Episode 431 | Converting Free Users to Paid, Vesting, Business Ethics, 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 converting free users to paid, vesting, business ethics and more.

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Transcript

Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about converting free users to paid, vesting, business ethics, and more listener questions. This is Startups For The Rest Of Us Episode 431.

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

Mike: And I’m Mike.

Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. So, where this week, Mike?

Mike: A couple of a personal milestones for January. The first one is that I have averaged over seven hours of sleep per night since I got my CPAP machine. So that is good. I’m glad to see that I’m actually getting sleep these days. The other one for January specifically, I kind of got back on the bandwagon for exercise. I have logged 12 days of exercise for January. It’s one of those small personal wins. It doesn’t really make a difference in the grand scheme of things, but it’s nice to see that things seem to be getting back on track.

Rob: That’s awesome. The seven hours, isn’t that up from—

Mike: Three-and-a-half?

Rob: Like four hours? I mean, that’s a huge difference. Obviously, sleep makes a difference in so much stuff. In fact, I showed an audiobook that I was listening to. The Power of When is what it’s called but a lot of it is about sleep. Just that like not getting enough sleep, it just shapes your whole mindset, you can get sad, depressed, you can be pessimistic. I’m all of those things if I don’t get enough sleep. But is that why? I mean, the 12 days of exercise for you, is it because you’re getting more sleep that your able to do that?

Mike: Yeah, definitely. I do not have the will power to go to the gym if I don’t get enough sleep. I just recognize that, which kind of sucks. It means that if my sleep goes off the rails, then pretty much everything else goes off the rails, too. The sleep is definitely kind of the underlying factor, but obviously the other stuff contributes in other ways. If I’m getting enough sleep but probably not enough exercise, then I could probably get by. But if I’m not getting to sleep then not exercising contributes to other negative things that happened and just completely throws me off the rails.

Rob: Yeah, I can totally imagine that. The same thing happens to me. Glad to hear it and has your mindset shifted as well?

Mike: Yeah, definitely. I’m definitely more optimistic about just about everything, to be honest. In some ways I look back at it and it’s night-and-day difference between now and a couple of months ago. It’s just partly the mindset but partly the ability to actually remember things. I remember conversations that I was in before where I would literally just forget words. I still have something lingering effects of that but I’m hoping that it gets better and eventually goes away.

I don’t know how bad things can get or how long it can affect you, the sleep deprivation. I have read horror stories and stuff about people who don’t get enough sleep for extended periods of time. It’s just like a long-term brain damage and stuff, which was kind of terrifying, but I don’t know how bad that was for me and it’s not something to find out exactly anytime soon. If I don’t remember it that it did ever happened, I don’t know.

Rob: That’s right. Can’t we just blame it on getting old, too?

Mike: You could. I’m young.

Rob: We had a pretty cool comment on episode 423 which is where we talked through our goals for 2019. You essentially looked back on 2018 and you said it was a complete bust. I’ve got ones out of five on all my goals and I was pulling some things out of you like what were some wins. Sarah chimed in on the comments and said, “Hey, Mike. I think you can think about 2018 a bit differently. You actually had a major win, which was finding out that you have sleep apnea. Without that discovery, 2019 would have been the same or even worse than 2018. Now you know the problem is, you can do something about it. As you both discussed, lack of sleep messes up absolutely everything.” I want to throw in here that knowing is half the battle after all, am I right?

Mike: Yeah, I guess.

Rob: So back to Sarah, she said, “So rather than feeling crappy about not meeting any of your 2018 goals, maybe you could reframe 2018 as a transition year or turning point. Best of luck for 2019. Hope it’s everything you want to be.”

Mike: Thanks there. I really appreciate that. Even recently, I’ve started kind of rethinking my thoughts on what last year were. I write it off as kind of more of a learning experience of like, yes this happen and it sucks but at the same time there’s literally nothing I can ever do to get that time back. So, I may as well just kind of buckle down and move on.

Rob: Yup. Sometimes, that’s what you’ve got to do. We also had another comment that I thought was poignant and it was about episode 428 where we answered some listener questions. One of them was about equity split. Rob chimed in. I don’t know his last name, it wasn’t me. He chimed in on the comments and he said, “Regarding the equity split question, you missed mentioning vesting periods and cliffs, which is super important.”

He’s correct and what’s interesting is normally I do when we talk about equity splits. Typically even if two co-founders are starting a company together, you want them to vest their equity over a period of time. The range tends to be to 2-4 years and you often had a cliff at the front, meaning you get zero equity until one year in. Then you vest that whole year at a time and then you vest the rest on a monthly schedule.

It’s not how you have to do it but it is the most common way to do it. I think it’s how Y Combinator is kind of setup and I believe the use are there either a three- or four-year festing with a one-year cliff upfront. I appreciate Rob for calling that out. What you’re trying to save yourself from is someone working on your business for six months, leaving, and then he or she owns half the company. You’re trying to avoid that so that everyone puts in their time and earns their equity in a sense. Thanks for chiming in with that Rob.

Mike: One other thing that I wanted to mention is that I’ve started adding to the email courses and stuff that I have on the Blue Tech website and based on those, I actually got an email this morning from somebody and invited me to contribute to their online publication, wanted to talk to me a little bit more about it, so I’m going to try and set up a meeting to discuss that with them next week. There’s another one that I have that is in the works as well that’s completely unrelated to the online course that I have. Both of them have publications that are catering to people who are doing email marketing, so it’s kind of exciting to see that those opportunities are starting to show up.

Rob: That is fun. Will you mention them on the show and/or link to them when the time comes?

Mike: I will as soon as at least when they get closer to going live or I know that they’re actually going to go live. I’m sure that you’re no stranger to this, but I’ve been on podcasts before, different places, written articles and stuff, where you write it and submit it or you record the episode and then for whatever reason, it just never sees the light of day. So I’ll wait a little while until I actually do that.

Rob: Yeah and I actually do more vetting now of podcasts or magazines or whatever that want to interview me. I have had enough for those happen where I spend the time I do it and then it never see the light of day. It’s kind of tough.

Today we are answering some listener questions. Our first is a question about business ethics check. I think this is kind of interesting. It’s from Paul McMahon and he says, “Hi guys. I don’t think you’ve ever done a show on business ethics. I’d be interested in hearing about some of the ethical challenges you face when running your businesses and how you’ve approached them.”

For me personally, my biggest challenge has been deciding how to approach dealing with business I consider to be unethical. For example, as a business, Facebook has shown many times that they’re willing to make moral compromises in exchange for growth and revenue. This makes me not want to support them. At the same time, I have a positive ROI on Facebook ads. How do I balance my disdain for their business with growing my own business?”

Another example is what you do about customers whose businesses or organizations you consider to be unethical. In my case, I run a niche job board tied to my personal identity. It’s a manual process onboard customers. I talk with every company wanting to use it. I’ve had some companies want to use it whose business I think is immoral while still legal. I’ve waffled on whether or not to accept them as customers. I wonder if you’ve ever faced similar challenge.”

As bootstrappers, we normally don’t have a board or shareholders to answer to. This makes it hard to hide behind the idea that we should just do whatever is best for the company. The company is a direct reflection of our own goals and beliefs. Ultimately the specific ethical challenges we face depend on us personally. So, rather than looking for advice with challenges I faced, I’d be more interested in hearing about yours and how you’ve dealt with them.”

Mike: I think that’s a great question but it’s also extremely involved and nuanced based on who you are what you value. I’ve seen people commenting specifically on Facebook, for example. Paul specifically called Facebook out as one of those companies where he’s kind of making this moral compromise to exchange it for growth and revenue because it does bring business by spending money on Facebook ads, but how do you go about doing that and how do you justify that?

I can’t say that there’s one go to answer for is because it really depends on your level of comfortability with that, what it is you’re offering, and the types of people that you’re serving. Personally, I look at it as like, if you’re not getting in front of your customers, then are you doing them a disservice by not trying to help them? Obviously, you can go back-and-forth on that all day long. I think for me it depends a lot on the advertiser’s platform themselves, whether it’s something that I use or would use. If it’s something that I’m not going to use or have absolute qualms about using, then I probably wouldn’t do advertising on there.

At the same time, I have a Facebook account. So, would I do Facebook advertising? Yes. Do I have kind of a personal moral dilemma over them making money from that? Yes, to some extent, but there’s also not a lot of other options. I think that’s kind of a big deal to think about, like do you have other options? Are there ways that you can not support them and other financial ways but still get what you need out of them? They’re a big company. They don’t care.

Rob: I think that’s a good point I want to hop in here. Look at Amazon, Apple, Google, Facebook, GE, and Procter & Gamble. In all these companies, I don’t love everything they do. They all make missteps and they all do some things that either are unethical or immoral or whatever, however you want to frame it, and your point of it being nuanced and having to weigh these things, it’s interesting.

I like how you said, “From now I’m not going to do Facebook ads.” Really should delete your Facebook account, too. Some people do that, but if you haven’t done that, I don’t know that it matters to you enough if you’re still engaging with the platform.

Mike: That’s kind of what I was thinking. If you’re not so opposed to Facebook that you haven’t deleted your Facebook account yet, then you’re probably not that violently opposed to them such that supporting them through advertising on their platform really makes that much of a difference. But if you have deleted it, then you’re probably not going to create a new one just do you can do that.

I know there are some people who have deleted their Facebook accounts and then created one specifically so that they could do advertising. That’s because Facebook will not allow you to advertise unless you have a Facebook account linked to it, which kind of sucks but if your going to go down that route, then what you do about it? Your options are to not do the ads or to do them.

Rob: Yeah. What’s interesting is he’s asking basically about ethics and these terms, ethics and morals, they do relate to right or wrong conduct. But if I look up a definition of them, I always think of this is like they can be used interchangeably but ethics refer to rules provided by an external source and morals are individuals on principles. Ethics can be laws, or it can be workplace code of conduct, or can be religious principles, whereas morals are something that comes from inside you.

I do think here that they can overlap but they’re not always the same. Sometimes your morals can conflict with the ethics with laws. You don’t agree with a law that’s passed and you wholeheartedly don’t think that’s ethical. I’m not trying to muddy the water or get philosophical here, but I do think that with bigger businesses it is easier to make this ethical argument that it’s a larger body and there’s legal requirement that you do what’s best for the shareholders, whereas with smaller companies it’s not.

Have I faced moral dilemmas over the years? Yeah, I have. There was a time when I was unemployed. It was right after the dot com bust. Someone who’s going to give me a contract for $15,000, I would have kept this. This was when we were young and living pretty svelte. It was good. Then it keep us going for a couple months, probably three months or so. I went through, talked the guy through my hourly rate, did all the stuff, and he’s like, “This sounds great, let’s get started right away.” I was going to work from home, there was all this thing, and then when he started walking me through the site I was like, “This isn’t something I can support,” like, “I’m sorry but this isn’t something I can show to my kids.”

While I don’t have an issue with it and it’s not illegal, it’s just not something that I can do. It was a very hard decision for me but I’ve never looked back and thought, “Boy, I really should have sacrificed…” There was just something in me that didn’t agree with it. I’m not sure I can count any of the times where I’ve followed my moral compass, that I regret doing that.

So, if I were onboarding customers and I had an issue with what they’re up to, I guess you can piss people off by saying, “Hey, you know what? I’m sorry, we just can’t accept you.” They could get angry. Could they sue you? I suppose, but is it really worth their time and if you have something in your terms of service to cover you there, that you can cover that legal thing?

In my opinion, if you run your own business and you bootstrap, you’re doing it for a lot of reasons. One of those is so really you control your own destiny. I feel like I want to be able to get up everyday, look myself in the mirror, and believe in what I’m doing. Each of us might have a slightly different definition of that because our morals are different from person-to-person.

One part of that for me is I want to be able to tell my kids about any investment I make in any company and any company that I fund, that I advise, that I work on, I never want to have to say, “Oh yeah. Don’t tell the kids about that company.” There are certain businesses that are legal, that I am going to personally not invest in or be associated with because of that. That happens to be my moral compass but it doesn’t necessarily need to be yours as a listener.

Mike: Yeah. I think there’s a good distinction there between ethical, moral, and illegal. I definitely don’t want to be on the side of doing things that are illegal, but at the same time, I think if you take a step back from that and look at the United States, for example, there is marijuana legalization all over the place but it’s still not legal at a federal level. It becomes a very much gray area at that point. Is it legal? Is it not? It depends on which laws you’re looking at.

There are some people who are like, “I don’t care,” or, “I don’t agree with the law and I’m not going to follow it.” That’s totally your choice and maybe you’re doing something illegal at that point, but is it moral or ethical? I think that your points about the difference between those are head on. I agree with you in terms of what I would be willing to do and what I would want to be able to show to my kids. I wouldn’t want to be involved in stuff that I will have to hide from them. I’m not in the hiding things.

Rob: This is an interesting one and I think that Paul asked specifically about the ethics, but I think what he’s talking about is morals. He talked business ethics but he said, “I had some companies want to use it whose business I think is immoral,” and that is subtle, it’s nuanced, but it actually is a different thing because ethics would be, again, an external kind of force on you.

Mike: And honestly, this is something that I’ve struggled with to some extent because with Blue Tech, specifically, people can use Blue Tech for cold email outreach. I’m not a huge fan of it. I don’t do a lot of cold email outreach mainly. I will pinpoint, email certain people but I’m not going to throw them into an automated sequence if I don’t think that it’s a good chance that they’re going to be interested in. Quite frankly, I will find ways to make it a warm introduction instead of a cold email. I’m just not going to drop somebody a completely cold email because (1) I don’t think that it works very well, and (2) I think there’s better ways to provide value and get in front of people than just drop in a completely cold email out of the blue.

There are people who do feel that that’s a viable strategy and they want to do that. I do struggle to some extent with what do I do with those people and how should they be treated. I don’t treat them any different than any other customer, but at the same time I do struggle to some extent with what should I do with the business itself, how do I turn these people away, or say, “Hey, maybe there’s another piece of software the you should be going to use,” because some of them will come to me and say, “Hey, I have my own mail server and I am able to send…” I forget what it was. Some customer came to me, a prospective customer and they said they got their own mail server and they bumped it up for 32 processors and could send thousands of emails per second. This is not something I really want to be involved in. I kind of know in the back of my mind without being told what is probably going to happen there.

Rob: Right. Some of that is kind of a morality thing or kind of moral compass. The other part of it is risk mitigation of like, “This is going to end poorly and I don’t want to be associated with that,” and I think these two can overlap at times.

Mike: Oh yeah, definitely. There is that aspect of it. We talked about this at MicroConf to some extent, too. There’s certain marketing strategies that people will use and it’s not illegal, it’s not something that you can’t do, it’s just you’re not necessarily entirely comfortable with it, so you won’t do that. It’s a hard decision making and every single situation is a little bit different. It’s just hard and I don’t have a great advice for that.

Rob: I hope our thoughts are helpful, Paul. Thanks for writing in. Our next question is perhaps an easier one. It’s about converting free users to paid. Someone has a freemium product, his name is Mark, and he actually asked this question openly on Twitter about a week ago. I think it was Adrian Peter, he kind of pinged you and I and Reuben on Twitter. I said I have some quick thoughts but frankly, this deserves more than 280 characters of thought.

I ask Mark, the original poster, to write in with more details. He didn’t. I’m assuming he either got busy, just wasn’t that interested in hearing our thoughts or whatever. I still think it’s an interesting question to talk about because I think this is something that folks struggle with. He said, “I’ve just found out that my freemium product has on average 9000 users a day, access it with only 140 people paying for the advanced features. I’m looking for someone who can mentor me on how to migrate those free users to happy paying users without pissing them off.” While we’re not going to mentor him, I have some thoughts on how to think about doing this. But why don’t you kick us off with some ideas?

Mike: I think to start with is that 140 people out of 9000 is about a little over one-and-a-half percent. It’s like 1.55%. If my memory serves me, that’s actually not a terrible freemiun rate.

Rob: Yup. I believe Dropbox, in the early days, the numbers they published was like 3% from free to paid over 12 months. When they did that, they had such a high funnel volume, that that was their business model. Who knows what it is now. I agree, 1.5% is in the order of magnitude or what Dropbox had.

Mike: Right. To start off, that’s not terrible. Did he say what this product was? I don’t see that here.

Rob: No, he didn’t. That’s, again, why I asked him. I don’t know if it’s B2C. I don’t know.

Mike: My guess is that it would be B2C. It doesn’t seem like it would be anything else.

Rob: Yeah, I would think so. I’m not sure why you would do freemium with deep B2B. I shouldn’t say that because there’s MailChimp and Drip and they have free plans. There’s whole reasons for that. But flippantly on the service, if you have 9000 free users and 140 paid, I’m guessing it’s the B2C product.

Mike: Right. I think there’s a few different ways you could go about this. It looks to me he’s going down the path of analyzing who is using the product. That’s a great place to start. If he know that 9000 users a day are accessing it, something that brings that to mind, though, is that the users per day is not necessarily reflective of the total number. That 1.5% that you and I just talked about is probably substantially lower than that because he’s saying users per day are actively logging in versus how many is it over a month, or three months, or over the course of the year? How many total accounts are there versus the number of people who are using it? I’m not saying that you’re going to be able to charge all those people. It’s kind of like a benchmark for how many people have started using it and decided to keep using it versus how many people decided that it was worth it enough to pay.

That aside, take a look at seeing what features people are using. Compare them between the paid users and the free users. See if there are places where they are using certain features or using a certain amount of it. Let’s say Buffer, as an example. If you have a certain number of social profiles connected, I think it’s three or four, you’re still qualified for the freemium plan. But then, once you get above that, then you have to pay for it. See what those metrics look like and see if there are places where you can see that there are people who would probably pay for it if there was a barrier there or there was a paywall to go over that limit.

In order to convert them over from free to paid, you’re going to have to be really, really careful because if you simply take something away, let’s say that the limit was, you decided that it should be 5 and a lot of people have 10, those people who are not paying for it now are going to be really, really upset that you made them start paying for it, even though you’re providing value. You can kind of segment your list a little bit, see who signed up with a work account versus a free account.

There’s places on GitHub where you can go in and you can find a list of mail servers. They include things like Gmail, Yahoo!, AOL, and all those things, basically free email accounts. Those providers, match that up against your list, see who’s probably using a work account versus a free account, and target those people who are using a work account first as the people to try and get them to upgrade. Offer them some sort of special discount or incentives, Maybe something above and beyond what the typical package would be.

You can also do kind of a Netflix model where you grandfather them in for a certain time period, let’s say six months or a year, and say, “Look, we’re going to start charging for this but we’re not going to do it right now. We’ll do it in that timeframe.” That way, you can kind of gauge the response as opposed to just doing it and then dealing with the fallout. Those are just a bunch of things off the top of my head. Rob, I’m sure you have plenty to add.

Rob: Yup. I totally do. That’s the thing. I think there are different options here that you have to think about. If it’s B2C, the numbers are actually not that bad. The first thing I try to figure out is why are people not upgrading and I probably email or everybody who is not and say, “What are you looking for?” Just start conversations. “What in our paid plans isn’t that enticing? What do you need?” Maybe 8000 of them are just teenagers or are people who live in a country where they just don’t have the money to pay for it. None of this is worth it. It’s trying to get to not that they aren’t upgrading but why aren’t they upgrading. That would be the first thing I’d think about.

If you decide, “Oh, there’s a bunch of businesses using this and they should be paying for it more than 1.5% or whatever,” then I think you kind of have four options. You can email everybody with a one-time upgrade reward like, “Hey, get a free $20 Amazon gift card.” That’s a terrible idea but this free ebook or this free audio series or this free physical book or just some type of reward to upgrade right now to paid. Probably not going to do great but it’s one option. It’s simple. It’s quick.

Another option is to offer maybe a one-time special pricing tier and be like, “This is only available once and it’s the same price as what everyone else is getting but you get twice as much or three times as much if you upgrade now.” That keeps your price the same.

The next level up is to kind of giving a lot of stuff is offer a one-time lifetime discount and be like, “Look, the price will be half of what everyone else is the normal sign-up for the rest of the time that you’re on the product,70%, or whatever you want to do, but you have to pay for a year in advance,” and just see what kind of result you can get there.

The last option is, frankly if free plan is working for you and it is marketing which is really what free plans are supposed to be, then you don’t want to close it down. But if free plan is a lot of cost for you, whether it in support or it’s in hosting, and you want to consider closing it down, then that’s kind of your last option. Yes, you will make a few people mad but there’s always fewer people mad than you think will be.

You could close the free tier with 3-12 months of notice basically offer one of the above options that I’ve already given, and just say, “Look, due to this and that, I’m a single founder, small bootstrap company, we don’t have the resources. I’m sorry, it was an experiment, and sometimes, these things happen.” People understand that. You’ll get two responses from 8000 that will be all huffy about it. Or maybe it’s 10 but still, it will be a tiny fraction.

I have done this before. I acquired HitTail and there was this huge free tier. People were abusing the system, frankly, and I have to shut one down. I did it just like that. I did and I’ve got some emails from people who are mad, and then I’ve got a bunch of people that upgraded. It was enough to kind of co-hosting cost for each month, based on the number of people that upgraded.

Those are the options I think that really come to mind and obviously some of those overlap. […] what you said but I think there are definitely ways to be thinking about this. Free plans are tricky. I think that’s the bottom line. They’re not as clear-cut, not as easy to navigate as just straight ahead trial to paid, but that doesn’t mean you shouldn’t do them.

Mike: Yeah. I think there’s definitely an approach to basically chipping away at that number and increasing it from 140 to as high as you can get it obviously, but there’s ways to do it and it depends a lot on how much time you have or how much time you want it to take. You can just send out an email and say, “Hey, in two weeks we’re going to start charging for this and kind of shut down the free plan.” But that’s a hard line in the sand and it’s difficult to back away from versus the opposite approach which is approach them with a soft hand and try to slowly move people over and not make them too upset. You just take a much longer period of time to do it and over time you kind of ratchet that up and slowly be a little bit more tightfisted about it. I would be a little cautious with that number of people.

Rob: Yup, I agree. I got a couple of other questions. We only got a couple of more minutes but I went to Quora and I went to the startups category. I pulled a few more questions out. We’ll see how many we have to get through. Mike, I’m curious. What is the worst startup business idea that you’ve ever heard?

Mike: I have the perfect one that I’ve heard. I was talking to somebody. It was maybe 2-3 years ago. He has told me how he had this great idea for a startup and they’ve already gotten something like $300,000 worth of funding for it and have basically burned through it all. Somehow, this company is worth $8 million and the basic idea of it—this is kind of his words, I’m paraphrasing this to some extent—he kind of said it’s a combination of Facebook, Pinterest, Twitter, and he named off two or three other major online businesses like that people who listen on this show would recognize. I’m just like, “You have got to be kidding me.” I don’t want to mash them all together and create one giant platform for everybody to use.

Even after burning through $300,000 worth of investment capital, I was like, “How many paid customers do you have?” Of course, getting that out of him was like pulling teeth and he was like, “None.” Then I said, “Okay, so you haven’t made any money. How many users do you have? Like free people? Like people who are just using it?” and the answer was still none. I’m like, “Oh my God, I can’t even believe I’m entertaining this conversation.”

Rob: Yeah, and that’s a tough thing. It’s like I run into some entrepreneurs who wanted to start a startup and they don’t have any connection to the startups space. That’s okay, you don’t have to be part of the community and drink the Kool-Aid of any one person. You don’t have to be part of the MicroConf crowd or be part of the Silicon Valley crowd or the SaaS or whatever, but I do think that there are learnings and general knowledge that we all roll our eyes at, that are so fundamentally known within the circles, that if you want to start a startup, having some of that knowledge is just as helpful as some guard rails.

When you say that Facebook, Pinterest, Google, Apple combination or whatever the guy said, this is one that just breaks so many rules that you know that it’s probably a bad idea, but he didn’t know. He doesn’t know that it breaks the rules because he doesn’t know what kind of “rules” are in terms of trying to get some off the ground.

Mike: Yeah. I think even objectively though, you’re trying to build something that is that broad and it just struck me as odd. Delusional is really the word.

Rob: I don’t know the worst. It’s hard to nail the worst one. Probably some of the worst ever have been ideas that I’ve come up with myself. There is one. I was a contractor-developer years ago. It was during the dot-com boom. Of course, that’s when a lot of the worst ideas came out. One of them was—I won’t say the name of it—they had this system where you could come to the website—remember, there were no mobile phones, it wasn’t a mo-app—you could log into the website on your computer and if you have seen someone on the road that you wanted to get in contact with—I was assuming it was a dating kind of social network thing before social networks—if you’ve got their license plate number, you type it into the startup website, they would notify that person and say, “So and so wants to connect with you. Do you want to connect with them?” and it had to be a double opt-in. Then, there’s going to be a social network and people could chat back-and-forth and meet and talk. That was the idea.

I remember we’re building this and I’m like, “Wait, aren’t there privacy concerns? How are you going to get people’s emails from their license plates? What’s the network effect on this?” It’s just layers and layers of questions of like, “How will this ever work?” Again, at least we have a mobile phone or something and take a picture of their car and yours and they could see you. But if you suddenly got an email from this company that’s like, “Someone wants to connect with you. They database on your license plate,” and you’re like, “I don’t know who that person is. I didn’t see them while I was driving on the freeway.” Do you think it’s bizarre? Do you think it’s good? Do you think it’s gold?

Mike: I don’t definitely think it’s gold but I also will say flat out that it is hard to predict what the general population will do or will gravitate towards for certain types of social apps. Snapchat, for example. If you were ask me five years ago, “Oh will Snapchat ever be a thing?” I’ll be like, “No, that’s the dumbest thing I’ve ever heard.”

Rob: It was my idea and I asked you. You told me not to do it and look where that got us, Mike.

Mike: I know. But it’s hard to predict when those things come up, whether or not that’s going to go anywhere. Personally, would I ever use it? Heck, no. There’s no way. That’s like it’s got ‘stalker’ written all over it. I think that you would have a hard time getting traction with it but would nobody use it? I can see people deciding they wanted to use it if they were in a hit-and-run and somebody took off and they’re like, “I think have this license plate.” Although they’ll just give it to the cops. So, what difference does it make?

Rob: Yeah, that’s the thing. Then they’d contact him and be like, “Do you want to hear from this person about your hit-and-run?” and like, “No. Rejected” Its funny.

Last question of the day, Mike. What are the things that no one tells you about starting a startup?

Mike: I think the thing that comes to mind here is that there are there going to be days, possibly weeks and months, where you get up in the morning and you say to yourself, “I didn’t sign up for this.” It’s all going to be related to stuff that you thought you got into the business for one reason and you find out that you’re going over your books line by line because somebody made a mistake or there’s some API that’s coming in and hitting your app and you have to somehow lock it down because it’s like basically DDoSing your systems. There’s going to be things that come up where you’re like, “I didn’t sign up for this.” The reality is you kind of did but it’s too late to do anything about it. Everyone has those days. Those are the two things I would say about that.

Rob: Yeah. Those are good answers, Mike. A lot of people will tell you that it’s hard and a lot of people will tell you it take a long time and such. I’ve said that a lot. The MicroConf and bootstrapper community is both big and small. In terms of the entire world, the startup community is pretty small even though it can have some influence on those folks. But just outside our community, I don’t hear many people saying, “When you’re starting up, try to get to revenue quickly and try to do that in the first whatever, the first six months after launch.”

I think that there is so much importance put on growth of user engagement or growth of numbers and daily actives in this kind of stuff. I even think there’s SaaS founders launching with pure freemium models because they just think that the number of people coming to use their app is important or is what counts or something like that. I think that focusing on revenue early is something that I don’t think is talked about enough.

Mike: Yeah, I would say I agree with that. I think it’s something of a common fallacy. I almost want to blame Steve Jobs for this, but people think that—I’m not immune to this—if you build something great, people are going to find it or you know what the customer wants. That’s really more of a Steve Jobs than anything else. It’s like you know what the customer want and you just need to build it and put it in front of him. Then you find out afterwards that you were way off base and there’s all these other things you need to do or that they want or need, subtle things that you need to now change. Whereas if you had just talk to the customer in the beginning, you had learned that those things weren’t true.

I think that there’s this aura or halo around Steve Jobs just like Saint John saying, “I know what these people want and this is how it should work.” All the stories that go around where he just was very intuitive about it, what should be built, and people kind of think that they can do that too. I think that there’s a big distinction between a multi billionaire who has been in that position than all of the rest of us.

Rob: Right and he eventually did that, I think. I think there’s myth around it. Some of it is exaggerated, but he didn’t do that earlier in his career. When was the last time you heard someone talk about, “The Apple IIe was designed by Wozniak and it was so far ahead of its time that when it did catch on, it was amazing.” But it’s not Jobs, aside from crafting the outside of it or whatever, he didn’t invent the Apple IIe, but he came up with the Lisa, which was a failure. He really pushed the Macintosh forward, which was a failure early on and eventually caught on. Then he launched NeXT and built a computer that was a failure. He had a bunch of failures. He thought he knew what people wanted and then actually didn’t.

If you read the book Becoming Steve Jobs, it talks a lot about his transformation and it touches on all those things. That’s what people forget. It’s like you and me and the person who thinks they’re Steve Jobs, we don’t have the decades and hundreds and millions of dollars to burn through, to learn the lessons that he ultimately did. By the time he did come out and do the iMac, the iPod, the iPhone, all the stuff that he eventually had wild, amazing success with, a lot of people forget that he lost hundreds and millions of dollars of his and other people’s money on the journey there and he spent decades of his life basically learning that stuff that most of us don’t have the luxury of it.

Mike: That’s kind of my point. We forget that piece of it.

Rob: Yup.

Mike: Interesting question for sure. But if you have a question for us, you can call 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. Subscribe to us on iTunes by searching for ‘startups’ and visit startupsfortherestofus.com for a full transcript to each episode. Thanks for listening and we’ll see you next time.

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