In episode 660, join Rob Walling for another solo listening adventure where he talks about the tradeoffs of hiring a team vs. contractors, when to raise funding as a bootstrapper, and the importance of knowing what you are bad at.
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Topics we cover:
- 1:57 – Hiring full-time employees vs. contractors
- 6:12 – The danger of thinking your customers are just like you
- 11:19 – Buying souvenirs
- 14:34 – Raising funding if you are a bootstrapper
- 18:18- On career progression
- 21:51 – The importance of knowing what you are bad at
Links from the Show:
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.
In my opinion, the wrong way to go about it is to have this magical thinking and to think that, much like me, my customers will want certain things and if your customers are not you, if they’re not developers, if you’re selling to school teachers, or to realtors, or to construction firms, they’re very unlikely to be like you. So know that going in, and this is where talking to your customers and learning how they think and how they buy is critical to your success.
Welcome back to another episode of Startups For the Rest of Us, I’m Rob Walling, and today I’m doing another solo adventure. I’m going to talk about the trade-offs of hiring a team of contractors versus hiring full-time folks. I’m going to talk about not raising funding if you want to be a lifestyle business, talk about the danger of thinking your customers are like you, and maybe another topic or two depending on time.
Before we dive into that, MicroConf Mastermind matches are happening again, we do them two to three times per year. If you want to be matched up with like-minded, bootstrapped and mostly bootstrapped SaaS founders at about your stage, or maybe slightly ahead of you, head to MicroConf.com/masterminds. This episode goes live on May 9th and applications close on May 12th, so you will want to head to MicroConf.com/masterminds, if you are interested. We have had amazing success matching hundreds and hundreds, we’re approaching a thousand matches and 150 to 200 million in total ARR across many countries. You’ve heard me talk about it before. It’s one of our most successful offerings and if sometimes you feel like you’re wandering through the desert on your own and you’d like some other folks along for the journey, MicroConf.com/masterminds.
So I want to start with a topic of this idea of hiring a bunch of contractors and instead of having full-time employees because you know the quote, unquote, “headache” of having full-time team members and contractors are plug and play, right? It’s simpler, it’s easier. I have seen maybe a handful of folks actually make this work in a sustainable way and it’s when the founders themselves are extremely talented in the things they need to get done and the founders are willing to either pay for really expensive contractors or the founders are great at being project managers and they’re fine with being that bottleneck. Because that’s what happens when you hire five or 10 contractors who are essentially, I call them black box contractors, where in essence you want to think of them almost as a black box, a deliverable, right?
Here’s a summary of an article, please create an SEO article and publish it based on this topic. Or the task of set up Facebook pay-per-click ads or set up Google AdWords and we want trials and customers on the other side of it, where folks are individual contributors and they have a deep knowledge of a specific thing they are doing. Once you get five, 10 of those, even if it’s like, well, someone’s working five hours a week and some are working 10 and some are working 20, it sounds like this amazing kind of lifestyle business of everyone just does their thing and it happens. The problem is things sometimes stumble. You lose a contractor, you need to replace them. You have a lot of project management and approvals and reviews to be done, in a way that if you hired full-time people who took ownership of those areas, you can delegate a lot more and you can trust them to get things done without you needing to weigh in on every decision.
It comes back to what I’ve talked about a lot, task level versus project level versus owner level thinking, and when you hire a bunch of contractors, you typically get a bunch of task level thinkers and that’s not bad as long as you have a project and, or, an owner level thinker at the top able to manage that. And if that’s you, just know what you’re getting into.
I have yet to see a multimillion dollar, like an ambitious SaaS product that wants to grow quickly, follow this model. I have seen people try it and talk about it on Twitter, and I do know of a couple examples where someone’s doing a couple million dollars, but they are not going after fast growth. I’ll say it’s a mix of that ambitious and lifestyle bootstrapper, but again, those founders are exceptionally gifted in what they’re doing. I did this in the past before Drip, when I had HitTail, and then when I had the whole portfolio of products, I did have a team of contractors, I had nine in total. They all reported to me. And that’s what I did, was project management and approval, and I really didn’t do any individual contributor work.
There was a time there where I was working, that was about, between 10 and 15 hours a week. I kind of was living the four-hour work week. It was a pretty amazing time and I actually think back to it fondly, but what wasn’t happening was my businesses weren’t growing very fast and that was okay. They were throwing off a lot of profit and it was, again, it was that amazing lifestyle business where I barely had to work on anything, but if I had been ambitious about growing it, I would’ve been smart to hire full-time folks, which is what ended up happening with Drip, right? Drip started off and it was like, “Well, I’ll hire Derek as a part-time,” he was a part-time contractor for six, seven months until things started to ramp up and I was like, “No, I need to go all in on this because I want to grow this company in a way that is much more ambitious than this approach of having a bunch of folks who kind of care, kind of don’t have ownership, kind of don’t have buy-in who are just doing tasks can do.”
I believe I’ve actually covered this topic on the podcast before, perhaps on a listener Q&A episode, but someone brought this up to me the other day and I heard someone talking about how they were trying to do it and they were frustrated with the results, and so I wanted to come back and circle back on it, because I think this is something that is worth saying because it’s this siren song. It’s like every year or two, someone comes up with this, quote, unquote, “new idea” to do this and frankly, we’ve been doing it for at least 15, maybe 20 years, and it’s not that it never works, it’s that there are these trade-offs. And it’s like know your skillset and know where you want to go because if you do want to grow fast, this is probably not the path for you.
Second topic I want to cover is this danger of thinking that your customers are like you. I was eyeballing some auctions for collectibles as I am sometimes known to do, and I saw a listing for a Dungeons and Dragons adventure. It was called a Dungeon Masters Kit I believe, and it was published in 1976, and the seller said this was the first ever adventure written for Dungeons and Dragons, and I thought to myself, “That’s very odd because it was not published by the creator of Dungeons and Dragons.” TSR is the company who created Dungeons and Dragons. I thought to myself, “Why didn’t TSR publish the first adventure?” By the way, I’m going to sometimes say module and adventure, they’re the same thing. I just interchange the two words. But TSR had created Dungeons and Dragons, and I know they published a ton of adventures in the ’70s and ’80s because I used to buy them, so I was puzzled by this.
And what happened is TSR had a stance, and most notably it was the president and CEO and founder, Gary Gygax, who said, “No one will want to buy pre-made adventures. All the dungeon masters will want to make their own.” And he thought that because that’s how he felt, right? He was a creative, he created the game, co-created the game. He wrote a lot of the early adventures and that was a big part of the stimulation for him, was being able to create the adventures.
What he didn’t realize is there were people out there, it turns out a lot of people out there, who maybe didn’t have the creativity that he had, maybe didn’t have the time that he had. And these days that’s me. I buy adventures at discounts on Humble Bundle, I’ll back them on Kickstarter. You don’t want to see my Kickstarter history. I’m almost up to 300 projects backed, and a lot of it are these D&D adventures or STL files for 3D printing miniatures. But the thing for me is I don’t have the time to come up with something amazing from scratch, and if I can pay $5 or $10 for a PDF that someone spent hundreds of hours thinking through a whole storyline with characters and twists and turns and puzzles and just the whole deal, it’s a no-brainer for me.
But back in 1974, ’75, obviously Gary Gygax didn’t think that was the case and he was a bit myopic in this and in fact, so Palace of the Vampire Queen comes out, that’s the 1976 module, and then this whole company springs up called Judges Guild that puts out a bunch of adventures before TSR catches wind and realizes, “Oh, we can’t just sell rules to everyone. We’re going to sell rules to dungeon masters, but the real money in this space is in selling new adventures.” And that became a new cash cow for them.
Luckily, they had the cache, and the brand name, and the distribution, and the partnerships that it didn’t end the company. Feasibly, if you were a startup and you missed something this big, it could feasibly cause you to go from first to second place in a space and really lose the race, so to speak. The reason I bring this up and turning it back to SaaS and startups is I especially see this with the developer founders who think that software should be cheap or software should be free, it should be self-serve, that you shouldn’t do cold outbound, that my people don’t want to do sales demos, that everyone wants to pay $10 because it only took me a weekend to build this software, whatever it is.
I think the developer mindset, and I had this too and kind of had to shift my thinking over many years the longer I was in business, to realize that, no, some people do want sales demos. And in fact, once we started implementing sales demos, we either doubled or tripled, I forget the number, but we doubled or tripled our conversion rate on Drip sales demos versus people who are just signing up by themselves.
And one of the biggest realizations for me in my entire entrepreneurial career was realizing that great products do not market themselves and that marketing is important, and that as a developer, we don’t want to have to market because Basecamp didn’t market and, oh, “I heard about this $1 million homepage that didn’t market, it just came out and it went viral.” It’s this myth, it’s this dream. We just want to build Flappy Bird and have it go viral. And realistically, I’ll say it never happens, obviously it happens one in 500, one in a thousand, one in 10, there’s some number. It’s just so unlikely to be you. Do you have time in your life to put out 500 apps hoping that one of them goes viral?
So that’s what I want to call out today is, if you’re a developer and you feel like you don’t want to market, you don’t want to have to market, you don’t want to bother people with cold outbound outreach, everything should be self-serve, you shouldn’t do a demo. It’s kind of these tropes. I would encourage you, I’m not saying you have to do all those things. If you really are against, let’s say, cold outreach and you don’t want to do any of it, then just pick an idea where that doesn’t need to be the marketing channel. Pick an idea where there is a lot of inbound and then learn SEO and learn content marketing.
There are ways around this, but in my opinion, the wrong way to go about it is to have this magical thinking and to think that, much like me, my customers will want certain things. And if your customers are not you, if they’re not developers, if you’re selling to school teachers, or to realtors, or to construction firms, they’re very unlikely to be like you. So know that going in, and this is where talking to your customers and learning how they think and how they buy is critical to your success.
My next topic is going to seem random, because it kind of is, but I was thinking the other day, this is how I think about buying souvenirs when I’m traveling, and I promise that the fourth topic I cover today will be related to startups, but I realized years ago that as a kid I would go somewhere, to Santa Cruz or whatever, to the boardwalk, and I would buy something that I would take home and sit on a shelf, a little trinket, a tchotchke if you will. And I realized pretty soon I had a bunch of clutter and that didn’t make me happy. It just made dust everywhere and it meant I had to maintain things. And the more things you own, the more your things own you, right? I’m sure someone much smarter than me said that before now.
But I have a loose rule now. I hold to it pretty tight. Every once in a while I will break this rule, but if I’m going to go someplace and buy a souvenir to remind me of that trip, I want to either be able to consume it or wear it. And so consuming is buying chocolate when you go to Switzerland, it’s buying wine, it’s buying whiskey in Scotland. It’s some type of thing that I can take home and enjoy, but then it essentially moves out of my life once I have shared it with friends and enjoyed that. Or wearing it, so I’m big into T-shirts. I have T-shirts with nerdy sayings on them, T-shirts with logos of the companies I run, on and on. And so for me getting a shirt or a T-shirt, even if it’s not a T-shirt, even if it’s a collared shirt or just something to wear that reminds me of that, then that’s something I know I will put to use.
Now for my wife, Sherry, she might buy jewelry, right? Earrings, necklace. I could see buying a watch, although the only watches I’ve ever bought while out and about are the fake Rolexes that you get in Europe that last you for a month or two before they rust out and you pay €8 for them or whatever on a blanket in Pisa. But I think that counts. So is it a hard and fast rule? Do I never buy something that I can’t consume or wear? No. But in general, I try to shape my thinking through that because I think for me it’s a healthier way to think about it and I have enough clutter on my shelves as I think most of us do.
My fourth topic is about raising funding if you’re a bootstrapper. This really wasn’t a thing 10 years ago, and I kind of started hearing about it with Customer.io, I believe they actually raised a bit in 2012. And then of course with funding like TinySeed or our syndicate Indie.bc, they’re obviously more bootstrapper friendly funding avenues around, crowdfunding has also added to this, but here’s the danger, and I think here’s the pitfall we’re starting to see some people fall into. And it’s that if you want to be a lifestyle bootstrapper, actually let me step back and define terms. You know on this podcast I talk about the venture track and then I talk about lifestyle bootstrappers, which is that amazing business, just throws off cash. And whether that’s 10 grand a month, whether that’s a 100 grand a month, you don’t necessarily want to grow it. You’re not super ambitious to be like, “I got to grow this thing and I’m going to have a multimillion dollar exit.” It just throws off a bunch of cash and you have exactly the lifestyle that you want. Okay, that’s a lifestyle bootstrapper.
Then there’s the ambitious bootstrappers, and that is, “I want to get to one, five, 10 million and have this amazing, usually it’s a life changing exit.” Maybe you run it for the long term, but frankly for growing that fast, the enterprise value, the sale price you can get out of a SaaS HEP is so extravagant, it’s so incredible, that you would almost be foolish not to take that money. It can be a once in a lifetime, literally create generational wealth at that point.
So those are my three categories. And what I’m saying is I think we’re seeing some folks who really want to be lifestyle bootstraps, but they are raising funding thinking that it’s free money and that it doesn’t come with some type of responsibility and some of the mistakes I see, and there are several folks who I’m either affiliated with or I just see it online, but they still want to take a couple months of vacation a year and take funding and are frustrated when they’re in a competitive space, because they took funding to go into a competitive space, and they’re not making progress.
And so it’s like, “Look, I get it. I like taking a couple of months of vacation each year,” but then I’m not going to delude myself into thinking that things are going to keep moving as fast as if I was involved. If you want to be ambitious and move quickly, then in the short term, I believe that you do have to make some sacrifices. Another person I saw had raised money and wanted to work part-time on the company, and I don’t know of a single investor who’s willing to back a company where the founder is not willing to go part-time or the founder wants to work on a myriad of side projects when the main project itself is not succeeding yet. And so I’m not saying any of those things are bad. If you are a lifestyle bootstrapper, don’t take money, take months of vacation, work on side projects.
I’ve had times in my life when I’m doing that and it’s amazingly fun, but once you take investment from someone, even really nice investors who are not putting a ton of pressure on you to grow, there is still an implied agreement that you will focus and that you will do your best to grow the company. That you’ll work hard to build yourself an amazing business and to provide an amazing outcome for you and some kind of a return for investors since, if you think about it, huge amount of risk with writing an angel check. The odds are it’s going to go to zero and they are taking risk with tens of thousands of dollars.
So this is my public service announcement for this week of the idea of raising funding has become more palatable and certainly more favorable to bootstrappers. And I, obviously, as I run an accelerator and venture fund myself, I think this space needs it, and I think there is a subset of bootstrappers that can and should raise money, but before you dive into that end of the swimming pool, so to speak, I would ask myself, “What are my goals with this? And am I willing to go all in on this project and give it a few years to see if I can really grow this?” Because to me, that’s the implied contract that you’re going to want to have with your investors.
My next topic is this great quote from the Comic Lab podcast, and I feel like I need to thank Dave and Brad, they’re the hosts of Comic Lab, because Dave Kellett has just dropped some amazing quotes that have got me thinking so much about their applicability to startups. And Dave and Brad are cartoonists. They write comic strips, not comic books, but comic strips that they put online, and then they do Kickstarters for the books themselves, and then they have Patreon and such. So they’re professional cartoonists who don’t appear in newspapers. But the thing that Dave Kellett said, and it was about career progression, he said, “You want your career to be a series of ever-increasing and manageably sized mistakes.”
And I love the careful wording here. You can tell it’s someone who writes a lot, right? He writes punchlines, because he writes things that are funny, and so, “… ever-increasing and manageably sized mistakes.” This lines up so well with my career and what it has been and the amount of risk and the size of the risks that I could take when I was in my 20s are so dramatically different than where I am today. And if I was still having to take those same small risks, I think I would be pretty bored, and I think that would be a career that had not progressed very far. And then I can imagine that there are folks out there who maybe took some risks, had some rewards, but they didn’t increase the size of the risk they were taking. And so maybe they’re continuing to make mistakes, but they’re not getting larger, and so therefore the gains don’t get larger.
When I put a chunk of money into crypto back in 2016, I viewed it as an angel investment. It was going to go to zero or it was going to a hundred X, and I couldn’t have made that bet in good conscious. It was a chunk of money that would’ve been foolish for me to risk even 12 months earlier. But we had sold Drip, but I realized that this was a manageably sized mistake that I could manage now with this newfound wealth, but it was also a lot larger than something I could have done six to 12 months prior. That bet wound up paying off in a way, obviously, because crypto went up. Even in the crypto winter and crypto is down right now, it doesn’t matter because I just made the bet really early on and put in more money than would’ve made sense before that.
Now, have I made some bets that have not panned out? Of course. And those bets were always manageably sized. That’s the genius of this quote, is that if you’re just starting out today, then make some bets and realize that the six months of nights and weekends you spend building your first product is a manageably sized mistake. The first two or three products I launched were three months or six months of nights and weekends hacking on it, and that was the risk, and they all failed. And then acquiring DotNetInvoice, spending that $11,000 scared the crap out of me, and that was a bigger risk than I had taken prior, but it was manageably sized because if it had gone to zero, I’d have been okay, and in fact, I bought it, didn’t have the revenue I thought, my back was to the wall and I just ground it out and figured it out, and then HitTail was a $30,000 bet, and there were a bunch of bets in between those two.
But I love this quote, and I’m going to say it again, “You want your career to be a series of ever-increasing and manageably sized mistakes.” And I like it because I think it’s a reminder to each of us, no matter if you’re just starting out, if you’re mid-career, if you’re later in your career and you’ve had some amazing successes, not to sit on your laurels and to continue increasing the size of the risk you’re taking while keeping the manageable based on where your life is at at that point.
Okay, last topic for the day. This is to know what you’re bad at. I see founders with this. I also used to have an assistant who had this blind spot, and what’s a trip is I notice a lot of things that I’m bad at, and so therefore I either ask for help or I delegate them, or I spend extra time and attention on the things that I’m bad at. So if you’re bad with numbers and you can’t get someone to spot check your Excel spreadsheet or your math on something important, then you double check it, triple check it, check it multiple days, and frankly, you find someone to spot check it for you.
The problem with not knowing what you’re bad at is it becomes this blind spot that almost can look like self sabotage, but you’re not doing it on purpose. I’ve known founders who just cannot get out of their own way, and a huge part of that is they don’t know what they’re bad at. They don’t understand that they have this limiting belief, whether it’s they’re not super creative, so they shouldn’t try to be super creative in their startup, or whether they’re just too much in the weeds of development, so they really need to find a co-founder, or they need to go into a space where the marketing is just all left brain, SEO, pay-per-click ads.
Or it’s someone who doesn’t realize that their fixed mindset isn’t going to allow them to maybe achieve the goals that they want, or it’s like the assistant I used to have who was just not good at booking travel, but he thought he was. And so there were just mistake after mistake, whether it was, I’m flying from here to there, and he would book the ticket the opposite way by accident, or book the wrong date, or book 9:00 PM instead of 9:00 AM, or not put it on the right card so I got miles. It was just always, travel was such a hassle, and it’s like, “Realize that you’re not good at this. You screw this up all the time.”
He was a great assistant across all the other domains that you could ask someone to be an assistant for, but this one thing they just weren’t good at. And so eventually I had to start delegating to someone else or doing it myself. But I often say, “Know thy self,” as a founder. Knowing thy self is such a big part of the game because managing your own psychology is the majority of being a founder, I believe. And you can’t manage your own psychology if you don’t understand yourself. And I think this is one component of that, is there are some things that you’re probably really good at, double down on those. Know the things you’re bad at, you can improve them, you can try to improve them. I tend to lean more into strengths myself, but in the meantime, if you know what you’re bad at, then you know when to ask for help and you know when to delegate if you can, and you know when to spend that extra time and attention when you have to tackle that task.
That’s it for this week. Hope you enjoyed this solo adventure. This is Rob Walling signing off from episode 660.