In Episode 439, Rob Walling is joined by Jordan Gal to answer listener questions about starting an e-commerce SaaS and the laws and regulations, and compliance requirements required. They talk about managing enterprise perceptions of risk towards bootstrap startups. They also answer questions about bootstrapping and enterprise SaaS as well as hiring a growth role and whether you should hire full-time or outsource to a contractor or an agency.
The topics we cover
[01:11] Regulatory requirements for starting an e-commerce platform (Solman Ahmed)
[06:18] Managing enterprise perception of risk when selling as a bootstrapper (Noah Stall)
[16:26] Are some markets not feasible with a bootstrapped approach? (Declan Sweeney)
[22:42] Finding someone who is experienced growing SaaS companies (Russ)
[30:10] Hiring full-time versus outsourcing (Filip Kis)
Links from the show
- Crossing the Chasm
- DemandMaven || Growth Marketing Consultancy for SaaS & Startups
- MicroConf Connect — MicroConf
- Episode 537 | On Launching, Funding, and Growth with Serial SaaS Founder Rand Fishkin
- Episode 499 | The (First) Six Stages of SaaS Growth – Part 1
- Episode 499.5 | The (First) Six Stages of SaaS Growth – Part 2
- Jordan Gal (@jordangal) | Twitter
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
This episode is sponsored by Rewardful, turning your biggest fans into your best marketers.
Get 30% off your first 3 months by heading to getRewardful.com/startups. Offer expires May 31st.
We run through things about starting an ecommerce SaaS and whether you need compliance to do that or whether there are laws and regulations around it. We talk about managing enterprise perceptions of risk toward bootstrap startups. We answer questions about bootstrapping and enterprise SaaS, about growth, about hiring versus outsourcing. It’s all kinds of tasty goodness, and without further ado, let’s dive into the questions.
Jordan Gal, welcome back to the program man.
Jordan: Rob, it’s great to be here. The last time I was here I spoke so much we had to break it up into two episodes.
Rob: That’s right. No, it wasn’t you. That was one of the all-time best episodes people keep coming back, 499 and 499.5. We walked through the six stages of SaaS growth I believe. You and I were comparing notes, Drip to CarrHook, and people just kept writing in on that like, oh my gosh, do more things like that. It was a fun one.
Jordan: It was a fun one. It was a great chance to look back.
Jordan: This one’s a little different, what are we doing today?
Rob: Thanks for coming back. We’re answering some questions, man. We always have listener questions coming in from folks. Today, I got about a half dozen picked out, we’ll see how many we were able to work through. All right, man. Let’s dive into our first listener question. It’s from Salman Ahmed, and appropriately enough, it’s about ecommerce compliance. For folks who heard in your intro or who have heard of you in the past, CartHook is an ecommerce SaaS, as well as your prior effort, was actually an ecommerce site that you ran with your family. Have you talked about your current effort, your company about being an ecom or not?
Jordan: Not in detail. It is an ecom for sure, but we haven’t talked about it fully. Soon, the website will be launched next week and then I’ll be much more open about it, but we are enjoying a little bit of stealthiness.
Rob: Yup. In the early days. You have ecom site experience as well as ecom SaaS experience now, two times. Totally appropriate and a cool question for you today.
Question from Salman is, “Hi, Rob. If a solo founder was to create an application like Shopify, would this be possible, or are there certain regulatory requirements that would make this impossible? Example, to accept credit cards and store customer Stripe IDs/merchant credentials in order to make transactions on behalf of their accounts. Would this require a certain level of auditing that a single founder operation could not pass?”
Interesting question. I’m a little confused by it because I think he’s a developer just thinking about building something and wondering if there are regulatory requirements or whatever, but what are your thoughts on this?
Jordan: The word that comes to mind for me is resourcefulness. In the early stages, you need to answer these questions. My general assumption is that the web is now developed enough that there’s a way, that there’s always a way. Many of us who are familiar with Stripe know actually there are no requirements around auditing, and you can offload all of that to the payment providers these days because the credit cards never touch your servers.
At CartHook, we built a business that processed $2 billion and we were never PCI compliant because we didn’t need to be because modern web and payment processing technology allow you to do that.
Now, sure it’s important to know that, but the real thing is to be able to figure that out. To go look, do the research, dig around, and figure out what services do I need to stitch together to make the solution that I have in mind possible. So the question sounds to me more like a mental blocker than an actual blocker because you could figure it out and your job is to figure it out and to build minimally in order to get to the value that you’re trying to accomplish.
Technically, yes you can do it, but the more important thing is regardless of what area you’re in, if it’s ecom or not, your job as the founder is to just explore and figure it out.
Rob: Yeah, and that’s a great summary of it. I think a nice google of this asking Stripe. I mean, other folks have built apps like this in the past, and it feels like if you’re bootstrapping it, you’ve got to think a lot about security, hashing, and storage. My experience with Stripe IDs is that, like you said, you don’t need to be PCI compliant to do it. But I haven’t built an app like this right, so this would be research and conversations with folks whether in MicroConf Connect, on Twitter, or whatever you can.
And then this is one of those things where if you’re storing Stripe IDs and your bootstrap, that’s probably the way to do it, assuming you can. I’m not giving you the advice to do it or not. But this is also the reason that some companies raise money. If you look back at Gumroad’s story, they originally I think were going to use other payment processors, or maybe they even did tie it into other payment processors, but they wanted to become their own payment processor.
I remember talking to someone on the inside, it wasn’t Sahil, it was someone else at Gumroad. I said, you guys raised a lot of money. It raised like $7 million after bootstrapping for a while. He said, yeah, in order to go to banks and get permission to become a payment processor, we needed to raise buckets of money. I think that’s probably true. It lends some credentials of, we have $7 million in the bank and we’re backed by XYZ brand name venture capitalist. Right or wrong, fair or not fair, that lends you a certain amount of credibility and flexibility to then do some things like becoming your own payment processor.
Jordan: The complexity of what has been built in tooling around payments, even that is challenged because now there’s a company called Finix Payments that do all of that for you and allows you to become a payment facilitator by partnering with them. Maybe it still costs a few hundred thousand, but not a few million.
I think, generally, a bias toward this is possible. We’re going to just figure out what services are out there to make it possible in the way we need it to be. As opposed to a bias toward, I guess I can’t do it because I’m so low and I don’t have the resources. I think that’s the general approach for me. It’s developed enough that you can do it.
Rob: I hadn’t heard of Finix. That’s crazy. Everything is becoming productized. Like Stripe with Atlas, it’s like, okay, you want to start an LLC or a C-Corp? You push some buttons, you enter some things, and it’s like I have a bank account, I have a Stripe account, I have the operating agreement, I have an IP Agreement. It’s incredible.
Jordan: Yeah, every little gap.
Rob: Cool. Well, those are our thoughts. I hope those are helpful for you, Salman.
Our next question is about managing enterprise perception of risk towards bootstrappers. A little bit related, I guess, tangentially to the last one. This question is from Noah Stahl.
He says, “Long-time listener, first-time caller. I’ve been working for a year as a solo founder of a private school operations platform, in other words, what schools use to track enrollments, bill parents, et cetera. As a key differentiator, I set out to build an enterprise-capable product in a market where existing solutions focus on small businesses. I’m approaching launch and have started initial demos and talks with my former employer, which is a large school operator where I worked and found this gap and hence the startup idea.
All signs are positive around the product itself. Their main hesitation seems to be the risk of committing to a new platform run by a bootstrap solo founder. My pitch has been that there’s a great opportunity to have them as my first customer, which would allow immediate ability to mature the product in a tight feedback loop where their needs could guide their early roadmap, and I know it’ll be awesome. But their question of risk is valid. With that preamble, the question is, what successful strategies have been used by bootstrap SaaS founders to help mitigate actual or perceived risk when selling to early customers, especially enterprises?”
And then he gives some other thoughts. It’s a longer email, so I’m trying to summarize. But we’ve all dealt with this I think unless you’re running a low touch sales process where you’re charging $40 a month. I mean, even in the early days of Drip, the first customer who’s going to pay us $200 or $250, which is nowhere near enterprise. I know bootstrappers call that enterprise, but enterprise is like Fortune 1000, right? These are big companies versus someone paying you $1000 a month or something. That’s just a bigger customer in mid-market or whatever. But we’ve all experienced this. I know you have two. What are your thoughts on this?
Jordan: This is something that everyone faces early on. If you’re bootstrapping, if you’re a small team, you worry about that credibility gap. This is the conundrum of do you say we are working on it or I’m working on it. It’s even more difficult as the price goes up and as the customer size goes up.
The way I look at this is at CartHook, one of the things we learned was that there were more complicated metrics of fit for customers. We used to look at it as one metric. If you’re doing enough revenue, you’re a good fit. As we got more sophisticated in that, we started to understand that there are multiple types of fit—there’s financial fit, there’s strategic fit, there’s cultural fit, there’s technical fit, all these different types.
I think what the person writing in is referring to is a risk tolerance fit. There are people out there that are down to take that risk. They like being early, they like being a beta customer, and they want to take a chance on you, support you, and be part of that. If you’re talking to a company that is extremely hesitant on that, it’s not that you’re building the wrong thing, it’s not that you can’t do it, it’s not that there’s a mismatch between the type of companies that you’re working, you want to work on, and the size of your team. It might just be that there’s a mismatch between that particular prospect not being one of those people that want to take a risk.
It’s tough to overcome and you can make assurances. You can talk about more collections of money upfront. You could talk about your track record. You could talk about your plans. You could talk about your war chest, whatever you want to do, but you also want to make sure that you’re talking to the right person who wants to be a beta customer.
Rob: Early adopters, right? That’s the name in our industry for folks who are willing to take a chance on a new entrant into a market because the early adopters often see an advantage to using new software, something innovative. Maybe it’ll reduce their training costs. Maybe they’re paying a lot of money and you’re going to be cheaper. Maybe it’ll be more powerful and they’re willing to take those risks.
The early adopters, this is from Geoffrey Moore’s book, Crossing the Chasm. There are five or six of them and the last one is the laggards. These are the people that maybe you’re talking to a laggard and you’re at the opposite end of the spectrum.
I have heard this conversation happen many times, especially in Slack channels that I’m in like MicroConf Connect and some other founder channels. I mean, there’s someone who’s running a four-person, five-person bootstrap SaaS company and they are doing let’s say half-million or a million a year. I mean, large for bootstrap size, but relatively small on the scheme of companies.
He gets this question frequently once a month, twice a month of wow, you seem really small. How big is your team? How much revenue do you do? How many customers? He gets these types of questions and he basically handles it by being pretty honest frankly and saying, well, here’s our team. We’ve been in business for seven years—they’ve been around a long time. We’ve been in business for seven years. We have this many—they have more than a thousand customers or something paying us. We have a lot of long-term contracts. Financially, we’re very viable. The software has been stable. You figure out which of these things you can rely on.
Now, all the things I just said, Noah (who’s asking this question) can’t rely on any of those because he doesn’t even really have anything yet. That hard problem is if you don’t have a product yet, it comes back to what you said, which is just figuring out which things this prospect really wants out of it. If they’re so concerned, if they’re so hung up on their risk of being an early adopter, then they are probably—unfortunately, even though you have a relationship with them—not a good customer for you yet.
Jordan: Yup. I always give the advice to skew toward transparency because then you don’t need to keep up the charade about behaving as a customer support person, then a success person, and using different names. I mean, I’ve heard some crazy things from people. You just don’t need to keep up that charade. You could be honest and then your customer or prospect will just get the real view on things, then they’ll get bought in.
Rob: Yup. It’s interesting, one idea he threw out in the email he says, “One idea to reduce this risk might be to allow significant prepayment upfront as a way for them (meaning the school) to provide capital that makes their commitment safer.” Which I’m almost like, wait a minute, that sounds like… Doesn’t it sound like the opposite because they’re giving you a bunch of money? I mean, certainly, if you can convince them to do that, why wouldn’t you? That’s like customer funding, right? That’s what that’s referred to. I just don’t think that someone who’s risk-averse is going to volunteer to pay you for three years of the software without anything.
Jordan: Yes, but it is also a good indicator of demand. When we had our first really big merchant approach us—really big for our situation—at CartHook, we almost used it as a test. We explained to them exactly who we were, that we were learning, and the things were starting to go well but it wasn’t all good. And then we put the price to them.
Our product at that point was $300 a month plus the transaction fee. We said to them, if you can commit to us for a year at $10,000 a month, then we will make all these changes that are necessary for you and change the infrastructure and all that. They said yes, and that was a really important indicator for us to understand, okay, so now we can think about pricing differently, we think about our value differently, we can build out our infrastructure differently.
It was helpful in that way to find an early adopter that was willing to commit to the money because they knew that that was going to help fund us and help fund the infrastructure. It’s kind of a two-way street.
Rob: Yeah, I like that. I like it a lot, actually. The other thing I would say when I think of Noah’s situation is you have an idea to build an enterprise version of the software that is focused on small businesses, and you are talking to the school that you used to work at. My biggest concern is even if they say yes, you spend six months or a year building this, you sell it to them, what then? What next? Does anyone else care about enterprise software in this space? Is this a thing? What other validation?
I would be doing more validation before I tried to sell one company on it because what you may find is that you’ve built yourself a consulting agreement where you’re not actually getting paid for all of it. You’re getting a monthly fee for a product that you have one customer for and the market size is one.
And he says P.S. love what you and the team are up to at Tiny Seed. I look forward to applying once I get out of the gate with some initial traction. Good luck with that, Noah. I hope you keep us updated.
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The next question is related. Bootstrapping in enterprise SaaS is from Declan Sweeney who has written into the podcast many times. He says, “Hey, Rob. Declan here from CampusConnect. We sell to universities and the higher-ed market. Our service helps boost applicant conversion by enabling applicants to connect with peers prior to enrollment, big KPI for recruitment, and enrollment folks in universities.
Our current clients are super happy and we’ve done well in terms of revenue expansion within the current customer base, which is a great testament to the value they receive. Word of mouth and referral has enabled much of the expansion revenue. But as universities are mostly in competition, it doesn’t support referrals to new sites.
My question relates to market penetration in a slow-moving B2B enterprise market. As a totally bootstrapped startup, it’s exceptionally difficult to get in front of the right folks. And it seems those with mega marketing budgets can do so and win.” I would actually question that item, marketing? Anyway, well, I’ll keep reading and then I’ll let you weigh-in, but I question some of the assumptions in this email, for the record.
He said, “Even though they have inferior products when they have so much money for marketing budgets, that they can get inside these big orgs. Are some markets just not feasible for a bootstrapped approach? Thanks for the guidance as always.” What do you think, sir? You’ve sold to big ecom companies. What are your thoughts?
Jordan: I too question some of the assumptions, that referrals would be discouraged by your customers. Oh, man, for me it’s I go to tough love on this question. It’s not fair that your competitors have more money, that they’ve raised more, that you don’t, and nobody cares. You’re dealing with an unfair situation. You can cry about it, or you can work with it. It does sound like a tough situation to sell to universities, and at the same time, maybe that’s your advantage. That does not mean that you have to go out and raise the same money, and it also doesn’t mean that you have to go and die, not at all.
If you have existing customers that are happy and paying, then you have the kernel of truth. That means you can get more of them, and so I would hang on to that and have confidence in that and find others like them. I’d ignore what your competitors are doing as much as you can.
I had some really good advice over Twitter DM once when I saw one of our competitors raise one of those preposterous, makes no sense rounds. How? What? Why? I don’t understand. We’re so much better, that kind of like pity thing. I pinged a VC that I’m familiar with and I know he’s familiar with the deal. What he said to me was hugely impactful for me.
He said look, they have no choice but to raise a ton of money and to get a ton of attention because the only way they win is by winning the market. They have to be the leader or they lose. They will run out of money, it won’t work out for them. You have built a real business, you have paying customers, and you don’t need to win in order to personally succeed, so ignore it.
You guys are playing two different games. You should be happy. You should be proud of what you’ve built, get more customers just like that, and let them go big. Sure, it’s annoying to watch, but you’re playing two different games, you don’t need to beat them. You just need to do your thing and win. That’s the approach I would take.
Rob: I think that’s a great perspective. Every time that I was bootstrapping a SaaS and someone came in and raised a big bucket of money, I used to turn to Derrick and say, well, set the clock for 18 months. I want to acquire their assets when they can’t raise their next round. And it was a little bit of a jerk thing to say, more often than not it wound up they weren’t that good.
You’re right, it’s unfair in certain aspects. But also, unless they know how to execute unless they’re really good at it, money doesn’t do it. Money allows them to hire and move fast, and if they’re really good operators, then yes, you do have a problem. But in most cases, I would say people don’t actually know what they’re doing. That’s the reality of it.
Jordan: Yeah, money can accelerate in the wrong direction also, which is something that we’re seeing at my new company. We have competitors that are raising a ton of money. Some that are good at what they do, and some that the money has twisted up their approach because it’s almost like they’re spending before they really understand the customer. Where does that lead you?
You have this great thing right now where you understand the customer, you have paying customers. Yes, it’s annoying, but I would look at whatever channels are working for you that might just be the word of mouth, your individual networking efforts, or whatever it is, and keep focusing on them. If you have a big market like universities and you figured out how to sell to them, you just keep going and it turns into a longevity thing.
The founders that are bootstrapped, that are successful—the ones that I know that are most successful—have just been persevering. They’ve just been doing it a while, then it compounds, and you get to the place you want.
Rob: Especially in these really, the—I would call them—tough markets where it’s customer pain, where just the sales process alone is a year or more. I can imagine it’s like selling to the government, selling to universities, selling to electrical contractors. I mean, these are just people that are just very slow-moving—selling into legal. There’s just a lot of spaces that are tougher to sell to than bootstrap SaaS founders, designers, or developers, you know what I mean? It’s like you can build interesting things for those people. They’re online, they’re easy to reach, and that’s just not the case. The fact that you’re in a space like universities and trying to sell to them at all means you’re definitely doing that part of it on hard mode.
Now, on the flip side, your contract value should be enormous. This is the mistake I see some folks making is selling into these really hard markets where it’s a 6-month or 12-month sales cycle and you’re charging a tenth of what you should be charging, right? I don’t know what exactly a product is, but these should be $50,000, $100,000 a year contract values, or else it doesn’t support the effort you have to put into sales.
You have a few choices here. You could also go out and raise a bunch of money. I mean, that is a choice, right? I mean, Jordan, you and I, outsiders. I knew zero people with money, I knew zero entrepreneurs, I knew zero venture capitalists when I started bootstrapping stuff 15, 16 years ago. As far as I know, you had a couple of friends from college who are traders on a stock, they’re in finance, but they’re bankers. You didn’t know any venture capitalists.
It’s funny, someone may have heard you five minutes ago say, yeah, I DMd a venture capitalist who I know. Do you know how you know that person? Not because your dad introduced you and you went to Harvard with him, no. You hustled, you went to conferences, you met people, you built your network over the last decade or more, right? That’s what this takes.
I’m not saying that Declan should or should not raise money, but it is a choice. It is a choice. If you really think that’s the way to get there, then do it. If you really want to be bootstrapped, that’s cool. And then it’s back to your comment, Jordan, now you have to figure out what are your advantages as a bootstrapper and how do you combat this unfair situation where someone does just have buckets of money. Those are our thoughts, Declan. Hope they’re helpful.
Our next question is from Russ and it’s about growth. He says, “Love your podcast. I’ve been following it for a couple of years now. Our product was developed in our agency,” so he runs an agency and it’s a time tracking tool, a direct competitor to Hubstaff, Time Doctor, and Clockify.
“We have a good online presence when we get traffic from SEO, and we’re currently at $200,000 dollars of annual recurring revenue. We’re growing but not fast enough. We’re self-serve and do not currently have a sales team. We’ve tried working with several marketing people, but it never worked out for us and we never saw results. Maybe we’re just not good at articulating our needs. Basically, the main metric that we’re looking at is growing MRR.
How do we find a person who has experience growing SaaS companies? It sounds to me like people who know how to do it well are either building their own products or not interested in working with smaller marketing budgets. Also, what kind of comp would you offer if we found such a person?” What do you think, man? This is the perpetual question.
Jordan: This is really hard and I talk about this regularly with my peers. That it feels like B2B marketing is in a pretty weird spot right now, and no one really knows what works. It used to be you build a funnel, you nurture, and then you close. Maybe, in one way or another, that is still what you’re doing, but that funnel is no longer clearly defined. Where you send traffic, you have a lead magnet, you educate, you build trust, and then you make an ask. It’s just not straightforward like that anymore.
This is a question a lot of people are wrestling with. People are having a lot of difficulty making paid marketing work for B2B, and obviously, everything I’m saying is with a caveat. Hopefully, there are people out there that are doing fantastically well with it. But it is a genuine problem. No one really knows what to do right now to ramp up marketing without just doing direct sales, which is what people with money do.
Rob: Like cold outreach and just SDR and BDR it. I will say that it is still working in less competitive markets. But in markets like ecommerce, ESBs, and CRMs where there are 200 players or whatever, I think you’re mostly right that there’s still a funnel but it’s a lot different than it used to be. It is more amorphous.
Jordan: Yeah, and that’s a big market—time tracking. There are a lot of potential customers. That’s good. You do have some leaders that have momentum, money, and name recognition. You just have to deal with that, that’s fine.
I guess in that environment where I would be looking is some type of a unique angle on the product. I know they’re currently self-serve. I don’t know if that’s the ideal. Hiring for marketing, I wouldn’t negotiate against myself off the bat by saying all the good ones are taken and people don’t want to work with small budgets. That’s not necessarily true. Just because you may not find that type of a thing right for you doesn’t mean other people—so anyway, I wouldn’t make any of those assumptions.
You can find people to do the right work in a way that makes them fulfilled and is right for your company. But before doing that, I would try to decide on what the right approach is. Is it content? Content is tough these days. Is it outreach? Is it partnerships? Is it channels? What are you doing before you bring the person on, ideally? If you want to bring on someone to explore, that is a high risk, high reward play.
Rob: Yup. These days, if I was going to do it because finding someone to run experiments and figure out what’s going to work is really hard and really risky. Even as a founder, if today I had a SaaS app, it might take me six months or nine months to find it. It might take you, Jordan, six or nine months and we’ve done this before and we’re pretty good at it at this point.
I would actually be looking if I wanted that role because that is kind of a unicorn I’ll say. You can find them, but I’d be looking more to an agency or contract relationship where I’m looking at an Asia Orangio right who runs DemandMaven and does this kind of stuff for SaaS startups.
Look at Derrick Reimer, founder of SavvyCal. He hired Corey Haines who used to do marketing at Baremetrics, and Corey is a contractor. Corey is really good at certain types of marketing, he has his tool belt, and he could run through those things and figure out which of those work. And then if some of them are sustainable, then now, when you find that employee if you want to hire someone full-time who can then maintain that and augment it and everything.
Jordan: It’s tough because it’s a risky bet no matter what. But if you want to grow faster than you’re currently growing, you probably have to put a few bets down.
Where we are at my new company, we’ve been focused on product and engineering. Now we’re turning towards sales marketing as we get closer to launching into beta, and we’re taking a stab at it. We’re saying our hypothesis is X. If that is what we think will attract merchants, then this is what we need. We need a content creator and someone to do demos or something like that. That’s our guess, and we’re going to put our bet down in hiring toward that guess.
If it doesn’t work out, it’s bad for us and probably bad for the people that we hire, but at least we’re choosing a direction first and then filling roles for that direction. As opposed to hiring a CMO and saying you figure it out, that feels too risky.
Rob: Yeah. That’d be a big risk. You’ll also find that if someone is truly a CMO, then they don’t actually do things. They manage people who do things, and you don’t have the budget to hire a CMO and five individual contributors, right?
Jordan: Yes. If you have the budget to hire that leader in management and thought process, then what you can expect is that they’re going to hire a team below them. It’s a bigger bet.
Rob: We’re talking about strategy versus tactics versus individual contributors who are executing on something. I mean, to be honest, this is why I—as a developer who used to build or acquire products—learned to market. I’m not that good at it, but I’m good enough.
Learning marketing was just a necessity if I wanted to quit the day job. If I wanted to grow a company to seven figures in revenue, I was in this place that rests in like I don’t know how to hire someone to do this and so I’m just going to do it myself. I’m not saying that’s the right way to do it, but that is what I did. I just learned it and then executed on it well enough to be able to make it out. It’s always challenging.
I mean, hang out. Again, I know I’ve mentioned MicroConf Connect I think once or twice already, but that community is over 2000 founders and aspiring founders who are wrestling with this kind of stuff. There are people in there who say, hey, I’m a marketer and I need a technical cofounder, or I’m a technical co-founder and I’d love to have… If they were in-person MicroConfs, I would also say go to a MicroConf and just ask around and try to find out who these people are. It’s working your network. You’ve had co-founders in the past and you met them through an introduction or you met them through, a lot of times, just talking to people.
Jordan: Yeah. $200,000 is a real attraction. It’s starting to get somewhere. You probably don’t need to come up with the most ingenious thing as the next step. To go from $200,000 to a million ARR sounds like finding one or two things that work and then being consistent about it. I like looking for characteristics that are analogous.
Who else is in a big market that has big leaders that you’re not going to go challenge them but you need to find your own spot in this big market? Who else is in that situation, and go talk to them see what works for them.
Rob: I like it. Hopefully, that was helpful for you, Russ.
The next question is about hiring full-time versus outsourcing. This is from Filip Kis of SessionLab, and he says, “I had a question for you. In several episodes now, I can vividly recall only the one with Rand Fishkin. There were either examples of people outsourcing work,” and when he says outsourcing, usually that means hiring contractors, consultants, or agencies. It’s not a non-full-time employee.
He says, “Are other examples of people outsourcing work or hiring full-time employees? And as there are two extremes—hiring full-time versus outsourcing—maybe an episode could be devoted,” in this case we’ll just use it as a single question, “to pitting the two against each other and talking about the pros and cons.”
This is an interesting question because, in traditional, we’ll go to a venture capital because they’ve been doing companies for what 30 years-ish. I mean, it’s been longer because Apple was in the late ‘70s and there were others—Intel and such. But let’s just say like SaaS stuff for maybe the past 15, 20 years. If you were to raise money to do a software company, they would basically say you need an office, you need to be down the road from us. You’re on Sand Hill Road. I know a lot of this, some of this is changing. And you need to hire all full-time employees, basically. Especially for your core competencies, but also even outside of that.
And then I think over time this has evolved where remote work is a little more accepted now. Maybe having some contractors offshore to do some stuff that’s not in your core competency may be more accepted. I think in the bootstrap and mostly bootstrap space, the capital-efficient companies that we’ve run in, it’s been a necessity to have remote work and often to hire a contractor because it’s like I can only afford five hours a week for someone to do support. I can’t hire a full-time W-2, or I need this marketing task done. I can only hire a copywriter for a few hours this month and then I’m done. There are a lot of pros and cons to this, but with that preamble, what are your thoughts on it?
Jordan: I think this is a bit ideological in the way people approach things, but a lot of it is also practical. Look, W-2 is a big hurdle. Health insurance, all the stuff that goes with it—the additional 30% or so on top of the salary and the commitment, right? You’re making a commitment to someone. It’s not like, well, I’ll hire you as a W-2 employee or a full-time player for three months and then turn that off quickly. So, it is complicated and it is dangerous also.
When we started at CartHook, we raised just a little bit of money from friends and family like $250,000. We went full time because we thought, okay, that’s what you’re supposed to do. And then within two months, I just looked at the numbers and said, well, this is nice. We’re all full-time. We’re going to run out of money. So we fired ourselves—all of us—went back to contractor status ourselves with the company, and then only rehired later on like a year later. So it is dangerous, I hear you.
The good thing is that like remote work, there are a lot of options these days. The way we operate right now is we have full-time W-2 employees in the US, and then we have full-time contractors elsewhere, mostly in Europe. We have this hybrid where I think the ideal is full-time. There’s something that happens when someone makes the company that big a part of their life and commits to it for the long term. The dedication, the thought cycle spent on it.
Jordan: Yeah, and the connection overall is really different. In the EU, it’s full-time, but they get benefits from their country. So we hire them as full-time contractors, then they get the benefits from their state, their nation, and then it works out. In the US we do W-2.
The way we look at it is those positions that we absolutely need we’re going to hire full-time. Whether it’s W-2 or contractor, it’s still going to be full-time. And then when we want to augment, that’s when we look elsewhere. That’s our situation, and I think it’s easier when you raise a few million bucks off the bat.
At CartHook, we had to claw and convince people. The way I always presented it to people was you joining makes it much more likely that I can hire you full-time. If you’re buying into what we’re doing, then join in and I’m going to behave as if you’re staying, and you can behave as if you’re staying. Let’s make it work together, and six months from today we can hire you full time. That was my partnership approach.
I know speaking of Sahil at Gumroad, he’s taking a contractor approach. There are no rules anymore. You can do whatever you want, but there are trade-offs all over the place.
Rob: Yup. There’s a lot of factors. If you’ve raised a lot of money, you have more options. If you haven’t or you just have a little bit of profit, you have fewer. That’s the reality of it. Again, not fair, but the reality.
What Rand had talked about specifically was really interesting because I think he’s been public. It’s like tens of thousands a month in MRR with SparkToro. Plenty of money, they could hire people full-time. But they’ve done all contractors and mostly consultants even. I view the difference as usually a contractor, you have to tell them what to do, a consultant tells you what to do, right? The consultant is at a higher level. I don’t know if everyone used that definition, but that’s the one I always have.
They hire a lot of consultants and agencies. What he said is he loves it. It’s probably overall more expensive because agencies are more expensive. They have markup, margin, and all that, but he said he loves it. It’s performance-based, and that if they’re not cutting it, he has no qualms about letting them go, in essence. There’s simplicity, and he doesn’t have to manage anyone. The actual HR, the day-to-day of having a team of 10 versus having 3 or 4 agencies you’re working with to satisfy. There’s a certain nice luxury in that, right?
But he’s not venture-backed. He wants to build a really capital-efficient, profitable, MicroConf, TinySeed, Startup for the Rest of Us-type company. If I were going to raise venture and try to go big, I would probably hire more W-2 because talent is so hard to get anyways, and keeping that knowledge in-house, especially for your core competency. But even beyond that, I think there’s a benefit to it.
Look at TinySeed and MicroConf, right? These are two companies I think about every day. What is our core competency with MicroConf? It’s running events and building community. So I spend time on it, and Zander is full-time. I don’t want to hire a bunch of full-time employees beyond that. We may wind up and that decision will come to it, but I like small teams, personally.
And then if you think about TinySeed, Tracy runs the day-to-day of the Accelerator, and that is a core competency. I would never have a consultant do that. But if we’re going to do marketing, let’s say we’re going to do a bunch of content marketing, let’s say we’re going to do some other thing. Is that a core competency of TinySeed, or is it just something that we can maybe pay for someone to do on a performance basis, right? Back to the point of how hard it is to find marketers who can produce results. Agencies have to or you let him go.
Jordan: It’s pros and cons. This is one of those things that no one can tell you what’s right for you, and you really should ignore what’s out there and make your own rules. What Rand is doing sounds to me like he knows what he’s after and what success looks like. Whether that’s simplicity, low stress, or avoiding some of the scars of his previous experiences, he knows what he wants. It sounds like he’s sticking to that and building it in a certain way knowing what the trade-offs are. You having the ability to let people go much more easily than if they were full-time also means they can walk away more easily. So as long as you go into it with open eyes, then you can make it work.
My point of view on it is just mine. I want to build a bigger company that people love to work at. So for me, I’m going toward the W-2. This morning we had all-hands, and the feeling I get from having those groups of people at an all-hands and everyone working in the same direction, that’s what I personally want.
You got to ask yourself. Again, there are no rules anymore. You can make this stuff up. We’ve all seen this business software allow us to be possible. Five-person companies are doing millions of dollars a year in revenue, and then there are another 10 or 15 contractors but you keep the core team small. You can do that too. You can do whatever you want, and Rand’s doing his own thing. That doesn’t go by any existing preconception of what a company should be.
Rob: Right. I’ve done both. If we go back nine or ten years, I had HitTail and I had several other apps. Everyone who worked for me was a contractor/consultant because I didn’t want the overhead, not just the financial, but the mental overhead of having employees and managing all that, managing payroll. I think at that point, I wasn’t even on payroll. I think I had an LLC straight pass through and I just pulled the money. It was just easy, it was simple.
As we got Drip going, I realized right away, to your point, it’ll be fun to have a team, to have the buy-in, the camaraderie, and the community. But also, I think this is going to be big and I want to all be in this together. I don’t want one day for the contractors to walk out or I don’t want people to not care. On the weekends, if the site goes down, and it’s like, I’m a contractor, I’m off. There are certain levels of commitment I think that you want with that. We live in crazy times, but it’s cool to have the flexibility. A lot of creativity is available. I hope that was helpful, Filip.
Jordan Gal, thanks for taking the time, man. Come back on the show. You are @JordanGal on Twitter and @CartHook. Is that right, @CartHook on Twitter, isn’t it?
Jordan: Yeah, that’s the company. I’m no longer running that company. We have a great CEO in place, Emily. She’s running it and dealing with all the things that that involves.
It was great to be on. Thanks for having me on. I’ve been real quiet on Twitter, but you’ll hear some more out of me over the next week as we launch the site.
Rob: Awesome. I’m excited to see it, man. They should follow you there so they can hear what the news is. Cool. All right, take it easy. Thanks for coming on.
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Thanks again for joining me this week. It’s always a pleasure to have Jordan on. I hope you enjoyed our conversation. If you have listener questions, send them to email@example.com. I prefer voicemails or videos if you have them. If you can record a video on your phone and send it in, that’s great. If you just want to do a voicemail, that’s great. Those go to the top of the stack, but I’ll still take written questions as well. I believe we have just a one- or two-episode backlog of those right now. We will get to them soon, and I’ll be back in your earbuds again next Tuesday morning.