Episode 407 | A SaaS Pricing Conundrum, Subdomains, Building an Affordable MVP, and More Listener Questions

Show Notes

In this episode of Startups For The Rest Of Us , Rob and Mike answer a number of listener questions on topics including SaaS pricing, subdomains, and building affordable MVP’s.

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Transcript

Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss SaaS pricing conundrum, subdomains, building an affordable MVP and more listener questions. This is Startups For The Rest Of Us episode 407.

Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs to be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob.

Mike: And I’m Mike.

Rob: And we’re here to share out experiences to help you avoid the same mistakes we’ve made. Where this week, sir?

Mike: You remember a few weeks ago when I said I had gone unto meetup.com, and had started a Dungeons & Dragons group, and gotten a couple of people together, and started playing a campaign?

Rob: Indeed.

Mike: Because I’m signed up for and have a paid account now, they started emailing me about various groups, like, “Hey, you might be interested in this,” and I was told that I should join the Massachusetts cannabis marketing and sales group.

Rob: You totally should. That’s a growth market, man.

Mike: Yeah.

Rob: Is it legal in Massachusetts?

Mike: It is. Although I don’t think anybody’s licensed to actually sell it yet, that happened two years ago, they said, “Yes, this is now legal in Massachusetts for recreational use.” but they still had to go through all these regulatory hurdles, and people had to get certified, and all these other stuff. They’re like, “Yes, you can use it recreationally, but nobody can sell it to you.” that was the situation for a couple of years, I think that they’re supposedly sometime this summer, starting to do that but I don’t know. Maybe the deadline has already passed. I don’t know.

Rob: Because I was back in California, I think it was when I was at SaaStr, so it was probably, February or March of this year, and it’s legal there. It’s been medically legal for years, so they already have the dispensaries, and they legalized it. I think it was maybe, less than a year later, they were allowed to sell it for recreational use.

I was walking around at night with some friends from the conference, co-workers, there was a lot of pot smoke that you could smell, and it was like, “Oh, yeah.” Of course, I was looking around like, “Oh man, they can’t be doing that, right?” it’s just this sense you get when you smell that. But it’s like, “No, no. It’s just legal, and you can do it on the corner.” It’s such a trip, such a trip. It’s going to be weird to get used to. The way it’s going, it’s going to be legal in all 50 States, eventually. It’ll be an interesting thing to adjust to.

Mike: Yeah. Definitely can be interesting. I just found it funny that they’re like, “Oh, you should join this group.”

Rob: Totally. They know who you are, Mike, deep down.

Mike: I guess, maybe. I don’t know. How about you?

Rob: I’ve been doing some smart home stuff which is something I’ve been interested in for years. But since we had a rental for the past couple of years, obviously, I wasn’t going to put a bunch of stuff in a rental. I now have several Alexas—oops, I just activated.

Mike: We should leave this in. This is good radio.

Rob: Yeah, I have several Echos in the house. I need to, not say A-L-E-X-A. I’m enjoying them. I’m enjoying that you can use them as intercoms because our house has a lot of stairs. There’s three or four stories—depending on how you count.

Mike: I found out about that the other day that you could use it as an intercom. I didn’t know that you could do that. You can just drop into some other room in the house. Although I was told there’s a—not a security loophole or something like that—but something associated with it where you have to disable it by default. Otherwise, if somebody in your contact list, they know you have one, they can drop into your living room and just talk to you through the intercom, I think over the internet, and I didn’t know that.

Rob: Oh, interesting.

Mike: Yeah. It doesn’t sound good.

Rob: Yeah. I enjoyed doing it most from the Echo app on my phone. You can just click a couple of times, and then boom, you’re just speaking out of one of the Amazon Echos. Our kids’ playroom is way downstairs, and it’s easier than running down and telling them dinner is ready. It’s pretty nice.

I’ve definitely bought into the Echo ecosystem, and I like their direction that’s going. I got a Nest for the first time. I tried installing Nest at our old house, but it wasn’t compatible. I have a Nest here, and I can now control that of course with the app, and it’s smart thermostat, and that’s fun. You can even tell the Echo to adjust the temperature, I believe. I haven’t activated that yet.

We moved into this house, it’s in the Midwest, it was built right around 2000, and they wired the whole thing for in-home speakers. There’s speakers in almost every room. There’s this big central places where he had a receiver, a tuner, CD player, and all this stuff. I’m thinking, in the 90s, that’s what I would have done. When in college, I would love big speakers from dorm room to dorm room, as I moved around or apartment to apartment, and you had your receiver, you had your amp and all that stuff.

Now I went online, and I was like, “There’s got to be an easier way here. I want to be able to stream everything.” I researched it, and of course, Sonos is the leader in that space. While I don’t love how proprietary Sonos is, even down to the fact that I can’t just stream from Spotify through my Sonos but I believe that you have to use the Sonos app, and you […] it into your Spotify account like, “I don’t want to use the Sonos app.”

Mike: Oh, geez.

Rob: I know. I know. I need to double-check that because they may have opened it up, but last time I looked, you weren’t able to kind of just airplay it–the equivalent of that through the Sonos thing. But anyway, they have this thing called, Sonos Connect: Amp. The Amp part means it has an amp in it that you can connect to speakers. I just got one, just as an experiment. I put in on the first floor, and sure enough, it takes the place of all of this equipment he had, the speaker wires go in the back, and there’s volume knobs on every wall in the house.

I was going to bail on it altogether and just not do it. But Sherri’s like, “No, no, no. If we have people over, there’d be multiple…” because you can do multiple floors, and there’s all this stuff. All that to say, I reluctantly implemented Sonos in this smart home thing, but man, it’s cool. You can tell your Echo to start this on Spotify on the Sonos, and it will do it, and you go to the wall and turn it up. It’s magical, man. It’s pretty interesting. It feels like we’re living in the future.

Mike: That’s pretty cool. I bought a new amplifier maybe two or three years ago because my old one was 12, 15 years old. Actually, it was more than that. It’s probably close to 20. It still works great. It’s just that it didn’t have any of the connections. It didn’t have an HDMI connection. It still had all the component outputs or inputs and everything else. I couldn’t hook it up to any new equipment that I had, like a Blu-ray player and stuff like that. I was like, “Alright, fine.” I brought it down, and I bought a new amp.

I was looking at all the different options, and it seemed to me like a lot of that type of equipment, is very much like car technology where they’ll build something into it like Spotify or something like that, and it’s obsolete almost the second you buy it. They’re terribly useful. It sucks that it feels like that type of technology is still on that trend, where everything is proprietary, and it’s so hard to connect stuff, and it’s expensive too, but at the same time, it doesn’t really wear out. I still got speakers that were almost 20 years old, and they’re still in great working condition. I don’t really have any need to buy new ones, except for the fact that if something breaks. That’s it.

Rob: Yeah, that makes sense. I agree. I was concerned when I bought this Sonos. I had to research it because I was, “Do they even support speaker outputs anymore? There’s exterior speakers in the patios, is it going to drive those? Is it going to connect to all the stuff?” Sure enough on the back, it looked like it had the right ports and it wound up doing it. They’re called banana clips.

I agree. Trying to interface this newfangled technology with stuff that has existed for 30, 40 years, maybe even longer. I remember twisting speaker wires together. I had four speakers in my dorm room. Certainly, it was quadraphonic, it was a stereo, but I would twist them together, ran them into the amp, and do all the stuff, and that technology is now having to interface with, like you said, this Spotify stuff.

I did evaluate not doing Sonos. There are, obviously, other brands that have streaming music devices that have amps built-in, but they just all seem, like you said, bolted on, and antiquated. I don’t know. It’s interesting to see how this is going to shake out. I’m interested to see how it’s going to shake out over the next few years.

Obviously, I’m investing in ecosystems now. I’ve been on the Alexa ecosystem now. I’m in obviously now, on the Sonos a little bit. I think I’m probably going to have to get at least one more […] perhaps too because there’s different zones and stuff. But I’m trying to pick market leaders because I don’t want to buy the Betamax, and suddenly have to bail on it because they just killed the line or whatever.

Mike: Well, that just means you’ll have to find the one that is selling porn with it, that will be the winner.

Rob: I do think, I might need to stand corrected because I opened Spotify while we were talking, and it does look like I can just connect to the Sonos downstairs, and just stream it through there instead of using their app. I’ll test that later to prove it out. I know for a while they didn’t do that. But if it does it now, they must have added it in the past whatever, six months or something.

Mike: It seems to me, for that type of technology, anything that comes to streaming, you just want something where you can connect to it with Bluetooth or something like that, or with even just a cable, and then from there, it just acts as a dummy piece of equipment that just does its thing, and that’s its sole purpose is, and then you plug other stuff into it. It seems most people would really just want to do that.

My wife used to work at an electronic house, and they had all these high-end stereo systems going up to $100,000-$150,000. Don’t get wrong, they were beautiful, but the reality is you’re going to spend that much money on a stereo system for some downstairs place. Their target market was people who had nothing better to do with their money. Sure, that makes sense, but I think for the average user, it doesn’t matter that much.

Rob: Yeah, that’s the thing. Like you sad, I wouldn’t want to use a cable because the Sonos is in a cabinet set away but Bluetooth or I believe it’s just via wifi because it connects to wifi obviously, and it had its own identity. Once I […] it connects over that. I’m not Bluetooth-connected to Sonos at all. The phone just know where it is.

Mike: Yeah.

Rob: With that, should we do a whole episode?

Mike: We could talk about all the different problems of those too. There was some kid’s device that was out there that connected into the WiFi, but it also would record pretty much anything, and it would send it back to the servers to the company that made it, it wasn’t encrypted, and it was using it to do voice recognition. They were basically collecting voice data from kids. It was like, “Oh boy. That’s not good,” and it’s all not encrypted either. That’s a big problem.

Rob: Yeah. That’s the thing too. The IoT is the term for this—Internet of Things. Everything is going to be on the internet at some point, is what they’re saying. The IoT devices are much like the Nest and the Sonos and even smart toasters, smart microwaves, smart fridges, and all the stuff that’s supposed to be coming.

That stuff is said to be a hacker’s dream. Most of it, it’s super insecure. Some of it, if it doesn’t get patched, then it’s easy to hack. Even a lot of it that is patched is easy to hack into. They’re saying that’s the coming wave of hacks. That’s going to be the zombie nets of the future. Because that’s how folks do DDoSes—they go out, and they take control of a bunch of old PCs that are unpatched, and then they do attacks, distributed denial-of-service, from all those things. They’re saying that the Internet of Things is going to be tenfold or a hundredfold the number of devices. It’s going to have that much power.

Mike: Yeah. I shudder for people who have to deal with those types of problems.

Rob: Seriously, yup. Cool. Let’s dive in. We have some listener questions. We have some comments on some prior episodes. Our first comment is on episode 403 which was titled, Should You Love What You’re Working On? and it’s from Martin. He just came to startupsfortherestofus.com and entered a comment at the bottom of episode 403’s blog post.

He said, “Hi, Rob and Mike. Thanks for another great episode. When you guys talked about love versus opportunity, I was reminded of the idea that it can take hard work to cultivate a passion. If I remember correctly, Cal Newport talks about this idea in one of his books. I don’t know about you guys, but I’ve noticed that there are a lot of things where you need to put in the work first before you start to enjoy them. I’m currently working as a software consultant, and I remembered that the reason I picked up programming in the first place was because as a kid, I was into video games. Now many years later, I really enjoyed developing software, often more than playing games. I think that’s true of many things. For example, when you’re just starting with any kind of sport, and you suck at it, it’s often not that great, but once you put some effort into it and you start to improve, you suddenly get why people enjoyed doing it.”

I think Martin has a good point. Thanks for posting, Martin. This is how I felt about playing music–playing the guitar. When I first started it, it was really hard, and then definitely the better I got, the more I wanted to play my guitar. What do you think about this?

Mike: I remember reading about this. I think that Josh Kaufman wrote a book about learning different things. I’m pretty sure he had a graph in there that showed that. There’s a skill level versus enjoyment. When you first start doing something new, you suck at it which is to be expected, but you don’t enjoy it at all. Then once you get a little skilled at it, then you really start to enjoy it because you feel you know what you’re doing, so you’re on the cusp of always learning this new stuff, but you’re also enjoying the journey. Once you get much more advanced, then it’s about putting the time and effort to practice, and get the muscle memory or the mental connections made so you don’t have to really think about it when you’re doing it. Pretty sure it was Josh’s book that—I can’t remember the name of the book off the top of my head—but I think that that was in there.

Rob: It’s called The First 20 Hours: How to Learn Anything Fast.

Mike: Yes, that was it. Yup. It’s a fascinating read, too. If you are interested in learning new things and the process of learning new things, I’d definitely recommend picking up that book and checking it out. He goes through several different things that he learned, like the ukulele, sailboarding, and a couple of other things. It’s just fascinating how he learned about how to learn stuff.

I always had a problem with that when I was in college. When I got to college, I just authorized, “Go ahead,” relied on my natural ability to just remember things, pay attention in class, and then do well on tests. When I get to college, you have to do the homework. That was always a problem for me in college, but it worked itself out eventually, but it took years for that to happen.

Rob: Yup. For sure, I felt the same thing. The First 20 Hours by Josh Kaufman. It’s also on audible which is I believe how I read that book. Thanks for the comment, Martin. Our first question of the day is from Michael Needle. He’s from alltheguides.com. He says, “Mike and Rob, first, thanks for all you do. I previously called in about building a marketplace, alltheguides.com, to connect adventure travelers and guides. I’m close to finishing the platform, and I took your advice on building one segment first. I went with guides to have providers ready when clients come,” which is the way I believe we should have recommended that you do. It’s a two-sided marketplace, and we said when you start with two-side marketplace you have to get that one side done first.

Now back to his email. “Now ahead of the platform launch, I want to make sure I can bring the clients to the site, the customers, the consumers. I thought I’d follow your advice by starting an informative blog in order to get emails.” Adventure Travel Ideas, I think is the idea of the blog. Here’s the question. “I already have a landing page up from my platform. I assume it would be better to have the lead gen on a different domain as opposed to a subdomain. I just assume that subdomains will be less likely to draw initial visitors. Am I wrong on this? Or if I’m right, and I should go with a different domain, what is the best way to nudge my list towards the platform once it’s launched? Thanks again, guys. You provide invaluable advice and inspiration.” What do you think, Mike?

Mike: I think there’s a natural inclination to believe that you should put your landing page and stuff like that on some sort of a subdomain and that’s how you’re driving traffic to them. But the reality is, I think is that if you’re doing tour guides in a marketplace like this, I don’t think people necessarily really care about the subdomain. I think what really comes into it with the subdomain is that you’re trying to establish new website according to Google, and do all the SEO, and the site ranking, and get that up based on how Google looks at it.

You could instead focus that energy on a subdirectory in your main domain and use that to essentially focus your efforts and increase the authority of that domain versus trying to do it with one subdomain and then another— that’s probably the approach that I would go with. I guess there’s a few different examples I would point to like Craigslist, Angie’s List, and Reddit. Reddit’s got all those different subReddits and stuff in it, but they’re all under, most of them in different subdirectories.

Rob: The reddits? Yup. It’s reddit.com/r/whatever, /startups or whatever.

Mike: Right and that’s not necessarily a two-sided market, but Craiglist is. Based on the location, they will have subdirectories, which are a geographic location, but I wouldn’t worry too much about the subdirectories, at the moment. I guess I’m curious to know whether or not you’re trying to use those subdomains as like the location, like city name, or something like that. Maybe it would make more sense in that case, but at the same time, you could also just use it like it as a different subdirectory as well, and you’ll benefit, for the site authority, through that.

Rob: That’s the thing, and now Google has come out and said, “Oh, subdomain, subdirectory, there’s no difference.” I still think there’s some difference. I still believe, deep down, that subdirectory is better for SEO. I do like your point there. I think if you are going to start a blog, I would try to do it in subdomain, if possible. It’s not always possible to do that. You might need to do reverse-proxy and do some things if you’re running WordPress because you don’t tend to want to run WordPress on a production app server. When I say don’t tend to want to, I mean don’t do it. There’s just too many security holes.

If you want to host it somewhere, I’d go with somebody like the VPNGINE or Pagely or whatever. I think I may have misspoken earlier and said subdomain, but what I mean was subdirectory, if you can do a subdirectory, that’s what I would do.

I don’t think this matters actually, that much. When using a different domain for the lead gen, I would probably lean towards subdirectory, and if you need to use a subdomain, I don’t know—its just apples and oranges, this is small stuff. If you’re going to drive ads to it, it doesn’t matter, nobody cares, they’ll just click on the ad, and they’d go see it. If you’re going to try for SEO then like Mike and I were saying, I would lean towards subdirectory, if possible, I think it’s pretty clean, but in all cases, I don’t know that it matters that much.

Mike: Yeah. The one really nice thing about having everything underneath the same domains—and you’re not dealing with subdomains—is redirecting people back and forth, and then also dealing with the fact that, like any tracking analytics where you’re trying to track like, “Did somebody hit this subdomain and then this other subdomain?” and then you got cookies back and forth between them. With marketing tools, it becomes an absolute nightmare.

You’re much better off just having it all on one domain and then you don’t have to worry about that because the cookies are going to be able to work all on that domain between different directories, versus, like a Google Analytics tracking code. Something as simple as that is going to be an absolute nightmare to work across multiple domains.

Rob: Yeah, and it’s possible, you just got to know how to do it. It’s not out-of-the-box trivial. Sharing cookies is a pain, and then you’ll get the, “Hey, this person came from one of your domains to the other, and they show up as a new visitor.” It’s not ideal. Anyway, I hope that helps.

Our next question is from long-time listeners and friends of ours. Folks that we’ve known that have come to MicroConfs–Dan Taylor and Simon Payne. Dan Taylor runs appsevents.com, which is an events company that runs more than 300 annuals events. Simon Payne was the co-founder of Lead Pages. They both live in Prague, actually, in Czech Republic. Simon was working on an app with Dan Taylor, and Simon has also launched a WordPress button called Convert Player. That’s pretty cool.

Anyway, they wrote in. They said, “Hi, Rob and Mike. Two long-time listeners here, Dan and Simon. We’ve developed and released a SaaS app called EventsFrame. It’s eventsframe.com. It’s ticketing and attendee management system, with fixed low monthly pricing for unlimited events and unlimited attendees. We’ve moved all of my company, AppsEvents more than 300 annual events to this, and done a full public launch last month. We already have paid sign-ups from our listings on sites like Capterra, some content marketing, and some basic Facebook ads, which have converted this in paying customers, which is a good sign. We’re doing an AppSumo launch in a couple of weeks to get a bunch of users on this system, which is taking a lot of our focus, but we’re planning for how we grow this long-term, as Simon and I are focusing all our time on this project.”

Our question is on pricing. As you know, systems like Eventbrite take a percentage of ticket price, and most systems follow a similar model. With AppsEvents, I was spending thousands of dollars a year on Eventbrite fees. We want to go for a fixed price for unlimited events and attendees. Our initial idea is $97 a month. Now the issue with this is that people running one several small events might prefer a percentage of ticket price, as there is no upfront cost. And on the other end, large event producers would pay a lot more than $97 a month,” or I think he’s saying they should pay a lot more than that cost they’re getting more value. “We guess some pricing tiers could be good. But any ideas to help with our process would be greatly appreciated. All the best, Dan and Simon.” What do you think?

Mike: This is something that I actually looked into pretty heavily and struggled with several years ago. Back when I was running AuditShark, one of the ideas that I had come up with was, ironically, Bluetick, because I was doing a lot of outreach to people and I just needed to follow-up with them and keep on them. But also, as a side note, I was also helping out on the sponsorships side for MicroConf. For that particular problem, I found that I had to do the same thing.

I said, “Oh if I had this product or tool in place that would allow me to do that outreach as an event organizer that would help me out a lot.” I looked around. A bunch of different things didn’t really work very well for what my use case was. I said, “Well, could I build this? Is this something that I could basically move away from AuditShark?” because at the time, it wasn’t really on the best path, and I recognized that at the time.

Anyway, I looked into specifics of whether or not I could target event organizers with that. What I realized was that there’s a wide range of types of event organizers. Some of them, that’s all they do, they organize events like the AppsEvents company. They will organize hundreds of events every single year, and then there’s ones like MicroConf where we do it a couple of times a year, and that’s it.

For ones like that, a monthly pricing model really doesn’t work well because of the fact that you’re only running a couple of events. If you’re doing it on a regular basis, sure, it makes a lot more sense. But as you pointed out, it makes a lot more sense to just do with a percentage of the ticket price for those types of customers.

The other thing I would look at is, Eventbrite, yes, they do charge a percentage of the ticket, but they also give the event organizers the ability to pass that cost onto the attendees. That’s actually what we do with MicroConf. It’s only a couple of percent, but at the same time, it raises the ticket price by that amount. The question you have to ask is, “Well, as the event organizer, is that something that’s going to turn away people? Are they going to, not buy a ticket because they have to pay that extra fee?” That’s again, for the event coordinator to decide. But your problem is, how are you charging?

For us, Eventbrite is I’ll say, “free” and that we’re passing those cost on, and then on the other side, we’re paying the cost of the payment processing, which we would have to pay, regardless. Whether Eventbrite handles it or we do it through PayPal or Stripe or whoever, that fee has to be paid. But our payment to Eventbrite is basically, covered by the attendees buying those tickets, which make it free for us, which makes it a lot more attractive than a $97 a month plan or even a $50 a month plan. Coupled with the fact that, we also don’t run more than a couple of events a year. Why should we be paying for that over the course of the entire year if we’re only running events in a certain time window, I’ll say?

That’s exactly the problem that I ran into when I was trying to identify, “Well, how can I build this email follow-up product aimed at event organizers?” Event organizers, if they run a lot of events, awesome. They’re a good target. But if they don’t, then having them pay a monthly fee is not going to work.

Rob: Yeah. Basically, what Dan and Simon are talking about doing is doing pricing innovation in the events space. While I think it certainly saved Dan money from a customer perspective—he was paying Eventbrite thousands a year—I’m not sure it makes sense to do this from a business perspective.

There’s a reason that most of these events software companies charge the way they do. The reason, as you’ve laid it out, if your event is free, you don’t pay EventBrite anything. If you only sell 20 tickets, and they’re $5 each, then I believe you pay Eventbrite 2.5% of that. If they do the processing, they charge you 3% fee, payment processing fee or we use PayPal, and obviously, it’s whatever it is, 2.9% or 3% there.

Or, if you sell $100,000 worth of tickets in a year, then yeah, you do pay $2500, so I get the […] Eventbrite. It makes sense from a customer perspective of being like, “Man, I’m paying EventBrite so much money,” but now that you’re on the other side of it, and you’re running a business, my thought is like, “Yes, that’s how you want it. You want it so that the people who are getting a little bit of value out of this system aren’t paying that much for it and it scales up perfectly linearly with how they do it.”

If you sell $100,000 for the tickets, you’re probably making a chunk of money. We can argue about whether $2500 is too much money, but you definitely are getting quite a bit of value out of the system if you’re selling $100,000 worth.

Trying to do pricing innovation is a challenge. Is it business model canvas? That something that if you read that book, do you remember the book?

Mike: Yeah, I remember it. There was a whole worksheet that went with it.

Rob: Yup and that talks a lot about trying to do pricing innovation. I don’t know if it has practical enough tips to help you sort this out. But I will say that I tried to innovate on pricing in the early days of Drip, and instead of doing per subscriber just like MailChimp and everybody else is doing, I tried to do new subscribers per month, and it was a bad idea. Not only did they confuse people, but as we started to scale up, we were not growing nearly as fast as we should have.

That’s the thing that you’re going to run into is you’re going to have people who come and are selling half a million dollars’ worth of tickets on your system and they’re going to be paying $97 or even if you do tiers, it’s not going to be that much. They’re not going to be paying you 2.5% of $500,000.

I think since people are used to this, and it is a lucrative model. If anything, you could try to be the low-cost provider which I don’t think is a terrible idea in this space. I don’t know enough about the whole space. I know that EventBrite, yes, it does feel expensive to a lot of people, and it’s clunky, so you have those two things. They have a ton of features, but they’re a little more expensive than everybody wants them to be, and they’re arguably quite a bit harder to use, although they have a lot of features.

This is like going after a QuickBooks or InfusionSoft or Marketo—kind of going after that. If you make your software infinitely usable and slightly less expensive, but you still keep the same model, maybe only try 2.5%, I don’t know. I know you have other bootstrap competitors around you, look at what they’re doing. That’s probably where I would start is doing just a big survey of all the pricing structures of all the events SaaS apps, and mapping that out on a big sheet of paper or mind map or something, and trying to think that through.

I think in the end, you are going to want to be a percentage of revenue is my guess, because otherwise, you’re going to constantly have this problem. Try to think if there’s any way around it with tiers, try to think creatively. It’s like you could have a free tier or you can’t charge for events, and then you could have your $50 a month tier where you go to a certain amount of ticket sales. In essence, you’re taking a percentage, but you’re not, you’re just having tiers of it. That would maybe be the only other thing that I would consider. But man, just taking 1.5%, 2.5%, it’s so clean. It makes your pricing look so clean. It’s simple, and everybody understands that.

Mike: I think the problem that you just alluded to is that, depending on the size of the event that you’re dealing with, if it’s 5 or 10 people, you might have one price tier, and then if it’s 50, you could have another. Whether or not you deal with those, like what’s the price point of those? If it’s $25,000, but they only allow five people in it, is it a free account? Depending on the value that you’re providing to them, that’s really what you’re pricing should be based on.

I think you almost get into this territory of, you have an unlimited number of pricing tiers because how high could those ticket prices go or what is it that you actually basing it on? Is it the number of attendees or is it ticket price? Or is it a combination of the two? Once you get into that territory, it gets overly complicated, and people don’t want to deal with it because they’re like, “This pricing model is too confusing for me. I feel like I’m going to get screwed, so I’m going with the competitor because I understand it.”

Rob: Thanks for the question, Dan and Simon. I hope that was helpful and I definitely wish you guys the best of luck with EventsFrame.

Our next question is from Alex, and he says, “Hi again. Thanks for all the great content. I feel like I’m in a bit of a dilemma. I have an idea that I would like to turn into a business. It’s for a job site. I have the requirements, more or less hammered out to the point I can have a developer build it. I’ve recently been in the process of getting quotes from various companies, and freelancers to build it but I’m hesitant to make this jump. Aside from the inherent risk of it just failing, I’m concerned I will spend all my money on the MVP then quickly run out of money to fund any iterations on the site. I don’t know anyone willing to help me build this for free, and I also don’t know the first thing about raising money or how to prepare for that. I guess my question is, how would you approach building an MVP in the most affordable way?”

One thing I’ll throw out before you dive in Mike is, you’ll not be able to raise money, maybe from family and friends, but you’re not going to be able to raise money without a working app these days. It’s just kind of table stakes. Although he asked us, “How would you approach building an MVP is the most affordable way?” I don’t know that’s a question we should answer. I think the question we should answer is, how do you validate this more before building an MVP. Would you agree?

Mike: Yeah, I would agree. That’s the next step is like, what is the MVP? What question are you trying to answer? The question I think you’re trying to answer is, “How do I know if I should dump this money into this type of product?” I think the answer to that is the same thing that I did with Bluetick. Go to balsamiq.com, and buy a copy of Balsamiq for $80, and mock everything up. Then go try, and sell that to people, and see if people are actually interested in buying what it is that you have.

That will do a couple of different things for you. One is, it will help you find the types of people that you need to talk to, and the second thing it will do is, it’ll give you enough information to say like, “Is this something that people would actually pay for?” and that’s the answer to your question is, if you can get enough people and find the market for it and tap into a channel of people to talk to, to get them excited about it, and find out if they’re going to pay for it, then sure, go for it.

But if you can’t get past that part, if you can’t find the people to talk to, it’s never going to work. You’re just not going to be able to turn it into a working product, regardless whether you have code written or not. That’s not the problem. The problem is trying to find those customers and make sure they are willing to pay for it. There’s obvious concerns here about, Alex’s voice about, “I’m concerned about making the jump because of the risk of it failing,” and that’s how you make sure that it’s not going to fail.

Rob: Yup, I would agree with that. I think the question you need to ask yourself is, “How can you validate this before dumping a bunch of money into it and doing as much of that as possible?” Sometimes, an MVP is not even software. We’ve talked about this in the past. An MVP might be you with an Excel spreadsheet or a Google spreadsheet. It might be you manually writing things, taking in a list of keyword someone gives you, manually running an algorithm on them in Excel, and then giving back the keywords they’re most likely to rank for. That is basically what I would have done if I had built an MVP for HitTail, as an example, or any keyword tool.

There are ways to do it without needing to hire anyone to write a line of code. My second book, which is a collection of essays, is called Start Marketing The Day You Start Coding, but now, I think it’s Start Marketing Or At Least Validating Well Before You Start Coding. With Drip, I had 11 people who said that they would pay $99 a month for what we were going to build before we broke ground on code. I wanted 10, happened to get 11, then Derrick started writing code.

I know for Bluetick you got pre-orders. There is a lot of hustle that can happen up front. It’s hard work. This is the stuff that, “Well, is anyone going to trust me? Who am I? Is anyone going to trust me if I don’t have the software after the software ?” No, that’s an excuse. Yes, it would be better if you had all the software, and could just start marketing it. But that’s not the case.

I think your concern is valid, that going out and building an MVP, it’s very, very unlikely that’s going to have product fit, so you’re going to have to iterate. If you don’t have the money or the time or the skills to iterate on that, then you need to figure out how to get to the point where you feel more confident.

Here’s the thing. If you try to recruit a developer to build it for free—we’ve talked about this in the past—nope, no developer is going to want to do that. If you go to a developer and you say, “Hey, I built all these mockups, I have 25 phone calls, and I got 10 pre-orders, they paid for a quarter, three months of service, and they’ve all committed to—assuming it works and does what I say—it’s going to be $50 or $100 a month after that, boom, we’re going to be at $1000 MRR,” yes, that’s a lot of hustle, and it’s a lot of work, but that’s how you recruit a co-founder or at least a developer who is willing to build it maybe for an equity share or something like that.

I like the way you’re thinking about it. I’m glad you’re hesitant to just dive into the MVP, but I don’t think you should look at building an MVP as software in the most affordable way. I think you should look at, not automating them, doing stuff manually, and think of, “How can I possibly validate this?” The first step is going to be customer conversations, then it’s going to be trying to get pre-orders, then it’s going to be doing it manually until the software’s built, then it’s building a crappy software MVP, and then it’s doing a better job. I bet there’s a lot of steps between where you are today and basically, paying someone to build a complete SaaS app.

Mike: I think part of it just stems from the classic misunderstanding of what an MVP is because MVP has the word Product in it, and that’s not really what it means. I talked about this in my book, Single Founder Handbook, and I quote Wikipedia from […]. It says, “An MVP is not a minimal product. It is a strategy and process directed toward making and selling a product to customers.” What you have to understand there is that it explicitly calls out an MVP as a process, not as a product. Building a product is not your MVP; answering a question is what your MVP is. The first thing that you have to start with is, “What is my question?” and here it’s, “How do I know that I need to pay people to develop software?” It’s all the stuff before that that Rob just talked about, like talk to customers, find out what they really want, and whether they’re going to pay for it, that’s all the stuff that you need to do..

Thanks for the question, Alex. I hope that was really helpful. I think that about wraps us up for the day. If you have a question for us, you can email it to questions@startupsfortherestofus.com, or you can send us a voicemail by calling 1-888-801-9690. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups, and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.

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