general. But it’s a very different story if they’re not marketing themselves very well. And you just trying to make a name for yourself there.
Rob: Right. And I think, that’s a good point. Because the kind of the second point that I wanted to cover, this question I want to answer is, how can you tell when you should or should not enter a mature market? I think we’ve just touched on one.
If you determine that, boy, this market is mature and really no one else wants to use software in it and I’m just going to have to be pulling from the existing competitor who only has five percent of the entire space that would give me pause, that tells me about the customer type and about the how they don’t want to change, right. So then that means that even getting them to switch from a competitor is going to be really difficult. I think also entering a mature market, I personally would not do that as a first time founder without money. One example that I kept coming back to of course is the one that I lived, entering a mature market with the drip, becoming an ESP and then becoming a marketing automation provider.
If I had not had the experience and the past successes that I had and did not have the self-fundability, you know, I was pulling money off of hit tail and other apps that I had, I don’t know that we could have made it. I don’t know that Drip would have survived because the market had so many mature players. Again, MailChimp, AWeber, Infusionsoft, and others – and it cuts both ways because, obviously, that’s what made it possible to grow Drip so quickly is that the market was – it did have opportunity. But if you’re a first time founder and you’re not going to raise funding, I would seriously reconsider trying to enter a mature market because these are the ones we can get a lot of success but these markets are very, very hard to penetrate, if you don’t have the right tool set.
Mike: I just have a quick search for, something kind of running through my brain is where we’re talking about what constitutes a mature market and there’s terms like total addressable market and then serviceable available market, which to me it seems like going back to the example of, if there’s a total of 100,000 countertop installers but only 500 of them are actually using that type of software then maybe your serviceable market is only about 1000 or maybe it’s 750 or something like that versus the total market which is 100,000. And you can look at that and say, well, if the established players have 50% or 75% of the serviceable market, which again is only 750 or 1000, then that’s a fairly significant chunk of those people. And it’s because those types of people are resistant to adopting technology or adopting software solutions for that. And maybe the delineation there is like, are they established players? Do they have most of the addressable market or the serviceable market?
Rob: Yeah, I think that’s a good differentiation there. As I think through this, when I think of mature markets, where there is a lot of adoption. So let’s flip back to the ESP or the CRM or markets where total addressable and serviceable are approximately equivalent, or at least 80%, 70% of the total addressable is already using some type of software and is able and willing to pay for this, I don’t know that I can think of a really good reason not to try to disrupt one of these markets if that’s your ambition.
Like, disrupting an existing market is where that hyper growth comes from and hypergrowth for us bootstrappers might be getting to seven figures in two years and hypergrowth for AirBnb and Stripe, maybe was getting to seven figures in six months, you know, past the point of product market fit. Because you think about AirBnb, did they invent a new market? No, they really essentially disrupted the hotel market. It was an existing place where people were already spending money on these things and they figured out a different way to implement it.
Stripe is the same one, I have them as an example later in this episode. Did invent a whole new market? Did payment processing exist before them? No, of course not. There was Off.net, there was PayPal Web Payments Pro. There were all these gateways and all these services that were really a pain in the ass to use. And Stripe came in and just made it a heck of a lot easier. And even, Drip is the same thing, I think about – there were already ESPs, there were already marketing automation providers. But that made it that much easier to basically pull existing people away who were unhappy with the current state of affairs.
That’s what I think you have to find, is if everyone in the market is using a product and loves it, then maybe you shouldn’t enter that market. But I don’t know of a mature market where people aren’t disgruntled and you think of QuickBooks. Everybody hates QuickBooks, but everybody uses it. So is that right for disruption, you think of Slack, everybody uses Slack but now we see level.app from Derek Reimer, there’s a couple other apps in that space as well.
The more I think about—if that’s your ambition, and you’re willing to really go to the mattresses because it’s going to be a hard fight. I don’t know that there’s a good reason not to try to disrupt. Honestly, if you want to build a little niche lifestyle business and generate that low six-figure income and have it on autopilot and be able to work five or 10 hours a week, then don’t go into a mature market. That’s where I would say, think twice about it, because I’ve had apps like that and they don’t have the great single channel of traffic, and they made whatever it is maybe $1000 a month, and maybe it was 10 grand a month. But there were these awesome little niche products. I mean, they were not—they were in these very nascent markets in these very tight niches and you could autopilot them, but they would never grow past that.
And so, I think that’s the thing to think about, your personal preference. Does it sound interesting, fun to do the hard work and the stress of going after these mature markets? Because I think my hypothesis is that, like, most mature markets right now are ripe for disruption in one way or another.
Mike: Now, one question I have about everything that you just said there is that, it feels to me like a lot of what you talked about relates to the product itself and not necessarily the channels at which those markets are accessible. And something that really comes to mind is enterprise sales for certain types of software, so anything that’s installed across the entire organization, whether it’s 500, or 1000, or 50,000 endpoints in that environment, it feels to me like those are cases where it’s probably a mature market already. You probably can’t start there on day one, you’re going to have a really hard time going into those and being able to offer something that is going to compete with existing solutions. One, because they’re so far ahead of you, but two, also to be able to have the resources to walk in the door and do that at 10, 50, 100 different potential customers, because you don’t necessarily have the time. So, I feel like the channel that you use, that you’re going to get in front of these customers has to come into play here.
Rob: Yeah, no, it absolutely does. That’s where bootstrapping versus raising funding comes into play. If you’re going to bootstrap then your point is dead on. Don’t go after enterprise sales and a mature market because you’re just not going to have the cloud, you’re not going to have the logos, you’re not going to have the time to execute on that.
I have a good friend here in Minneapolis, who has worked for two different companies over the past few years. Both of them were heavily, heavily venture funded and both were going after these massive and mature markets. One was like data storage and the other one, I don’t even really know exactly what it is. But it’s deep-tech stuff. It’s stuff that kind of competes with like parts of AWS, or it competes with stuff that HP or HPE has, or launches or whatever. And yes, they were upstarts but they had to raise buckets of funding in order to do that and build out a team in advance of having any real revenue. And if it works, then they’ll take part of this huge deck of billion dollar market, but that’s the gamble. If it doesn’t work, then they’ll burn through their funding. If they have enough traction after 18 months, they won’t be able to raise the next round.
Obviously, we tend to talk to more to bootstrappers and folks who are listening to this podcast or probably on that side, but it is possible it’s just a whole different playbook if you’re going to do that.
One other exception I can think of when I would give it a second thought as to whether or not I wanted to enter a mature market is if there are other startups also entering that same space who are getting traction. To me, I’m more scared of other startups than I am the big, lumbering, 800-pound gorillas in the space, right? I’m less scared of sales or competing with Salesforce and I’d be more concerned of competing with Pipedrive or one of the other like, smaller, more agile CRMs that I see kind of innovating and things.
Mike: Yeah, I would agree with that. Although there are certain times where if your features start to show up in Gmail or something like that, like you probably want to be a little concerned.
Rob: Yeah, I agree. That’s just Gmail or Salesforce is going to move so much slower that it’s almost by coincidence. I feel like, if you build a feature and one of them, build it within a few months, they’ve probably been working on that for six or eight months. They don’t move fast enough to copy a little upstarts, until you become not a little upstart.
Mike: Yeah, for sure.
Rob: The other thing I would think about perhaps not entering a space, is if you find a space that doesn’t have early adopters. So you find a market – because that’s what you’re going to need, right? You’re going to need, you’re going to need early adopters to basically jump ship on existing solutions who are willing to switch. If you found a space where there are no early adopters—we could go back to that example where we had the company who only had five percent market penetration, and it took them 10 years to get that, it’s pretty obvious no one wants to change. And so, there really aren’t going to be, early adopters.
I can’t think of another good example. I mean, maybe I think of like, the legal space. I know that, when I was a consultant, I worked for a guy who launched a product and legal space. I remember, he just had a really tough time getting traction, because there were not many early adopters in that space. So that could be, I don’t know, that space today and maybe there are more early adopters, but it’s spaces like that that I think are going to be hard to compete with where, the person’s motto is, “Well, I never got fired for choosing IBM,” or “I never got fired for choosing Salesforce.” If that’s really the mantra of everyone, then it’s going to be hard to penetrate.
Mike: I think the other consideration there is whether or not you have to essentially build something that is going to completely replace an existing solution, or you’re just solving an extreme pain point that an existing solution doesn’t solve adequately. And if people are angry about it and looking for a solution to that and they’re willing to plug your product, in addition to whatever it is that they already have as kind of a stopgap measure because it’s so painful versus you have to—it’s the difference between implementing two or three features versus implementing 250 because you have to completely rip and replace that entire product.
I think you have a lot easier time if you only have to implement a couple of things. And if you execute on them really well, people are willing to spend a little bit of extra money to get your solution in there because they’re in such a huge amount of pain.
Rob: So the third part that I want to cover is if you decide to do this, how do you execute on it? I think the thing that – maybe the common wisdom is you have to be 10x better in order to get people to switch. I would say yes and no to that. I don’t know that you need to directly build a 10x better product. I think you do need to build a better product. But I think there’s other things that you can improve upon that are not just product basis, not just a feature race or usability race. So I want to talk about three or four ways that I feel like you could be two-x better in each and perhaps they multiply together to give you more than more than 10x and this really comes out. I mean, the more I wrote this down, this just came out of the Drip playbook. It’s the playbook that I executed as we as we built Drip up and it was these four places where we innovate.
There may be more but this is what comes to mind. The first is, price and if you’re in a mature market and you have a huge player, they often have pricing power where they their brand name and they can charge a lot more than everyone else and you won’t be able to without that brand name. And not only can you not charge that much but you can use that strength of that player against them. And if your product—It’s easier to use and you’re cheaper, you can get these early adopters to start switching
Now, you and I’ve talked a lot about Don’t be the low cost provider. The point is not to be the low cost provider forever. It’s long term to raise your prices. But in the early days trying to price match a large competitor with a brand name, when you don’t have the feature set that they do, it’s going to be difficult.
And so, either price innovation, where you’re innovating on the pricing model itself, that’s risky, but you can think about it or just being cheaper. Again, it cuts in multiple directions. It can bring people who turn or who are more price sensitive in all honesty with drip. I mean, we were priced against Infusionsoft, and Infusionsoft was $300 a month to start and it had a $2000 sign-up fee that you paid right at the beginning.
And that was easy to be cheaper than them and still turn a heck of a profit, right. But we could start at $50 or $100 a month and still not have people who were super price sensitive because if you’re paying $50 or $100 a month, you still have buy-ins, it’s not like we’re going down to $20 a month or something. And so, that’s the kind of pressing I’m talking about, right? Or Salesforce, I believe, is $125 per seat per month, if I recall.
Think about being able to innovate on that and charge $20 or $30 a month per seat, that’s still a nice revenue stream as you’re getting started, and you’re not bottom of the barrel, you’re not a B2C pricing, but it is and can be a competitive advantage, especially in the early days.
Mike: Yeah, I think what you’re kind of referring to there is not using the price as just the sole way to get in the door and be cheaper like because, obviously, you don’t want to do that long term, but it’s really to unlock that the unwillingness to move by having the cheaper price and get them to take that step. You reduce the friction enough by lowering the price to be able to get them to say, “Well, you know what, I’ll give it a shot,” versus if you are priced exactly the same and you have an identical feature set or they have a much better feature set because you’re just not there and they’re mature in the market, then it makes it easier for them to justify giving it a shot. Or even just like saying, “Okay, you know what, I can’t buy into all that stuff because I can’t afford it right now.” Or I’m not even using 90% of it.
I’ve seen a lot of mature solutions out there where they will throw every feature under the sun into the product. And eventually it just becomes this model with that is difficult for some people to adopt. Because they know that they’re not going to use 80% of it. They’re like, “Well, why am I paying this much money for something, I’m only using 10% or 20% off.”
Rob: Second place, I feel like you can innovate and outmaneuver your bigger competitors with the sales model. Oftentimes, you’re competing against enterprise-ish sales models where they have high-tech sales process. You can’t sign up on the site, you have to see a demo. There’s often setup fees to pay the hefty commissions they’re paying to the sales processes. And so, if you bring them and make them, either no touch, or low touch, or even medium touch, you can innovate on that process.
Again, coming back to Salesforce, it’s very hard to go to their site. I don’t believe you can just go to their site and sign up for an account. You have to go through this long process. Whereas with Pipedrive, you can go and sign up for it. Same thing with with Infusionsoft versus Drip, that was always a differentiator, is that you could come and try Drip out, there was a free trial. Infusionsoft, you didn’t even get to see the product unless you were on a demo. They didn’t want to in there playing around with it. So that can be another way to, basically, bring your innovations to the masses and outmaneuver folks and it’s not a product, it’s not just a feature, usability, it’s actually implementing a different sales model that can be more conducive to bring on early adopters.
Mike: I would say that this cuts the other way as well. Because if there are products out there that don’t offer like the ability to get on to a demo because they’re trying to be mass market and they’re trying to have a low-touch sales process. If you go the other direction, then you can have a lot of success there because you can get those people who have given those solutions to try and they got confused or lost and they just said, “Well, how do I get on a demo or have somebody show me something.” And if that company doesn’t offer it and you do, then you can get them on a call and you can – I won’t say gloss over the things that your product can’t do but you can essentially offer to do those things for them and do that high touch onboarding process and thereby justify a higher price tag for your software.
Rob: The third area where I feel like you can outmaneuver the big competition is in product and this one I it’s really hard to do. But it’s pretty straightforward to describe it. You make it way easier to use, which doesn’t tend to be that hard when you’re dealing with larger clumsier companies with 10 or 12-year-old code bases, you ship faster—so you have a better shipping velocity of new features. And it feels like products are constantly improving versus there are once or twice a year launch cycles and you build a unique feature, or two, or three that no one else has for now. You try to figure out a way to go back to first principles and innovate on something that is really hard for them to do.
So, adding automation into your ESP, when it takes everybody else a year to do it. Because the code base and they’re already at scale is one way to do that, or adding a lot of integrations that you know, that the early adopters will use that your competitors have not added. Because again, they just move slower than you do. So, you know, you look around and you say, “Oh, there’s this whole new ecosystem around Stripe.” And there’s there, Baremetrics, and there’s ProfitWell, and there’s Termbusters, and there’s Stunning, and there’s all this stuff, it’s like, you know, Infusionsoft or Salesforce, they’re not going to integrate with those tools yet, because they’re just not on their radar. But if you integrate with all of them, you could scoop up this early adopter, you know, the bootstrapper crowd the, the online business folks, because they use those tools. Gumroad is another one, but I want to, underscore that having those features is a short-term thing, because if they are successful, other folks will implement whether other upstarts or you know big competitors will implement them. But that’s how I think about, product innovation.
Again, easier said than done. But that is the playbook that I see working as, as startups try to attack these more mature markets.
Mike: Something else, I think that kind of falls under this bucket is just making your product look better. I mean, there’s products out there – I’ll specifically look at things like paychecks or ADP where, to log into them, you’ve got to have this weird looking JavaScript plugin on your website, that you load into the browser or some download that it looks terrible. It looks like it was built in the 80s because it actually was and they’ve never changed it. They’ve never updated it. And you end up with companies like Gusto that came out, which used to be ZenPayroll, and they just looked fantastic and just the look alone makes it feel like it’s in a more modern application.
Of course it is because it was just recently built, but the look and feel of it can go a long way towards making people feel like you’re responsive to the needs of the customers and you actually care about how your product looks and is presented.
Rob: I think that’s a great example. I think Gusto is another example of a company that entered a very mature market and through—I mean honestly, if you look at these points I hadn’t—so here’s a great example, because I was thinking about Drip, and Stripe, and others, when I wrote these four points of price, sales model product and marketing, which we’ll get into next. But gusto came in their price was cheaper than paychecks. I think I was using paychecks before at Gusto and Gusto was cheaper, Gusto’s sales model was so much better, it was all self served. I didn’t have to talk to people, it was a lot easier for me the product itself was easier to use. It was a better looking as you said, and they file, I don’t know, all my stuff. I guess Paychecks did some of that too, but the experience of Gusto in the communication is all via email, like click and do things like it is so much of a better thing and then their marketing, I would say that I really heard about it from word of mouth and the other three price sales model and product really drove that for me, but obviously their marketing to get into the hands of early adopters like us, I think was a pretty deliberate decision.
Mike: Yeah, I think the word of mouth marketing, if you have a good enough product that, I won’t say, it sells itself. But like if the customers that you have love it so much over the other things that they’ve tried then that word of mouth is really going to drive a lot of revenue for your new customers. And I don’t know how easy it is to recognize that that’s what’s actually going on. But I have seen that happen. And, there’s certain products that I’ve recommended where you look around and you don’t see a lot of marketing for them, but you’ve recommended them a lot to other people or other people have recommended those products to you. It’s just easy to see when those things are actually working.
Yeah. When you’re in a mature market, and the number one player is big, but everybody hates using it. That’s when word of mouth is huge. Because you will be you will become the thing that we’re all talking about, on our podcasts, at conferences on our blogs. I mean, think of Gusto or, again, ZenPayroll when it came out. Think of when Stripe came up, a ton of it was word of mouth.
Zenefits, it’s basically likes Gusto but for health insurance and other benefits. Drip had a really strong word of mouth in the early days. You know, there’s others. I’ll give another example, ready to wrap up, but we’re working on something that’s really hard to generate in general, and it can be a cap out, when people don’t know how they actually grew. I’ll often hear founders say – Oh just word of mouth, and it’s like, Yeah, I don’t think it really was word of mouth. You know, you just don’t really know, you don’t track your metrics. But in this case, like a mature market where you have this reviled number one player, I think getting in there, building a better product, better pricing, better sales model can really lead to word of mouth and some good stuff.
I think the other thing that they don’t mention about marketing in a space like this is you can take the approach of being the underdog, right? It’s easy to market against big guys when you can basically talk about being the anti them. So Salesforce had their – especially in the early days, no software, right. They had the circle with the red line through it and it said software in it because they were saying, no on-premise software, no massive installation and server footprints and stuff – we are just this thing in the cloud.
They were anti software. Less accounting was kind of the anti QuickBooks. I don’t know that they mentioned QuickBooks by name but I remember one of their headlines was about all accounting software sucks or sucks less. I mean, it was it was a good—It was a really interesting approach to it. Drip was the not Infusionsoft, what was my headline – lightweight marketing automation that doesn’t suck and I was implying that most marketing automation software sucks and listed the Marketos and Eloquas and the Infusionsofts that are just not fun to use and they’re not fun to be sold because the sales model sucks and they’re really expensive and here’s all the reasons that you don’t like them and here’s why we’re the opposite of all of that.
So, if you’re going to enter this market embrace market leaders’ strength and turn it into their weaknesses. I think it’s Jiu-jitsu, where if your opponent is really strong and he or she swings you do a parry and you let their momentum carry them through and that’s a big part of marketing against these really big players in established markets – is what is their biggest strength can be turned against them as the biggest weakness.
I feel like we’ve covered this topic pretty well. I think the one last thing I’ll say is we’ve given a ton of examples of people doing this, talked about Stripe, Gusto, Zenefits, Drip, and a few others. The one other example, I think, that’s doing a good job of it today is Superhuman and it’s that email client that—they’ve changed the sales model, they’ve actually gone from no touch the opposite direction, there’s onboarding, every person individually. Their product, from what I’ve heard, is easier to use and it’s amazing. Their marketing is, obviously – they’re doing a good job with it. Now, their price is interesting because they’re more expensive than any other ESPs. So that’s a whole that’s a whole other thing from extremely experienced founders that they’ve, basically, made a gamble to say we think we can build something truly 10x better and we’re going to charge for it.
I think they charge $30 a month, which if you think about it, compare Gmail to Superhuman, Gmail is essentially free. Although, I pay for it now because of how much storage I use, but, very different pricing model there. So they’re one example that’s doing it successfully today. And they’re not following, you know, the exact playbook that we’ve laid out here. But I they also have buckets of money. They’re three and four-time founders. So that’s where you can, in my opinion, you can start breaking rules because you know which rules to break.
Mike: Yeah, and that’s really a matter of like, certain types of people are in so much pain, that they are willing to be the early adopters and they’re willing to pay more money for it because it just makes their lives that much easier. And whereas no knock against Gmail because I use it as well but there’s certain things about Gmail that I wish were just a little bit easier and I’ve heard the guy who runs Superhuman spoke before and he’s talked about like, how the experience is really what they focus on and I’ve seen him commenting on Twitter here and there and showing pictures of all the different things that they’re testing. Somebody said, “Oh, why don’t you support this products on,” such and such. And he showed them a picture of like eight different laptops, where they were testing different variations of like the browser client, and he’s like, “We’re working on it but this is what we’ve got so far.”
It’s incredible because it partly tells a story, but it also explains or demonstrates how much pain certain people are in to be requesting that stuff and still willing to wait for it.
Rob: Yeah, and they worked on Superhuman, I believe, for 18 months to two years. It was a small team of developers before they launched. So they broke they broke a lot of “rules”. And again, it’s because they did have a lot of funding, they had prior exits. I mean, the guy had started Reportive and sold it to LinkedIn. And then, he had even another one before that.
When you get to that level, you’re just at the point where you can make some difficult calls and pivot out of the risk because of your experience in funding. Frankly, which is something I talked about earlier in this episode.
Mike: I’m sure Data had something to do with it.
Rob: Indeed.
Mike: Well, I think that about wraps us up for the day. Thanks to Eric Roberts for sending us that 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 from “We’re Outta Control” by MoOt used under Creative Commons. Subscribes 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 406 | Should Bootstrappers Raise Money?
Show Notes
In this episode of Startups For The Rest Of Us, Rob and Mike answer the question of should bootstrappers raise money? The guys distinguish the difference between venture capital and angel investing and how raising an angel round may be a good fit for some types of entrepreneurs.
Items mentioned in this episode:
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 build your first product or you’re just thinking about it. I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: We have new iTunes reviews.
Mike: Oh, cool. What do we got?
Rob: This one from Find Fitness Pros. It says, “This is my go-to podcast every Tuesday morning. Rob and Mike continue to give their insights, not just info on exactly what to do,” and from Nathan Bell, he says, “Great information. I listened to one episode and I’m hooked. It was full of great information I can easily implement. Some of the info was a little bit advanced for me currently, but I’m confident that by selectively listening to more, I will pick up more.”
Those are a couple of new iTunes reviews that we have. I used to keep a worldwide tally of it using CommentCast and when I moved to my new computer, I don’t have the .exe or what is it called, it’s a .app I guess in Mac. I don’t have the executable anymore and you can’t download it anywhere. So I moved over to mypodcastreviews.com but it only gives me reviews, not ratings. We’re up to almost 600 worldwide ratings, I believe. People don’t necessarily need to write sentences or whatever, but I don’t have that tally anymore. Certainly, we’re above 600 at this point.
Now, what I have is I have 347 worldwide reviews and that’s a lesser number. I want to get back to the world’s rating. I think the guy at My Podcast Reviews says that they are going to add ratings but neither here nor there, the more reviews or ratings we get, the more likely people find the show, the more motivation it gives us. If you feel like we’ve given you some value as a listener to the show, it would be awesome if you can open iTunes or Stitcher and just give us a five-star review. Really appreciate it.
Mike: The solution to not having that app that gives you the numbers is just make up a number. So we’re at 3000 reviews I think.
Rob: That’s right. 3422 reviews. That’s great. How about you, man? What’s going on this week?
Mike: Well, this morning, I published a public API for Bluetick. Of course, I say it’s a public API but there’s actually only one person who actually knows about it.
Rob: It’s in beta?
Mike: Yeah, basically.
Rob: Early access, good.
Mike: I had a prospect who wanted to sign on and they’re like, “Yeah, I really need to have a public API that is available for me and Zapier wasn’t going to work for them. Basically as I said, I spun it out because I heard from a bunch of customers that I currently have, and I started talking to them about, “What is it that you need?” and trying to figure out what’s the minimum that I could build that this particular prospect or customer would need to get started. They only needed four things. Build those, put them into it, and then there’s all the infrastructure changes that needed to go into it.
It took a week-and-a-half just to do the infrastructure changes but now the best stuff if all taken cared of. I got that published out there and waiting for them to start using it, and then figure out what needs to change. I already made it very clear upfront, like, “Hey, here are some things that I know we’re going to change, and then over here, based on what you tell me, other things could change, so treat this as an absolute beta. Eventually at some point it will become stable, I guess, and then I’ll start pushing it live to everybody.
Rob: That’s nice. It’s nice to do. You’re basically doing customer development on what is its own little product. You can say it’s a feature but really some entire products are just APIs. You want to get it right from the start, and by start, I mean by the time you publish and people start hooking into it, you can’t change it at that point. I think it’s really good to take this approach of roll it out slowly, roll out one endpoint at a time and really think through how you want to structure it.
I was just on your site trying to guess the URL. I was going to just type in a bunch of stuff so you’re going to see a bunch of 404s in your error logs. Not a hacker, it was me, but I didn’t find it alas.
Mike: No, that sucks. I would tell you if you asked for the right price. Other than that, I also got my first fraudulent charge from Bluetick. It took a lot longer than I expected it to but somebody signed up, then they logged in, and absolutely they didn’t pay any attention to the onboarding emails. Come time when their trial is up, they got charged, and then I forget how long it was later. I was maybe probably three or four days later, I got a notification from Stripe saying, “Hey this charge looks fraudulent,” and I looked at it. I think it’s a debit card too and I was like, “Oh great.” Three hours later though like, “Oh you’ve had a chargeback.” I was like, “Wait, I didn’t even get a chance to decide that to do with this potentially fraudulent charge,” and they already converted it into a chargeback, which cost me an extra $15. Well that sucks, but, oh well.
Rob: Was it a person not using or was it a stolen credit card? Is that what you think? Or do you think that they just went in with the intention that it was their own credit card and they just intended at the whole time?
Mike: I’m not sure. It looks legit. The email address, I couldn’t quite tell whether it was real. I think it was a Gmail email address. I couldn’t really trace it back to a company or anything like that but the name on it seem to match what the email address was. I don’t know. I’m not entirely sure but I think it was from a real estate company or something like that. All right, well, whatever.
Rob: Yeah, that sucks. It’s going to happen. It’s definitely a milestone you don’t want to hit but you’re going to hit it eventually.
Mike: Yup. Certainly not a milestone to celebrate but I definitely hit it.
Rob: Yeah, exactly. Cool. What are we talking about today?
Mike: Today, I thought we would have a discussion about whether or not bootstrapper should be raising money. I guess by definition if you’re raising money, are you no longer a bootstrapper at that point? I think there’s maybe a time during which you are bootstrapping a company and self-funding it. I almost called it self-funding, like should people who are self-funding raise money, but again that would go against it.
The idea came because I saw Justin Jackson had tweeted out a link to an article he wrote over on Indie Hackers called The Bootstrapper’s Paradox. In that article, he shows a graph or what they’re doing for transistor.fm, which is the new startup that he’s working on. Basically it shows a graph of over the course of 60 months was 10% exponential growth and 5% turn. The MRR will get to $21,000. But 60 months is five years of time.
I thought it would be interesting to just have a conversation about this because when I was reading through the tweet that he had put out, there were a bunch of people who chimed in on it, mostly people who were listening to the show would have heard of like Des Traynor, Jason Collin, and Natalie Nagel. They’re giving their thoughts on this stuff and I just thought it would be interesting to talk about it.
Rob: Yeah, that’s for sure. 10% growth every month sounds like an impressive number but when the number starts very small, like $1000 a month, that means you’re growing $100 MRR a month. You just can’t do that early days or if you do, it’s going to take five years. You either need to figure out a way to grow faster or you need to be really patient.
This is a struggle. It’s funny that, Justin called it The Bootstrapper’s Paradox. I don’t know that it’s that as much as this is the reason people raise funding. We know people who are just bootstrapper through and through, you should never raise funding and 37signals used to say that and even mentions it that DHH and Jason Fried took funding from Jeff Bezos two years after launching Basecamp. It wasn’t even funding that went into the company. They took money off the table. If I recall, I think that number is public. I think it’s $10 million that he invested, was my memory and maybe I don’t think I’m making that up. It’s either rumored at that or it was announced.
They had essentially at that point had FU money and it’s really easy to make different decisions or just say, “Hey, we’re going to grow as slow or as fast as we need,” when you have that kind of money in your personal bank account and you’re just running this business day-to-day.
Justin’s article is a bootstrapper’s realization of “Oh Sh*t.” This is why people do raise money. It’s coming to that realization at this point and I think it’s a good thing to call out for sure. I’ve been thinking about this so much so I’m looking forward to today’s episode because in my Microconf talk this year, I talked about things that I learned bootstrapping and then self-funding and then in a venture back company after Leadpages acquired us.
In the last five to seven minutes I did just a little snippet about fundstrapping, which is this term that Colin from customer.io coined, where you’re kind of in-between. You bootstrapped a little bit and you raised a small round. I say it’s between 200,000 and 500,000 and you raise it with the intention of getting to profitability. Without, you’re never going to raise institutional money, or raise it from friends or families or angels, so you don’t give up control, you don’t give up a board seat, you really have the benefits of funding without the institutional chaos of it, the headache.
It wasn’t a throwaway piece but I almost didn’t include it in the talk. That piece has gotten me more emails, more comments, more thoughts, more people came up to me, ask me what that’s like, asked if I would invest or find new people who were doing fundstrapping. It’s just fascinating response to this, this thing that’s been percolating. It’s a long rant on it to start but I just think this is becoming more and more of a viable option and potentially even a necessity as the SaaS market gets more and more crowded.
Mike: Yeah. That’s the part that I think has changed over time, where five or 10 years ago, you could come out with a SaaS and you’d launch it to the public and you would start to grow by virtually the fact that there was nobody else out there or there were very few competitors out there doing what you were doing. Now if you launch anything, you probably got a couple of competitors just right out of the gate. If you don’t, then you probably don’t have a product that’s going to go anywhere. But if you have any competition, it’s probably substantially more competition today than you would’ve had five years ago or 10 years ago. Just by virtue of having launched five or 10 years ago, you were going to be more successful quicker than you would if you did the exact same thing now. It’s going to take longer, which means that you’re going to burn through more runway and it’s just going to be harder.
Rob: Right. Now, five or 10 years ago, there was less competition but the expenses would have been higher, 10 years ago especially because you literally needed a rack server. There was no Amazon EC2. In addition, there was still like when Basecamp first launched on their homepage, they were like, “You don’t have to install any software. No downloads needed.” They were still educating on just the concept of being in the cloud and there were hurdles there.
Mike: That was almost 15 years ago.
Rob: Yeah, that’s true. No, you’re right. That was 2005 or 2006? You’re right, 12 or 13. You’re right. But even with that, say 10 years ago, even with that, it’s still I believe was easier back then. But that doesn’t mean you shouldn’t start something today. It just means you got to house some more, you got to pick a better niche, you got to have more skills, or you need a little more money in the bank.
Whether that means you raise it yourself out of consulting efforts, which is what I did, or if there’s definitely more money being thrown around as funding these days that is, I’m not going to say no strings attached because it’s certainly they take equity, but 10 years ago if you took half-a-million bucks, boy that was typically institutional money, it was a pain in the butt to raise, you are giving up a lot of control, you are giving up a board seat, that is no longer the case. There really is this viable option, this in-between.
Mike: I think if you look at the businesses that, in the past have tried to figure out how to raise capital, one of the things that most people, 15-20 years ago, it was common to say, “Okay, let me go to a bank and get a loan from the bank.” But that is a non-starter for most new businesses. You got SBA loans and things like that where you can use the money to take over an existing business where they’re able to evaluate.
But if you have a business that you’re trying to get off the ground, a bank loan is basically a non-starter, especially when it comes to SaaS because they don’t understand how to calculate how much that business is worth. There isn’t any inventory and with software, it’s going to lag in terms of the revenue over something like a physical goods business, or a coffee shop, or a fitness studio where they know how many people are coming in and they can put a value on the equipment whether it’s the coffee machines or the spin cycles on a fitness studio. Banks are okay with that. They understand that.
But when you got a software business, the expectations today are much higher than they were five or 10 years ago. You have to do a lot more in order to make your product a lot more polished, which means it’s going to take time to do that which burns through your runway. It burns through that money a lot faster today. I guess you wouldn’t burn through it faster. It’s just you burn through more of it than you would have 10 years ago to get to the same point.
Rob: Even if you can get a loan, you have to send a personal guarantee. Now, all your personal assets are on the line. And if you decide to shut the company down, you owe them money. If you borrow $100,000 it’s a big deal. To me, that is more of a risk than I think an entrepreneur should take, unless you’re at the point where you already have, “All right, I’m at $10,000 MRR,” in which case you may or may not need the money, but if you’re at $10,000 MRR, you should raise equity funding anyway.
But if you know the business is going to succeed, that’s fine. When I hear that people charge $50,000 or $100,000 on credit cards to start a SaaS business, I’m like, “Oy vey.” That is going to be catastrophic. That is a really, really stressful way to live and it’s something I would not do, especially when we’re in a space where raising equity capital is relatively inexpensive. Raising a small angel round and selling 10% or even 20% of your company to reduce a lot of stress and to get there faster, I think it’s a pretty reasonable idea these days. It’s not impossible to do, I’ll say.
Mike: I want to talk about that specifically right there. What you just said was raising capital is relatively inexpensive. The reason I like the way that you put that is that when I think of the way I thought about raising funding years ago was that, “Oh, I’m going to have to give up a lot of control, I’m going to have to give up a lot of equity, and I don’t necessarily want to do either of those things.”
But if you’re thinking about putting together a business and you have anybody who’s helping you—a partner or a co-founder, something like that—your immediately giving up 50% of the company anyway, and then there’s a whole lot of difference between doing that and giving up 50% when there’s really nothing there, and yes, it could grow up to be something huge, but you’re giving up 50%.
So there’s like a mental block there of you saying, “Okay, well I’ll raise $250,000 in exchange for 10% of this,” and you don’t want to do that but you’re willing to give up 50% to somebody else when there’s really nothing there that’s being invested except for their time. Do you know what I mean?
Rob: Yeah. It’s cognitive dissonance I believe is the term where two things that don’t agree or paradox, I guess. It’s something in your head you’re rationalizing one way but then you turn around and give away 50% to a co-founder. That’s what you’re saying, It’s like you can give a small amount to get a big chunk of money, or even if it’s a small chunk of money.
Here’s the thing. Let’s say you live in the middle of Minnesota, or the middle of Nebraska, or something and you have an idea and you raised even $100,000 or $150,000 and you paid for your salary for a year or a year-and-a-half. That gives you a year or a year-and-a-half to get to some point of revenue that makes sense. Even if you gave away 15% of your company, you’re valuing it at $1 million right off the bat, or if you give away 20% or $750,000, it still makes your life a lot easier.
I think that’s the realization I’m coming to, is that at Microconf, or through this podcast, or whatever at different conferences, we meet smart people who are trying to launch businesses and something that stands in their way often is that, “I have a wife and kids. I have a house. I can’t do this nights and weekends. But I don’t want to raise funding because it’s really complicated. I don’t know how.”
What’s funny is you outlined this episode and you brought the topic up. But this is something I’ve been thinking a lot about, and there’s a gap here in the space. We do have folks like indie.vc which, if you haven’t heard my interview with Bryce from indie.vc, it’s episode 310 of this podcast, and it’s a more realistic approach to funding. It’s kind of a fundstrapping model. I’d recommend you go listen to that.
In addition, I feel we’re coming to an inflection point where there’s this gap and there’s a level of interest in something, and no one is filling it. No spoilers on what I’m up to next, but I’m starting to feel I might be the person to tackle this, to take it on. I’ve been spreading the word about it. I have been talking about it for years and I’ve been investing in startup like this.
We talk about Churn Buster, LeadFuze, CartHook. These are all small angel investments. I’ve done about 12 angel investments and I think three or four of them were essentially fundstrapped. it’s where they took money from a handful of folks and they never planned to raise a series A. I put my money where my mouth is, but now I’m thinking I only have so much money, how is it that I can take this to the next level in a realistic way. It’s something that’s definitely in the back of my mind and it’s something that I’ve been thinking a lot. Hopefully, we’ll dive into more in the future.
Speaking of that, if you listen to this and your thinking, “Oh, this is an interesting topic,” go to robwalling.com. Enter your email because it’s going to be something that I’m going to be thinking more about in the future as well as on this podcast for sure.
Mike: One of the comments that jumped out of me on the Twitter post that Justin had put out there was from Des Traynor and he said, “I think a second piece people don’t really internalize is that 60 months of the best years of your career is a substantial upfront investment too. Like a seed round but instead of money, it’s your life.”
That’s a fascinating way of looking at this because even back n the day, I would always say, “Oh, well. You know you’re basically trading money for time,” and I don’t think that I really equated time with years of my life. It sounds intuitively obvious. That’s exact same thing. But when you’re in the middle of working on stuff, you don’t think, “Oh, I’m trading five years of my life away of hard toil to get this thing to where it could be a lot sooner if I were just to take some money and trade some of that equity for it.”
Rob: Right. It could feasibly be a lot sooner. It may or may not. Money doesn’t solve all the problems but it certainly makes things, I’ll say less stressful and you having done it with true bootstrapping with basically nothing and doing nights and weekends, to then self-funding with revenue from HitTail going into Drip, and then venture funded. I’ve done all three of these. I will tell you that having that venture money, I didn’t have to raise it and I did attend the board meetings but I didn’t necessarily have to report to the board. My life was less stressful at that point than either of the prior two scenarios.
I think it’s a good point, man. I don’t want to come off. You can tell, I’m coming off kind of pro-raising a small round, and I don’t want to come off too one-sided. We’ve never been anti-funding ever. From the start, Microconf, I think in the original sales letter. It was, we’re not anti-funding. We’re anti everyone thinks the only way to start a software company or a startup is with funding. That maybe from the introduction of my book, actually—Start Small, Stay Small.
Even back then in 2010, I was saying, “Look, raising funding is not evil in and of itself. It’s the things that you have to give up by raising funding. Just know what you’re getting into.” Yes, we have seen founders that get kicked out of their own company. There was, I figure what that app it was. Was it Tinder? Something sold for $460 million. No. It’s FanDuel. It’s sold for $460 million and the founder who started it, and I believe was CEO when it started, he got no money because of liquidation preferences and he’s suing them.
That’s a huge exit. He got I believe it was zero dollars from the exit. There was an article or something that was like, he’s suing them now. If the contract say this is what the liquidation preference is, that’s one thing but he’s suing them because he thinks they screwed with the valuation intentionally and there was fraud or something. He’s not going to win if he just says, “No, that wasn’t the deal,” because he signed the papers. These VCs are not stupid but he’s trying to do that.
Yes, that does happen. But I believe there is a way to do this and I’m seeing it with these smaller SaaS apps. A way to do it without that much stress, without giving up that much equity. Brennan Dunn, RightMessage. That’s another one. I also wrote a check. And Rand Fishkin’s SparkToro. He’s doing the same thing. He’s not calling it fundstrapping, but he said, “Hey, we’re going to raise around, and we’re going to get to profitability, and we don’t want to do institutional money. If you listen to Lost and Founder which is his book, he talks about the perils of all that and you couldn’t read that and say, I can see really they didn’t like – once they raise funding, he really didn’t like it.
You can look and say, “Well, Rand’s anti-funding now.” But no, he’s more anti-institutional money, and there’s a difference. Venture capital is institutional money. These angel rounds tend not to be.
Mike: But I think even back, we’ve talked about it on the podcast before. As you said, we always had the position that, it’s not that we’re anti-funding, we’re anti-this-is-the-only-way-to-do-it. That’s always been my thought behind it. I’ll say the majority of my career and thought process has been like, “Yeah, I really just don’t want to take funding in this more because I don’t want to necessarily give up control.” Back then there weren’t really the options for that. Now, things have changed a lot. It’s not, say, front and center on my radar, but it’s something I’m definitely looking at niche and exploring a little bit more.
I definitely think that—like with Bluetick for example—there’s ways to go further faster, but I just don’t necessarily have the money to be able to do it, which sucks but at the same time, it’s always a trade-off. I think that’s what you always have to consider is, what is the trade-off and what am I going to have to give up in order for me to get X amount of influx and then what are you going to do with that?
You have to have a plan. You can’t just say, “I want to raise money.” You got to have a plan for not just raising money but also what are you going to do with that money when you get it? How are you going to deploy it? How are you going to build the company and how are you going to grow things? You can’t just drop $100,000 in your bank account or $500,000 and say, “Okay great. I’ve raised money. Now what?” They’re not going to give you the money if you don’t have a plan.
Rob: And if you don’t know what you’re doing, money’s not going to fix that. You’re just going to make bigger mistakes. This comes back to the stair-step approach. No chance I would have raised money in 2005-2009 with ,DotNetInvoice, and Wedding Toolbox and just beach towels and stuff. Even if I could have made the case that DotNetInvoice would grow to something, I would have made huge mistakes because I made small ones back then. But I learned and I gained experience and I gained confidence.
By the time I get to HitTail, I remember thinking, “Yeah,” because remember, I bought HitTail for $30,000 and then I grew it up to basically that much MRR per month but end and I value at it. Maybe I should raise a little bit of money in it. It would make this a little easier. But to me, it was the headache of it. I was like, “I do not want to slog around and spend months asking people and the paperwork.” It just felt like a pain in the butt to me. I don’t know if I could have. Did I have the name recognition? Could I have raised enough?
Arguably, yes. By the time I got to Drip, it was definitely like it. If I haven’t had that HitTail money, let’s just say I’d had none of it. I basically used a bunch or revenue from HitTail to fund Drip. If I hadn’t had that? I absolutely would have seriously considered doing what we’re talking about raising a small round. I knew Drip was ambitious, I knew it was going to get big at least by the time we are six or eight months in, and it had a need for that.
That’s what we’re saying here is the words always, never, and should, they’re not helpful words. Don’t say, “I should always raise funding.” “I should never raise funding.” “I should raise funding other people think I should or shouldn’t.” These are not helpful words. Just evaluate things and look at them, and like you said, look at the trade-offs. Pluses and the minuses, and the realities of them, not the FUD. Not the fear, uncertainty, and doubt.
I can tell you the story, “Oh, look. The founder of Fandle. He got screwed by his investors. Therefore, I’m never going to raise investing or I’m never going to raise funds.” That’s dumb. Actually look at the black-and-white of it. I think that’s what we’re talking about today. We;re not saying you should or should not, but it’s look at the reality of it.
Now, you and I talked about this in-depth in episode 211, When To Consider Outside Investment For Your Startup. We went in-depth on what are funds and family round, an angel round, or often called a seed round was. We talked about series A, B, C. Once you get to the serieses, that’s when you get to institutional money, which is when things get way more complicated. Once you raise a series A, it’s the point of no return. It’s implied you’re going to raise a B, a C, and go on to either have this huge exit or an IPO, and it’s growth at all cost for the most part.
But if you’re able to stop before that series A and stick to people who are on board with you, angel investors and such are on board with, “Hey, let’s build a $5 million, $10 million, $15 million company with it, it’ SaaS. Let’s do a 30%, 40%, 50% net margin on this thing.” That’s great. That’s the kind of company I want to build and that’s the kind of company I want to invest in.
But venture capitalists don’t want to invest in that. If that’s not your goal, to go to $100 million and do what it takes to do that, then you don’t want to go down that road. You want to have those expectations clear both in your head upfront, as well as anybody who’s writing you a check.
Mike: Right. The problem with that is that episode 211 when we talked about that, that was four years ago. That’s a long time in internet time.
Rob: I might need to go back and listen to that episode to hear what we said. How much you want to bet? Oh, I’m going to go search it and see if the word fundstrapping if I mentioned it in there.
Mike: I don’t think so. Oh, it is.
Rob: Is it?
Mike: Yup. About 20 minutes in, you said, “I heard the term fundstrapping and I really like it. It was from Colin at customer.io.”
Rob: There it is. In 20 minute then boom. This is 2014, November of 2014 even back then.
Mike: But you were in the middle of Drip at the time, were you?
Rob: Yeah.
Mike: Was that right?
Rob: Yup. In the middle of Drip and I was probably already thinking about because at this point, we were growing fast and I was dumping all the money I had into it, both from that revenue and from HitTail, and I was thinking, “Boy, if I had half a million bucks right now, given our growth rate could have raised it. If I had half a million bucks right now, we could grow faster. I can hire more and have more servers and not shut down EC2 instances on the weekend.”
We used to do that to save money that’s insane, that lengths. I remember valuating Wistia versus SproutVideo, and Wistia, for what we need, it was $150 a month and Sprout was $30. It’s a nice tool but now way it was Wistia. I went with SproutVideo because I needed that $120 bucks to pay something else. We had to migrate later and it was a bunch of time and all that stuff. I never would have made that choice if we’d had a little more money in the bank. It’s the luxury of having some investment capital.
Mike: Yeah and unfortunately, you have to make a lot of trade-offs like that. You spend a lot of mental cycles and overhead making those trade-offs and just making the decisions because you don’t have the money, which is a crappy situation to be in. All that said, part of the problem is, you don’t necessarily want to raise money if the idea itself or the business model just simply doesn’t have merit. Maybe that’s partly what those investors are there for is to make sure that they act as something of a filter.
That’s always the problem that I’ve seen with angel investors is that they’re the ones who are in control, not you. Maybe angel investors isn’t the right word, but outside investment where they basically end up getting control of enough of it that you don’t get to make the decisions anymore. They’re the ones who make the decisions whether or not your business is going to succeed based on whether or not you get the money. If you can’t set aside the time, like nights and weekends, to be able to do it, it’s just not going to work out. You need that money in order to make the business work, then it’s going to be a problem for you down the road.
Rob: And that’s the thing is the losing control of your business tends to be if you raised multiple rounds because each round you sell, let’s say, 15%-20% is typical. May 15%-25% and if you do one round, you still have control. You and your co-founder or you if you’re a solo founder still own that 80%. But if you do another round, another right you get two, three rounds in, it’s typically by series C or D where the founders are the minority shareholder and investors now own most of it. If you don’t been on the path, it’s unlikely, or if you just make bad decisions.
I saw someone on Shark Tank where they had no money upfront and they sold 80% of their company to an investor, to an angel investor. Shark Tank was like, “We can’t fund you because you’re working for nothing.” All the work is for the investor. If you make a bad choice, that’s another way to do it too. You do need to educate yourself about it and I think that’s something that some people don’t want to do because it is boring stuff.
I really like the books that Brad Feld does and this one is maybe like venture funding or like a guide to venture funding. I got four chapters in and I just couldn’t stand it because it was all terms. He didn’t write it. It was more of a series that he’s involved in. The terms were just so boring that I stopped. I understand if you don’t want to learn at all. You need to learn enough about it to do it.
I want to flip back to something that Natalie Nagele responded to Justin Jackson and then it was actually just what I was thinking when I saw his graph. It was five years to $21,000 MRR. In all honesty dude, I would shut that business down before I wait it that long. I forget how long it took Drip but it was maybe a year. I don’t think it was even a year from when we launched and it was probably 12-18 months from when we broke around on code, that we had $21,000 MRR.
Drip was admittedly a bit of a Cinderella story. It was fast at growth than most but if you’re growing $100 a month in the beginning and you continue that 10% growth like that, you can’t do that. You need to get it up—
Mike: But I don’t think that’s a fair comparison, though, because if you look at the way Drip was funded into, you said 21 months or so to get to that point? He’s talking about a completed self-funded company versus something where you put money in from HitTail. Those are two entirely different things. I don’t know all about the details of Transistor but my guess is that there’s a huge disparity in terms of the amount of code and the quality of code that needs to go into something like Drip because of the sheer complexity of it versus something like Transistor.
Rob: Yeah, that’s true. I was for the long entrepreneurial journey too, I would say. I had successes that I’ve parlaid into it. You’re right. It’s not a fair comparison. I shouldn’t say with the Drip but…
Mike: I was just arguing about the point of, if it was five years to get to the $20,000 in MRR, should you shut that down? I think it’s a very different answer based on what it is that you’re putting into it. If you’re dumping $200,000 into it, yeah, you probably should shut it down if it’s still going to take you five years to get to that. But if you put nothing into it, or $10,000 into it but it takes five years to get there, it’s like, “Uh, well, I don’t know.” It’s a judgment call.
Rob: It’s interesting and that’s the thing. When I think back in 2005, I started with DotNetInvoice, making a couple of grand a month. It took me until late 2008 to get to where I was making about $100,000 a year, between $100,000-$120,000 a year and that’s when I stopped consulting.
So it took me three and a half years. But again, I did it with no funding and I cobbled it all together myself. That’s the situation we’re talking. I wasn’t doing SaaS. I did it with these multiple products. I think if I was less risk-averse, I’ve could’ve done it faster. I think that’s probably what we’re talking about here. It’s getting a little bit more ambitious and trying to speed things up. How do you do that?
Mike: Part of being more ambitious these days, I think, is because you’re forced to, because of the level of competition that’s out there. You have to do something that’s quite a bit above and beyond what you would have done three or five years ago because the competition is there and people are going to be asking for features that they see in other products that you’re trying to compete against. If you don’t have those features, they’re going to say, “Well, I could pay the same amount of money to you versus this other product and they’ve already got those features so why would I go with you?”
You’re just not able to compete unless you have those features there that you can demonstrate. It’s not even just about the marking. It’s about having the things they need. If you don’t have them, they can’t go with you. It’s not even that they like you. They just won’t do it.
Rob: Yeah and that’s true. Again, funding even the way we’re talking about it, it’s not going to fix all ills. If you pick those markets that’s too small or you don’t build a good product, you’re not going to get to action. Or if it’s a market that people aren’t interested, or you don’t know how to market, you don’t have the experience, you don’t suddenly become an expert startup founder just because you raise funding but if you have the chops and funding is a big piece.
Time is a big piece because you’re only working nights and weekends. You can only put 10 hours a weekend or rather 15 hours. It’s a big difference if you can suddenly go to 40 or 50 hours with two co-founders. It doesn’t fix everything. In addition, does it come with complexity? Yes. You have to report to your investors once a month with an email. You can feel the stress of that.
That was actually something that I asked Justin McGill, Jordan Gal, and Matt Goldman, those are the co-founders of those three businesses that I mentioned earlier, CartHook, LeadFuze, and Churn Buster, and I said, “Hey, do you feel raising this money made things more stressful or less stressful?” They each have their own take on it. If I recall, Justin McGill was like, “It’s more stressful because I feel like if we don’t grow, we’re going to let you guys down.” A lot of the investors he has a lot of respect for. That’s one way it cut through. It can make it more stressful.
I don’t want to put words in people’s mouths but I think Jordan had said, “It’s more stressful but better because it motivates him to succeed.” you got to think about how your personality is and if you feel like it’s going to add more stress, if suddenly five or 10 people that you really respect, that are friends, colleagues, and fellow Microconf attendees write a check to you, how does that make you feel?
Mike: Yeah. I think the answer’s going to be different for every person, especially depending on what your product is like, what the expectations are, how you’ve position it, and how the investor views it. Some investors just say, “Yeah, I may lose all this and that’s totally okay,” and other ones may say, “I have these expectations and you’re not meeting them,” if you miss a deadline or something like that.
There’s a lot of dynamics and complexity there. Some people will thrive in it and some people won’t. I think at the end of the day, I also feel having money has the potential to make the downsides of your product or business model worse. It will just exacerbate some of those issues. If you don’t have a market that you can actually go to, if you think you do but you don’t, and you get a bunch of money in, I think it’s just going to make it worse because yes, you can try a bunch of things and you’ll be able to throw money on it, but then you’re burning more money than you would have otherwise.
Rob: That’s the thing. I know we’re going long on time but really important. I would not raise any type of funding before I have product market fit. That’s a personal thing because (a) your valuation is way last before then, and (b) no one is going to give you money if you don’t have a product, period. You have to have a product these days. You can’t raise money on an idea unless you’re Rand Fishkin, or Jason Cohen, or a founder who’s been there and done that.
You have to have a product, you have to probably be live or at least have beta users, your should have paying customers. That’s a bare minimum to even think about trying to raise funding. You have to get there. You have to write the code, you have to beg, steal and, borrow to get someone to write the code. But the valuation is going to be way less and you’re probably going to burn though a lot of that money just trying to get to product market fit. From the time you launch until you’re part of market fit, I’m going to say it’s 6-12 months if you know what you’re doing.
You see founders like Shawn Ellis, you saw Jason Cohen, you saw me do a Drip. You see people who are pretty good at it and know what they’re doing, and it still takes them six months, and ours still takes 9-12 months to do it. At that point, once you do it and you do kick it in a little bit of that growth mode where it’s like, “Okay people, are really starting to uptick it.” That’s when you pour gasoline on the fire.
But before that, I have seen at least one startup in the last year raise a small round before product market fit, and just burned through it really fast because they staffed up, do a lot of marketing and do a lot of sales, and it just that their churn was so high. That’s typically where you can tell his people aren’t converting to pay it or they aren’t sticking around. There are dangers there. Like a samurai sword, like a said in the past, it’s a weapon that you need to know what you’re doing with to wield well and I think you need to be smart about when you raise.
Mike: Yeah and it sounds like there’s obviously different takes on it. If you want to go down like the VC or angel route, series A funding down the road, I think it’s possible to probably raise money if you have any sort of history or relationship with them, like if you don’t have a product yet. But you’re still also going to get eaten alive in terms of the equity shares and everything.
I think that point that you raised about you have to have a product and you have to have paying customers before you start to go raise money, that’s how you maintain your equity, a fair amount of the equity, enough of the control to be able to what you want, need to with the business, and also be reasonable sure and confident that you’re not going to just waste the investor’s money and burn those relationships. You can use that money for good, and you know what that money will do for you versus you’re still trying to get to product market fit. You don’t know who’s going to but it or who uses it, or why.
Rob: Yeah and the once exception as I’m thinking about it is if you raise a big chunk, let’s say you raise $250,000 or $500,000 and you feel like you need to spend it, and so you staff up but your not part of market fit, you’re going to treat their money. But the exception I can think of, is like I said earlier. What if you just bought yourself 12 months of time and you didn’t staff up but you just worked on it, or 18 months. You didn’t raise this huge amount of money or raise a small amount to just focus on it and work, I could see doing that before product market fit. That would get you to the point where then you can raise that next round.
I’m not trying to be wish-wash but I’m realizing I never said never raise before product market fit but I did say I wouldn’t personally. But I have the resources to get me to product market fit and I could work on a full-time to do that. It’s an exception. If was I doing it nights and weekends, then I would take money before I see I have to think about where the advice is coming from or where the thoughts are coming from. I’m just thinking it through as if I were literally doing this nights and weekends, I would consider taking money as soon as I could. If I was going down this road because going full-time is a game-changer. Being able to focus full-time, being able to leave everything behind is a big deal. It really is and a night and day difference.
Mike: I know there’ll be a range of opinions on it, but I wonder what most investors would think about, somebody saying, “Hey, we got this product. I’ve been working on it and I’d like to get some funding and money in the bank, basically to extend the runway because I got a little bit of something going here, I got partial product in place, I got some customers, but it’s not a lot. I need runway in order to make it work but I don’t know specifically how much runway I necessarily need or how I’m going to get to having $10,000-$20,000 MRR, but I need time to get there. There’s something here but I don’t know what.” I think it’s hard to evaluate for anybody what that looks like.
Rob: Yeah. I don’t know of any investors today that would work with that. I think that’s a good thing to bring up. It’s like, is that a gap in the market then? Could that be a successful funding model of looking at people who essentially have the potential and have, like you said, pre-product market fit but have something to show for it and looking at backing them for a period of time.
Anyway, I love this topic and I think that we’ll probably talking about it again, just soon you’ll be hearing more on it from me, but I feel we might need to wrap this one up today.
Mike: Yeah. Great talk. I like it.
Rob: Me as well. So if you have a question for us about this or any other topic, call our voicemail number 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 and visit startupsfortherestofus.com for a full transcript of each and every episode. Thanks for listening and we’ll see you next time.
Episode 231 | Breaking through SaaS Plateaus with Ruben Gamez
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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
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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 167 | How to Organize & Run a Startup Mastermind
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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.
Episode 134 | The Product Test (9 Attributes that Will Determine the Success of Your Product)
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Show Notes
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, Mike and I are going to be discussing the Product Test: 9 Attributes That Will Determine the Success of Your Product. This is Startups for the Rest of Us: Episode 134.
[00:11] Music
[00:17] Rob: Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:27] Mike: And I’m Mike.
[00:28] Rob: And we’re here to share our experiences to help you avoid the same mistakeswe’ve made. What’s the word this week, Mike?
[00:32] Mike: Well, we’ve got an e-mail from Jay Adams who says, “Dear Mike and Rob, first off, you guys rock. I’ve been listening to the podcast for a couple of years. And I really appreciate how you share real world facts and advice about your startup experiences. I finally started my own company focused on enterprise server management and security software called SystemFrontier.com. I’ve formed an LLC in January of 2012, released an MBP in October and got my first paying customer in December. I left a very good IT career on March of this year to go fulltime. I’ve been consulting through my business to help gets the lights on until sales pick up. I’ve got a long way to go but I’m all in. My family has been very supportive and hearing about other single founder experiences just to help me know there’s light at the end of the tunnel. I’d just wanted to say thanks.”
[01:09] Rob: Awesome. So, where’s our page? We need [Laughter] we need to get a page up of people who’ve quit their job. So, this is the first e-mail we’ve received after our call for people who were able to gain freedom from the 9 to 5. So, very cool. Thanks for writing in.
[01:23] I was interviewed last week on I guess I called it a podcast but it’s more of a video blog thing. It’s called the GrowthHacker.tv and I like their tagline. It’s “Growth Hackers don’t watch cable.” So, there’s a bunch of pretty cool video interviews up there. You do need to enter your e-mail address to watch the videos. And I think you can watch some previous three. So, it’s kind of a freemium model. You can the watch the freemium three by giving your e-mail and then youhave to pay a month of subscription to watch the entire archive and future ones. But the interview went well. The guy asked some really good questions and the other folks they’ve interviewed on there were interesting as well. So, I figured it resonates with our audience and some folks might want to get in early while it’s because it’s just launched in the past few weeks.
[02:04] Mike: Pretty cool. Is now – is there a limit of the number of people who can get in or is it like they’re time limited or no?
[02:09] Rob: Neither of those, yeah. It’s just kind of a freemium model where they charge a monthly fee to access the videos.
[02:15] Mike: Very cool. So, I hired a new developer yesterday whose sole focus is going to be on building policy files for AuditShark. And I ran in to a bunch of issues getting him just initially set up but I was able to explain how things get built to him pretty easily. It seemed like he followed it along. Some of these issues, they were like code bugs that were due emerges but I was able to fixed those in less than 24 hours. So, at this point, he should be good to go and I would expect to see some of that stuff coming from him by the end of the week.
[02:42] Rob: Nice. Is this the last thing that you need done for your launch?
[02:46] Mike: It’s the last major thing, yeah.
[02:48] Rob: So, you’re —
[02:48] Mike: I mean there’s always going to be like little things here and there, you know, like the billing code is still kind of in progress but I don’t really need that to launch, you know. So —
[02:55] Rob: Right.
[02:56] Mike: But that should be done later this week, anyway. So, I’m not real concern about that. And then there’s a bunch of user experience stuff that I’m working on this week and touching base with some prospects and saying, “Hey, you know – you know, when would be a good time for you to start signing in and taking a look and see what’s there?” But I also have to kind of push off on that just a little bit until there’s more policies and stuff there because I’ve got to vent this guy’s work.
[03:18] Rob: Right. Yeah, that always takes quite a bit of time upfront to get a new developer up to speed both to find them and then to get them set up and then to start reviewing their work. I mean I guess there are some ways to shortcut that. I’ve done in the past where I haven’t – I’ve given folk kind of one off really localized task where they don’t need to access the source control. They don’t need to get the entire environment set up. They really — or I’ll send them like a console app and I’ll say like, “Here’s three table create scripts. Create them and then write this console app against those three tables.”
[03:50] It’s just in visual studio bare and get it running. Then I’ll take a look at their codes because if they don’t pass that, right, it’s a real…it’s a real thing that I need for the app but if they don’t do that well, if their communication isn’t good, if the code doesn’t work out, if there’s bugs, then I can cut them lose without investing all that time of getting an entire environment set up for them and all that other stuff. But unless you have something like that for them to do, then you kind of have to eat that upfront time of really getting them on boarded in to your team. And it’s definitely no small expense of your time and theirs.
[04:21] Mike: Yeah, I mean this is a little different because I’m just handling him the policy builder. He doesn’t have to have anything else. There’s no visual studio. There’s literally nothing else. I just said, “You know, bring your laptop over with, you know sequel server express installed and I’ll install everything.” And literally, we were done installing stuff in like 3 or 4 minutes and that’s what it.
[04:38] Rob: Okay.
[04:38] Mike: And then I started to sit with him the rest of the time going over, you know, how to build policies with – you know, showed him what I was looking for, showed him how it worked. And he was kind of off and running already. It didn’t take him more than one hour.
[04:47] Rob: Yeah, that’s nice. He came over, a local developer, huh?
[04:50] Mike: Yup, yup.
[04:51] Rob: Nice. I received an e-mail from – his name is Emil and he has an app called Helpjuice which is like a help desk app. And he says, “Man, I effing love your podcast. A couple of months ago, I couldn’t pay for a plane ticket to America and this is our current bank balance.” And he sent me a screenshot of Helpjuice’s bank balance which I thought that was cool. And he says, “…all because of listening to you. I wish I could connect more with you but I know you’re super busy.” A testimonial via e-mail that I wanted to share, I just thought it was pretty funny to see that, that screenshot of his bank balance.
[05:21] Mike: That’s awesome.
[05:22] Rob: Yeah, it’s cool. So, on another note, almost the opposite sentiment, we’ve got an e-mail this week from Rudy at HigherFlow and he is a long-time listener and he’s attended the last two MicroConfs. I‘m going to paraphrase his e-mail basically said, “I came away from MicroConf with renewed energy and a lot of ideas for moving HigherFlow forward. Unfortunately, before I could do any of it, my Rackspace cloud server had a complete unrecoverable failure. I had everything on one virtual server and the reason the cloud server is redundant and it would just fell over it to a new box if anything bad happened. To make things worse, the only backups that I have the snapshots of the virtual machine made daily by Rackspace. And their automated backups actually destroyed the backups that had already been made. So, the end result was a complete data loss.”
[06:06] He basically restarted with nothing. He reinstalled everything from scratch and then he had a database that dev build the database that was 10 months old. He basically lost 10 months of data and in fact, he says, “I don’t even know who my customers are or how to reach them because their contact information was in the database. Looking back, I can’t believe how stupid I was. Lots of lessons to be learned here and hopefully, this story can prevent some other founder for making the same mistakes. HigherFlow is up again and I’m moving over to either OrcsWebor Azure but whatever I do, you can bet I’ll have rock solid offsite backups.”
[06:39] So, certainly my condolences, both of our condolences go out to you, Rudy. That’s like it’s devastating to hear this. Fortunately, it is – it’s uncommon that this happens but it absolutely can happen and even when you do have backups this kind of stuff happen. So, folks that I know are zipping up entire directories or entire database backups and shipping them off to S3 on a nightly or a weekly basis, so that at worse, you lose, you know, handful of days of data.
[07:04] So, thanks for writing in, Rudy. Obviously, it’s really hard to hear that and to know that happened. But I do hope it serves as a reminder for all of us to get our backups in place and you know, so that this type of thing doesn’t happen to us.
[07:17] Mike: Yeah, I think the worst part of this whole story is just losing 10 full months of customer data because like he said he has no idea who his customers are at this point and if you don’t know who your customers are, it’s not like you can contact them to try and fix things either. And a lot of them are probably just going to drop off but I mean those backups are the critical part and it’s just – what do you do at that point? I mean he and I actually e-mail back and forth a little bit and he was tracking them for a while and everything was fine and then he just stopped tracking them because they were always fine and it just went wrong.
[07:45] Music
[07:49] Rob: Okay. So, today we are following up from what we talked about last episode. We talked last episode about the Founder Test which were 11 Founder Attributes That WillDetermine the Success of Your Product. And we looked at attributes that a founder can have that can, you know, either make you successful or not. This episode we’re going to talk about the Product Test: 9 Attributes That Will Determine the Success of Your Product.
[08:11] These are borrowed heavily from The Personal MBA written by Josh Kaufman. He was a MicroConf speaker this year. I listened to that book and really enjoyed it. And what I’ve done is I took his 10 factors and there were three of them that didn’t really apply to software and so, I removed those and then I replaced two of them with, you know, some stuff that does actuallyapply to software. So, what we have is 9 factors that apply more closely to our audience of bootstrap software entrepreneurs.
[08:40] So, attribute number one is urgency. And we’ve talked about this in the past where there are vitamin apps and there are aspirin apps. Vitamin apps are apps that, you know, someone may or may not want but there’s not a lot of urgency when they go to look for it whereas aspirin is something they have a dire or need for. They’re trying to cure their headache. They’re trying to convert something and they have a last minute deadline and it’s just a real urgent need and they need to fix now. That’s what we’re talking about here.
[09:06] Urgency does two things. One, it impacts the length of the sale cycle quite a bit, right? So, if someone has a more urgent need, then you can have a very fast sale cycle of someone typing a keyword in to your Google or search engine finding you and buying you…buying your product within 10 or 15 minutes. So, your sale cycle can be very short versus something that’s, you know, like let’s talk about automating our office or something. That’s going to have a long sale cycle because someone doesn’t need to do that right now. They’re getting by just fine with the substitute. As a result, you’re going to have to wait longer to make sales. You’re probably going to, you know, have to charge more money because you’re going to have to do more high-touch, that kind of stuff.
[09:45] Mike: I think one of the difficult things of this particular one is that when you’re trying to evaluate whether something is a vitamin or an aspirin, a lot of times it boils down to the situation that the person who is purchasing it is in. So, let’s take for example, a software] that converts a Word document in to, you know, ePub format. What you end up with is there will be people who have plenty of time to do that and then there’s going to be people who have very, very little time in order to get it done until you’re trying to sell to them. I mean you obviously have no idea what their situation is.
[10:16] So, there’s going to be some people who buy immediately. There’s other people who are going to look around a lot because they’re just kind of researching, you know, a process for something that they’re doing educational research at the time. So, for those people, the sale cycles can be a lot longer and it’s hard to determine how long the sale cycle is going to be until you know what the situation is for them.
[10:33] In terms of aspirin versus vitamin, you know, that’s a definite need. They need that particular job done and they can either do it manually or they can use software and the softwareis all — so it can save them a lot of time. So, in that case, I would say that that’s probably more of an aspirin than a vitamin. A vitamin is going to help you but not necessarily necessary at the moment. They probably have something else in place that they’re using.
[10:54] Rob: Right. So, you’re saying it’s situational that all of your sale cycle is may not be short but there will be some people who wait until the last minute and do have an urgent need for your product. And then some of them, they may take more time and be planning out and maybe will have a one-month sale cycle on those so that it’s not necessarily going to be uniform. The urgency may not be an absolute. It’s like and maybe a percentage of your sales are more urgent than others.
[11:18] Even if you think about it that way like if you have a game that is not a name brand game, your urgency is pretty low in general, right, because people mostly are just kind of cruising through. Let’s say I’m cruising through the iOS app store looking at featured games and I don’t have the urgency to buy any of them. I maybe wanting to fill some time or something, but in general that whole marketer, that whole niche is not going to be really urgent. Whereas something like a business app that solves a very specific and acute problem, my overall this has a lot more urgency. It’s just be higher on that 1 to 10 scale.
[11:49] Attribute number two is market size. And to be honest, I think for our purposes, you know, unless you’re a huge company finding an existing marketing channel meaning an actual way to get customers, I’ll say get traffic that people interested in your idea, figuring out how large that is, it’s actually a lot more important than figuring out overall market size because if I build a SaaS app for hair salons as an example, you can look, you know, at some demographic information to figure out, okay, there are 50,000 or a hundred thousand hair salons in the United States.
[12:22] So, that’s your whole market but that’s – it’s completely not relevant to you as a solo bootstrap founder. What’s actually relevant is what marketing channel, how am I going to contact those hair salons and how many of them can I contact and close each month. And that’s a much more relevant piece to this attribute number two I think than the overall look at it.
[12:44] Mike: I think that this is something that not a lot of people give enough thought to when they’re trying to build their product because you really need to be able to know exactly how it is that you’re going to reach these people or at least have a very good idea of what is going to work because if you can’t figure out how to reach these people, it doesn’t matter how good your product is or how well it solves their problem or how cost effective it is for them because if they don’t know about it, they’ll never buy it.
[13:08] Rob: Attribute number three is pricing potential. And the translation of this is basically how much can you charge for your product? So, if you can only charge a $9 dollar one-time fee, you’re probably pretty low on the pricing potential. You’re going to have a tough time growing the product unless you have a really large channel of customers who’s coming almost free. Whereas if you can charge, you know, a hundred bucks, 500 bucks a month, it’s just so much better opportunity, you might have a higher chance of success and then increasing revenue quickly.
[13:36] I think a lot of this comes down to two factors. One is, are you selling B2B or are you going B2C? These days I pretty much wouldn’t do a B2C idea. The B2B market, you can sell on value. Basically you save someone time, save them money or make them money. And there is…there is so much higher pricing potential in those areas and you know, often a lot less support. There’s just a lot of benefits to going with that.
[14:02] Mike: Yeah, I think at MicroConf Jason Cohen had pointed out that pretty much every speaker there were selling B2B in some way, shape or form. And Patrick McKenzie was kind of the sole stand out where he has the Bingo Card Creator where he’s selling it to individuals but at the same time he’s also a heavy proponent of selling B2Bs and he’s also got Appointment Reminder which is a formerly a B2B app.
[14:27] And I would definitely agree. It’s just going to B2C route is – I’m not saying as a recipe for disaster but at the same time, it’s very difficult to go down that road because there are so many different businesses out there that have established needs and when you’re selling based on need, it’s easier than selling based on what somebody wants.
[14:43] Rob: Yeah, I was the other one that has B2C because I have WeddingToolbox andapprentice lineman jobs. And he listed that up there along with Bingo Card Creator and said, “But both of these guys have since moved to B2B,” and everything we’ve launched since then has been B2B. So, it’s definitely the direction that the people moved. I think the exceptions, notable exceptions are if you’re dealing in mobile apps that it’s feasibly since the cost to acquire customer is so low there because so many people are in that ecosystem. It’s a little more reasonable to think about doing it there.
[15:14] You can always point out exceptions. There is – you know, there’s WinZip and FTP programs and that kind of stuff that just have these massive search channels. They’re typically have a lot of organic traffic. And it’s definitely possible. I mean there was a guy on MicroConf who had I’m trying to think it was like tens of thousands of downloads of his free like FTP client every month. And huge chunk of it just came from Legacy Search and he’s just been around for a long time and had a lot of long-tail stuff. That – and that’s great for him but if I were to pick amore ideal business model from the start and I was looking at this factor that we’re talking about here, price-potential, I would definitely be and then firmly in the B2B camp.
[15:54] Attribute four is cost of customer acquisition. So, this is how much does it cost you to find a new customer and to get them to use your app? It’s a pretty long path from the first time some hears about you until they get all the way through to a download or a trial and they’re actually paying you for your application. So, I mean there are several rules of thumb here. One is that online customers are always cheaper to reach than offline customers. There’s just so many more mechanisms. I mean this is basically the stuff we’ve talked about for the past hundred and thirty episodes.
[16:23] You know, another factor to keep in mind to kind of decrease customer acquisition cost is to try to pick something that has urgency so that you don’t have a long sale cycle and don’t need to spend a lot of labor on it because even if it’s your time, it’s still costing you money. In addition, finding businesses where there’s a single decision-maker can help make like a medium or a low-touch sale rather than having to hold someone’s hand.
[16:47] Now, it’s not the end of the world to have to do high-touch sales, right? But it’s just, you know, you got to know what you’re getting in to and you need some type of gifting or some type of desire to do that in terms of lowering your cost of acquisition or at least knowing where it is because if you’re charging 500 a month, it’s okay to have a high cost of customer acquisition, it’s okay to do high-touch sales but you have to know that going in at these two things are going to matched up so that you don’t have a low pricing potential and a high cost of customer acquisition which is unfortunately what, you know, some apps that I’m approached with have.
[17:20] Mike: One of the points that you’ve made in there was having a single decision-maker involved in the process and when you get in to more of the larger business or enterprisey sales, that’s when you start to have like committees and multiple people who are looking at a product and you know, the different decision-makers who are taking a look at it. And what’s really sucks about dealing with that type of sales situation is that you almost have to talk differently to the different people involved. So, if you’ve got a team of technical people, they’re going to want to know all the technical stuff and their manager is going to want to know all of the business stuff. So, you almost have to talk to both of them at the same time on your website and but in different ways. You have to say the same types of things but you approach it differently.
[18:02] So, for example, with the technical guys, you’re going to approach it very technically and say, “This is the time I can save you. This is how I can allow you to do your job easier and help make you look better to your boss,” versus, you know, on another page you might have it more for the benefits of using that products and you’re talking more about the business objectives and meeting those goals and helping provide services for them that are going to save the company money.
[18:26] Rob: Attribute five is the cost of value delivery. Not just a fancy way of saying how much does it cost you to service a customer? So, with a typical brick and mortar, if you had a restaurant, you know, you might look at how much the food cost and the weight stuff and that kind of stuff, electricity, all that. If you’re a software company, it’s a little different because your overhead is going to be a lot lower. Hopefully, you don’t have, you know, many employees. There’s just a lower per customer cost because things are so much more scalable.
[18:54] But I think where those some of those larger costs creep in that you don’t typically think about are a couple of things. One is the cost or the effort to get someone on boarded and using your app in getting value out of your app. Sometimes that can be a semi-manual process if you have like a tag, you know, some JavaScript tracking code that they need to install on their site in order to use your app. You’re likely going to have some type of manual intervention at some point and that’s obviously not a free thing. So, you need to make enough money from your customers to be able to support that.
[19:25] And the other thing is in general just support whether you do e-mail or phone, chat, what-have-you, those are, you know, tend to be a decent chunk of your cost as you deliver value through your app. Then the other one that depending on whether you need to hire a DBA, that’s the one I have, you know, a DBA with HitTail and it wasn’t a cost that I really thought of in advance but since we have a large database and I want multiple backups and be able to restore a point in time and he works every month. It’s a recurring cost for the business.
[19:56] And so, that’s kind of another one is, you know, your IT infrastructure because I think I always think about, yes, I normally need to pay designers, programmers, probably some copywriters, you know. There’s kinds of miscellaneous things of building and marketing the business but these are the ones that maybe have…have snuck in the backdoor as I have…as I’ve grown businesses.
[20:12] Mike: I think one of the cost of value delivery that is frequently overlooked is the support and on boarding. So, like for example, when a customer first signs on, getting them up to speed with what your product does, how it works and how it can quickly benefit them is something that you need to spend a lot of time and effort on. And if you do it right, you can bake that stuff in to the app so that it essentially walks them through the process of on boarding themselves and you can essentially automate that within the application.
[20:40] There are some applications that are going to be a lot more complicated that you’re not going to be able to do that. One thing I saw which was very interesting today was a sign up process for a product that a product itself is very complicated or could be and they actually had two different sign up forms. They had – it was on the same page and on the left-hand side, you could just say, “Please sign me up right away. This is what I want and you know, just dump mein to the application.” And on the right-hand side of the page it was something along the lines of, you know, get the enterprise treatment and you basically provided some a little bit different information, your name, phone number, et cetera. And they would contact you to help get you on board. And I thought that was a very interesting way to handle the on boarding process based on what the end user thought their needs were going to be.
[21:23] Rob: Yeah, that’s really – I haven’t heard of that. That’s a very interesting approach.
[21:26] Mike: Yeah, I’m totally staying with it for AuditShark. [Laughter]
[21:29] Rob: Yeah, I agree. I think that’d be well worth your time. Attribute number six is the uniqueness of your offer. And this just means how unique is the value that you’re offering in the market, how much can you differentiate yourself from your competitors. And I’ve actually translated it in to something else, how simple is your value proposition? Can you communicate it in three words or five words or the length of a Facebook ad headline or the length of a headline on an HTML page?
[21:58] So, I think there’s two sides of this, right? It’s the uniqueness and the simplicity. And what I’ve discovered is especially as a single founder bootstrapper, having a simple value proposition is really helpful because it instantly removes prospects who shouldn’t be using your app or shouldn’t be interested in it. And so, you can find people who really need that problem solved so that you can kind of tap in to the urgency factor which can help shorten your sale cycle which can help you determine how best to reach them and can help you, you know, lower your cost of acquisition to be honest.
[22:35] So, it’s like – it’s not just about being differentiated from your competitors but it’s actually how well can you communicate the single value proposition. So, I’ll give you an example, when I was split testing the Drip landing page, GetDrip.com, I had number of different headlines. And they revolved around several different value propositions. One of them said, “Reconnect with drive by visitors via e-mail.” Another one said, “Increase conversion rates by reconnecting with visitors.” Another one said, “Let’s use e-mail to create a double digit jumping your conversion rate.”
[23:08] And so, it was different ways of saying what sounds like the same thing but if you really look at it, it’s actually kind of a different value prop. And one of them performed way, way better. It was the double digit jump headline. I had a couple others as well but it’s, you know, being able to split test or to interview and actually talk to people and find out which of the – truly the values that they need out of your app can be very helpful for figuring out when you’re starting out, you need to be laser focused so that you can figure out who really needs your app and what problem you’re solving and that’s where this, you know, uniqueness and simplicity of your offer comes in.
[23:43] Mike: And as you said I mean that helps when you’re trying to optimize your overall conversion funnel because if people come to your website and they don’t think that that whatever it is that you have applies to them, they’re going to leave. So, you really want to be able to increase the conversion rates on whatever the landing pages are that you have. And if you’re able to clearly and effectively communicate whatever your value proposition is there, it’s going to increase the number of people who go through that funnel.
[24:09] In addition to that, it allows you to go in to AdWords and AdRoll and all these other places to leverage those types of paid traffic with some targeted keywords that you know already worked. Those targeted phrases that you’ve already tested, you’ve found what works and what doesn’t and you can put those out there and hopefully, scale up that side of your acquisition funnel.
[24:32] Rob: Attribute number seven is time to get to market. And in this, I’m actually adding money to get to market. So, you may not need a lot of money as a bootstrapper but as we talked about last episode, it can definitely help. So, you know, looking at this on a 1 to 10 scale, if you, you know, can get an app out in a weekend for $0, then that’s probably a 10. And if an app is going to take you a couple of years to develop and cost you 40 or $50,000 in terms of a bootstrapper’s budget, then that would be definitely on a lower end of the scale.
[25:06] Attribute number eight is evergreen potential. Basically, how long is your app going to be able to provide value? Does it rely on an API that’s going to change overnight? Does it rely on a social network like Friendster or Myspace that, you know, slowly loses interest overtime and that doesn’t have the customer base that it once did. Or is it something that that sticks around and has, you know, a 10, 20, 30-year lifespan where it can basically stick around forever providing its value?
[25:35] Mike: I think one of the key issues here is, you know, are you building on somebody else’s platform? And if you are, how long does that platform going to be around? Because if it’s not going to be around for a long time and granted a lot of time you look at any given platform, it’s very difficult to judge what the future that platform is going to be. But at this point, I think it’s pretty clear that, you know, Windows, Linux, and OS X are not going anywhere. You could probably reliably build on any of those three platforms and you’ll be fine.
[25:59] 15 years ago, you probably would have – you know, people would have given you funny looks for building on Apple’s platform because they’re like, well, you know, this has got a really, really low market share. It’s not doing well and I don’t see it turn around. But obviously, over the past 15 years that has changed dramatically. But then you look at other things like Twitter or Facebook or Myspace, those are kind of iffy, you know, who knows what the future of some of those is going to be. And if you were to look at those five years ago, it was completely not clear.
[26:25] At this point, Facebook is kind of a clear winner in terms of Facebook versus Myspace. Twitter doesn’t seem to be going anywhere. It seems like it would be a reasonably safe path but at the same time, you’re building on their API. They can change the rules underneath you no matter what and Facebook could do the same thing. So, those are the types of things that you have to be at least a little bit concern about when you’re evaluating different niches.
[26:47] Rob: Right and it’s not a “never do this” or “always do this” but it’s building on Twitter’s API has more danger than if you’re just building more of a self-contained app that can run by itself, right, building like an e-mail marketing software. Let’s say you build MailChimp versus you build a Twitter client three years ago like which one has more early win potential? It’s much more likely that e-mail is going to stick around and as it happens, there are Twitter clients that are basically going under or dramatically having to raise their prices or losing customers because of the Twitter API changes.
[27:16] And if you think about Zynga which is, you know, a game developer that developed most of its games on Facebook, well, at certain point, it had to diversified. It went public and the investors were just too concerned that the Zynga was too reliant on Facebook, on the platform knowing that Facebook had more control than Zynga should allow them to. So, it’s definitely something to keep in mind is its evergreen potential.
[27:40] And our ninth and final attribute is recurring revenue potential. Let it be said here for the tenth time on this podcast, everyone take a drink, any app I build from now on will always have recurring revenue. I’ve done the one-time software downloads and I am done with them because every month on the first day of the month, you have zero dollars in sales for that months and you’re scrambling to make it work.
[28:03] So, I’m not saying you should never do, you know, non-recurring revenue but personally, I will never do it. And so, I think this is something to keep in mind as you’re talking about building your app, if you want to grow revenue over time having recurring revenue and subscription is by far the best way to do that because you are then building on something every month.
[28:24] Mike: I couldn’t agree more. I mean the recurring revenue, if you’re not at least looking at ways to establish recurring revenue or to upsell your existing client base in to additional add on I mean you’re really spending a lot of time and effort redoing those sales every single month and what you really want to do is you want to be able to do something once and then resell it forever. And if you’ve got a downloadable products, you have to continue repeating that particular process as opposed to ripping the words of, you know, the software that you’ve already built in month after month.
[28:54] Rob: Yeah, and this is another where especially your first app, the first app you launched, I don’t think it needs to be recurring because I think you need some small wins early on and if you’ve never launched a software product, I do think it’s okay to launch a – like a one-time fee download something like a WordPress plugin or, you know, maybe a mobile app if you have that skill or something downloadable like, you know, Richard Chen has PHP Grid and I think that’s a really cool idea and he built it up and was able to quit his job.
[29:21] But now, now that you have that, the next step then is to think about how do I get to subscription revenue whether it’s with the existing product, finding a continuity program, some additional value you can offer, extra support, something like that. Or if it’s, you know, starting on an entirely new app and then you have the leeway, you have – you bought out so much of your time. You have that flexibility to then go after that long build.
[29:44] I remember the CEO of Constant Contact spoke at Business of Software last year and she said that it’s the long slow SaaS ramp of death [Phonetic] that SaaS app takes so long to build a revenue because just one at a time you’re finding customers for 20 bucks a month, 40 bucks a month and to try to build, you know, a really large revenue stream is a lot harder that way. But that revenue stream is such a flywheel and it lasts a long time.
[30:09] If you can buy yourself some time upfront by doing, you know, like I said some early wins, you’ll have more patience if you already able to quit your job and you’re already enjoying what you’re doing then if building that SaaS app, launching it and getting the revenue high, you know, it takes a year or two or three, that’s okay because you’re already in a position, you know, where you’re not just hitting your job the whole time.
[30:28] To recap the 9 Attributes That Will Determine the Success of Your Product are urgency. Number two, market size. Number three, pricing potential. Number four, cost of customer acquisition. Number five, cost of value delivery. Number six, uniqueness of your offer. Number seven, time and money to get to market. Number eight, evergreen potential and number nine, recurring revenue potential.
[30:53] Music
[30:56] Mike: If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690. Or you can e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us on iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 133 | The Founder Test: 11 Founder Attributes that Will Determine the Success of Your Product
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Show Notes
- For an excellent write-up of this episode, see this post by Toby Osbourn.
Transcript
[00:00] Mike: This is Startups for the Rest of Us: Episode 133.
[00:02] Music
[00:11] Mike: Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
[00:19] Rob: And I’m Rob.
[00:20] Mike: And we’re here to share our experiences to help you avoid the same mistake we’ve made. What’s going on this week, Rob?
[00:24] Rob: Well, remember last podcast how I said we were within one day of getting Drip installed on the first paying customer’s app?
[00:32] Mike: Yes.
[00:32] Rob: We are still within one day. I mean [Laughter] —
[00:34] Mike: [Laughter]
[00:35] Rob: …install paying customer — so, here’s what we did. It was actually really helpful. We got on Google Hangout with Derek, myself and customer number one and he installed it in the morning and gave us some feedback on the early kind of on-boarding. And it was – there were no surprises. I mean he had little feedback tidbits here and there but it was nothing that we didn’t know we aren’t going to work on or wouldn’t just implement right away.
[00:57] But then he hit a roadblock. A couple of things he wanted like he wanted a sync between Drip and MailChimp because he wants to use MailChimp as his core repository because he just has so much invested there and then something else dealing with actually creating e-mails. He wanted more control of images and such. And so, these were basically like show stoppers for him, you know. He was like, “With these things, I really can’t use Drip.”
[01:20] Ands so, back to coding and we are wrapping up both of those features and should hopefully, have them installed, you know, within the next 24 to 48 hours. But it was basically a 3-hour Google Hangout and it was amazingly helpful. It was amazingly helpful to hear his perspective on things like how naming was confusing, how precisely, even though I’ve had conversations with him, I’ve e-mailed with him dozen times at least about how he was going to use it. There were still, once he got in and started using it, these little nuances that you don’t pickup on and a little – the two small features I just named, they never came up before now.
[01:55] It’s a good feeling. I feel much less discourage. That day I was kind of like, “Oh, man. We’re still not on customer one.” But now that we’re getting back to installing them again tomorrow or the next day, it feels good. It’s like we’ve moved forward. We’ve made progress since last week.
[02:10] Mike: That’s really cool. I mean I noticed the same thing when I started walking some people through some of the early versions of AuditShark where there’s certain things that are named in a specific way and it just doesn’t make sense to people. And there are some of those things are still like that but they’re obviously areas that I’ve looked at and said, okay, I got to go through and make some adjustments here. But yeah, just even just naming something as trivial as that sounds, you know,it can make a big difference when the customers get in, they start looking at it because if they don’t understand what they’re looking at, then you have to either educate them or they’ll – you just kind of abandon that because they don’t understand it. They don’t get it.
[02:42] Rob: Right and I had intentionally let Derek moved forward with development and really was not in the app very much. And I did that on purpose so that there would be a fresh set of eyes once we install it on HitTail and sure enough, as soon as we got it working, I logged in and I said, “Oh, you know, we had to move this around. Change the naming, this is confusing blah, blah, blah.” And I was that first run through of just making a little more useable but now, you know, we’re what? Maybe three weeks in I would guess, three and a half weeks and it’s starting to become where I’m comfort able with the app and I don’t see those things anymore. And so, to have another set of eyes, just it gives you perspective, you know. It’s that fresh set of opinions. How about you? What’s new this week?
[03:22] Mike: Well, I’m still wrapping up a couple of things from MicroConf. I still got to get the survey out, you know, just some paperwork issues other than that and like hotel just got back to us today and said that we, “You know, you owe us another $1800,” or whatever.
[03:34] Rob: Yeah and if you’re interested in seeing some photos from MicroConf, go to MicroConfPics.com. That’s MicroConf P-I-C-S.com and that leads to a Google Plus album. We have about 50 pictures of speakers, people hanging out, Mike and I up on stage and all that kind of stuff. So, check it out if you’re interested.
[03:54] Mike: Aside from that, I’ve been doing some more customer development this week for the AuditShark, you know, just reaching out to some more people who are in the security space who already had — that I knew of, the repservers that need to be protected. And just trying to work with them to talk to them about AuditShark and get it installed with them. You know, I’ve already had some preliminary discussions with them and talk to them about pricing and everything else and that all seemed fine to them.
[04:15] So, hopefully — I got word a few minutes ago just before this podcast that the billing code was, you know, ready to go out. So, just needs to be tested a little bit and once that’s in place then I’ll start putting these people on and hopefully, it actually start charging people within the next week or two.
[04:30] Rob: And I say testing some thing [Phonetic] to your billing code —
[04:33] Mike: Yes, yes.
[04:34] Rob: Roll that…roll that baby. I’ll look at possiblyalong [Phonetic].
[04:36] Mike: Well, the thing is I’m not actually billing – like all I’m doing is I think for the first one I’ll just bill them automatically and then after that, there’s all this other stuff in place that says, “Oh, well, if your next billing date is this…” and the first charge just kind of go through and then after that, it’s a matter of targeting people for their follow up recurring billing.
[04:55] Rob: Right, right. Hey, in line with what you said on the last episode about hiring a bookkeeper, I am in the midst of that and I interviewed a bookkeeper today as well as last Friday and found some pretty good candidates. And it was funny one guy I talked to, he asked me about MicroConf. As we were talking, he said, “How’s MicroConf go?” And I was like, “Oh, you must have researched me based on my name.” I was just kind of puzzled and then he told me that he was on the waiting list for MicroConf. It was —
[05:19] Mike: Oh, oh.
[05:20] Rob: It was really funny, yeah. I was like wow. We – I guess we got around. I just wouldn’t expect, I mean, you know, he’s a remote bookkeeper but he’s just in the technology and startups and stuff. And so, he had tried to get in and haven’t got a ticket. So, that was kind of a fun conversation. It actually made me be like, “Huh, I like this bookkeeper.” It’s like if we have asimilar interest, he’s probably going to have a better understanding of my business and he works a lot of other smaller software companies and SaaS companies. So, I mean he’s on his own like he works alone. He has a home office. I’m pretty stoked about him. Hoping we can work something out but I also have a few other folks I’m looking at through oDesk.
[05:54] Mike: Very cool. I signed up for a Square account a while back and I actually gave them enough information for them to send me a Square Reader. So, I’m going to be using this hopefully when talking to people. You know, still I’m early on with AuditShark and say, “Hey, you know, is this something you’re interested in?” And you know, inevitably get the, “Yeah. That sounds great.” And of course, then there’s the question of, “Can I get your e-mail address,” or “Would you pay for it,” or “Will you pay for it?”
[06:18] And of course, the next step is actually getting their credit card information and I’ve got a Square Reader here that they mailed me over the weekend that will allow me to take payment on the spot and it was — I just thought of that as a great way to start validating ideas. So, if anyone has an idea that they’re trying to validate, you’re asking people if they will pay for it if they’re going to prepay for it, you know, using something like a Square Reader seems like a no-brainer because you’ve got it right there or you can actually ask them for money and take a credit card payment on the spot.
[06:46] Rob: Very nice. So, that would have been cool to have at MicroConf.
[06:48] Mike: I know —
[06:48] Rob: You know —
[06:49] Mike: …I thought of it after the fact.
[06:50] Rob: Yeah, you know, there’s another recommendation I can make if you don’t have a Square account is if you have a Stripe account or even you can open a Stripe account like two minutes and then there’s an iOS app called Paid and if you search for like Paid Stripe in the App Store, it’ll come up. It’s 5 bucks I think. It’s a really nice app. It looks gorgeous and it helps you monitor your Stripe account. There’s a lot of reports but then there’s also one page where you can just enter a credit card number and charge it an arbitrary amounts. So, it doesn’t have the cool swipey thing, you know, that Square gives you but it is another way just right on the spot on your mobile app to, you know, to be able to do that. You don’t have to carry around the extra hardware.
[07:29] So, John from BlueBridgeDev.com commented on episode 130 which was the episode where we talked about Unfair Advantages. And he mentioned three additional unfair advantages. The first one he said was assets like a massive savings account, website with good SEO, et cetera. And I like that. I like, you know, once you’ve built up some assets of your own, it’s definitely can be an unfair advantage to someone who doesn’t have those.
[07:54] Second one he mentioned is personal qualities. And I think I preferred to be more specific here but the examples[0:08:00] he gave were like public speaking, strong writer, ability to sell. The third he said is a business model. So, like recurring or exclusive rights or low overhead. And I would argue that. I don’t think that’s an unfair advantage because other people can take advantage, you know, unless you’re Netflix going against Blockbuster where like Netflix weren’t recurring and Blockbuster didn’t or couldn’t because they’re in trench competitor, then maybe that’s an unfair advantage because they can’t pivot quickly enough. But if it’s just two or three startups going against each other, then you’re going with recurring, your competitors can easily switch to it or you going with having low overhead, the odds are your competitors can do that to you.
[08:38] Now, something like exclusive rights to something that would be, you know, an unfair advantage that other people can’t easily duplicate, those were the comments from John and we appreciate the feedback as always.
[08:48] Music
[08:51] Mike: So, when we’re looking at for iTunes reviews, I saw a bunch of new ones out there.
[08:55] Rob: Yeah, we haven’t talked about it on a — ton of new reviews, lot of 5-star reviews. We really appreciate them. Jocelyn Krauss [Phonetic] says, “5 stars, most useful of all startup-themed podcast.” She says, “I’ve been on a startup-themed podcast listening binge and can confidently say this is the best out of two dozen or so shows I’ve sampled. If you’re looking for advice to actually build an online software product, this is the show for you. Keep it up, Mike and Rob and thank you.”
[09:22] Another is from a username that I can’t possibly pronounce because there’s a bunch of numbers and consonantsbut it says, “Actionable, practical and accessible like most other reviews here say, Rob and Mike do a fantastic job of providing not only tactical advice but also strategic advice for people who want to start their own business on the side. The icing on the cake is that they released new episodes like clockwork every week.”
[09:45] We’re looking like comments about that but you know, we have been consistently — I think we’ve released an episode every Tuesday morning for the past year even the weeks like theMicroConf week, we recorded like an extra episode and during Christmas week and New Year’s week we recorded an extra episode. And I think that’s something that we both take pretty seriously and I think it – I’m glad that it, you know, that people noticed and that we have — there’s always something to listen to on Tuesday morning.
[10:08] Mike: Yeah, it’s funny because at MicroConf we were there. I think I was talking to somebody on Monday and they’re like, “Oh, you’re going to be recording a podcast episode tomorrow?” And I’m like, “No, we’ll probably do that like Thursday or Friday.” And they seemed really disappointed and they’re like, “Oh, I’m not going to get a new episode tomorrow.” I’m like, “Oh no, you’ll get it. We recorded tomorrow’s episode last week. We do them about a week in advance.” So, yeah, there were people who were at MicroConfwho were listening to that podcast.
[10:30] Rob: Yeah and that was – on my plane flight home I listened to our Tuesday episode as well.
[10:33] Music
[10:37] Rob: Today’s episode is based on question fromStephen Rhyne. He’s from ThrowingBoulders.com. He’s a long-time Academy member and a MicroConf attendee. He e-mailed me afterwards and he had a question. He said, “Should you enter a niche based solely on opportunity? Or do you need to have passion and or industry experience with the subject matter? I’m trying to understand were keyword counts, customer development results, et cetera stop mattering as much as your passion to execute.”
[11:05] And he actually sent several questions to me via e-mail and instead of writing back with paragraphs of pros, I recorded him a screencast and kind of just talk through some stuff. And before I knew it, I had like 16 minutes of audio and at the end I said, “You know, this – there’s enough meat here that I know we need to talk about this on the podcast and share it with, you know, with the whole community because it’s just – there’s a lot of depth to that question.”
[11:28] The thing Stephen asked is, “Should you enter a niche based on opportunity or do you need to have passion?” The first thing I said is it’s not an either or question. I hate it when people say, “Oh, you should always do this,” “You should never do this,” “This never works,” “This always works.” It just doesn’t work that way, right? There was absolutes either an easy way to think, you want to think black and white but they’re not reality.
[11:49] And so, today’s episode, we’re titling “The Founder Test” and it’s – the subtitle is “11 Founder Attributes that Will Determine the Success of Your Product”. And then later on, perhaps next episode or in a couple of weeks, we’re going to do an idea test and it’s going to be a number of attributes that determine the success of your idea. And the point of this is to say it’s not should you enter a market based on this or that, it’s to say, it’s a gradient.
[12:13] There are 10 or in this case I guess 11 attributes of you as a founder that all factor in to this decision. And the way I like to think about it, it’ll be ideal if this is a list of 10 because then you can rank each one on a scale of 1 to 10 and then add them up and based on if you add 0 or a hundred, you can say, “Well, I think I haven’t found it but you know, eventually going to succeed or not.” And you can do the same thing with an idea.
[12:37] So, we’re going to be talking again about 11 founder attributes and the first one is your knowledge of the niche or the problem to be solved. So, this is much more in line with what Stephen originally asked was, you know, should you have knowledge? Should you have passion? Should you go in solely based on opportunity? And bottom line is if you have — on a 1 to 10 scale, if you have a knowledge of your niche or the problem to be solved of a 1, then you need to educate yourself and you stand less of a chance if someone has equal founder attributes as you but they have a 10 here, right, that they are in it. They know what they’re going to build, their own customer zero, all of those things play in to how much success you’re going to have.
[13:20] So, again, it’s not – you should never enter a niche that you don’t have knowledge of but it’s definitely helpful to, you know, the more knowledge you have of that niche or the problem to be solved.
[13:30] Mike: I think this is one of those things of where you have to take this in to account. You have to when you’re looking at the competition and you’re evaluating them as to whether or not you should go in and whether you stand a chance against them head to head. This is something you definitely need to take in to consideration because if they know the niche and you don’t, you’re going to be the serious disadvantage regardless of the other resources that you may be able to bring to bear. It’s very difficult to overestimate the level of helpfulness that having that knowledge is going to give you.
[13:59] Rob: Attribute number two is your technical/programming knowledge. And so, we’re assuming here you’re building a software product and we’re not saying that if you don’t know how to code that you can’t successful launch a software product. What we’re saying is that the more technical knowledge, the more programming skills you yourself have, the higher the chance that you’re going to be able to deliver a finished software product. This is irrespective of whether you write the code yourself or whether you hire it out. In either case, the more skill experience and knowledge you have of programming, the easier it would be for you to actually deliver a finished software product in the end.
[14:35] Mike: I think this matters a lot more if you’re the person doing the code than if you’re the one who’s got knowledge of the problem to be solved. If you have the knowledge of that problem but you don’t necessarily know how to accomplish it, I think that that’s a much easier situation than the reverse.
[14:50] Rob: I would agree because you’re right. I know a number of non-technical founders who have intimate domain knowledge and they know how to solve that problem. And hiring out code, well, it’s not trivial to do that. It’s easier to do that often than it is to learn, you know, a new domain from scratch.
[15:10] So, founder attribute number three is your skill as a project manager. And this assumes that you are going to be doing some type of outsourcing or delegation which is something we recommend and I think your ability or willingness to outsource and delegate is actually the point after that because the more you’re willing to hand off to other folks, the more likely you are to complete a finished product. But you have to be able to manage them effectively and have some type of experience or skill with that or else, you know, projects go off the rails fairly easily as we’ve discussed in, you know, the last couple episodes.
[15:45] Mike: I think that your skills as a project manager are crucial to being able to scale up a business especially when you’re trying to scale it up just past yourself or just trying to take certain pieces of it and say, “Well, you know, this is too much for me,” or “I don’t want to have to deal with this,” or “I can’t deal with this right now because I don’t have the time.” Those are the things you have to be able to manage and if you cant, it’s going to put you to a disadvantage to anybody else but it’s critical to be able to develop those skills.
[16:09] And the key point I want to make here is that a skill, that’s a learned skill. Just because you sucked at it now, doesn’t mean that you won’t suck at it after trying it a couple of times. And you do get better at it over time. You do learn from your mistakes but the first couple of times, you try and manage a project where you don’t have somebody over the top of you who is trying to push things down to you and say, “Well, these are the things that need to get done. You know, this is the order they need to get done.” When you’re the one calling the shots and you’re the one making those decisions, it’s very difficult the first time but it does get easier over time.
[16:40] Rob: Founder attribute number four as I just mentioned is your skill with outsourcing and delegating. And I think this comes down to two points. Number one is do you have experience outsourcing and delegating? And do you have a confident person or people to outsource to that you’ve already found? Because maybe if you — let’s say it’s a 1 to 10 scale, a 1 might be you’ve never outsource, you don’t have any experience delegating and you have no one to outsource to and you’re going to start by looking on oDesk.
[17:07] And then a 9 or a 10 is someone who has several years of outsourcing experience and already has a virtual assistant or a programmer or a developer or a designer who has extra bandwidth and they are known quantity and you have a known relationship and your communication is already…already set. You know, you’ve already used them and they’re reliable and they not only do – that you understand them but they understand you like they understand your – the way you work and what your expectations are. And so that would be the, you know, the 1 to 10 that I would look at in terms of outsourcing and delegating.
[17:39] Mike: I talked to a ton of people at MicroConf who had I’ll say significant issues with – just mentally trying to do outsourcing because they’re, you know, they always have the mentality, “Well, you know, it’s hard to find somebody,” or “It takes a long time to find somebody. It would be so much easier or so much quicker if I just did it myself.” But you know, when you start compounding those things, you know, on any given project, sure, it’s going to take you a lot longer to find somebody and then implement it. But once you get to 2, 3, 4 or 5 different things that you have them do, that’s when you start seeing there is cost savings.
[18:08] It’s more like when you’re launching a new product where you look at your revenue for example and you have this deep because you’ve got this initial investment but then as that starts to rise, as you start to get more comfortable with the person that you’ve sent stuff off to or you’re gathering money from your product, that starts to rise and you go in to the block. And it’s definitely a worthwhile investment but you obviously have to do it right, you have to be using confident people who aren’t going to flake out. And it takes a lot of practice in order to get good at it. And I see it just the same as being a project manager. It takes time. It takes effort. You do make mistakes but you do learn from those mistakes over time and you get better at it.
[18:46] Rob: Founder attribute number five is your passion for the problem to be solved. And I’ve heard a lot of different arguments about this. Some people say passion is a competitive advantage. Other say passion doesn’t have much to do with it. I,like other things on this list, believe that the more passion you have to solve the problem you’re trying to solve that all of the things being equal that you will come out ahead of someone who really doesn’t care that much about it or just going in to it because the opportunity that, you know, the keyword results and the expected market size and other things looks promising.
[19:20] Mike: I think in some ways this boils down to the amount of success that somebody might foresee coming out of whatever you’re undertaking because if – as you said, I mean if the opportunity causes low and it doesn’t take a lot of effort to get in to it, then people who have kind of a cursory interests are going in to it. If they start running in to hurdles or roadblocks or anything like that, they may very well just give up because, “Oh, it didn’t take much effort to try and get in to it and I don’t really feel like dealing with this,” whereas if you have the passion to solve those problems and really address the market, then you’re going to be able to push through those because you don’t care about those. You want to get through those. You want to be able to solve people’s problems.
[19:58] If you don’t care about it as much and you don’t[0:20:00] have the passion, then you’re not going to bother pushing through them. And I could definitely see how that factors in to it but I also think that it has something to do with, you know, what the potential outcome is, you know, what’s the upside to this. You might, you know, have a lot of passion for solving the problem but you might see that there is this massive upside to it where you could reach a lot of your other goals in life by solving that problem because you can reap a lot of rewards. So, I wonder how much that kind of plays in to it. You know, it’s definitely the difference between doing something because you love doing it versus doing something because you, you know, want the money from it I’ll say.
[20:33] Rob: Right and I think that’s where some people kind of go off the rails on this because just having a bunch of passion for an idea and if you ignore all those other ones, those success factors, then – and you just go, “Oh, I’m just so passionate about this idea but there is no market and it has a very long sale cycle,” and you can’t find a single a decision-maker and nobody really wanted it. It doesn’t solve the pain but like if you ignore all those other things, that’s where you run in to the overvaluing passion and thinking the passion can conquer all. And what we’re saying here is no, it can’t. It’s helpful to be passionate about it but it’s just one of what we’re saying are 11 different factors that kind of compiled to figure out whether or not you’re going to be successful with this.
[21:15] Mike: Yeah, I totally agree with all that.
[21:17] Rob: Founder attribute number six is your ability to build something people want. And to translate this, it’s kind of like are you a product person? Are you an exceptional product person? Do you build awesome UIs? Do you have lot of experience building apps? Do you have flexibility and the openness to change your idea based on someone’s feedback during customer development? If you can really focus and build something people want and you have that experience, then I put you at a 10 on this one. And if you are not a software person and you’ve never designed a software app and I don’t mean graphically designed but done user experience stuff, thought through screens and flow and naming and all of the things that make an app easy to use, then you’re closer to a 1 on this scale.
[22:04] And so, again, this doesn’t make or break you. You’re going to have to educate yourself and or get a little lucky to build a good app if you don’t have much experience with it or you can obviously outsource that if you can find someone who’s a really good at it. They’re not going to tend to be cheap but this is a place where, you know, you can hire expertise that’s outside of your own in order to boost your number of rating on this one.
[22:27] Mike: I think that the ability to learn from your mistakes probably factors in to it a little bit more than your experience but the flexibility side of this is probably a lot more important than that as well. I mean you need to be able to change your idea based on the feedback that you’re getting from the customers. You need to be able to adapt and understand that just because you think that you have the right solution, doesn’t mean that it is the right solution that people are going to pull out their credit cards and buy.
[22:50] It’s interesting to look and hear people talk about, “Oh, well, Steve Jobs didn’t talk to customers and this and that,” but Steve Jobs is an extreme outlier. I mean he had this vision of what was going to be and what should be and what people wanted and he have, you know, the capital from Apple in order to be able to drive that marketing engine to craft a story to make it happen. Not everybody has access to that and anybody who’s listening to podcast probably doesn’t have access to that kind of resource.
[23:17] So, you really have to think about what is it that people are going to pull out their credit cards and pay for versus what it is that that you want to build for people and is that something that people will pay for?
[23:27] Rob: Yeah, that’s the thing. We’re, you know, we’re going to cover the other factors here in a second. One of them is money. And you could say, well, you know, money is on a 1 to 10 scale in terms of how much money you have to fund this startup idea but as you said, you know, Steve Jobs was worth $1 million when he was 21. $10 million when he was 22 and a hundred million dollars when he was 23.
[23:46] By that time, he’s – if you look at these founder attributes, certainly he had some of this, right? He had skill and experience and such but he had so much money that maybe he would get a hundred points like you and I would get 10 points for, you know, having a decent amount of budget. But he had so much money he could fail over and over and over and actually, he proved that with Pixar like he dumped most of his fortune in to keeping Pixar alive. And when you have such an outlier case like that, it doesn’t necessarily fit in to our model that we’re doing here. I think like you said for most of the listeners, you would fit in to that.
[24:19] So, founder attribute number seven is your skill as a marketer. And I will actually say that this is another one that we should – the weighting should be doubled because marketing is – maybe even tripled, right? Marketing is such a large part of whether your product is going to succeed and I think this falls in to a number of camps but one of them is whether you’re a creative marketing mind, someone like Seth Godin or Matthew Inman. These are people that I bet they aren’t looking at their Analytics tracking and measuring every little number and nuance and split testing and all that stuff but they’re just genius marketers.
[24:48] The other side of it is if you have high skills with Analytics, tracking, measuring, split testing, that’s more of the kinds of things that, you know, we’ve talked about of analytical marketer what myself, Patrick McKenzie, Sean Ellis, Hiten Shah, if you can really nail this part, it can absolutely – it can really tip your scales, you know. It can make it so even a mediocre idea can – it can do well.
[25:09] Now, there’s this old saying that great marketing will just make a crappy product fail faster and I wholeheartedly believe that. So, you can’t do a crappy product but if you have a decent product that you have exceptional marketing, it can make a software product at least a moderate success just by having that over weighting of the marketing jobs.
[25:28] Mike: I think that there’s two different pieces of this that you have to keep in mind. I mean because there’s the people like as you mentioned Seth Godin where he’s got a really great marketing mind and can come up with this I’ll call the most outlandish but typically brilliant ideas of how to go about crafting a story and talking to people. And then there’s the other type of marketer who is very much about the Analytics and tracking and measuring and incremental tweaking to make that story better. And they leverage what they’re learning from that to make their story better versus somebody like Seth Godin. And I would classify [0:26:00] Steve Jobs in this as well but, you know, they have this vision that they can push out there and kind of make people believe.
[26:08] So, I think that those are two different, you know, ways of approaching the marketing side and they don’t necessarily overlap a lot. There’s a spectrum there and you fall somewhere in that spectrum and it’s just how far towards one of the other do you fall and at what intensity.
[26:24] Rob: Attribute number eight is who you know and well, this may not sound like a personal attribute, it really comes down to do you naturally build a lot of relationships and do you have that rolodex where you can call on folks to help you in either give you feedback or to leverage your network to help you promote the product or help make it a better product or to integrate with. I mean there’s just so many valuable things you can do.
[26:47] This actually goes back to our unfair advantage episode where we talked about how just having that unfair advantage of a large rolodex can in fact tip the scales in your way of success. Now, you need to have reasonable ratings for the rest of this but having a really big network and knowing a lot of people, you know, can definitely be a big benefit.
[27:06] Mike: I think the area where this really comes in to as a benefit is the types of people you can go to and just ask questions. And if you’re the type of outgoing person where you can go out and meet new people, you’re in a decent situation but at the same time if you just have a large network of people who know you or you know them, you can approach them and say, “Hey, I’ve got this problem. Can you help me out,” or “You know, can you offer me some advice?” You’ve already got that built-in relationship, you know, it basically greases the wheels. It makes it easier. It makes is quicker for you to iterate through that process as opposed to having to introduce yourself to people in order to get their feedback and opinions on stuff.
[27:41] Rob: Attribute number seven is time. If you have 5 hours a week to work on your idea, give yourself a 1. If you have 80 hours a week, give yourself a 10. Time doesn’t always make people be more productive or more effective but it absolutely can make a difference all other things being [0:28:00]equal. And of course, you can tip it too far, right? And if you work 80 hours a week every week, your productivity or the long hold goes down but having the flexibility to put in longer weeks when needed versus the person who could only work 5 hours, it will tip the scales all other things being equal.
[28:15] Attribute number ten is money and I mean this comes back to the Steve Jobs thing we said a little earlier but even on a smaller scale, you know, if you have basically no money saved up to fund this app or you only have $20 a month that you can spend on it, you’re going to have to move slow and this is a disadvantage and that would be give yourself a 1 whereas if you have someone who saved up even $10,000 or 20 grand, they are definitely at an advantage. And you don’t need a ton of money to do it and we’re not talking about raising money here, we’re talking about having either a few thousand bucks saved up to help you with outsourcing, gaining of knowledge, marketing and not having to worry about little expenses like hosting and credit card fees and all that kind of stuff.
[28:57] And it also allows you just to move a lot faster. You can get an app coded and done twice as fast or more if you’re able to outsource pieces of it or if you’re able to hire a developer 20 hours a week instead of 10 hours a week or you’re able to buy out some of your time. You know, if you’re consulting and you can consult less because you have extra income coming in every month or you have a block of money that you put away, then you can just move faster and that always winds up being a success factor because not only are you able to get to market faster but the quicker you can get to real people using your app, the quicker it benefits you mentally.
[29:32] I mean we know, we talked a lot about how the psychology is a big part of launching an app and not getting discourage is a big piece of that. I don’t know if I’ve said this on the podcast before but I have this thing that said, “Funded companies go out of business because they ran out of money. Bootstrapped companies go out of business because they ran out of motivation.” The only time you’re going to close up shop is when you lose motivation because you don’t have any money coming in the first place, right? So, it’s not a matter of missing payroll. There is no payroll. So, that’s where having some money to speed along the process and get to market quicker can help keep you focused and on the rails and so you don’t just eventually kind of lose motivation and shut the thing down out of disappointment.
[30:11] Mike: You know, I think they look at the money side of this a little bit differently, I mean one of the things that I look at is how are you able to mentally justify spending the money that you do have. I think that having the money is only one piece of it but having a mentality of saying, “Okay, I’m going to pay $20 a month for this because it’s going to get me where I need to go faster,” versus the people who sit there and think, “Well, why should I pay $20 for that when I know that I could do that myself or I can hack together a solution that would do that and it wouldn’t take too much longer than I’m already spending to do that.”
[30:44] Part of it is about time management but it’s about managing your resources to be able to get things done faster and move yourself towards your goals quicker. If you’re not willing to part with some of that money and use it as an investment in your future, then chances are really good that you’re going to have trouble with that down the road and there’s going to be a huge number of roadblocks in your way that you’re putting there because you’re not willing to make that investment yourself.
[31:09] Rob: Founder attribute number eleven is focus. Do you have the ability to not chase after shiny objects and to focus on one thing long enough to bring it to market? Hopefully, that’s four to six months, then to go to the learning phase. Hopefully, that’s three to six months and then to grow that thing. And that may take another six to twelve months. So, mentally when I starta project, I always say, “The next 18 to 24 months, I have to focus on this.” And I may do other things, right? We put on MicroConf and yes, that does take a little bit of time, a lot of time over the course of a couple of months but then it’s done and now, I refocus and put all my energy in to that single project.
[31:47] You’ll notice that right now I’m not looking at releasing a second edition of my book or writing another book. I’m not looking at starting another podcast. I’m not looking at launching a different app. I really am talking most about keeping HitTail going and getting Drip launch because those are the things I’m focusing on. All the other things I just mentioned are things on my long-term to-do list. But I’m not bouncing around and trying to do all of them at once. I know that they are on my long-term road map and that I will get to them eventually. And so, like I said founder attribute number eleven, how well do you focus?
[32:21] Mike: Yeah, I mean this is one of the reasons that I cut back on some of my yearly goals. I mean I think at the very beginning of the year I said, “Oh, I want to write a book by the end of the year and I have it out late summer.” And I actually decided to completely kill that a little while ago. So, that’s one of those things that I just said, “Look, you know, I can’t concentrate on that now.” And even though it’s a long-term goal, I’ve got to push that off. I can’t even think about that right now just because it’s taking up space to my brain.
[32:44] And then I’ve got a couple of signs around my office that just say one word, it’s just FOCUS in giant letters so that when I look up from my monitor, I look around and I see that. It’s just a reminder to me that if I look around and I start to get distracted I see that and I say, “Oh, you know what? You’ve really got to focus on the things that you’re working on right now.” And whatever those happen to be, you need to be able to leverage your time effectively. And I think one of the things that people run in to when they’re trying to shift from a consulting business in to a product business is they’re thinking in the back of their minds, “Oh, well, I could spend two hours doing client and consulting work and I’ll make X dollars,” or “I could spend some time over here, you know, the same amount of time and I may or may not get a return on it.”
[33:23] And that’s not really the right way to look at it. I mean you really have to be focused on those long-term goals and understand that everything you do is an incremental improvement on the previous things that you’ve done. And if you’re not working towards that goal I mean if you’re not making those incremental improvements, it’s never going to improve. You’re never going to find this thing that where you change some text on your website, magically converts 300%. By the way, it just doesn’t happen.
[33:46] You’re going to have to continue doing these incremental improvements and tweaks in your business to try and figure out what works, what doesn’t and focusing on your products, focusing on the goals that you have and just going through the daily processes and weekly processes that you put forward to move you towards your goals is what you need to focus on.
[34:04] Rob: When I was putting this list together, there are a couple of other factors that I had in there but I – there are almost so fundamental and so general that I didn’t want them in the list but they are honorable mentions and I’ll list two of them here.
[34:16] One is do you get things done? Like are you actually effective when you’re sitting there working? Because I know people that maybe good project manager and decent developer and they have a passion for a project or product but when they sit down to do things, they aren’t that effective. They actually don’t move the project forward and so, if you don’t do that, then that’s almost like a non-starter. That’s actually you have to figure that out or you’re never going to get this project done.
[34:41] The other one is persistence. And again, it’s like such a generality but I’ve seen people start building an idea and then at the first roadblock or the first sign of a speed bump of any kind, they just say, “Well, this isn’t going to work. Maybe this whole entrepreneur thing, you know, is just more than I want to get in to.” Yeah, you’re not persistent enough. You probably shouldn’t even get in to this game because you’re going to have a lot of failures. You’re going to have to deal with that and you’re going to have to — you kind of get over them, learn from them and get better the next time.
[35:10] So, I guess these are less honorable mentions as I’m talking about them and they’re more like fundamental attributes that you need to have sorted out before you even get to, you know, the eleven we just talked about because if you don’t haveeither one of those to get things done in the persistence, the odds of you even getting to launch are very, very low.
[35:29] Mike: So, as a follow up question and some people might be thinking to themselves, “Am I unprofessional if I draw inspiration from scratch my own itch?” What are your thoughts on that?
[35:37] Rob: Yeah, so that’s what Stephen had said. It was another question he had asked. I think the question of unprofessional is not the right one to be asking but it’s more like, “Am I making a good decision if I scratch my own itch or not?” There’s a lot to talk about this, right, about people who want to solve their own problems because 37signals did that, right? And they did it back in 2005, 2006 and then they talked about it. And they kept saying, “You should scratch your own itch and if you’re not doing that, you’re going to fail.”
[36:02] And that’s the attitude that I don’t agree with, right? Because they’re saying it’s an all or nothing thing, you will always fail if you don’t scratch your own itch. And scratching your own itch dramatically increases the chance of success. I think it does increase it, I just don’t think it’s an either or proposition. I guess it comes down to you don’t have to scratch your own itch. I do think you have a higher chance of success, however, there’s a trick here. They started doing that in 2006 and they built Basecamp and Highrise and all these other things. Well, it’s 2013 now and hundreds, if not, thousands of developers have been scratching their own itch. So, all the low-hanging itches have been scratched.
[36:36] So, you have to think at a higher level now. You can’t just go out and build a basic SaaS project management app. You have to have some unique piece to it. So, I would say, yes,scratch your own itch. Go do that. But figure out a way to scratch that itch in a way that no one else has before you. You have to have a noble approach to it. You have to have a noble way to market it. You have to have some type of value prop that will get you heard above the den rather than just saying, “Well, I have a problem. Look, I solved it,” and then trying to figure out how to market it because that’s something we see a lot, right, with entrepreneurs who come either ask for advice. They come in to the Academy, just meeting day to day.
[37:11] I know that people build the product to solve a single problem that onto itself is a problem because then it’s – you find yourself, you know, six months in and you haven’t really validated that there is a need. So, I guess it’s like scratch your own itch but validate that hundreds, if not, thousands of others also have that same itch before you write a line of code.
[37:32] Mike: I agree with you. I don’t think that it’s unprofessional in any way but, you know, as you said there is since 2006, a lot of those personal itches that people that had been scratched. And I think that if you were to look around and start asking the people who went down that road, I think you’d also find a lot of people who failed miserably because they didn’t validate that there was a market. I don’t think that scratching your own itch is in any way, shape or form going to be an indicator of success. It’s the market. Is there a market? Are there people willing to pay for it? And if you don’t take that in to account before you try scratching your own itch, before you even write that first line of code, then it doesn’t really make a difference because you’re not going to be able to turn it in to a fulltime income.
[38:11] With that said, you know, it’s fine if you take some sort of side project that, you know, was reasonably well done and you didn’t necessarily want to productize it or weren’t trying to productize it when you first built it and you know, then you look around and you say, “Huh, is this a product? Is this something people are willing to pay for?”
[38:29] And in fact, I think that that’s how Fog Creek ended up with FogBugz, I mean Joel had this piece of code laying around that he built to do bug tracking and they decided that they would ship it and they cleaned up and shipped it out and people loved it. And that turned in to their flagship product and that’s what they’re known for today. And so, it’s not to say that you can’t do something like that, it’s just that, you know, if that’s something that you did awhile back, make sure that you validate that there is a market for it.
[38:54] Music
[38:57] Rob: So, that’s what we called the Founder Test. It’s eleven founder attributes that will determine the success of your product.
[39:03] Mike: So, first founder attribute is knowledge of the niche or the problem to be solved. Number two is technical andprogramming knowledge. Number three is your skill as a project manager. Number four is your skill with outsourcing ordelegating. Number five is your passion for the problem to be solved. Number six is your ability to build something thatpeople want. Number seven is your skills as a marketer. Eight is who you know. Number nine is available time. Number ten is money and number eleven is focus.
[39:32] Rob: Oh and by the way, before we head out, we are putting on MicroConf in Europe. It’s going to be in Prague in October, October 5th and 6th. If you’re interested in hearing more as details pan out and we find more speakers, go toMicroConfEurope.com. Add your e-mail to that list and we’ll definitely be in touch. Right now Mike and I are the only confirmed speakers but we have a short list that is looking quite attractive. So, if you have any inkling about going, head toMicroConfEurope.com and give us your e-mail.
[39:59] If you have a question for us, call our voicemail number at 888-801-9690. Or e-mail us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. Subscribe to us on iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. See you next time.
Episode 121 | Seven Catastrophically Common Launch Mistakes
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Show Notes
- Macbook Air
- Light Point Security
- RSA Conference
- Launch Festival
- Pirate Metrics
- Why Free plans don’t work
Transcript
[00:00] Rob: In this episode of Startups for the Rest of Us, we’re going to be discussing Seven Catastrophically Common Launch Mistakes. This is Startups for the Rest of Us: Episode 121.
[00:09] Music
[00:18] Rob: Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.
[00:27] Mike: And I’m Mike.
[00:28] Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What is the word this week, sir?
[00:33] Mike: So, I have suffered from a nerd injury.
[00:35] Rob: You e-mailed me you said, “I think we need to push off the podcast by a day.” And you said, “I tripped over my headphone cable and when I was getting up, I think it pulled something in my headphones.”
[00:47] Mike: The USB connector bent that’s when the cable got yanked. So, I don’t know. There is something in there where the Windows recognizes that it’s connected to the machine and it sees exactly what kind of headphones it is. There is no sound coming out of it. And the microphone doesn’t work.
[01:01] Rob: Well, so you bought new headphones and I bought a MacBook Air.
[01:04] Mike: Do you want to trade?
[01:05] Rob: Yeah, mine is – it’s pretty beefy. It’s got a 512 gig SSD drive and 8 gigs of RAM.
[01:11] Mike: Actually the extra space is really not that big of deal to me because mine has 256 gig SSD and let’s see, I have half of it allocated for Windows. The other half allocated for OS X and you know, I still have plenty of free space on it. So, that’s not a big deal. It’s the 8 gigs of RAM would be nice to have but I’d exchange that for a better screen anyway.
[01:31] Rob: Yeah, that makes sense. Hey, I’m finally going Mac. I mean partly because you’ve been able to pull it off well and I know you do. You probably do a lot more Windows development than I do. I’m down now to just a very small amount of some .NET console apps that I maintain. Everything else I could do on a Mac with a good text editor. To be honest, there is no other hardware that I can find that anybody makes that runs a Windows that is all comfortable to Mac hardware. It’s just like crazy that no one has been able to catch up with them but then I really I was playing with the MacBook Air in the Apple Store and the gestures look really – I was just flipping around. It sounds like, wow, this is a nice OS. It’s really impress. So, I’m going to give it a shot but I look at Windows 8 and I’ve gotten on a couple of machines with that on and I’m thinking I know I can learn this but why – if I went go through a learning curve, I might as well just take the time now and jump to Mac, you know.
[02:19] Mike: Yeah, I think that the things that I would say about switching from regular Windows desktop to a MacBook Air is that if you want to run Windows on in too just go at VMware Fusion. So, it costs you like, you know, fifty to a hundred bucks or whatever to buy the software. And then in OS X because it allows you to have virtual screens, you can have that full screen on another window, basically, on another – on a virtual screen and you just three-finger swipe between operating systems and it’s completely seamless.
[02:45] And then the other thing that you’ll probably have to do because you’re a Windows user and you’re used to the function keys actually acting like function keys, you’ll want to remap those so that you have to hold down control function, whatever the function is to get to the OS X shortcuts. So, like for example if you hit – there’s one of them where you can turn the brightness up or another one where you can hold turn the brightness down. But when you’re in Windows, those things typically you’ll do like control F5 to compile in visual studio, that doesn’t work. You have to hold down control function F5 in order to do it. So, the key mappings are a little bit messed up. So, I would advice switching over those key mappings so that you have to hold down the function key in order to get that top row to work in OS X.
[03:26] Rob: Very nice. So, that’s what’s going on in my world. How about you?
[03:29] Mike: It’s tax time. Somebody needs to just kill me. [Laughter]
[03:32] Rob: Yeah, and you know, remember last year, you said your tax date was March 15th?
[03:35] Mike: Yup.
[03:35] Rob: And I was like, “Oh, mine’s April 15th because I’m an LLC and you’re a corp.” And then my accountant gets in touch and like “I just filed an extension for you.” So, this year, I’m trying not to do that. I’m actually going to try to file the LLC stuff on time on March 15th and then do the personal stuff by April 15th.
[03:50] Mike: Uh huh. So, what else you got going on?
[03:52] Rob: Well, you know, this week actually I have two pretty cool stories, success stories from some Micropreneurs. We have one is from Brecht Palombo. He’s a lifetime Academy member and he e-mailed me this week and he said, “Your Academy got me started and I now have a SaaS. It’s three years old and it broke six figures last year and it’s tracking the low five figures monthly for the last few months. I left my consulting business behind last October.” That was really cool. This is why we do this. I love hearing stories like this. His URL is distressedpro.com.
[04:21] And the other congratulations I want to send out is to co-founder of Light Point Security. It’s Zula Gonzalez. She’s also a lifetime Academy member and they were — Light Point Security was recognized as one of the top ten most innovative security companies by RSA, the RSA Conference I guess in 2013. And she said that they’re going to be presenting at the RSA Conference in February for a chance to win most innovative company. She also got in to the Launch Festival with Jason Calacanis but they got in to a local Maryland startup festival that had like a higher prize and a higher possibility for them to win. So, they bowed out of Launch and they’re doing the one in Maryland instead but lots going on for them. So, I’d just wanted to give both of those guys a shout out. That company again was Light Point Security and it’s at lightpointsecurity.com. So, congrats to both of you guys.
[05:06] Mike: You know, the only other thing I have is that I’ve been working on the documentation for AuditShark because I’ve been talking to people and they’ve looked at how AuditShark works and they say it great what it does but I don’t necessarily understand how to put anything together. So, I’ve been working on the documentation a lot more to kind of help solve that problem and put it – writing documentation for a technical product that’s, you know, when all of the product documentation also is technical, it’s just a nightmare.
[05:31] Rob: Yeah, true is. So, are you doing that yourself?
[05:33] Mike: Yeah, so I decided to just do it myself. You know, it’s coming along and I’ve got a lot of the documentation out on the website then there’s a development area where I’ve got more documentation that I’m trying to find tune in before I push it live to the website. But it’s getting there.
[05:46] Rob: Any news on the early access, any changes or are you still looking at couple of weeks to end it and going to launch?
[05:51] Mike: No, I’m going to actually do one more round with some early access people. I got to identify. I want to identify about eight people to send in to this next round and once I’ve identified those, I’ll kind of turn them all loose at the same time and kind of see what they think. Get some feedback from them. If there’s anything that I can fix quickly, I will. Otherwise, I’ll just kind of plow forward and push it out there and fix things as needed.
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[06:15] Rob: We’re going to be talking Seven Catastrophically Common Launch Mistakes. I feel like I’ve been saying the same thing for years. I guess I started blogging in 2005. That’d be eight years but I really started harping on the startup stuff and started to learning and talking about these mistakes that I’ve made. Share insights about putting up landing pages and tracking key metrics and all the stuff and yet, at least a couple of times a month I either hear a podcast or read a Hacker News story, I see something where people are making – they’re still making these exact same mistakes. And I almost feel – I sent an e-mail the other day to a colleague and I said, “I feel like we’re not moving forward like the industry is still making the same mistakes that has been for years and like I want us to push forward from that.” Do you experience the same thing?
[06:55] Mike: Yeah, and it’s usually because you’re being introduced to new people or there’s new people who are kind of coming in to it. So, three years ago, somebody who wasn’t interested in doing a startup is now interested in doing one and three years ago, there was this great idea about building a SaaS-based business and recurring revenue and all these things, and now they’re getting in to it, they’re like, “Hey, did you hear about this new SaaS-based business and recurring revenue.” And I was like, “Well, I heard about it three years ago but you weren’t here then so you didn’t hear the conversation.”
[07:23] Rob: Yeah, so I guess that’s really what this episode is. It’s a collection of mistakes that I’ve heard basically within the last two weeks from a number of different blog posts, podcast discussions and other things. And some of these, personally actually I called it out like “I made this mistake” and other times they just said a quote that made me like smack myself in the head and said, “Oh, man, like how are you running a business? Like how – no wonder it failed.” You know, a lot of these are postmortems on why they failed and it’s like, “No wonder it failed. You made some basic fundamental mistakes.” And we’re going to cover seven mistakes.
[07:55] The first one is not putting up a landing page before you start coding. We talked a lot about putting up landing pages and there’s a number of different reasons for them. Even if you’re not trying to test the market and do a smoke test and validate the idea, even if you’re just going to charge in and code it anyways, not having a landing page is a huge mistake. It’s a huge mistake. I will say it ten more times, it is a huge mistake. You get so much information out of having a landing page up because as you talk to people about it whether it’s on a podcast or whether it’s at a conference or whether it’s just one-on-one as you’re talking them about it, you can always say, “Hey, check out the landing page and it gives you a little more info and enter your e-mail if you’re interested.”
[08:34] And so you get huge benefits from this. One, you get a short, even if it’s just a small list of e-mails, you have people who might be interested in beta testing the thing and getting beta testers who are interested in your app who are in the niche that you’re serving is a non-trivial task. So, that’s – it’s a really big deal. The other thing is allows you to test verbiage and positioning and figure out where traffic is coming from, figure out which sources are converting. There’s so much information you could get before you write along a code or before you launch your app. I’m in the middle of this right now and I’m realizing once again, the intense value that you can get from a simple landing page and running some split test and tracking who converts. I already have a much better picture of who my ultimate customer will be for Drip than I did two months ago before I had this landing page up.
[09:19] Mike: I would add a lot to that but I think that it leads a lot more in to mistake number two which is not tracking key metrics from the start. And really you start with that landing page because not having a landing page is mistake number one and but mistake number two is not tracking the metrics for that landing page. If you’re not figuring out who’s coming in to that landing page, what keywords they’re clicking on to get there, how they’re getting to the landing page, what words on the page are making them convert versus which ones are not. So, if you’re not doing A/B testing on there, you — that’s another mistake. You have to be looking at these things and tracking the right data because if you’re not tracking the right things then you’re not ultimately going to be successful with it because you don’t know what’s working and what’s not.
[09:58] Rob: Right and you don’t have to be a complete data analyst and not focus on building a really good product, right? You don’t have to sit there and analyze data all the time and build your whole business and base it all on this data that’s coming in. That’s not what I’m talking about that. What we’re talking about is just getting a little more information about who’s getting value and who’s interested in your product and especially early on in your product, this information is way, way more valuable than the money that a customer will give you because the money even if it is a subscription, it’s just a tiny little piece of this puzzle whereas getting more inside in to who is actually using your app, that’s a leverageable point, right? It’s something that they can open up an entire new markets or entire new marketing approaches and ideas and it’s just carries itself through. It’s a flywheel on its own to learn that, “Hey, it’s just so happens that women 20 to 40 years old are my key demographic and there are the ones who this is really clicking with.”
[10:54] Mike: Yeah, I mean if – in any given case, if you could give away ten subscriptions to whatever your product is in exchange for a 5% boost in revenue because you have boosted the conversion rate for that, hands down no questions ask. Go ahead and do it because in the long run, you’re looking at that 5% and on day one, yeah, 5% of $10 is 50 cents but when you start looking at a thousand dollars or $10,000, I mean that adds up very, very quickly and that is repetitive and it accumulates overtime.
[11:23] Rob: Right. I heard a comment on a podcast where the guy said, “I don’t know where the traffic came from to our landing page but I think it converted pretty well.”
[11:31] Mike: [Laughter]
[11:32] Rob: And I was thinking to myself how, like how did you do that because don’t you realize that whatever traffic came there that all of those sources are now – depending on how they convert in to actual e-mails, those are your market like those are the people you’re now going to approach to write guest posts or to publish an info graphic or to advertise on their blog or to just something, you know, just network with because they are your people. They’re – if someone is blogging about designers and you build a tool for designers, then that’s it, you know. If it converts, this is your market and learning the stuff upfront early on is critical. So, if you want specifics about what you should track, obviously, put Google Analytics on there, that’s your first key.
[12:09] The next one is spent two minutes to set up a goal in Google Analytics so you can track which of the traffic sources actually convert in to e-mails like actually provide your e-mail and then beyond the landing because this whole thing about tracking metrics, it doesn’t just apply to having landing page. So, that once you get your marketing set up, you should track them as well. I track trial to paid conversion percentage. I track churn even if it’s in approximation, even if you can’t get an exact number. There are — yes, there are five, ten different ways to calculate churn. Pick one. Even if you don’t know what exactly, just pick one and go with it because you will notice the relative change overtime. I mean you look at your churn and it’s catastrophically high about 30% of your subscribers are leaving per month, you’re going to know that you need to fix something. And if you’re not measuring it, you just have no insight in to that.
[12:52] And the last thing I would always look for is, you know, where conversions are coming from. I got to be honest, if you don’t want to track metrics, if this whole discussion feels like a burden, it feels like something you don’t want to do, then I genuinely think you should not be launching a product. I think that one out of a hundred people ho had success with the product, don’t track their metrics and I think the other 99 look at the stuff that we’re talking about and that’s how you build a true sustainable business.
[13:18] Mike: You know, speaking of metrics, remember when we had a podcast when we’re talking about pirate metrics?
[13:22] Rob: Yup.
[13:22] Mike: So, Tyler Moore has a website called piratemetrics.com where he has a product that’s designed to do a lot of what you just talked about. It’s designed to measure acquisition, activation, retention, referral and revenue. So, if you hate doing metrics, then go sign up for that service and take a look at it and see if it’s something that’s going to meet your needs. And it can help you do some of that stuff.
[13:43] Rob: Nice. It’s a really cool site. Yeah, I agree. I think Pirate Metrics is a good option and KISSmetrics can be another one. It’s a little more complicated. There’s a lot to it. That’s the thing is people hear discussions about metrics and it’s like it feels too complicated and so they just don’t anything. The thing is if you measure just two or three key metrics, you are 80 to 90% of the way there. And so, take the advice and go to piratemetrics.com.
[14:09] Mike: And I think that’s a good point is just measuring two or three because you have to start somewhere and until you start digging in to those things and start really understanding what they mean for your business, then it’s hard to figure out what other metrics you should be looking at. So, starting out very small is probably better than starting out with a ton of metrics because a ton of metrics is going to be overwhelming and you’re not going to know what you should be looking at or what is important to pay attention to. Starting with just two or three metrics, you’re going to have a good idea of what those numbers mean after a month or two and then you’re going to say, “Well, based on this information, I need to know that. How do I get it?” And then you start building those additional things in and overtime your metrics dashboard is going to grow to the point that it’s going to support all of the different things that you need to figure out.
[14:50] Rob: So, mistake number three is assuming or saying that people are finding you through word of mouth because what this really means is “I don’t know how people are finding us.” And this ties in with not tracking metrics but everytime I’ve talked to a founder who tells me that their app is selling via word of mouth and I’ve actually been able to go in to their Analytics, everytime I found out that it’s not word of mouth that’s selling the app. Either they have something misconfigured with the Analytics that isn’t showing refers. I’ve seen that happened. I’ve also seen people say, “Well, my direct traffic is growing and I can’t explain why and so, it must just be people talking. It’s word of mouth.”
[15:25] The thing is if you have a SaaS app or any type of app where people come back to it to log in and you don’t figure out a report and figure out a way to exclude those people, then your traffic is going to increase overtime naturally. That’s not word of mouth. That’s just having a thousand customers when you used to have ten and your traffic is just a lot more. So, word of mouth really is not as pervasive or as common as most people think. Most people think, “I’m going to build a great product, great design, app is going to work and everybody going to talk about it.”
[15:52] Now, people telling each other by blogging about it or by tweeting about it or by saying it in some trackable form because if they put it on a blog post and they link to you, then you’re going to see that as a referrer. And that’s not what I’m talking about here. I’m talking about this when people say, “Oh, my direct traffic and I have all this traffic coming in that I just can’t describe and so that must be word of mouth,” that’s the stuff I’m talking about. I think it’s a dream of developers we think that that marketing and sales are scammy that just building an awesome product is going to be enough to do it and the bottom line is you really is not in almost all cases. I’d say one out of a hundred it is and all of the other people actually know where their traffic is coming from and they just don’t assume it’s word of mouth.
[16:31] Mike: I think part of that is just a misinterpretation of the data by someone who is looking at it and saying, “Oh, well, you know, I don’t know where this traffic is coming from. It looks like it’s direct and most of it is direct. So, it must be word of mouth.” And then they parrot that out to other people and people read it and if you’re not thinking about it in this way to understand that that’s probably what’s happening in this original person just misinterpreted the data and then that turns around and gets parroted out because, “Oh, well, they grew their business based on word of mouth. That’s all I need to do.” And that’s kind of how that myth of by word of mouth gets started and that’s how I guess continues to grow and be out there because nobody will kill this myth because there’s no definitive evidence to say, “Well, that didn’t exists.”
[17:13] Rob: I heard someone who wants to be an indie developer. He’s like a freelancer but he was talking about how he didn’t want to do marketing because he thought, “I felt like marketing was scammy or something.” And there are always these examples that are thrown around that they’re like to hear these companies that just all they did was build great products and they didn’t market like everybody else. They just went and did their own thing and focused on the products. And examples thrown out are like Apple, Dropbox, there’s a new app called Mailbox that has 700,000 people on an…on e-mail list. That’s an iOS app. And I think Sparrow is another one. The thing is…is brilliant marketing is invisible and all of these companies have world-class marketing and PR talent. They are machines and they do it so well that you don’t even see it. You’re not seeing behind the curtain. They are so good at it that it’s invisible to you. The fact that everyone is “talking about it” is a carefully orchestrated and constructed PR and marketing campaign.
[18:04] Mike: yeah, I’ve heard a lot of people compare what they want to do to like Apple and just say, “Oh, I just want to build a great product and people will love it and they’ll tell their other friends about it.” And it’s just like that is such a pipe dream. It just does not happen. I mean there are certainly rare cases where it does but by and large that doesn’t happen and the chances of it happening to you are infinite test and really small.
[18:26] So, mistake number four is running an open beta. And you really don’t want to run an open beta because you want to be able to tightly control who is seeing things and you want to be able to directly solicit feedback from people. Now, if you run a beta and you just open it up to the world, what happens is people come in. They’re going to sign up for it and they may check it out, they may not but chances are really good that they’re not going to give you a feedback and they’re not going to give you the feedback that you need because they’re not vested in the product. You’re not putting them through your marketing pipeline. You’re not talking to them in the way that you would to a prospective customer and therefore, you’re not pitching them on the product.
[19:03] So, when they just sign up and just get dropped in to your application, the problem is that they’re just not seeing all of that stuff. So, you don’t get the feedback that you need in order to tweak it such that is going to be effective when you get to the point where you start charging for people. And the second thing is charging people. You really want to charge people as early as you possibly can. You don’t want to give accounts away free to people because you want them to pay for it to help validate your ideas so that you can determine whether or not it’s something that you need to continue with or whether you need to continue to refine your message until you find the pain point that people are having that they are willing to pay for.
[19:40] Rob: Right, imagine that you put yourself on a launch list. You’re a potential customer of an app that you hear about and their e-mail on a landing page. And then two months later you get in a single e-mail that sent out to everyone that says, “Hey, everyone. We just launched. Click here to get in to our beta and give us feedback.” You’re very unlikely to do it whereas if instead you received a personal e-mail from the CEO that says, “Hey, so and so,” addresses you by first name or says, “Hey, you’re on our launch list.” It’s a plain text e-mail that obviously came directly from him. It’s not a list. Him or her. And they say, “You know, hey, we really need – we’d hand pick a handful out of our massive launch list and we would love for you to come in. Have a look at the app and if, you know, if you’d like to test it out, we’d love to have you do it.” And that way you really go – get in to the people who have a dire need for your app, who have desire to actually give you a real feedback. They’re going to take the time to walk through it.
[20:33] And then like Mike said you can make the decision. You’re – let’s say you do like five beta testers and then they gave you a really good feedback. Maybe you do comp them. You know, maybe you comp five people but you don’t comp your all 500 people on your list because these are your best customers. These are the people who are most excited to hear about it and they are the people who you spent months getting on to your e-mail list, getting them to your landing page and getting them to sign up. So, to basically just open up to everyone and comp everyone, I didn’t even realize people were doing this anymore honestly until I heard this a couple of weeks ago. And I was like no, you can’t do this because this is how to start on day one with zero revenue. You’ve heard all this time you go to the launch and then you basically just take your launch list and you throw them in a trash because, yeah, you have a hundred or 200 or 300 users but now you’re supporting them and you have no revenue and people are actually happy to pay. If you provide them value, they will value the app more if you charge them something for it.
[21:26] And then this shows you can already start getting information about who’s using it and why and when people do cancel, you want to know that and you want to know why and if it’s a free plan and they just stop using it, you don’t know if they would have canceled or not. It’s just…it’s just a much more opaque process to do this. It’s not just about leaving money on the table but it is about getting paid for your effort to be honest. It’s about starting off after all of this work and getting at least a little bit of money that can help you bootstrap this app and grow it because it’s hard enough to get this thing off the ground without taking, you know, four months of your pre-launch marketing efforts and just…and throw them away.
[22:01] And mistake number five is launching with a single launch e-mail. In an ideal world, you have at least two e-mails. You can have up to four in my opinion. Your launch is an event. It’s an event for you and it’s an event for people who are actually interested in your app. So, imagine this. You’re on a launch list. You haven’t heard from anyone for two months and suddenly you get this e-mail and it’s like, “Hey, App-tastic has launched and come and see our new app. Here’s the link.” I get this all the time and I don’t remember what list I signed up for. I don’t remember why I’m on this list. I don’t even know if it’s spam or if I actually did sign up for it.
[22:35] So, that is epic fail. Do not do it. What you want to do is send out an e-mail a week or two before your launch and tell the people right on the start, “Hey, you’re receiving this e-mail because you subscribed at this URL and this is the product. This is probably why you subscribed and this is the app – what it is and what it does.” And build a little bit of anticipation. Either send a screen shot they haven’t seen before, short screencast. Send them a link to something they couldn’t have access to before and what this does is it starts building some anticipation with people who are actually interested in the app. If people aren’t interested in the app, put right there at the top, “If you don’t want to hear anymore about this, unsubscribe here,” and include a link and let them get off your list because there will be a core group who’s really excited about or there should be or else you’re not doing a very good job of you know, vetting your product.
[23:19] But what this does is it starts getting you a little bit of data about, “Hey, who’s clicking on this thing? How many people click on that? Are they interested in this app and you know, what can I do to engage with these people a little more?” And so you e-mail them a couple of weeks before hand and then you can either e-mail them the day of the launch or e-mail them a couple of days before and say, “Hey, everything is set and here’s going to be the ultimate pricing and you’re going to get a small discount for being on the list. Thanks a lot. You have a couple of days to take advantage of that.” And then, you know, you can send them an e-mail the day that that expire.
[23:48] So, somewhere between two and four e-mails but make it a little more of a process. It’s like you’re not bothering people. You’re not spamming people. They signed up for a list to hear about your app. Give them something to be excited about. This approach alone can seriously take you from closing 1 to 3% of your list up in to the 15 or 20%. It can easily do that at least getting people to try the app out. Maybe not full purchases but it’s just night and day.
[24:13] Mike: So, mistake number six is having a free plan. And unless you really know what you’re doing, you do not want to have a free plan. And there’s a bunch of different reasons for this. The first one is that it skews your metrics. It makes things way too complicated to try and figure out whether it’s people who are on the free plan are canceling and chances are good that those people are not going to cancel. So, what’s really going to happen is you’re going to have this metric that shows you that your cancelation rate is only 2% when the reality is all the people who are on your free plan, they’re not going to cancel anyway because it doesn’t costs them anything. So, now you’ve got the skewed percentage that in no way, shape or form accurately reflects what your churn is going to be for that application. So, unless you have experience and some very specific knowledge of how you’re going to convert these free users and the paid users, don’t even bother. Rob, you said it best in the – was it at Wall Street Journal where you were quoted as saying free plans are like a samurai sword?
[25:08] Rob: Yeah, it was in New York Times.
[25:09] Mike: New York Times
[25:10] Rob: And yeah, it was free plans are like a samurai sword. If you’re a master, you can do amazing things with it. But if you’re a beginner, you’re more likely to cut your arm off. I really believe that. It’s just what you said. It’s like having expertise and there are people who can use free plans to fantastic results but it is way, way harder than it looks. You need to look behind the curtain and see how much experiences people have and precisely how they use that free plan that’s very specific uses in very specific ways that they tried to get people to convert from free to paid. There’s all these things in place that if you don’t do these things, you are just screwing up and you’re just seeing the façade of how or it’s on the outside.
[25:45] The other thing is you need a good chunk of money to be able to outlast the free plan because I’ve heard like Dropbox and Evernote, they convert X percent after a year of people using their app. So, do you have the money to support all of those users for a year, you know, all those free users without getting revenue? If you don’t, then in general it’s not a good idea.
[26:05] Mobile apps are likely they’re different, right? Having a free version with an app purchases or having a light version, I’ve heard these things work very well. The free versions do not really support burden with mobile apps like they are with web based software and in my opinion they can actually can work as a really good marketing channel but that’s not what we’re talking about here. We’re really are talking about having a free tier. Again, unless you know what you’re doing or I mean even look at MailChimp, they didn’t have a free tier when they launched. They got very big and now they just – they know their numbers right? Inside and out, they know all of their metrics. They track everything and now, they introduced a free product.
[26:39] Obviously, they have the knowledge and the expertise to be able to make that work but on day one, when you’re trying to launch, it’s just too easy of an option for everyone to pick and that’s, again, it’s kind of like – it’s kind of a kindle throwing your launch list in the trash because you don’t get people actually using the app and actually paying for it which means they have to commit to it and actually commit to using it and you know, which will ultimately make the app better because they give you feedback and they’re more invested in it.
[27:04] Mike: It can also be a distraction especially when you’re first launching because you might start getting feedback from people, “Hey, I’d like it if it did this,” or “I’d like it if it did that.” But these people aren’t paying for it. So, they’re not seeing enough value in it to pay for it yet you’re going to accept advice from them and that’s really just not a good path to go down because you’re taking advice from people who have a vested interest and not paying for it. What you really need to concentrated on is those people who are paying for it and by eliminating the free app or the free plan for your app, then you eliminate that possibility of bringing in that input from those types of people. And then down the road as Rob said like MailChimp did once they got to a point where they knew what their numbers are and they were able to offer the free plan and measure it and they’ve tweaked it several times over the past 18 months to try and figure out what’s working or what’s not, at what point will we be able to convert people in to a paid version of the application.
[27:57] Rob: Right and I can name a number of people off the top of my head who have launched with free plans and who close them down or make them extremely hard to find within a few months of launching. Over and over it’s the same pattern. Launch with the free plan because look, Dropbox did it and then you just – you wind up getting 600 users and no one converts and you don’t know what to do and you don’t have the time to figure out or you don’t have the experience to do it and you just kind of bail on it. It’s very common.
[28:22] Mike: You know, I would add a mistake 6.1 to this which is offering a low priced plan which is probably going to be more of a support burden than its worth. And I’ve seen a lot of people where they’ll have – they’ll launching new product. They’re like, “Well, you know, $10 or $20 a month seems right but I’m going to have this $5 plan or $8 plan,” because people, you know, have this mental hurdle about paying more than $10 for something. That’s totally ridiculous. You really need to be charging people what the product is worth and what they’re wiling to pay and not trying to get people to use the product and then in an effort to have them upgrade later. Offer them value upfront. Make sure that it’s going to be at a price point that’s going to support you and the support burdens that you’re going to undertake.
[29:04] Rob: It is a usage-based thing where like Dropbox, your usage is naturally increases overtime and so as you use more space than you would upgrade tiers, I could feasibly having a little price tier but boy, it’s really – I would default to not doing that, you know. I just – I would say that’s a one time where you may consider doing it as if someone is naturally just to be using the product, got to naturally upgrade to those higher tier things and you will lose them otherwise if they’re not going to sign up.
[29:32] Mistake number seven is not growing fast enough. And I know probably what you’re thinking here and say, “Wait, Rob and Mike? They’re like – they’re not all about growth startups.” The thing is well and we’re not, right? [Laughter] You can…you can start a startup and – or start your app, launch your app and not grow it and just grow it to a place where you’re comfortable and that’s okay. It’s not all about growth. The problem is that you need to grow your app fast enough to keep yourself interested in the project or else you’ll abandon it. The number one reason that bootstrap startups fail is because they don’t make enough money to keep the person interested, bottom line. Not growing fast enough it will kill your app because you either get bored, other things come up. If you launch an app and it’s making 10 grand a month, by month 2, you are much, much less likely to be bored with the thing than if you launch it and you’re making $300 by month 2.
[30:19] Mike: Something else that factors in to that is having the application be able to support all of the costs to that is essentially causing you because whenever you launch an application, typically, you have to pay for hosting, you have to pay for any Analytic services, all these other things that you’re probably using to help promote the app and run your software and all the infrastructure that’s in place, your bug tracking, your source control, everything else, it’s going to costs you at least some money. And it’s not to say you can’t get open source solutions but the fact of the matter is that your time is worth something. So, you have to take those in to consideration and if it’s not covering its cost, unless it’s a real labor of love, you’re going to find that it’s very difficult to continue that for a long period of time.
[31:01] Rob: So, those are the Seven Catastrophically Common Launch Mistakes. Mistake number one is not putting up a landing page before you start coding. Mistake number two is not tracking key metrics from the start. Mistake number three is saying people are finding you through word of mouth. Mistake number four is running an open beta. Mistake number five is launching with a single launch e-mail. Mistake number six is having a free plan and mistake number seven is not growing fast enough to keep yourself interested in the product.
[31:27] Music
[31:31] Mike: If you have a question for us, you can call it in to our voicemail number at 1-888-801-9690 or you can e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt used under Creative Commons. You can subscribe to us in iTunes by searching for startups or via RSS at startupsfortherestofus.com where you’ll also find a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 84 | Five Traits of Successful Founders
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Show Notes
- Ultimate WordPress Coming Soon Plugin
- The Winner’s Brain
- The 5 traits:
- Opportunity Radar
- Optimal Risk Gauge
- Focused Goal Laser
- Effort Accelerator
- Talent Meter
Transcript
[00:00] Mike: This is Startups For The Rest of Us: Episode 84.
[00:03] [music]
[00:11] Mike: Welcome to Startups For The Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
[00:20] Rob: And I’m Rob.
[00:21] Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What are you doing this week, Rob?
[00:24] Rob: I’ve been working pretty hard on refining some parts of the HitTail article, the one-click article feature I mentioned last week. So I got some good feedback from early users. I had about ten, ten orders so far for articles. And it’s crazy and so I’m saying it’s a two to three-day delivery window but with the amount of writers that are available through this partner that I have, one article came back in three hours.
[00:47] Mike: Wow. [Laughter]
[00:48] Rob: That — is it — yeah.
[00:49] Mike: That’s crazy.
[00:50] Rob: They’re only — they’re 400 -word article so I’m, you know, specifying it pretty low because at this point they’re kind of just SEO blog post type things but they’re high quality writing. I mean they’re all, you know, native English speakers and that kind of stuff but yeah. But I think the average is probably been like eighteen hours. A lot of them are coming back in less than a day. There was only one that was on that really assertoric topic that took — it took like almost two days for someone to claim it and they wrote it like six hours or so.
[01:16] Anyways, that’s one good. It feels really good to get that out and get it out in to the wild and to make some refinements to it based on suggestions. So I’m feeling like that’s wrapping up pretty quickly and got to kind of be moving on now to more marketing stuff because this is really — this completes the operation retention that I talked about last week. And so I am really redoubling my efforts and kind of refocusing on doing things more in public. I’ve kind of been under the radar for a good month or two, really, I haven’t done much. Other than the podcast, I haven’t done much of anything in public. And so I’ll be heading back to that.
[01:48] Mike: Yup.
[01:48] Rob: How about yourself?
[01:50] Mike: I read an interesting blog article on the SmartBear Blog by Jason Cohen and it talks about the mid-market briar patch and how going after to been market is generally, not always but generally a losing strategy as opposed to going after the enterprise or small business market because if you’re going to go after small businesses, then obviously the way to do it is generally through SEO and you know, online marketing techniques. But if you’re going after the enterprise market, then you’ll have to scale up and it cost a lot more time and effort and energy in order to land those customers. So some people look at that and they say, “Well, I don’t want to go after that out. I’ll go after the mid-market” which is kind of what I try to do initially with AuditShark and the article basically goes on to say that the mid-market is essentially a briar patch because you spend just as much time, effort and energy going after the mid market as you do going after enterprise customers because by the time those customers are mid-market sized, they already have all these processes and purchasing procedures in place and everything that makes it just as difficult to raise them as it does to get in to an enterprise customer but your return on it is like a hundred times less or thousand times less than it would be if you’re going after an enterprise customer.
[03:03] So you’re much better off going after those enterprise customers than the mid-market customers because it’s the same amount of effort but your return on it is, you know, a hundred extra or a thousand extra or something like that.
[03:15] Rob: Got it and this struck a cord with you because of your early direction with AuditShark of going after banks, right?
[03:20] Mike: Yeah, definitely because I mean my target market for banks. I mean I talked about it upfront was, you know, anywhere from fifty to a couple of hundred employees. It was a little bit more difficult than I originally anticipated. I thought it’ll be a lot easier just based on my early experiences talking to a couple of banks. It turns out that it’s just a lot more effort and it’s just not cost effective to do it.
[03:41] Rob: Right. So what’s in line with exactly his premise at article and that’s cool. Hey, we talked a couple of weeks ago and I had mentioned that I wanted to start mentioning some, some Micropreneur Academy members more often, people who have had success because literally dozens of folks that I know have launched products and, you know, either quit their jobs or enough money to quit their jobs and just don’t and just basically have two incomes coming in. I know a few folks doing that.
[04:07] Anyway, so there’s a guy name John Turner and we mentioned him last week. seedprod.com is his URL and he has a WordPress theme, the ultimate coming soon plug-in for WordPress and it allows — it’s a lot, you know made a lot for the startup movement of having the landing page and collecting e-mails so it ties in a lot before we say but he’s starting in a very elegant way. You know, at one point he turned down a job with, I think WooThemes. I mean he turned down a job with a pretty big WordPress development company. So he — this guy is a very sharp WordPress developer. He has built over the past six months specifically, he’s been working on a little longer than that but he launched and his growing revenue and frankly, you know, he’s not at the point of having recurring revenue up to the point of quitting a job but I think like last month he has enough that seriously considered doing so.
[04:57] So but it just really impressive and cool to see someone come in to the Academy, used the lessons that we’ve laid out and really take a lot of way from. He expressed that he learned a lot from the Academy. So a folks are, you know, interested in that type of thing and so maybe we’ll mention it every, every few episodes just to give people idea of what’s going on there and who’s coming out of it. I’d like to kind of do some little spotlights here and there. But if you’re interested in finding out more about it, it’s at micropreneur.com.
[05:24] Mike: Yes, I’ve looked in to what he’s got for a plug-in and the model that he used to kind of promote was really interesting. He actually didn’t even mean to build a product out of it, what he done was he released this plug-in for a WordPress as a coming soon plug-in and he got — I forget how many tens of thousands of downloads but it was a significant number of downloads was — I think he started out with — about 10,000 and that’s when he decided that he was going to turn it in to the WordPress plug-in in to having a like a professional version of the plug-in. And it’s more or less like an up sell and at this point, I think his free version has something like 70 or 80,000 downloads according to WordPress.
[06:03] Rob: .org.
[06:04] Mike: There, they just, you know, show you how many downloads are and some ungodly number. I mean it’s ridiculous. I mean that’s where a lot of his sales come through because there are certain things that are in is professional version of his plug-in that are not in the free version. I mean I think that’s just a really great way to do it. I mean it seems to fit really well with the WordPress community.
[06:24] Rob: Right. That’s this kind of a standard way I’ve seen evolving. I shouldn’t say standard. It’s kind of becoming the standard way of releasing the free — it’s almost a premium model but the audience is so big and if you can actually get found in that WordPress.org search engine, it’s a lot like ranking high in Google. I mean it’s just another discovery engine and so you can get enough kind of free users that, you know, it can turn in to a reasonably high income stream for folks like us who are solo entrepreneurs. I mean if you are some enterprise company, this wouldn’t even be a blip, right? The amount of income you could make from it but that’s that not the game here.
[07:00] Mike: One of things I’ve been working on lately is I’m working through the website designer with the new site design for AuditShark, my new developer for AuditShark has just kind of come onboard. He’s got about a day’s worth of effort in so far. So he really hasn’t done anything yet but you know, he’s certainly starting to pick some things up and you know, we’ll see how things go. I’m hoping things work out on this side just to help get things moving a little bit quicker.
[07:25] Rob: And at the same time, I think I’m going to have to let my developer go who’s been working on HitTail for a little while. He had just seemed to — he’s a solid developer but he’s not working as far as I’d like and sometimes he just kind of disappears and doesn’t answer e-mail for a few days. So, you know, I have higher standards at this point so I may be looking for another developer which is tough because HitTail is in Classic ASP and it’s not easy to find good Classic ASP developers because of them have moved to .NET by now.
[07:51] [music]
[07:54] Mike: So what we’re talking about today?
[07:56] Rob: Today, we’re talking about five traits of successful founders. So I’ve been listening to the book Winner’s Brain and it’s by Jeff Brown and Mark Fenske. And basically, these guys are two researchers. So they are, you know, they’re fairly academic in the research but they’ve written kind of a layman’s book and it’s about people who succeed and how their brains are different from, you know, a lot of other people and it’s not just people who succeed and it’s people who perform at high level.
[08:22] So they not only took all the research in the space but they also look at interviewing people like Kerri Strug, she was a gold medal gymnast, and a bunch of other high performing athletes, musicians, that kind of stuff. They — as far as I know I think they may have one or two entrepreneurs in there but it really is a lot of it is focused on performance and achieving goals and so, you know, in my opinion it totally applies to what we’re trying to launch companies and such.
[08:49] Now, there are five traits that they named. There’s actually — there’s eight lower level traits that they go through and they called them Win Factors and we’re not going to talk about those because they’re pretty — there are kind of low level stuff. There is like self awareness, motivation, focus, emotional balance but they are the higher level skills that we’re going to talk about today.
[09:06] And the first one, I’ll just dive right in to it. It’s called Opportunity Radar. Basically, their premise in the book is that having these five traits dramatically improves your chance of succeeding at achieving goals whether that goal is to win a gold medal, whether it’s to, you know, play at concierto at some place or you know, what we’re saying here is whether to launch a company. I mean it kind of all goes — goes in that same thing. So the first trait that we’re going to talk about is Opportunity Radar. And the way they defined it is as someone with good opportunity radar recognizes that opportunities don’t always come in gift wrapped that more often than not, they come wrapped in a problem or in an idea that everyone else has missed.
[09:47] So as I was thinking about that I was realizing like in our world by the time something is written about in Inc magazine or Fast Company, it’s too late, right? The opportunity has passed because everyone knows about it. You have to do these things when they are still hard. Do you remember in like the late 90’s or mid 90’s, websites are really hard to build, right? You had to hand code the HTML, there weren’t many resources. It was just hard to do. [Laughter]
[10:11] So I was in college at the time and I remember building static HTML websites and it was really hard to do them. It was hard to make them look good and if you knew how to make them look good, you could charge a lot of money to do that but to build a similar thing now, would cost one tenth of the price if that. Same thing with web applications, when they start coming around dynamic code and such with Perl and C++ and then there was, you know, PHP and Classic ASP. Those things were a pain to work within the late 90’s and now, today, you can build stuff five times, ten times faster. But if you went back and build that old functionality, you know, the opportunity has gone. You have to take things way up to the next level and be at the edge of the game and be building things that are hard today.
[10:53] The last example is like buying apps and websites before there was Flippa. You know, that’s something I did. I’ve continued to do it on Flippa but there is a lot more competition, a lot more people talking about it now. It’s not that the opportunity is gone but being able to recognize that opportunity four or five years ago, you’re just going to be much better off if you’re able to recognize that when everyone else is not flocking to it, you know, it’s a gold rush mentality that’s being in there before everyone else is starting to mine for gold as well.
[11:19] Mike: That kind of reminds me of Bill Bither story. Bill Bither was one of the speakers at MicroConf and he talked about how his company Atalasoft had — he started it when .NET was first coming out and he started building .NET imaging components because he looked at that, you know, upcoming opportunity and realized that .NET was probably going to be the next big thing and because it was this new platform that people were going to need tools and libraries in order to build other things so he build this .NET imaging platform and he ended up selling it last year for something like $10 million.
[11:55] So you know, definitely having that opportunity radar and recognizing when those things are going to come up, obviously, can potentially make you millions of dollars but at the same time it doesn’t have to. I mean it can be one of those things where you’re in the right place at the right time and you recognized something that other people are just kind of missing or you recognize that, you know, there’s something there and it may not be, you know, the next Facebook but it could certainly justify putting in some time and effort in order to make you a full time income or you know, supplement your income.
[12:25] Rob: Right. And I think another example of that is this whole micropreneur movement that we’ve kind of spearheaded here it’s that getting in to WordPress.org and getting, you know, 10,000 or 20,000 downloads and then turning that in to an income stream even if it’s 5,000 or 10,000 bucks per month that’s a great income stream for a solo individual but it’s an opportunity that everyone else meaning all the other businesses, you know, small business, medium sized enterprise, they’re ignoring it. It’s fitting in to a niche that other people are missing and so many other micropreneurs that I’ve seen succeed are doing that, right? That’s why we kind of push people to look for a niche and what do that niche — I mean often times I’ll say, you know, it should be a vertical niche but sometimes that niche is more horizontal or something like a launching plug-in like John Turner has is a bit horizontal but it still has that niche of being in WordPress and being easily discoverable and having a decent user base.
[13:18] So it’s in that opportunity right up always be on the look out for opportunities, noting things down. I mean I don’t think everything has to be a novel idea like I know that it doesn’t, you know, I still have DotNetInvoice that is completely not a novel idea and that still does well for me. HitTail is, I mean is reasonably novel but it’s, you know, has a unique algorithm but it’s not like some groundbreaking new technology that no one else has ever conceived of. It’s really just an opportunity and space that other people have overlooked.
[13:46] Mike: I think one of the things we should definitely mention here is that just knowing that having the opportunity radar is a good thing, as a little different than how do I develop that and I think that one of the things that you need to look at when you’re trying to develop your opportunity radar is to figure out what problems people have and if somebody is trying to do something and they’re having a hard time doing it and they ask for your advice and you can’t find a solution either, then chances are there maybe a good opportunity there and you should definitely start looking around to see if there are other people who have similar problems but, you know, opportunities as you said at the very beginning of this, they don’t land on your lap, they don’t come gift wrapped and you know, you do need to look for them a little bit and a lot of people will focus on the problems that they’re having not necessarily developing a solution to the problem. They want to find a solution to the problem and if you get in to the mentality of looking for problems to solve versus looking for a solution to those problems, then you’re going to hone that opportunity radar a little bit.
[14:43] Rob: Absolutely and if you don’t already have an idea notebook, you really, really need a place where you can capture them because you will forget to create ideas you have I guarantee it. Nothing please me more than going back through this little black notebook I have and seeing ideas that I really like, you know, that I came up with a few months ago and it’s — some of them are terrible. 80% of them are terrible or they just aren’t going to ever pan out and when I go back through it I can totally tell that they are but that for that 20% that is pretty darn good, it’s like kind of having this gold mine in my opinion of just being able to run through it and think about what’s the viability of this idea and kind of taking — taking it to the next level, you know, in a mental exercise.
[15:20] So trait number two for successful founders is having an Optimal Risk Gauge. The idea of having an Optimal Risk Gauge involves being able to recognize what risks there are, determining how much risk you can tolerate and whether or not you are willing to pay the consequences if you fail. So some questions that we see pretty commonly are things like at what point should I quit my job, how much income should I have before I do that and how large of an idea should I attack, you know, is this niche good enough, how mush risk is involve going to the niche.
[15:52] And all those things, yes we can — you can try to put some numbers together. You can put calculations together and try to engineer it but ultimately you have to have a risk gauge and you have to know how much you are willing to put up with. That’s one big reason that I always say, try to keep your app, your V1 between four and six months of your time because most people should be willing to risk that. If you’re not willing to risk that and you probably shouldn’t do, you know, launch a software product, do startup at all.
[16:18] Some people look out and say, “Well, I’m going to do a twelve to twenty four-month product” and to me, that’s just an outrageous amount time and we see a huge drop off for people actually able to complete that. So taking about in terms of four to six months and are you willing to make that risk, you know? Are you able to calculate how much it’s going to be and tolerate it if that time does go to waste?
[16:38] I took some big risks early on. I shouldn’t say big but they were, you know, four to six month, seven month risks, a few thousand bucks which at that time was quite a bit of money but the biggest one I took early on that did pan out was when I bought DotNetInvoice. So I paid 11,000 bucks when I first bought it and that was a huge amount of money at the time. Now, I still want a salary and doing a little bit of consulting and stuff. So but at the time, I determined that I was willing to take that risk, right? But if I lost it, I would be very disappointed but that I was willing to pay the consequences if I failed.
[17:08] And you know what? Flanking that money down and buying DotNetInvoice turned up to be a great thing for me because when there were bunch of things wrong with it, right? There were like twenty four show stopper bugs after I bought it, bunch of other things. Revenue wasn’t as high as they told me but once I closed, the fact that I was on the hook for that money that I had spent made me ultra motivated to get those things fixed and to get them fixed very, very quickly. And that resulted in, you know, I’ve talked about before but I basically was able to triple revenue in the first few months and that got me to the point of making back that eleven grand in, it was less than six months if I recall. You know, being able to gauge the risk that you’re willing to do, being able to gauge the risk of the action you’re about to take is a super valuable traits of entrepreneurs.
[17:52] Mike: And of course, you’ll have a problem with a risk gauge is that humans are notoriously terrible in actually estimating what the risk levels are and I don’t know specifically why that is. I think that it’s because we put it in our heads that there’s a certain amount of risk involve in something and we try to relate it to other things and unfortunately, because we’re bad at doing some of that Math in our heads say, oh there’s one in twenty chance of this or you know, one in thirty chance of that. You’re like, oh that doesn’t seem that high but then when you start trying to do those numbers in your head, it turns out that that’s actually a reasonable amount of time that those things are going to happen.
[18:32] The whole point is that it’s very hard to figure out how to put those assigned numbers to those risks and I don’t know if it’s a good idea that’s to actually try the assigned numbers to the risks of the things that you’re doing but it is important to think about what you’re willing to lose and what you’re willing to put on the line and whether or not there’s an opportunity for you to get any of that back. So if you spend, you know, six months trying to get something off the ground and it doesn’t work, you have to remember there’s — there’s two things that you’ve lost at that point. One is the money that you put in to and the second one is your time.
[19:04] And I think that the time is probably a lot more important than the money because you can always make more money later on and if you start to become successful then, you know, the money is just going to flow naturally with your other successes and will probably far out strip whatever money that you put in to those failures but the time is something that you’re never going to get back. So it’s really important to make sure that you’re not risking a heck of a lot of time when you’re doing those things.
[19:29] Rob: Trait number three of successful founders is a having a Focus Goal Laser and that’s being able to stay focus on goals long enough to execute. I think we all know people who decide on something and then wonder. I think we all know ourselves to do that at times. And this is again while we come back to that four to six-month time frame of if you set a goal out one year, I’m going to work every night and weekend to build an app for a year. The odds of you achieving that goal, they — they go down.
[19:56] What’s interesting is that I’ve found three things have really personally helped me stay on focus lately over the past probably two years. One of them is being in Mastermind Groups. Those biweekly meetings have kept me on task and motivated and wanting to hit these goals that I set in the previous meeting. So that’s been a big motivator. The other one has been the podcast, this thing you hear me talking on right now and the fact that I’m able to come down together with you, Mike and the listener and basically kind of publicly commit. I mean I don’t come out say I’m going to have this thing done by this particular date but just being able to look forward to talking about what I’ve done is actually a big motivator to me and to be able to talk about both the successes and the failures. I mean if you recall back in February, I had a major disappointment with in terms of trying to hit some revenue goals and there were three or four episodes in a row where I was just down at the times about it and just talking about how I didn’t know how I was going to pull out of it and eventually, I did but it’s a good venue to be able to think that stuff through.
[20:54] And then the last one that helped is I came out of MicroConf both years but specifically this year, super charge. It’s been about five weeks since MicroConf and I have not — I barely been on Twitter, I barely been on Hacker News. I’m so not distractible right now because I have this amazing focus goal laser on HitTail and on getting these things done and it came — it’s stemmed out of a few conversations that I had with a few of the speakers and some of the attendees that just got me so laser focused on getting the stuff done. So that’s been what’s helped to me stay laser focus. I think you need to have the, what the author said is like you have to hone this ability over your lifetime and that it will wax and wane and I’ve totally seen that. The entire months go by where I will just struggle to stay on focus with the goal and you have to know yourself well enough to come back to those things that do help you get focus on your goals again.
[21:52] Mike: I think one of the things that you talk about there was with the Mastermind Groups I mean you are essentially you have this accountability to the people that you have in that Mastermind Group and you know, one of the things that I have seen is that when I’m putting things together for different people to work on for AuditShark or doing different things for, you know, like the mailing list and things like that. What I’ve noticed is that if I know that there is somebody depending on me to get something to them that helps with my focus because I know that they can’t continue until I finish with my part, take enough time to make sure that those are done right. But at the same time I know that it needs to get done. So I’m motivated to get those things done and by the time I get them done, there’s somebody else who needs something. And putting yourself in to that, you know, perpetual motion machine where you’re constantly in a state where you have to move forward. You can’t just slack off. That’s really important to try to achieve and I think that that will help a lot of people with, you know, maintaining that laser focus on getting things done.
[22:53] Rob: So trait number four is Effort Accelerator and this is being able to move from intention to action. So it’s being able to have an idea and setting goals like number — like trait number three said but then actually being able to move from that intention in to action. So we all know people who are thinkers versus doers. And I think actually in my life at times, I’ve been more of a thinker than a doer. I think that reading TechCrunch and Mashable and kind of Inc Magazine and Fast Company, all that stuff, you can really get in to the entreporn thing and be just the thinker, the dreamer but moving yourself in to action and actually taking a step towards getting something done anything, doing anything in public that doesn’t just require you to, you know, kind of sit in your basement, write some code and read articles that other people are writing but to actually do something that’s risky and that scares the crap out of you, that’s what the effort accelerator is about.
[23:42] So I actually knew this really smart guy and I’ve known several in my life but I knew an exceptionally smart and creative guy when I live in Sacramento. He was a filmmaker. He was a musician. He wrote stories like he just was super creative but he never really finish anything. And he would talk about — he’s actually in a band with me and he would talk about writing songs and making movies and we would see clips of stuff and I’d hear like a verse he would write. And was really impressed with what he did but he would never put a chorus to that and he would never commit to sitting down and being disciplined and turning that that intention in to action.
[24:13] So it’s not that — he’s not a bad person and it’s actually not a bad trait to have as long as you know that about yourself and he didn’t know that and he would talk about like, “Yeah, I’m going to write this song. I’m going to write the stories.” And we would sit around and said, “Man, I know that you’re not going to do that just having to look back at the last year of your life.” So knowing that about yourself is a huge deal because it’s being able to then combat that everyday and to realize that that is your natural inclination is to lean towards being a thinker than you rather need to find kind of a job or a place in life where being a thinker is really good or you need to figure out how to just do yourself in to being a doer if in fact, you know, you want to do things like to start a company.
[24:51] Mike: One word that you mentioned that was entreporn which is not entrepreneur but essentially it’s the idea of going out and reading all these books and articles and magazines on things that you want to do but never actually getting around to doing any of them. There are certainly an ad been flow when you’re running your own business of that type of activity but there are always times where you are much more creative than productive and vice versa. So the point that you made a little bit there was that there are people out there and you know, there are mentalities of people can get in to where they’re doing a lot more of the thinking about stuff rather than actually doing that one of those things is, you know, consumption of what other people are creating.
[25:31] You do need to make sure that you’re not falling in to that trap of constantly thinking of ideas and thinking of things that you’re going to do versus actually sitting down and taking the next step in doing them.
[25:42] Rob: I wrote this blog post. It was in 2008. I’m looking at it. It’s about four years ago. It’s called the Single Most Important Career Question You Can Ask Yourself and it basically comes down to the dichotomy of consumers versus producers and it says “Are you a consumer or are you producing things?” It totally fits in to this dichotomy, right? And it’s not that you aren’t 100% a consumer or a 100% a producer. Most will have a mix of both but if you really want to get things done, you have to stir yourself. You have to figure out how to motivate yourself to consume less and produce more because everyone I know who — who’s doing it like who is executing, who is starting companies, who’s being successful, they consume way less than the other people I know. They are so focus on their business that they’re totally motivated and they’re, you know, they kind of have that single focus laser vision.
[26:31] So the fifth and final trait of successful founders is a Talent Meter and this is being able to gauge yours and others competence and incompetence. So there’s this phrase the authors used and it’s the “double whammy of incompetence” which I love. It says that when you’re incompetent and you don’t know that, that it’s twice as bad. And I would actually say it’s exponentially as bad. I know that I am incompetent at certain things and hopefully, I don’t have a lot of incompetence that I’m not aware of because being aware of something means you can either avoid it. You can outsource it. You can try to improve it.
[27:08] There are a lot of options but it’s when you think that you’re great at something and you know, you go on American Idol thinking you’re a great singer and you really aren’t and then everyone laughs at you, man, that’s kind of a lame example of it but thinking that you really are, you know, the person who’s able to write the code and design the website and execute all the marketing for your startup when you have a major deficiency in one of those three areas, it’s a bad thing, right? Being able to gauge yourself and others in a competence and incompetence and it’s going to come in to play when you hire, when you outsource, when you find partners and when you’re trying to overcome your own weaknesses.
[27:44] I think most things on the podcast that we talked about like most of the questions we get comes down to — I typically say if you know that you tend to procrastinate, then lean towards the side of this, you know, then overcome that. I mean I can’t — I can’t even recall how many times in the last 84 episodes that I’ve said that exact phrase “if you lean towards this, then do the opposite” and so the presupposition in there is that you know that you lean towards this. I mean it really does come back to, they call it Talent Meter. I call it Self Awareness. It’s being able to know yourself and to gauge yourself and gauge your abilities both the positive and the negative ones and then really focusing like we talked about on the strengths finder episode really focusing on the positive ones and writing those to the success and shaping your success so that your positive traits fit well in to that and not trying to chase some success where, you know, you have to overcome all your negative traits in order to get there.
[28:38] A good example would be if I wanted to be an Olympic gymnast, that would be a terrible thing for me. I’m 6’2 and a half and I’m rail thin and you know, I don’t have a lot of upper body strength. I mean it’s basically, yes, I can set that goal up and I can work towards it but I’m setting myself up for failure by not realizing. You know, I’m kind of incompetent. I’m not set up to succeed in that arena whereas if I know I’m much more I have an engineering mind set and I’m goal-driven and I’m focused, then I can set up my startup ideas. I can even choose the ones that fit really well in to that framework and I wouldn’t go after something like a social network or something that we take a ton of creativity to build because those aren’t my strong suits.
[29:18] And so being able to evaluate yourself and know whether you’re a really good product builder, whether you’re a really good engineer, you can engineer marketing well so you might wanted to do more SEO and AdWords types of stuff or whether you really in to interacting with customers and interacting with the community in which case you’re probably not going to use those engineering-type marketing approaches but you’re going to go more towards, you know, relationships and partnerships and starting community type of stuff, that’s where this talent meter comes in.
[29:44] Mike: And I think there’s two different things that are kind of going on here is one is that you have to know what your strengths and weaknesses are be able to acknowledge them and the other one is being able to gauge how you relate to other people in those strengths and weaknesses. So for example, you know, the example that you gave was going on to American Idol and thinking that you are a strong singer when you’re not. And there’s thing two different things going on there.
[30:08] One is you are not a god judge of your own strengths because chances are good that there’s a lot of other things that you’re good at. And two is not being able to relate your strengths and weaknesses to those of other people. So I think there’s two different subtle differences between them but they are certainly important to keep in mind.
[30:25] One of the things that I find is in a way very fascinating is that when you start asking people, you know, how attractive they think they are in relation to other people or how smart they are, you know, studies statistically show that the majority of people say that they are above average and statistically that’s just not possible. The Math does not show that that’s correct but people still feel that way. So it’s very difficult sometimes if you’re in that position to be able to figure that out and I don’t know what the answer to that is to be perfectly honest. I mean I don’t know how you would go about addressing that problem. Do you? Can you think of anything?
[30:59] Rob: I think — yeah, I think you have to look at where you’ve succeeded in the past, what you’ve really enjoyed doing in the past and focus on the areas that you’ve been naturally drawn to. So if you’ve had great successes with on engineering Math mind set then that’s going to lean you towards, A, writing code. B, focusing probably more on the engineering-type marketing stuff which is, you know, funnel optimization, SEO, AdWords. I mean more of the Patrick McKenzie and you know, quite a quite a bit of the stuff that I do or I’ve done a lot of in the past.
[31:28] Mike: But I think — I don’t know if that solves the problem because you may be very good at marketing but you have never really had a lot of success at it because you haven’t tried and it makes it difficult to be a judge of that or figure out whether it’s something you should try or not.
[31:46] Rob: Yeah, I don’t think you had to — have to — have actually try the marketing. I just think, you know, I’ve known for a long time what I have certain strengths and certain weaknesses. I mean I would come out and say that I don’t enjoy managing people. I would call that a weakness of mine. So I don’t think you necessarily have to fail at something but you have to maybe do it and really not want to do it or be, you know, be kind of force away from it. And then I think that you do succeed in and you find yourself having a lot of success doing and getting a lot of enjoyment out of, you need to keep track of that stuff and see how that can fit in to a new business venture.
[32:18] So yeah, you maybe never done marketing but if you really enjoyed the things that are, you know, similar to that, you really enjoy talking to people and building a community and partnering it up, then that’s probably the kind of marketing that you want to look at doing and you want to look at doing things more through social networks and building partnerships and such rather than getting in the nitty-gritty of funnel optimization and churn rate and conversion rates and that kind of stuff.
[32:42] Mike: Yeah.
[32:42] Rob: I keep naming the same examples. It’s a little overly simplified but it’s hard without having some right in front of us, you know, to say like what really are your successes and what do you really enjoyed doing and then trying to actually translate those in to things.
[32:54] Mike: Right. But I mean I think what I’m trying to put in to words as more of one of the lines like software developers which is, you know, a lot of our audience consists of software developers and they are software developers because they like to an engineering and building things and they like writing code. And the problem is once they get in to doing things like marketing task like building mailing list and form that in web pages or finding somebody to make something look good for them, those are the things that they don’t necessarily enjoyed because they’re not good at them. What I wonder is how much of that and again, it can be activity related but, you know, how much of that is they just feel uncomfortable doing it in relation to the coding versus they just have an — had a lot of experience at it. So you know, is it something that they should try or not?
[33:40] Rob: Yeah because the first time you try anything, it’s going to scare the crap out of you. I mean the first time I outsource something, I was scared when I wrote the guy the $500 check. You know, it’s like this is a lot of money, what if this doesn’t work out, there’s all these doubts. And then you either get better at it or maybe you discover that you really aren’t good at it and really don’t enjoy it.
[33:56] So yeah, there is a certain level of needing to try things that are outside your comfort zone and seeing if you enjoy it and you feel like you would, you know, enjoy doing that long term. Yeah, I’m not sure there’s an easy answer to that one but I do hear what you’re saying. It’s like if you’ve never tried something and you’re scared of it, how do you know whether it’s going to work out even based on past experience.
[34:17] Mike: If you tried it a couple of times and not really been successful, how much of that is because you’re afraid of putting in a lot of effort in really making a good shot at it or is it just you really not that good at it.
[34:30] Rob: Right. My advice, join the Micropreneur Academy because we talk about all the stuff in there and we can give feedback right? You can interact with us, you can e-mail and you can get on the forums and ask questions. So I do, I do think like someone needs to have that third party, you know, whether it is the Academy, I was kind of joking but it’s like or Mastermind Group or some other folks who there — who there in the crunches with you can give some feedback on things.
[34:51] Mike: Uh huh.
[34:53] Rob: Awesome. So the five traits of successful founders are number one, Opportunity Radar. Number two, having the Optimal Risk Gauge. Number three, Focus Goal Laser. Number four, Effort Accelerator. And number five, Talent Meter. And again, those are from the book Winner’s Brain. It’s by Jeff Brown and Mark Fenske but I really do like the concepts that I’m taking away from it and I am, you know, taking quite a new notes.
[35:17] [music]
[35:20] Mike: So hey, by the way, did you notice that we are up to almost 200 reviews in iTunes?
[35:26] Rob: That’s crazy. I’ll tell you what, our review competition with texting really paid off because we were — were we under a hundred when we started? I mean it really did take a big jump.
[35:35] Mike: Yeah, it did. I think right now — I checked yesterday or the day before and we were up to, I think it was a 192. But it was pretty close to 200.
[35:43] Rob: Some awesome comments too. We have something from Craig McKeachie. It’s in iTunes. It says, “Skipped the NBA. Listen to this podcast. I received an MBA from a school that ranks in the top ten percent of US universities for return on investment and got a great deal out of going through the program. But I can honestly say, I’ve gotten more actionable real world advice from this podcast and it’s a thousands of dollars cheaper.” Awesome. Thanks, Craig. He also came to MicroConf.
[36:08] Mike: Uh huh.
[36:08] Rob: And we have one from a Dan Delario [Phonetic] who says, “I still can’t believe you can get this kind of advice for free. Thanks, Mike and Rob.” [Laughter] But wait there’s more. Richard Chen says, “I’ve been listening to the podcast for a year. I only wish I knew about it sooner. Rob and Mike are down to earth guys give valuable, practical advice to any internet business bootstrappers. Best podcast of its kind.” Awesome. And the last one Jonathan Richman [Phonetic] from just yesterday says, “Outstanding practical advice to a very candid look at starting your own company with great insights and advice to anyone who can use it immediately.” So thanks a lot, guys. Keep those reviews and comments coming in iTunes. You can just search for us, search for startups and we’ll be one of the top three.
[36:47] So if you have a question or comment, you can call it on to our voicemail number at 888-801-9690 or e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. And you can find a full transcript of each episode at StartupsfortheRestofUs.com. Thanks for listening. See you next time.
