In this episode, Rob is joined by Rand Fishkin for an honest and transparent conversation about his time at Moz, raising funding, his book Lost and Founder, as well as his current effort, SparkToro. They discuss growth levers and the importance of owning the channel where you build your audience.
The topics we cover
[01:44] Impacts from writing a book
[08:41] Transitioning from Moz but continuing to work there
[15:53] Venture capital vs angel investing
[19:59] Launching SparkToro
[36:08] Raising capital for SparkToro
[44:14] Growth levers that are working today
Links from the show
- Lost & Founder
- Start Small, Stay Small
- Rand Fishkin’s Bio
- Sarah Bird
- Clarity — On Demand Business Advice
- Spark Toro Terms
- Conversion Rate Experts
- Rand Fishkin (@randfish) | Twitter
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Rob: It’s a bird, it’s a plane, it’s this week’s episode of Startups For The Rest of Us. Thanks so much for joining me this week, episode 537.
I talked with Rand Fishkin about his book, Lost and Founder, about his current effort—SparkToro, talked a little bit about his time at Moz the last couple of years—how things went there. We talked about funding, growth levers that are working today, all types of stuff.
Rand Fishkin probably needs no introduction. I do give him a little bit of an intro at the start of the interview, but I always love interviews with Rand because he just brings the authenticity. He’s super transparent and he just says what he feels. I’ve always respected him for that.
Before we dive into that, the 2021 State of Independent SaaS Report is out. You can head to stateofindiesaas.com or just head to microconf.com. There’s a report link up in the header. The report turned out really good this year, 60 something pages. We trimmed it down a little bit, we added some different graphics, lots of cool findings. People have been talking on Twitter, and we did a live stream a couple of weeks ago. You can actually find that on our YouTube channel, youtube.com/microconf.
As the kids say these days, smash that like and subscribe button if you’re not already subscribed to our YouTube channel because we do have videos coming out probably twice a month right now. More will be coming out once we’re able to do in-person events again and we’re able to add new talks to the coffers. Again, stateofindiesaas.com if you want to check out the report and youtube.com/microconf.
With that, let’s dive into my conservation with Rand Fishkin. Rand Fishkin, thanks so much for joining me today.
Rand: Rob, great to be here.
Rob: This is your first time on Startups For The Rest of Us.
Rand: I think that’s right.
Rob: That’s super cool. I know that you were on MicroConf On Air and you’ve been on ZenFounder many times, which is obviously the podcast that my wife, Sherry, runs. It’s great to have you on here and frankly way overdue. The fact that it’s 530 episodes and you have been on. I’m not sure how we let that happen. I know a lot of folks who are listening to this will know who you are as the cofounder of Moz and inbound.org.
You left Moz a couple of years back and you started SparkToro with your other cofounder. You’ve written a book called Lost and Founder. I love the tagline of this book, A Painfully Honest Field Guide to the Startup World. I listened to that book when it came out on Audible, and I hear people recommending it.
There was someone completely out of my startup circles the other day and they brought up your book to me. Hey, you do startups, have you heard of Rand Fishkin? I was like, actually, I have. It was super cool.
For folks who don’t know, you have a massive Twitter following. I believe 450,000 or more at this point. You wrote this book through Penguin Random House. Has the book changed your profile, or do you feel like the book was more of a venting process for you to get your message out to the world? Or do you feel like it has actually brought in a new audience of folks who may not have heard of you prior?
Rand: I think that it had the potential to bring a new audience. Lost and Founder, for reference. Penguin Random House—big publisher, one of the big four now after they merged—tends to want best-sellers. It’s not unlike a venture capital model where either you’re a really big success or you’re not that big of a deal to them.
Lost and Founder I think they hoped might be that and ended up not being that. It did not end up being a New York Times best-seller, all that kind of stuff. It’s had slow, steady sales. It sold around 25,000, 30,000 copies, which is decent for a business book, but not a runaway success.
I don’t think that it’s had a huge impact on my profile. If someone said, hey, I really want to raise my profile and my credibility, and get invited to more conferences—whatever that metric for someone is—would you recommend a process like what you did with Lost and Founder? I think my answer would probably be no.
Instead, you could do that more effectively through online channels today than through books. Books are sort of a prestige. If you have a best-seller, potentially very big audience-builders, but that’s difficult to do with a non-single subject book.
Lost and Founder is a here’s a journey with a bunch of lessons […] and all look at what it’s like building a venture-backed startup, especially the ones that aren’t unicorns. That’s been helpful to a ton of people, and I’ve gotten a lot of kind messages from folks, but they were almost all people I already had some connection to.
Rob: Fascinating. I like the fact that you pointed out it’s perhaps this single-subject thing that’s impacting it. I also think you’re far along in your career and sense of notoriety, having the following already. Obviously, it’s always possible to get bigger, but it’s not like you’re an unknown that then sold 25,000 copies.
That’s something because I’ve written a couple of books now, and my first one I self-published. It sold probably half of what Lost and Founder has, somewhere in 12,000, 13,000 copies, but it was in 2009. I don’t even know if I was on Twitter yet or if I had 100 Twitter followers. I didn’t have speaking invitations. I wasn’t a name in the scene yet. That book did break me in, but a big part of that is because it was so focused. It’s really focused on going from $0 to $5000 or $10,000 a month software product.
Rand: There are numerous reasons to get a book published. One of the best reasons is a desire to have people get a full reckoning and understanding of a deep, complex topic. Even if you only sell 1000 or 5000 copies, if they’re to the right people on that subject, you can really make a big difference in those people’s lives and in their understanding of the topic in a subject matter area, especially a niche one.
I don’t want to discourage people from writing books, they’re still a great medium. But I will say, I never enjoyed the single subject business books. The ones that you could basically read the Wikipedia summary of the book, then read the whole book and go okay, I got more of the same concept. But I guess there are these four keys to being a good manager that this person thinks there are. We went really in-depth on them, but honestly, I could do with the summary article.
Rob: That makes sense. That’s even a little different than what my book is. My book is the step-by-step process of idea validation and all that. I know what you’re talking about. You’re talking about the start with why.
Rand: Yeah, all the business meme books. The ones that you see on the shelves behind all the people on TV.
Rob: When you grew Moz—7 years as CEO, from 7 employees to 134 employees, revenue from $800,000 to $130 million, traffic from 1 million to 30 million annual visitors. I’m reading all this off your bio, by the way. People should check this out. If you’re listening to this, you go on podcasts, you do any type of speaking, check out sparktoro.com/team/rand or just go to Google and type in Rand bio.
I’ve seen bios like this before, but I really like yours because you have a breviated one at the top with a couple of photos, and you have a really long bio that I was reading through. I feel like I know you pretty well, I followed your story, I’ve read your book, and I was learning stuff. This is good. I know we’re not doing a lot of public speaking right now, but you have some really good data points if someone did want you to speak. Folks can do well to model themselves after this.
Did you model this page after someone else, or did you just think this is what’s logical and what should be here?
Rand: Basically, during my last 10 years at Moz, I was at the company that became Moz with my mom founding it in 2001 for 17 years. For those last 10, my profile was bigger and I was getting invited to a lot of events. My assistant, Nicky—who is not with me anymore—and I just recorded everything that everyone ever asked us for, and then used that to create the bio.
Some people wanted these kinds of photos. Some people wanted those kinds of photos. Some people wanted them in this resolution. Some people wanted this description, the longer description. They really want the full bio. They want to see some examples of your talks. We just put it all together into a page. That’s how that was built.
Rob: During this time at Moz, you’ve been very public. You’ve raised quite a bit of funding and that leads to issues. You go into it in Lost and Founder. You stepped down as CEO in 2014 during a bout of depression and then you left the company four years later.
I’m struck by that, that you stepped down as CEO of your company and then worked there for four more years. I don’t know if I’ve heard someone do that before. I guess I’m curious. First, why stick around and why didn’t you just want to distance yourself? The second one is, was that awkward? Was that a tough four years to not be running your own company anymore but working there?
Rand: There were three big reasons that I stayed. Those three were, one, I thought—for the prior 14 years before I stepped down—that Moz would be my forever company. That I would grow it and we would go public or sell. Moz would be the one thing that I did and then I would do investing, philanthropy, and blah-blah-blah after. Part of that is my own mental conception of who I was and what I was going to do.
Then the second big reason was when I stepped down, I talked to my chief operating officer, Sarah Bird—who’s been with me for a number of years—about taking the CEO role. I promised her, hey, I’m going to stay on. I’m going to be around to help you. She’s a non-technical person, had been with the company, and doing a great job in the COO role but felt maybe a little less than fully confident about everything taking on the CEO job, which is natural. I think that’s a good sign actually. If someone’s super confident, maybe they have some ego issues that you don’t necessarily want in a CEO role. That commitment was important to me.
Then the third one was that my board really wanted me to stay on. They felt that because the personal brand me had been deeply connected to the company brand of Moz for so long that it would be a hit to the company if I were to leave fully.
All those reasons were ones why I stayed. However, in retrospect, I would have left after a year, and I should’ve.
Rand: It did get very awkward because there were significant conflicts between Sarah and I. For folks who might follow me closely, I wrote recently about stepping down from Moz’s board. I was the Chairman of the Board of Directors since the company was founded. I left that role, promoted some other folks onto the board. Just deep awkwardness, lots of conflicts, disagreement. It was unhealthy for the company. I felt like I was staying and trying to impose whatever benefits that I could to keep it afloat even though I disagreed with all sorts of things.
After I stepped down as CEO, the growth rate sank significantly. It was trending a little bit down the last six months I was there so I wouldn’t put the fault entirely on folks after I left. But the last seven years certainly looked nothing like the first seven, which is really, really tough in a venture capital-backed business.
If you and I are private investors and we own 20%, 30% of a company that’s $50 million a year, growing 10% year over year, and profitable—we’re happy. That’s great. That’s fine. But if we are venture investors who basically need 98 of the companies we invest in to die and go away so that they stop wasting our board time and 2 of the companies to be unicorns and make all our money, those stuck in the middle, maybe it’ll make us a few tens of millions of dollars, maybe it’ll someday go bankrupt, who knows? They are really annoying. They’re just pests. You could feel that with Moz, the dynamics, and that situation.
It’s weird to have people email me. I got an email last week. It was like, hey, will you invest in this fund? Will you invest in this company? I have to be like, I don’t really have liquid capital.
Rob: That’s something I don’t think people realize that on paper, the wealth of a founder might be $10 million, $20 million, $30 million. But if it’s in a company—an illiquid private company—you just can’t get it out until there’s an exit or an IPO.
Rand: Right. When a company is venture-backed and growing at rates that are not venture acceptable, what happens? That’s a very, very weird situation. More companies get stuck in that than you’d think. Out of those average 100 investments that VCs make, the stuck in the middle is a really significant percentage, it’s probably like 20 of those 100.
A lot of those end up being some combination of fire sales, or for more aggressive venture investors. It’s often to fire the CEO and bring someone else in, or try and recapitalize the whole thing, combine it with another portfolio company. I’ve seen that a bunch of times. A lot of strange and awkward things can lead to—for a founder, founding team, customers, and employees.—just a bad situation.
Rob: I know a few folks who have made it a habit of buying “failed” venture-funded companies. Failed is we’re talking of a $50 million run rate company, but $10 million, $20 million, $30 million in ARR. Startups.com is one. Wil Schroter, I believe his name is. I interviewed him on the podcast six months ago.
I’m not going to say all of these were failed, but the previously venture-backed companies he purchased are clarity.fm, which was Dan Martell’s; Zirtual, which did crash and burn. It was a VA service. There’s at least one other where he basically said, yeah, I’m the second buyer, and they’ve already proven enough of the model.
Rand: Moz is a fantastic company in a terrific field with an incredible opportunity. It’s frustrating to me that that opportunity hasn’t been as executed as it could be. At the same time, I also have a lot of criticism of the model itself.
It should be just fine to be a profitable, growing tens of millions of dollars a year revenue company that’s doing a great job of serving customers and making a lot of people happy. That should be good enough. I feel very responsible for having basically signed these venture deals that said, that will never be good enough.
Rob: That’s why when you went to start your next company, you left Moz 2018, is that right?
Rand: Yeah, that’s right. Three years ago in a month and a half.
Rob: You wanted to start your next company, SparkToro, and you started that with a completely different model. I believe that’s actually when I reached out to you. You wrote a blog post and said, I’m starting my next company, and I’m not raising venture capital.
I remember thinking, I wonder if he’s raising angel funding. For those listening who don’t know, venture capital is one track. If you take institutional money from VCs, they do want that unicorn billion-dollar valuation. But there are investors out there, folks like myself—accelerators like TinySeed, we’ll talk about that in a second—who are willing to write checks. Maybe we raised $250,000, $500,000 in a round.
I’ve personally angel-invested in 13–14 companies and more than half of those are just this. They are B2B SaaS companies that will probably never be unicorns, but they will be amazingly profitable real businesses that have the potential to do $5 million to $50 million in annual revenue. That’s what you’ve started with SparkToro, right? That was more of your goal this time.
Rand: Yeah. The really interesting thing about this whole structure is when you step back from the micro-level, and you look at the macro level, it comes into stark relief like, why does the venture capital industry exist? How did they exist? How did they really make money?
We can get into it or not, but the answer is it was created as a tax dodge, and that is how it exists today. Venture capital is essentially an asset class that only makes money because rich people in the ’60s and ’70s lobbied the Federal Government to get capital gains tax rate applied to this certain type of investing. I think you have to hold it for five years or whatever, but you hold your early-stage investment.
The asset class evolves to work in this fashion and way. Now it’s become almost a cultural belief in Silicon Valley culture that you have to go the unicorn model. When you look at what unicorns do, it essentially exacerbates income inequality to the max.
The whole idea behind venture capital is we are going to take a bunch of mostly already wealthy people because that’s who starts venture-backed startups—the overwhelming majority, something like 90% come from family wealth. You’re taking already wealthy individuals who started the companies, and you are saying 1 or 2 out of 100 of you will make a lot of money Everyone else, you’re out of luck. And then most of the games will go to a very small number of people in those organizations. It’s just super messed up.
If you were to ask an economist, hey, is this a good thing for society? They would tell you, no, that is a terrible idea. Whatever you do, don’t make that the primary incentive structure of how investing should be done. What you really want to have a healthy economy is lots of small and medium-sized businesses because they can better weather storms, they have less nasty political influence, and they will create more income equality. So you’ll have a more equal society and you’ll have more competition, which is good for innovation and marketplaces.
Instead, what did America do? Venture capital.
Rob: It’s unfortunate that the model turned into what it is, but that’s the good news for those funds, those individuals, and those investors that are coming out of the woodwork and saying look, we don’t need that to be the case. I love what you did. We like that you did so much with your SparkToro terms, which you published on the Internet in open source. That is what TinySeed wound up adopting as our investment terms.
Rand: When you folks reached out and said, hey, we would like to use SparkToro’s models for TinySeed, that was a really, really proud and exciting moment, and it’s been very cool to see. I’m not sure if I mentioned this to you, but four or five other companies—not funds but individual startups—have also used SparkToro’s model to raise money themselves and used those open-source documents.
I certainly encourage anyone who wants to take a look—if you decide you want to use it—it can save you a whole bunch of lawyer fees and time to check those out as well.
Rob: That’s really cool. Let’s talk a little bit about SparkToro and about growth today. You launched over the past year about 12, 15 months. Has it been that long? The pandemic makes everything feel twice as long to me.
Rand: We are only in month nine post-launch.
Rob: Okay. You want to tell folks what SparkToro is and where the idea for it came from? Then I’ll ask you so they have an idea of where you are in terms of revenue headcount, whatever you want to let people know. Then, we’ll talk about growth, leverage, and that kind of stuff. I know people know you as someone who has grown companies on social media, SEO, and a lot of other stuff. I think there’ll be some good stuff we can dig into.
Rand: Absolutely. Long story short, SparkToro is a tool that anyone can try for free that helps you instantly discover what your audience reads, watches, listens to, and follows. If you are starting a startup and you’re selling some fancy, new landscaping management software to landscapers in Canada, you can go type in, my audience has the word landscaper in their bio and is located in Canada, tell me all about them.
SparkToro will say, oh, okay, we have the public profiles of 2200 landscapers in Canada, and here’s what they collectively read, which websites they visit. Here are podcasts they listen to. Here are YouTube channels they subscribe to. Here are people they follow on various social networks and accounts. Here are the words and phrases that they use in their bios. Here are hashtags that are popular with them.
Then you can go do smart marketing of all kinds. You could figure out content strategies from the words and phrases that they’re talking about in the last two months. You could figure out hashtags that you want to run Instagram ads against. You could look at the social profiles, reach out, and do some influencer marketing. You could go pitch those podcasts to be a guest on them or to sponsor them.
Whatever kind of marketing you want to do, we’re very agnostic to that. What we want to provide is data about that audience so that you can know them better and go do more thoughtful kinds of marketing of all types to reach them.
Rob: You just gave a pretty good example of how someone might use it, but when we were recently trying to promote the State of Independent SaaS Survey back a couple of months ago, I went in and typed, who on Twitter is talking about SaaS or using #SaaS. I was just searching around for stuff.
The big win for me was not finding people I hadn’t heard of. The big win for me was finding people I was like, I know that guy. I know that person with that big following. I forgot that they would (a) probably be happy to tweet it, (b) a supporter of the State of Independent SaaS. It was like a memory jogger. I did a little bit of cold outreach but I’m mostly focusing on relationships that I already had. It definitely yielded a few tweets out of that.
Rand: I’ve had similar success. Podcast marketing has been one of the big things that we’re doing slightly meta—having this conversation on a podcast. I mentioned to you, Rob, that one of the ways that SparkToro has reached a lot of its audience, potential customers, and just free users is essentially I’d go on a lot of podcasts and talk about all sorts of things related to marketing, advertising, startup growth, funding, or whatever.
Those listeners often turn into people who are like, you know what, let me try searching for who follows my social account on SparkToro, and let’s see what the tool can tell me about my audience. That has been a great growth lever for us.
One of the ways that I have been using SparkToro is literally to find podcasts that are connected to the worlds of people that I know. Then I’ll just reach out to somebody and be like, hey, Marie, I saw you were on this podcast, do you know the host? Could you connect me?
It’s just easy peasy lemon squeezy. Those types of relationships—a warm intro, warm outreach to someone you know who knows a host. Even in the market research world, I knew very few people because that universe is its own different thing.
I literally just started following some of those people on LinkedIn and Twitter, commenting and engaging with them on those platforms. No surprise, after a couple of, in one case, weeks and in other case months, we had a couple of conversations that were productive and interesting. That turned into hey, you want to come on my podcast?
Rob: That’s great. At this point, you’re nine months out of the gate. I know you had a very large launch list of interested folks who wanted to use SparkToro. I know you started launching it right as COVID started to impact the U.S. and impact a lot of your buying audience. Talk us through what you did there and how you feel the launch went overall.
Rand: We basically started our soft launch in February 2020, which was exactly when Seattle was getting the first cases of COVID. Casey, my cofounder, and I are located in Seattle. We were just starting to feel the effects.
We’ve gone into quarantine very early just foolishly hoping that, okay, if we all stay home for a few weeks, it’ll probably be fine. No, the reality was that as we started to send those first early access emails at the end of February and then into March, Casey and I were seeing two things happen.
One, very rapidly, the difference between the end of February and the middle of March in terms of signup and conversion rate from the early access email list, which is just a big group of people. It’s not like the first group of people we emailed was substantively different from the next group of people. But as we were sending out a few thousand of these every week because we wanted to slow roll it, we were seeing those conversion rates falling, the signup rates falling.
I emailed our investors and was like, oh, my God. I think you made a great investment because look at these signup rates from weeks one and two. Then week three fell, week four fell a lot worse.
In addition to the rates falling—people were just not being in the headspace to try a new marketing tool, which makes sense—the other thing that happened is a bunch of our emails started bouncing. I think at the height, almost 17% or 18% were bouncing. It was not a ‘this email address doesn’t exist anymore,’ it was, ‘so and so doesn’t work here anymore.’ Just an incredible amount of layoffs.
We’ve forgotten because, in many cases, the (whatever you want to call it) white-collar economy or the information economy has recovered quite substantially since then. But in March and April 2020, layoffs were huge. Every marketing agency was just cutting people left and right because primarily, their clients were cutting all their contracts. Everybody was panicking about what was going to happen to the world economy. Tragically, late-stage capitalism meant that the economy kept going relatively well. It was just the death count that was unlimited.
The situation for us, when we launched in April, we basically made the decision. We were like, okay, let’s make our free plan much more aggressively generous. We increased the number of free searches people could run, how the mechanics of that worked, and what we were going to show.
We decided to launch because we basically couldn’t wait to start getting revenue. We had hoped to launch in January. When it’s delayed to February, that was okay. March, COVID is everything, we put it on pause. In April we just decided, hey, we got to get out there.
The launch went okay. If you look at the first few months after that, our conversion rates were low but acceptable. We grew fairly quickly to about $20,000 in recurring revenue per month, which is not bad. But it was really not until September when we did a pricing change and some conversion-focus change that things accelerated even faster.
We worked with an agency called Conversion Rate Experts. Over the summer, they gave us a ton of feedback, ideas, and things to test. We ran a big survey with both our first 100 or so customers and a bunch of our free users, asked them what they were looking for, what their experiences were, what made them convert and not, all that kind of stuff.
From those questions, we redesigned our homepage, redesigned our product page, did some videos, did some educational content, did an email onboarding series—the usual conversion stuff—and then launched a new pricing plan and the conversion rate almost tripled. September, October, November, December were really good months for us. January is looking pretty good too. We became profitable, got to break even at the end of September, which was great.
Rob: Yeah, that is great. Triple, that’s insane.
Rand: We had a very low conversion rate.
Rob: Fair enough, but that’s great. Do you think there are any one or two things you’ll ascribe that tripling to, or was it all the things you just mentioned? You mentioned five, six, seven things you did.
Rand: I am not sure whether it was one or two things that we changed or the whole package. Unfortunately, because we didn’t A/B test it—we just don’t have enough traffic to be able to do that in any reasonable time frame—we can’t know. We made all these changes at once. Obviously, some of them worked.
If I had to take a guess, I would say changing the pricing was one of the most effective. Changing the homepage, copy, and sequence of signing up was another. The new description and positioning that the copy takes makes it more obvious what we’re doing and makes the value more obvious.
I also think that we had some good success with changing up how the app shows. Once you perform a search, it shows results in a certain way. The new version of that seems to be more effective just like the layout and positioning of where things are, of where the data that’s returned is. I think those are the most impactful changes, but it’s hard to say for certain.
Rob: Yeah. That’s a thing I often tell early-stage founders who may want to split test because I’ve heard it’s the best thing to do. It’s premature optimization when you’re that early and things are just flying all over the place. You just have to take your best guess, do your best, and see what you can change across the board.
Rand: Yeah. I think A/B testing and conversion rate testing, in general, is great when you have between tens of thousands and hundreds of thousands or more visitors to a page, and enough of them are converting that you can basically test in 12–36 hours. Anything under that and the testing itself will get in the way of you making real improvements.
I saw that at Moz all the time. We were getting hundreds of thousands of visitors. In fact, we were getting millions of visitors a month. We were rolling out these changes. The tests would run for 90 or 100 days, and it would come back and be pretty even. Was there one clear winner? Not sure. This is how quarter after quarter was wasted.
I very much regret getting into a testing-focused mindset at that company instead of an innovation-focused mindset. We prematurely did that. Moz was many, many times bigger than SparkToro.
Rob: Can you give us an idea—if someone’s wondering—of the size of SparkToro? I don’t know what you’ve been public about, whether it’s revenue or user count. I know your team is very small, but just so people have an idea of what you’re working with. It’s not nearly as big as Moz.
We have a very high churn rate for B2B SaaS, which is not surprising because our tool is intentionally designed to be a research tool that many, many companies probably only need to use once every 6–12 months. We’re pretty comfortable with that. We don’t need people to be subscribers all of those months.
Out of the 500, we’ve had 15 people who in our first 9 months have re-subscribed once or more. We expect that we’re going to have relatively high churn and people will come back to us in the future when they need that data and research again.
Then, there are lots of agencies and in-house content marketing teams that do that work all the time and so they tend to stay subscribers for longer. About 30% of our customers are on annual plans, which are fairly successful, maybe it’s 27% or something like that.
We did the—whatever it is—30% discount if you buy annually, and a lot of people have taken us up on that. We also default to annual on the pricing page, which has been helpful. For those of you who are in B2B, these little tactical things might be of value.
The team is just Casey and I. It’s still just us two founders, probably will be for about the next year. Maybe after that, we’ll grow the team a little bit, but we do use contractors and agencies heavily. I mentioned we used the conversion optimization agency. We used multiple designers and visual artists. We’ve used some contractors for UX. We used a contractor for some data scrubbing. We used an agency for analysis of our BETA Cohort, our launch preparations, and user testing.
We have a sizable number of people who contributed in all sorts of ways but they are all contractors and agencies, which I love.
Rob: What do you love about it?
Rand: I love the incentive model. No offense to full-time employees, but frankly, once you are on a team, your incentives are basically to get along well with the team, work with the managers, and those sorts of things. Whereas an agency is pretty exclusively performance-based.
This is especially true for marketing-focused agencies. You hire a marketing agency. They optimize your ad spend and conversion rate. If they do a great job and they keep doing a great job, you’re going to keep them on. If they don’t, you’re going to find a new agency or let them go.
In-house marketing team, I love them. I’ve worked with them. I thought I had phenomenal people at Moz when I was there, but the incentive model is very different. You are much, much less likely to fire a full-time person off of your team if the metrics aren’t going the right way, and you’re much more likely to coach them and work with them.
It could very well be that hey, you know what, other things in the company need to change. The product needs to be changed or the market needs to change before these things can really be affected. What would really be ideal is to take six months off and then come back. That’s what agencies and consultants are perfect for.
Rob: Right. I love that approach. That’s what I did as a bootstrapper as well. You just often don’t have the budget to hire someone full-time. I’m imagining in your situation, you raised that small, early round of funding for SparkToro, you have no full-time employees, and now, at this point, doing $40,000 a month.
Did you need the initial funding? Did you need it? I guess that’s really the question. Do you have any regrets about raising it, or do you feel like no, that was a great cushion for you guys to go full time? What’s your thinking looking back now?
Rand: Yeah. I’m extremely glad we raised it. I don’t think we could’ve gotten the company off the ground without it very frankly. SparkToro is built on a large, 75-ish million profiles of public, social, and web data that involves crawling billions of data points.
In order to build that, test it, get a design in UX, build the brand, and do the marketing, all those kinds of things, really required 18 months. I don’t think we could’ve launched much sooner even if we had gone full-speed ahead knowing everything that we know now. We were extremely efficient in our process. Basically, almost two years of being able to pay ourselves, all of the cost and expenses of spinning up all our instances, and doing all of our crawling and aggregation, et cetera—that would not have been possible without the investment’s round.
I’m very, very glad we did it. I don’t have any regrets. I’m glad I didn’t try and self-fund it with the $400,000 in savings that Geraldine and I have. That would’ve been a poor decision as well, very, very risky. No regrets at all.
Rob: That’s great to hear as an investor as well. The fear of a lot of bootstrappers is, (a) will it be an arduous process to raise it, and (b) do you have a bunch of bosses? You have a bunch of people bust in your traps to say grow faster. It’s the opposite if you find the right investors?
Rand: Yeah. The beautiful thing is I’ve sent—you’ve been on the mail list—four investor updates total since we launched, maybe five since funding. Every time I do, people reply with helpful things. We had some whatever biz dev type of conversations and someone in our investor group worked at Microsoft and now Amazon in those biz dev types of roles and was like me and my partners are happy to have a call with you, walk you through some of the stuff, and give you things to think about.
It was super helpful. A 45-minute phone call with Casey and I. Oh, man, it’s just great to get that level of experience in a region that we just didn’t have a lot of experience in.
Same story. Rob, you made some of the suggestions around our specific layout pricing page. That was incredibly helpful. We’re talking about five minutes of work on your end and maybe a couple of hours of work on our end to make those improvements—huge.
What I love about having individual investors whose mentality is, essentially, they want to emotionally, personally, and physically support you. They want to see you do well, be happy, have a successful business, and do whatever they can reasonably in a small amount of time to help you out with that. Amazing. That’s just a beautiful thing.
Is it cool to reward them for that by building a company that’s profitable and hopefully shares that profit? I think that’s a great idea. This model that we have—the SparkToro model—is very investor-friendly and entrepreneur-friendly as long as you don’t mind two things. One, you don’t mind the fact that instead of the goal being ‘be a unicorn or die trying,’ the goal is to get to profitability and then see what the business might become. The other one that you have to not mind is paying taxes.
Unfortunately, for some investors, that’s a no-go. But for the 36 folks, yourself included, who invested in SparkToro, that model worked out really well.
Rob: Right. You’re referring to being an LLC, which is a pass-through entity. Venture capital is one C-Corps where all of the money stays in until there’s an exit, in essence. Your venture-funded company is pulling profits out.
Rand: The big difference isn’t necessarily the structure, although that is part of the technical details. The big difference is paying capital gains all at once in one big transaction at the end of the company versus paying ordinary income taxes as you get paid back and then make profits from the company’s dividends and the company’s sale.
Rob: Yes. That’s a much better way to put it.
Rand: For some people, they look at the ordinary income tax rate, which they might be in tax brackets from the high 20% to the high 30%, and they go, that’s unacceptable. I want my capital gains to be 18% or something.
Rob: 15% on the low. Then if it’s over a lot, then it’s 18%.
Rand: It’s one of those like, look, if giving the government 12%–20% of your money is unacceptable to you, first of all, I don’t think you’re a very good civic person. Second, I don’t want you on my balance sheet anyway. It’s a good alignment of both economic interests and also gets the right kinds of investors that we want.
Rob: That’s the filtering mechanism. I hadn’t thought of it that way but it’s an interesting point. One of the earlier angel investments I made, the check was probably between $20,000 and $25,000. It’s a similar structure there, an LLC. They said, we’re just going to pull dividends out, we want to run this for a really long time. I believe that was maybe six years ago that I wrote that check and I got my first dividend check this month. It was for $5000. I’m thinking, they’re buying out my shares, I still own that part of the company.
The plan is just to pay us back many times our investment over the course of how many years they are in the business. It’s logical. It’s just how normal businesses are run. We call them bootstrap businesses because the norm in our space is venture-backed, which doesn’t do that.
Rand: It’s this really fascinating thing where I don’t think entrepreneurs grok how much the changes wrought by essentially, most of the Reagan administration and the Republican Party domination of the U.S. Finances. Economic models around taxes changed how entrepreneurship worked.
For the first 70 years of the 20th century, in the United States and most of the Western world, the idea was to build profitable, long-lasting companies that pay dividends. That’s how everybody makes money. The focus was on sustainability and you want companies that can last for a long time.
This is why you had the model that our parents had in the white-collar world at least. I don’t know what your background is, but my dad worked as an engineer at Boeing. He was basically hired out of college, worked there for 30 years, retired, and got his pension. Maybe it was more than that, maybe it was 40 years.
That’s super weird to us, but you can see why that model existed, which was essentially the incentives at the top—from an economic standpoint—were to survive as long as you possibly can, be as profitable. Be a good profitable company, but don’t focus on growth at all costs and growth rate over everything else.
Then, when tax structures, finances, and with The Wall Street world upended all of that—mostly in the ’80s—everything shifted. Everything around entrepreneurship shifted. You get the venture capital environment of the late ’90s and early 2000s. That’s still with us today.
Rob: Switching up because I want to get some growth tactics in for folks before we wrap up. I’m wondering what growth levers you’re seeing either working in SparkToro or what you’re seeing today. I know as a life-long marketer that you have to have your pulse on this ever-changing landscape. Maybe a couple of things you could talk about for B2B SaaS founders to think about.
Rand: Over the last 20 years, probably one of the best areas that you could put your effort and energy into was some combination of content marketing and SEO. That worked really, really well. It worked for me at Moz. It worked for a ton of B2B SaaS founders and companies. It worked so well because there was not a tremendous amount of competition in a lot of these niches around search engine optimization or ranking organically.
Google was pretty good about three things. One, giving you lots of data about the people who visited you. Up until 2015 or 2016, they were sending you the keywords that people searched for when they clicked on your result listing. The organic results were almost always very high. The results of your number one, two, three, you’re getting a significant portion of the click-through rate.
The content itself helped build links and reputation and got spread around. The social networks were very friendly to content marketing. You put up content on your Facebook page, Twitter page, LinkedIn page, whatever and you could get significant amounts of clicks.
In the last five years, all of those have trended in the opposite direction. If you post a piece of an update to LinkedIn on your profile, it’s 2015, and it has a link in it, LinkedIn will show it to lots of people. Today, you post that same thing with a link in it, LinkedIn will literally show it to fewer people because the algorithm does not want people leaving LinkedIn. They want people staying there. The same thing is true with Twitter. The same thing is true with Facebook.
We’re all complaining bitterly five years ago, seven years ago about like, oh, man, the average impression rate for visitors to your Facebook page was falling from 10%, 11% to 3% or 4%. People were just up in arms. All these small businesses were upset. Today, the average impression rate for an organic update on Facebook is 0.09%.
Rob: Wow. So unreal.
Rand: It’s just ludicrous, right? We basically all know how it works now that you can’t get a lot of organic reaches. It’s not impossible, but maybe only the top 1% or 10th of a percent is really getting traffic in these places.
In Google, a similar thing is happening. It’s not as bad. SEO still sends a ton of traffic. You can still get a click-through rate, but Google’s putting more and more ads above the fold. They’re putting more and more instant answers above the fold, more and more featured snippets that try and answer the query without sending any traffic. They’re not providing the keywords anymore.
Those trends have combined to make me a little more skeptical of relying on any of those outlets and much more passionate about building an audience on my own site as much as I can. Essentially, I use the SparkToro blog, people subscribing to that, email, email newsletters, people trying the product for free, signing up with their email, and then getting on our product update list. All of my social networking activity is essentially to build up what I call engagement streaks. Essentially have people engage multiple times with me on Twitter, Facebook, LinkedIn, or Instagram. Then see my content in there, and every fourth or fifth post, there’s a link that hopefully gets seen by a bunch of people before the algorithm drags down its visibility.
That’s a lot of how I’m playing the growth game these days—centering everything on the website and email.
Rob: I’ve heard it called the hub-and-spoke model, or I started at some prank calling at the hub-and-spoke model. I don’t know if I came up with it, but I remember thinking at one point—this is in the late 2000s even before 2010 where Twitter, Facebook, digg.com, the other some kind of social news, and all that was coming around Reddit. I remember wondering, should I stop blogging? I was doing a bunch of blogging at the time.
I finally realized, oh, no, the blog articles are the meat, the hub, and all these other things are implications. This just sounds obvious in retrospect. This is 12, 13 years ago as my little developer mind was still turning to grok marketing and really understand what’s going on. But it sounds like that’s a lot of what you’re saying.
You’re still on Twitter with a huge following. You’re on LinkedIn with a big following, Instagram, and the other things, but you are using the SparkToro blog and an email list. There are mixed emotions about it, I know. Some developers don’t like email because they say, oh, it feels like a spammy thing. But you’ll see that any successful, especially B2B SaaS businesses, are utilizing email pretty elegantly and pretty well in a way that’s not obnoxious.
That’s really the one medium. I guess that and SMS if you had a list of phone numbers that people opted into. These are the only two social media-agnostic ways to interact with your audience to where you can’t just accidentally, oops, I got banned on YouTube for something accidentally.
Rand: That happens all the time.
Rob: It does and then it’s just a black box. You’re trying to get reinstated and you don’t realize that your son in the background—I heard this on a tech podcast—started playing a song and it was copyrighted. He eventually gets reinstated, but in the meantime, you can’t communicate with your people because you don’t own the channel. Email is the channel that we can own.
Rand: I am always surprised when I see these folks who dedicate so many hours of their life to becoming influencers, but then they’re exclusively bound to the channel where they’ve built up their influence whether that’s TikTok, Instagram, YouTube, or what have you, and they don’t have a presence elsewhere. If the algorithm decides that their stuff isn’t that interesting anymore so they don’t get shown to people, or if they get blocked, banned, temporarily can’t access, or whatever it is, their audience is gone. Their revenue stream is gone.
That is madness to me. Look, if you’re a TikTok influencer, turn those videos into a library that lives on a website. Promote that. You might complain like, oh, but that lowers my reach by 80% or 90%, I’d still take it. I’d still take it because I can own that channel long-term.
Unfortunately, a lot of these folks are going to find that the same thing that happened with Facebook seven years ago or six years ago where that engagement rate falls from 11% to 0.09% will happen. That will happen to you.
Rob: Yeah. It seems to be the inevitable pattern with social media.
Rand: Yeah, it’s the model. As more and more creators come on to the scene and as TikTok attempts to better monetize its audience and better engage them, there will be less and less of that organic visibility possible no matter who we’re talking about.
Instagram is the highest of the organic engagement channels today, or organic social networks. I think it’s hovering on average around 1.9%. I wouldn’t expect that to last five years.
Rob: Rand Fishkin, thank you so much for joining me today.
Rand: Rob, it was my pleasure. Thank you for having me.
Rob: You are @randfish on Twitter and sparktoro.com if folks want to check out your blog and see what you’re building. Thanks again.
Rand: Yeah, that’s right. Thanks for having me, man. Really appreciate it.
Rob: Thanks again to Rand for coming on Startups For The Rest of Us, and thank you for listening. It’s always great to be in your earbuds. If we’re not connected on Twitter, let’s do it. I’m @robwalling. I would love to connect with you there. I’ll be back with another episode in your earbuds next Tuesday morning.
I’m catching up on your podcasts. I’ve always admired Rand Fishkin. Hearing his disaffection with the VC model and all that it brings is really refreshing. I’m tired of what turns into a pump-and-dump dynamic of burning a runway, getting VC money then exiting. Him citing it has a tax dodge instituted from the Reagan era really nails what’s going on. Our start-up is small and bootstrapping (our F&F round got $10k). It’s given me food for thought about where we’re going and what the investment step looks like. We need some investment to steepen our growth curve, so investors are somewhere in our future, but maybe not in the traditional start-up way.