In episode 683, join Rob Walling for another solo adventure where he answers listener questions. He addresses gathering feedback from customers that are reluctant to give it to you, whether to bring on a partner, and the value of going to in-person events. Rob also covers topics such as equity for advisors, pricing strategies, & productized services.
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Topics we cover:
- 1:56 – Gathering feedback from reluctant customers
- 8:47 – When to bring in other partners
- 12:45 – Weighing the positives and negatives of going to trade shows
- 15:36 – Staying energized and motivated
- 17:51 – Offering pre-launch discounts vs. offering value-added product
- 22:08 – Charging for products in different currencies
- 23:37 – Productized service, pricing, and pausing
- 26:40 – Fractional CTOs and equity grants
Links from the Show:
- MicroConf Mastermind Matching
- MicroConf Connect
- The SaaS Playbook
- Episode 671 | Working on What Matters, Left-handed Threads, and Being Lucky (A Rob Solo Adventure)
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!
Problem is if you just listen to your customers and build what they tell you. A, you’re going to build a bunch of crappy features that are disparate and all over the place. And B, they’re pretty much going to have you replicate whatever competitor they switched over from because that’s the tool they used. If they’re non-technical, they don’t think about innovation and how to improve on it. They just think what got the job done at the prior tool. Welcome back to another episode of Startups for The Rest of Us, I’m Rob Walling. Today I answer listener questions ranging from the value of going to in-person events, trying to get feedback from customers who may be reluctant to give it to you, whether to bring on a partner and more listener questions depending on how much time we have. As a reminder, audio and video questions go to the top of the stack.
You can always ask a question by going to startupsfortherestofus.com and clicking ‘ask a question’ in the top nav. Before we dive into the episode, I wanted to let you know about our MicroConf Mastermind program. If you listen to this show, you know that I’ve talked a lot on this podcast about how important masterminds have been to my own success, but finding the right founders for your mastermind group can be very hard. Over the past few years, my team at MicroConf has successfully matched more than 1,000 founders into mastermind groups by looking at revenue, team size, strengths, goals, and several other data points to make sure your peer group is the right fit. Once you’re matched, you’ll also have access to our mentorship series, a three-month program where you can connect with some great minds in sales, business development, marketing and more. If you’re looking for accountability, honest feedback about your business and the opportunity to make new friends that care about your company and your success, you can learn more at microconf.com/masterminds. My first three questions of the day are from the same person, Tom.
Hi Rob. My name is Tom. You’re one of the greatest source of knowledge when it comes to bootstrapping a SaaS. I always listen to your podcast, hear something insightful and apply it to something I’m doing and it brings great returns or teaches me something. I’ve been working on my SaaS in a pretty specific niche in which I have pivoted a couple of times. Previously, I was getting no feedback from my users, so I decided to pivot by going from having a free trial to totally removing that free trial. First question, it is still really hard to get feedback from my customers even though they’re paying. Almost like pulling teeth. It comes in really slowly and it’s all over the place, meaning most features sound like it’s specific to that customer. There’s no common denominator. How should I pick which features to build? Do you think if I increase pricing, I might have a better chance of getting feedback? Maybe the customers don’t know what they want or what is valuable to them unless I just build it for them to see and use.
Thanks for the kind words Tom, as well as the question. This is an interesting one, it’s certainly something that people face. I have a few thoughts on it. I think that it really, really depends on the space that you’re in or really the customer that you’re serving because if you’re serving product people, software engineers, designers, they will give you feedback. They will have a lot of feedback about how you should re-architect your top nav because it doesn’t make sense to their “expert eye” and tell you things like how you should never have a button with rounded corners or you should ALWAYS have a button with rounded corners. Doesn’t sound like you’re catering to product people. If you’re catering to construction CEOs, lawyers, anyone who is non-technical, insurance agents, they know when they have problems, they’re not going to know the solution and they’re certainly not going to know the way to implement a solution in your product.
So I think the way I’d be thinking about this is there’s no way they’re going to tell you what features to build, but what people will say is, “I have this problem and can you add a button to do it” right or “can you add a setting to do it?” And of course you always have to think about, well, is that the right way to solve it? But if you’re not even getting that, and I think your quote was, “it’s like pulling teeth. It comes in really slowly and it’s all over the place”. So this is where in the early days it sounds like you haven’t yet… You either solved everyone’s problem, maybe you don’t need to even write code anymore. Think about that. If churn is low and when people sign up, they convert from trial to paid and you’re solving a problem, why do you need to build any more features?
But the thing is if you’re churn is high, meaning you haven’t yet built something people want and are willing to pay for, or if you are losing deals or customers to competitors. Well that’s a place to look right? Is oh, look around at the competition. You don’t have to copy what they do, but you at least know which problems are they solving. So if you have competitors that do what you do plus three or four different adjacent things, do you start peeling those off? If you have built your own category and you’ve created a category where there is no competition, that’s a challenge and that is why doing so is such a hard road to travel because people can’t bucket you. They don’t instantly look at your software and say, “oh, well you’re an email service provider” or “you’re ACRM” or “you are a cold email tool” or “you’re a thing that I ran my business on” or “a way I build landing pages”.
These are categories in each of our heads. If you have gone off and are attempting to create your own category and it’s truly a novel tool and your churn is relatively high and people aren’t telling you what to build, it’s likely you just haven’t solved a problem that people are willing to pay for basically. And I feel like you as the founder, if that’s the case, you have to have some type of vision for what you’re doing and why it’s important. And there’s this balance when we’re building, I know everybody says, talk to your customers, listen to your customers. The problem is if you just listen to your customers and build what they tell you, A, you’re going to build a bunch of crappy features that are disparate and all over the place. And B, they’re pretty much going to have you replicate whatever competitor they switched over from because that’s the tool they used.
If they’re non-technical, they don’t think about innovation and how to improve on it. They just think what got the job done at the prior tool. This was a big problem for us in the early days of Drip, people would come over for Mailchimp and all their feature requests were just things that Mailchimp already did. Each of those I had to evaluate, do we build that or do we say no because it was not a foregone conclusion. So this is where founder vision and your kind of own filter of where you think you’re headed in the space needs to come into play. You had a second part of the question, which is do I think if you increase prices, you might have a better chance of getting feedback? I don’t think so. I don’t know. If you can increase prices and you don’t increase churn, then do that whether you get feedback or not because then you’ll make more money.
And then as I said in the SaaS playbook, the second order effect is now you have more money to market, you have more marketing approaches available. But I don’t know, I guess you’re thinking raising the price might improve the quality of your customers. I don’t know. I’m struggling with that. I don’t think it’s going to have an impact honestly on people giving you feedback. If you are in fact serving non-technical folks. I think your last sentence of your voicemail was “maybe the customers don’t know what they want or is valuable to them until I just build it for them to see and use”. If they’ve never built a product, if they’re not developers, designers, that’s probably correct. And so what you have to do though is you can’t just make [inaudible 00:08:09] to build. You have to find what is the problem they’re trying to solve? What is the job to be done of your tool?
And if you already solved that pretty well, you get to decide, well, do I just add more people to this tool and grow it? Again, HitTail went up to $25,000 or $30,000 a month. It was a great little business. Had high churn for reasons we could go into, but if you don’t have to keep building then don’t. Or if you realize that they are solving other problems with other pieces of software, you could start to add those categories in and build out a bundled product that could essentially save them money if they start canceling other services and they give more money to you and they can cancel these other services. And now for Tom’s second question.
Next question. I have a customer who wants to become a partner. He is probably the most responsive and engaging of my customers. Initially he wanted 10%, which is the amount I was thinking also for an advisor type of role. However, he wants 40% now for a bigger role. Basically being a product owner doing sales, demos, et cetera. I think the most I’m willing to give him would be 30%. He wants to build this, he says with features specific to him, I’m not sure if I want this. This is what happened with my previous partner who was in this industry that my SaaS is built for and I had to redo a lot of things to make it usable for other customers. Should I bring them in and what should I give and should I give in and give him the 30% or should I just keep building features based on my customer’s feedback even though it’s pretty slow?
Okay. So there’s no way I can give you advice on what you should do, right? This is your company, this is your equity. And without knowing every detail, I could never venture to say you should do this, but I can tell you based on what you’ve said, how I would think about this. So if someone is going to come on as an advisor and is not going to work on or in the business, usually advisor shares are 0.5% to 1%. I’ve heard of up to, well there are some internet influencer people who are basically affiliate marketers that will take more than that, but even that number getting up, 5% 6% starts to get high. So when you say that he wants 10%, that is a lot of equity in a company and I wouldn’t personally be giving that away unless someone was putting in a lot of time on the business or they were buying in, they were actually putting cash into the business.
And so when I think about someone wanting 30% or 40%, there’s a big… It depends. Are you doing $1,000 a month right now, $1,000 MRR? Are you doing $50,000 MRR? Are you doing a million? Because a business is worth is based on your revenue and the growth and a bunch of other factors. And so if you could raise funding right now, not sell. Liquidating a company is always a lower price than what you could raise funding at. So if you can raise funding at let’s say a $5 million valuation, maybe you could liquidate the company today for a million or 2 million, but realizing that the investment in your growth is betting on the future, right? So they’re saying, “we bet that you are going to get there to where you are worth $5 million”. So in this case, if he’s putting in time and/or money, you would probably be thinking about the fundraising valuation.
And if you look around at Accelerators for example, they will fund TinySeed, Y-Combinator, Techstars, 500 startups. They’ll fund a company doing a few thousand dollars a month at a $900,000 to $2 million valuation. So like 1 – 2 million, it gets a little lower, little higher, but those are the valuations. So when you think about giving someone 30% of a company, if this has the potential to be a multimillion dollar company, that’s a lot. And so I would want to be very certain that their equity vested over four years with a one-year cliff, so they got zero equity upfront and then it would vest over those four. And I would want for 30% that person’s got to work full-time on the company or as much as I am, I guess if we’re both nights and weekends, then maybe that’s where it is right now. But yeah, you have to be really certain, you’re giving them a 30 year company.
This person better be baller and there can be no doubt. They have done what you want them to do in the past successfully, grown companies, done all kinds… Way more experience than just, “oh, I want to do this and I’m willing”. For me, that’s not something I’d be willing to give away that much equity for. Frankly, I don’t know many people that I would be willing to give away that much equity in my company. Again, it depends on, but if he’s willing to put in cash and buy into the business and whether it’s give equity or advice, that kind of changes this and it also changes based on your stage for sure. So it’s a big question and I hope my thoughts were helpful. And now let’s move on to Tom’s third and final question.
Last question. There’s a trade tool coming out for the industry that our SaaS product serves. My potential partner doesn’t think we should go to it until we think we have achieved product market fit. He thinks we’re 90% of the way there and wants a really polished product before we go. He doesn’t want to preview any potential features we have on our roadmap to potential competitors. I think we should go anyways, not to do sales, but to talk to people and network. What do you think? Again, thank you for your time and everything you do.
Me, I’d probably go to the trade show. I think learning is so important early on. I am less concerned about competitors and features, unless I have some super crazy innovative thing. If I’m at a trade show, aren’t I going to be able to tell if they’re a competitor or not anyways? Usually you have a badge with a company name, and I should know my competitors, so I would think I just wouldn’t give them the demo. And I don’t know, upcoming features is, roadmap features, is another thing. I mean, I actually used to not give away roadmap features because there were a few players that were basically watching what we were doing and try to replicate it. And so I didn’t want to give them the heads-up. But without that, I’m usually less worried about competitors replicating my features and trying to I guess out innovate me because if you’re the one innovating than they can never get ahead of you.
I love the idea of getting into a trade show and talking to real humans and seeing real reactions of real potential customers. Even if you know you’re at 90% product market fit and you have to say, “Hey, we are building this stuff right now that’s going to do X, Y, Z here’s the next couple things”. And that’s what it takes to get them excited. I want to see if they get excited, right? I think there’s a ton of value in face-to-face. As much value as there is in doing Zoom jobs to be done interviews or Zoom mom test interviews, the next highest fidelity beyond that is in person. So I’m a big believer in them. I’ve done a couple of them in my startup journey and they were always fun, exhausting, and I learned a ton. So that is my take. Obviously you have to make your own decision, so thanks for those questions Tom.
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Thank you, Rob, for your podcast. I just listened to number 671, and I usually do that while I’m working out. And you usually have a good nugget of information or something that slaps me upside my head to say, “Hey, keep going”. I have a e-commerce marketplace website that I’ve built, not SaaS but WordPress, and I even gone through the whole process of having somebody build it, didn’t like it, and I went and learned WordPress over the last decade and built it again myself. So I think I’ve added some skills, some hard work into it. And then I sit there and do some videos that go along with my website. It’s called tweetperks.com. And so I felt that I done a good job, but then I listened and you said it’s not luck. This is podcast 671 over the last decade and I’ve done minutia of that in video, and that’s one of my strong points is video.
So I need to keep going with it, keep pushing. I see there’s a light at the end of the rainbow there or light at the end of the tunnel, bucket at the end of the rainbow. I’m not sure what’s in the bucket. My goal is to be acquired and then be able to provide for my family and then do some angel investing. I’m at the age where I’m retired from most of my work stuff. But this is something I do and what I’ve been doing for the last 10, 12 years, building this website and enjoying it. But I really need to keep it going. And you on your podcast, keep me energized, give me a nugget, a slap upside the head now and then, and it’s something that I needed. So thanks very much. I appreciate it and keep up the good work and maybe someday I’ll get on your podcast when I’m acquired.
Thanks for sending that in. Nothing to respond to here other than I really appreciate it and I always love hearing folks getting motivated by the content that I’m putting out. So if you do in fact get acquired at some point, please reach out and we’ll see if it makes sense to bring you on the show. My next question is from Olivier and it’s about thoughts on pre-launch discounts.
Hi Rob. It’s Olivier from [inaudible 00:18:03] a catalog of embeddable widgets. We have built an MVP for [inaudible 00:18:07] and now I’m focusing on building a pre-launch landing page. Visitor can sign up to our email list by answering one or two questions and then when you’re done, we intend to propose a limited time pre-launch discount. Since it’s my first time building a SaaS product and I don’t have a particular network advantage at the moment, I’m a little bit weirded out by charging our customers in advance. Your new book, the SaaS Playbook, which is incredible by the way, inspired me to do a Kickstarter even though it does not seem to work well with software. Finally, our company is based in Canada, and I was wondering in which currency to charge our customers. Looking forward for your feedback. And keep doing what you do and take care of yourself, the community needs you around for as long as possible.
So it was actually helpful research for me. So I don’t feel like you need to charge from day one upfront. I do think you need to be pretty mindful about who you let in because you will get some people who will waste your time or who I guess won’t have opinions that will match up. Some people get really opinionated early on that you should take it in a direction. If you’re like, you know what, that’s not where we’re building. Those are the folks you’re looking to have conversations with to figure out which direction are you going to take it because there’s going to be a lot of disparate information, a lot of conflicting information, a lot of noise. And if you let five different customer types in, it’s going to be all over the place. And so trying to focus on one or two ideal customer profiles, or ICPs, I think will be a benefit to you.
One other comment is you mentioned having a pre-launch limited time discount. I would tend to maybe not do a discount and to instead say, “what else can I give them to keep the price what the price is?” But say you get complimentary onboarding, you get a free copy of my book, you get one-on-one call with me and someone else to help with strategy sessions. There’s all these things you can add. I just don’t like discounts. I think discounts are, this is going to sound mean when I say it, I think discounts are lazy. I think discounts are easy to knock some money off it, give them a lifetime discount, whatever it is. If you need to do it, you need to do it. I won’t say I’ve never discounted anything. We totally have. Well, here’s an example actually. On my Kickstarter, and then when I was selling my book pre-launch before it was printed, instead of saying, “oh, you just get the book cheaper”.
I said, “well, you can buy bundles”. That’s it. I didn’t sell the book individually. So you got, instead of paying let’s say $25 for the hardback or the paperback, instead of discounting that down to $15 or $20, what instead I said is, “oh, if you buy the paperback or the hardback, you also get the audiobook and you pay $30”. So it’s actually an upsell in a way, if you think about it. I got five more dollars and I get to give them a digital copy of the book. That’s the kind of stuff I’m talking about. Now you don’t have to bundle it exactly like that, software is different. But that’s the thinking that I like to go into time… I love time limited deals. I love the time pressure, I love the rewards, but I like to think what more, what else can I give them rather than how do I make my stuff cheaper?
And then Olivier’s last question was, well inspired you to do a Kickstarter, which is crazy. I haven’t really heard people do that for software, so I’m curious how that turned out. But you said finally your company’s based in Canada and wondering which currency to charge. I guess it’s where are your customers based, if they’re all Canadian than Canadian dollars? And if there’s going to be a mix, certainly if they’re going to be in the US, you probably want to charge USD. It’s just a stronger currency, so why not take advantage of that? Because we’re used to paying in USD. And then the question is, well, what about my Canadian customers? Do I charge them in USD or Canadian dollars? And that one, I honestly don’t know what I would do. I would prefer to charge everyone in one currency of course. I don’t know how many problems that’s going to cause you until you try to do it.
I don’t know how many complaints you’re going to get until you try to do it. Are you going to feel really expensive to Canadian companies or people that are buying this? Maybe. And if that’s the case, then you kind of have to charge two different currencies. But that’s probably something for you to either ask in something like MicroConf Connect, where there are more than 5,000 other bootstrap founders who have thought about exactly this, right? And people who have tried and failed and made mistakes, and get input. I think there’s a pricing channel in there for example, and this could be a good question to ask and get several viewpoints from folks who have tried this and been successful. So thanks for the questions, Olivier. Hope that was helpful. My next question is anonymous and it’s about productized services and pausing.
Hi Rob and whoever else is on the show this week. I would love to hear you guys’ opinion on productized services and pricing. Recently, I became aware of some designer websites where they’re selling unlimited requests, but they fulfill them one at a time for a subscription fee that they allow their customers to pause, and they’ll track the days. So if you pause on the 15th, you’ll get 16 days remaining when you un pause it until you have to pay the next month. I love this idea because then it lowers the budget required for some companies to hire you. However I’m afraid that if I were to adopt such a policy or a thing, if I were to make a productized service which I’m considering doing, that the income would be very volatile. What are your guys’ opinions or concerns about this? This is my first foray into this kind of work. That’s all I got. Thanks so much.
Okay, so productized services. If you’re wondering what my thoughts are there, I like productized services. I think they’re a great stepping stone. Nice step two business on your way to creating a standalone SaaS, if that’s where you want to go. My thoughts on pausing are that I wouldn’t start a business that allowed pausing. That just means it’s really a high churn business. It is a business that probably shouldn’t be a subscription in reality, and you’re forcing it into the subscription model. And to adopt a pausing feature really does dilute the benefit of recurring revenue. And you essentially no longer have that if people can just pause it all the time. So should I say no one should ever do that? No. I’m sure it’s a necessity. I’m sure if you build this type of business, it becomes something you want to do because otherwise your churn is 20% a month and that feels painful.
But also pausing is churn, if you think about it. If you’re looking at revenue churn, which is what I remember, then the moment someone pauses they’re no longer paying you. And then later on you can either count it as like… This is weird because you basically have a customer, if you count them as a customer, that’s paying you $0. And so it would be churn down to or contraction revenue down to zero, and then expansion up to whatever they’re paying you. That would probably be the technically correct way to do it. I don’t know of any metrics tool that will actually do that correctly, you probably have to finagle around with things. So for me personally, I don’t love it. I would be looking for a business that is more of a true recurring base. One other thought you can think about is doing annual only and then people pay for the whole year.
And if they were going to pause it during the year, if they only need it five, six times a year, they just pay the price for the whole year. And that means they don’t have to deposit because when they aren’t getting value, they don’t cancel. And then they come back and it’s just this resource that they have for a full 12 months. And that’s how I would think. It’s not to combat churn per se, but it’s to kind of even out their needs so they don’t feel like they’re getting taken advantage of in the months that they don’t use it. But if you pay for a whole year and you don’t use it for a month here and there, it doesn’t feel the same way. So thanks for that question. Hope it was helpful.
My last question of the day is about equity, it’s about advisor equity and anonymous asked, “do you have any episodes on working with fractional CTOs and how much equity to grant? I’m trying to determine this question with a startup in MVP / beta at pre-revenue”. So usually, I mean, this is kind of an advisory role it feels like. Well if they’re fractional CTO, you don’t have to give many equity. And I do wonder why you would do that. Is there a compelling case to do that? Will they not work with you unless you give them equity? Or are they lowering their rate in order to get equity because that’s a good deal for you. And if they’re not, then don’t give them equity. But if you get to the point where you’re going to give them equity, usually I think of it as an advisory portion of shares, which is usually as I said earlier 0.5 to 1%, and it usually vests monthly over two years. I’m saying usually, these are rules of thumb. There is no cliff on these, and that’s how I would think about it.
Again, that’s how the rule of thumb works. You can obviously adjust it up or down depending on the value that they bring to the business. So thank you for that question to round out this episode. Hope you’re having a great week this week. Hope this episode maybe sparked something in you as you’ve listened to it, to want to go and market it harder, to build another feature, to onboard another customer, and to keep pushing forward in your own business endeavors. It’s great to be with you this week and every week. This is Rob Walling signing off from episode 683.