Episode 857 | Finding Hidden Multipliers in Your Business (with Jason Cohen)

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That’s the letter Y: ysecurity.io/startups. Welcome back to another episode of Startups for the Rest of Us. I’m your host, Rob Walling, and in this episode I welcome Jason Cohen back on the show to talk about his new book, Hidden Multipliers. I’m calling this episode Finding Hidden Multipliers in Your Business. I actually purchased copy 0001. Maybe there’s an extra zero in there. I made the first pre-order for a copy of his book because he had sent me the link for the previous show we filmed and the book wasn’t for sale yet and I just popped in and bought a copy. So I’m proud to be the owner of that. If you’ve been listening to shows in this space or you started watching Jason’s show Smart Bear Live, for sure you’ve heard about this book and it is incredible. Yeah, it’s worth every bit of your time and energy to absorb the lessons that he has in this book.

So I’m going to talk to him today about some of the topics that are in the book, why he wrote it and all that. Before we dive in, if you’ve crossed a million in ARR, you know that your problems have changed. Maybe churn is eating growth, maybe your channels are flat lining, but everything still lands on your desk and the hard part is knowing what to fix first. And that’s why we started the SaaS Institute, coaching and peer groups for founders growing from $1 million to $10 million ARR and beyond with no equity involved. You don’t get one coach, you actually get a team of coaches. You get a founder coach who stays with you through the big decisions. You get a mastermind group of founders at your stage and tactical specialists brought in when you need them. And because some of the best conversations happen in person, membership includes two retreats a year with Institute founders and the wider TinySeed community.

In fact, we’re headed to Cancún later this month for the next Tiny Summit. If you’re at a million ARR or more, apply at tinyseed.com/institute. Takes about two minutes. And with that, let’s dive into my conversation with Jason Cohen.

Jason Cohen, welcome back to the show.

Jason Cohen: Oh, it’s so good to be back.

Rob Walling: It’s great to have you, man. We’re here today to talk about your book. We referenced this last time you were on the show, but it’s Hidden Multipliers: Jumpstart Growth with your existing budget and team. And this is your first book.

Jason Cohen: Yeah. I’ve been writing online for 18 years, never wrote a book because there’s so much additional attention and effort and the editing and just so much. And of course I’ve always been running a company and so there’s only time for maybe blogging. There’s no time for the whole book, at least for me. But then I left WP Engine about a little over two years ago actually. And so after some downtime, I did have the energy to do it. And so I had this concept because I did keep hearing from people and to this day we hear this where people say the company was growing for a while and now it’s not. Now it’s slowed down or it’s stopped or something like that. And so I know that doing what I’ve been doing is going to work because I am doing what I’ve been doing and it’s not working.

So I have this to-do list. I don’t know if one of the things on there is the right thing or maybe the right thing to do isn’t on my list yet. I don’t really know. And I just heard that a million times. And in my 20 years of, or 25 years I guess of building companies and of course mentoring people and et cetera, writing, there’s a couple of these patterns or themes that I’ve just heard forever. It hasn’t changed because of AI. It didn’t change because of even mobile. There are these things that just seem to be true. Of course, nothing’s true 100%, nothing, but they were largely true. And some of them are things that you’ve seen many people tweet about like, “Is your pricing right? Is cancellations too high? How do you analyze that? You should sell to your best customer. What does that mean?

Are your strengths and weaknesses matched to your strategy?” None of these in sound bites are insightful, but at the same time, the number of times I’ve got an email or something of someone saying, “I’ve heard this a million times, but I never got it until now.” It’s like, right, you heard the tweet. Obviously that doesn’t matter. Obviously that’s not working. And so maybe if there’s a treatment that’s in depth enough or written in a way you like, or it just strikes you for whatever reason, then finally it sinks in. So the book is full of these things to grow. So you don’t have to have slow growth to care about growth, obviously, but things to grow that are pretty much mechanistic, meaning it almost always is true just because of the structure of a company. And so probably it’s applicable. And so probably it could help to pay attention to it.

So even though there’s like 12 of them in the book, still, if just one or two make a difference, that would be worth it right there.

Rob Walling: The multiplier part is obvious, that phrase hidden. Why did you choose that?

Jason Cohen: Yeah. I mean, it’s funny because after I picked it, I realized that the previous book that I made as marketing material at Smart Bear in 2005 was called Best Kept Secrets of Peer Code Review. So maybe I just – Look at you. Yeah, I don’t know. So maybe I can’t justify it other than that. But what I meant by it, as it says in the introduction too, is if you could, you would make a mathematical model of your business, boxes and arrows and rates and numbers and metrics, and it wouldn’t just include what’s going on in your business. It would include the market dynamics and competitors and what customers do and think and all this kind of stuff. Of course, a lot of these things aren’t even numbers, but if we’re pretending, you’d have this model of the whole thing. And then you’d say, oh, look, mathematically we can tell if we move this number a little bit, then something we care about like revenue or profit or even how fun it is to run the company, let’s not forget, that could have a big impact because reasons, because of the mechanics of whatever.

But we can’t do that. So it’s hidden. Whatever these things are, whatever these multipliers may be, they’re hidden because we can’t analyze like that. So that was one reason. And the other reason is sometimes it is on your to-do list. You just don’t know how to discern which of the 10 things is the thing that really is going to make a difference because you don’t know why it would be. These are all just things that you could do because you read about them or you thought about them. There’s no reason to pick one or the other that you have anyway. Or sometimes I find people actually already know the answer, but they’re too scared to face it. So for example, cancellation’s too high, you know it’s too high. Somebody told you that 7% per month is too high and you objected because you know that Shopify does that, even though that’s not an excuse.

I even explain why, but you’re holding onto this justification because you don’t want to admit the cancellation is high. And the reason you don’t want to admit it is because what that means is people came in and said, “I do not want this.” The core thing you’re doing, which is I built something that people are supposed to not only pay for, but maybe want, like, and they’re saying, “I don’t like it. I reject you. You don’t want that.” So you’re like, “No, no, no, this is totally normal.” Instead of realizing, no, this means not only is it financially the reason why we’re not scaling or not growing, but also because it’s a personal indictment or at least it is if you’re a founder. And so maybe you don’t even want to admit it even when you know what it is. And maybe you need someone to push your face into it and say, “Do you want to grow because you’re going to have to face the truth?”

Rob Walling: Yeah, that makes a lot of sense. I want to talk about a few of the concepts in the book. Oh, it’s at hiddenmultipliers.com. If folks want to check it out, you can also find it on Amazon. But one thing that… I mean, you start the book off, chapter one is called The Profit Whale’s Tale. 10% of your customers are ruining your business. And you tell this pretty incredible story at WP Engine about how profitable there was like 10 or 20% of your customers that were a huge chunk and then 10 to 20% that were losing you a million dollars a year or some crazy thing. You want to walk people through that concept?

Jason Cohen: Yeah. And what’s neat is I show the data. I literally showed all of the data for the 7,000 customers and exactly what that data looked like. It’s like, that’s what it was. And here’s what we did with that information. And since then, by the way, people have tweeted out their profit whales. They’ve done it themselves and they’re like, oh, now I can… So that’s been really fun to see that. In fact, it’s a universal type of idea. So the idea of the profit whale is that you compute the profit per customer, and so you’re only looking at what finance people would call the gross margin. So these are the costs to deliver the product to that one customer. That includes things like servers and space and maybe tokens now, and it also includes tech support. So all these things that you have to do in order to serve customers.

When I say how profitable, I mean here’s their revenue and here’s those costs. Then you line up all your customers in order of profit, from the most profitable to the least, which least usually means losing you money because they call tech support all the time and they’re only giving you $5 a month, so they’re losing you money, that kind of thing. And then you add all that up, so you get this sort of cumulative curve. The way it looks is at first you have your profitable customer, so the curve leaps up at first with all these profitable customers. Then you get this long back of the curve of people that are on the edge and then people that are on neutral and then people that are of course losing you money and that’s the tail of the whale in that metaphor. What almost always happens is that a very small number of customers represent almost all your profit and almost all the destruction of your profit, meaning loss.

At WP Engine, like you said, fewer than 10% of our customers were causing a million dollars a year in profit to be gone. It was causing our gross profit margin to be 55% instead of 80%. For anyone that knows those numbers, that’s like going from you’re not even a software company like investors or if you sold the company, they wouldn’t even treat you as a software company to, oh, that’s best in class for a software company. That’s the difference, those last 10%. Similarly, the top 10% was like 40% of our revenue. So right off the bat, it’s really obvious how you might start actioning this. You want more of that head and so the question is, who is that? I got to find out who that is. What are those characteristics because oh my gosh. Then one thing that’s not necessarily obvious is you can afford to spend 10 or 20 times as much money or time to acquire one of those customers as any other customer, because one of those might be 10 or 20 times the profit of any other customer.

That’s a lot more. That’s a lot more than you think. Of course, if you’re bootstrapping, you may not be able to spend that much, but the point is you can and should spend so much more time and even money on that because it’s so powerful when you do it. A lot of the future chapters of the book is of course about that. Well then how do I find who that is? Who I call a Carol? A lot of the book is about that. But as you say, the first chapter is called The Profit Whale’s Tale because the first half of the chapter is showing this data and also showing that it’s true in other industries. It was true in insurance. It was true in a grocery store. It was true in manufacturing, just bullets because how much do you want to read about it, right?

But the point is it’s really universal, not just like in SaaS or something like that. Anyway, so what do you do with the tail, these unprofitable customers? Because the temptation is you say fire them, they’re unprofitable. And that is your last resort. You might, but there’s many, many things you should consider first. And of course they’re in the book, but let me just give you the first one. The first thing you should consider is that it’s your fault, you’re doing something wrong and this customer by being so unprofitable is effectively highlighting this thing that you’re doing wrong. So for example, at WP Engine, we had this customer that was doing a tech support email a day and they were asking us to enable something on a site. The technical stuff doesn’t matter. They were asking us to do something on a site every day. So wildly unprofitable because they’re calling us every day, but why were they calling us?

Because they needed a configuration change made and we didn’t provide them a way to do it themselves. So they had no choice but to call us. So we should fire them or should we add that feature? That’s our fault. Furthermore, other customers also needed that. The thing is this customer happened to need it every day because they themselves were running hundreds of sites and they needed it on different site every day. Every customer needed it, but most customers needed it once per year. So even they needed it, but it wasn’t loud enough. This customer just happened to have a use case where it was loud. So in other words, it was a gift. They were telling us about a thing we should do. They happened to be able to “tell us” that way. So of course the answer is you add that it actually helps everyone and it was a gift.

So firing the customer couldn’t be more wrong in that case. And so there’s more, but you do want to deal with it. And another one is maybe it’s okay. Maybe it’s a good logo. Maybe they agreed to let you use that logo so you get more customers that way. Maybe they’re not that unprofitable. You learn a lot from them. They were an early customer and you just feel loyalty to them. There’s many reasons why you say, “No, it’s okay.” It’s just you don’t want to say that about all of them. You don’t just ignore the whole tail. So there are many answers and some of the answers could be, look, the tail’s not going to be gone. But man, you should go and even one by one is a good use of time because it’s so unprofitable that going one by one, which we did and asking, “What’s going on here?

What’s going on here?” And occasionally, maybe they should go find another tool because they’re just not the right customer. That’s okay. That can be the answer. Just make sure you think about it first before you decide it’s their fault. Yeah. I mean, literally went from unprofitable to profitable. It’s just the amount of change is sort of amazing. So it’s a good example of a multiplier, small changes, small in number that is. It was effort, but it’s mechanistic because that’s just the shape of things. It’s just how customers are, that’s how distributions work. So it’s almost always true in every industry and it’s worth investing a lot of time or money because it has such a big impact. And that’s useful to know because how many big projects can we have? Not many, even a big company can’t have that many. So it had better really matter.

Okay. Well, here you go. Here’s one thing that matters.

Rob Walling: Another multiplier that you and I have talked about for years is pricing. In the book, you tell a story of SmartBear, which is your handle online, but it’s also a prior company that you sold. In a second, I’d like you to tell people what it is, what it does, but I believe your pricing went from $35 a seat to $1,300 a seat and then unit sales –

Jason Cohen: Not in one shot, but yes.

Rob Walling: Over time and unit sales went up. So it feels like that kind of breaks everything I know about econ, right? But talk us through… Well, first define what SmartBear is and then talk us through how that possibly worked.

Jason Cohen: Yeah. SmartBear was peer code review software, meaning software developers reviewing each other’s work for the same reason that authors and editors do that and to catch bugs or teach new people on the team how things are working. Nowadays, code review is super common. Everyone uses it through GitHub and PRs and AI is doing it. At the time that I started it, which was 2002, only big companies did it when they had some sort of mandate about quality, either self-imposed, like QuickBooks, for example, was a customer or because they’re in an industry that made them do it. So Lockheed Martin did it because they were a CMMI level five company and health companies did it because HIPAA required… Okay. So it was big companies, so $34, well, they can spend more than that on a code review, right? To some extent, I think it’s okay to say V1 doesn’t do as much.

It’s not very impressive, so it’s hard to charge a lot yet. And later on when it does more, you can charge more. I think there is some truth to that. Also, there’s such a thing as a product where it already is as high of a price as it can be. And if you raise prices, in fact, people won’t buy it as much. That is true. It’s just that usually that’s not what we’re doing. Usually we’re not on that end of the curve. And what I found is there is that microeconomics curve that says the higher the price, the less the demand. And so if you’re on the wrong side of that curve, then raising prices means that fewer people will buy and you’ll make less money overall. But almost for sure you started out with prices too low. And even if you want to justify that by saying it was a V1, which I don’t always accept that excuse, but okay, even if we say so. All right, two years later, it’s not a V1, right? So what you doing? What’s happening here? So first of all, you may just need to charge for what it is. The second thing is the price determines the market that you’re in. So the reason that often when you have a $10 a month product and you raise it to 50 and sales go up, which happens all the time in the book, I have many examples right there, but you can just go to Twitter and see many examples or read some of Rob’s books and you’ll see many examples of you raise the price and sales go up.

And the reason is you are correct that when you raise the price, the hobbyists, the people who aren’t serious and have no money, whose projects end all the time, they can’t afford it now. You’re right that they will stop buying, but what will happen is there’s this middle market or there isn’t just small, middle and large, but let’s pretend like that’s all there is. The middle market before looked at you and said, $10 product, that can’t possibly be good enough for us. That can’t possibly do what we need and have high enough quality and be a real company. So we won’t even think about it. But now that it’s $50, $100 or $500, now that company goes, “Right, that’s what I would expect for the kind of software that would have the quality and support that we need. I will now consider it.” They weren’t even considering you before.

And so even so, your price might be lower than an incumbent because you’re still scared to raise prices. So okay, you’re now a cheaper alternative with maybe missing a feature, but now it’s a reasonable choice and some of them will choose it. So you have left one market behind that part you were right about. What you were missing is that there was a bigger market, more lucrative, that have more budget where their projects don’t end so quick, where the cancellation rate is one and a half percent per month, not 9% per month, and you could have been there and your price was stopping you from going there. So I do agree that you have to deliver on the price. If your product sucks and you charge $500 a month for it, well, that might not work. But on the assumption that your product doesn’t suck, of course, again, they may have different needs also in this market.

So there’s many things that go with it, but fundamentally that’s why the raising prices generally does work if the product is right, the people need it.

Rob Walling: And then on the flip side, you have an example at WP Engine, how you lowered your entry price. And was it maybe 49 to 29? Should they lower? Should they raise? What’s your experience there?

Jason Cohen: Yeah, exactly. And it just goes to show there’s no such thing as universal advice. I always joke that no matter what the advice is, I can make a two by two, and already I’m laughing because I make fun of people that make two by twos because like what the consultants do, right? And let me guess, the top right quadrant is where I want to be, right? Okay. So this is not like that, but I think of a two by two of companies that took that advice and companies that did the opposite or at least didn’t do it, that’s one side. And the other side is companies that were successful, companies that failed. So this is two by two. And my point is I can always fill every cell with lots of examples. So that just goes to show there’s no universal advice. There is advice that is or isn’t applicable for you or consistent or inconsistent with your strategy.

So that’s really what you should be thinking with all this advice, including mine, of course. But yeah, so raise your price or lower your price. Obviously this could go well or not well. I often just find that people aren’t raising their prices, but not for good reasons. They’re just scared. They think they can’t. They don’t understand. That’s not a good reason to make any decision. So first of all, we lowered prices because of specific customer feedback. So it wasn’t random and it wasn’t what if we lower prices? The specific story we kept hearing was, “Hey, I’m a freelancer. I am bringing clients to you.” Now already the bells should be going off, whatever the opposite of alarm bells are, church bells, should be going off. This must be a perfect customer for us. It’s a single person who’s bringing us multiple clients over time. What?

Which of your clients bring you multiple clients? That’s the biggest, best growth relationship story you could imagine. So already your ears should be perking up with the people like agencies and freelancers bringing you multiple customers and you should go, “Whatever they want, that’s probably what I should do.” Okay. So they’re like, “Here’s the conversations I’m having. My clients are already on say GoDaddy paying $2 a month, $5 a month, that kind of thing. And you start at 50. So that’s like a 10X and their brains can’t get wrapped around that. I can convince them to pay more and get more. Pay more, your site’s faster. Pay more of the site. Okay. It’s more secure. I can do that, but five times more, not 10 times more. They just can’t make that leap. So we kept hearing that over and over again from an ideal customer.

That’s key, because just because you hear it doesn’t mean it’s from the target customer that you should be optimizing for, but this is the target customer that keeps saying this. So if it was just one of them, that might still be a bad market for us. But if you rethink that the market is freelancers and agencies and that’s the ideal, then you realize that if you optimize for a freelancer who brings you 20 customers at $30 a month, wait, of course you want to do that. And they bring you another one every month because that’s just their client load. That’s beautiful. So that’s not a $29 month customer. That would be a very shortsighted way of seeing that. It’s not. It’s a 500 a month to $1,000 a month aggregate freelancing customer. It’s really a channel, but whatever. Let’s not mince words. And so when you realize that’s the right way to look at it, that’s why the $29 suddenly makes sense.

And now you could argue, but won’t some people now just sign up on the site randomly at 29 who might not be ideal? And the answer is yes, just because you have an ideal in mind doesn’t mean that’s the only people that sign up. In fact, it will never be the only people that sign up because people will just sign up. So that’s actually one of the reasons to not be afraid to get really specific about your ideal customer and focus absolutely everything on it, by which I mean like ads, homepage messages, pricing, features. That’s what I mean by everything because you’ll win all of them and that’s the point. But also there’s this successive rings in the bullseye of people who aren’t the perfect customer, but they’re adjacent and they’ll sign up too. Some of them will sign up too because you’re just the right trade off for them and they understand your trade off because you were so specific.

So they understand what they’re getting into. And there’s like a hundred times more people that are not ideal. So even if a fraction of them sign up, that’s still going to overwhelm the number of ideal customers that you have. So we focused on our ideal customer. We did that. Yes, of course we got other people who are close but not ideal and that’s okay. That’s what’s going to happen and that’s why you grow despite in your whole target market, despite targeting this subset of your target market, which is the ideal quote unquote.

Rob Walling: I want to bounce to another multiplier. There’s a chapter where you talk about a product going basically from 5K a month up to 40K a month just based on words and positioning. So same tool, two different pitches. One is cut your ad spend in half and the other one is double your leads at the same cost per lead. Talk us through that.

Jason Cohen: Yeah, this is such a great one and this is another one where people are tweeting at me with their examples of how they’ve changed their messaging. So this is also an article so people can just read it for free. They don’t have to buy the book. Isn’t that great? The article is called something like how to 8X your price without changing your product, something like that. The general idea is to sell more value, like the customer’s getting more value in the way they already think of value, whatever they think of that word. That word of course is so generic. What does that mean? It’s whatever the customer thinks it means, that’s what I mean. More of whatever they value rather than saving them something they hate, save time, save money, it’s easier. And look, there’s nothing wrong with saying it saves time and money and it’s easier.

It’s totally fine. I’m just saying you can charge 10X more and/or you could get the sale better if you explain how it creates more value rather than saves time. The very abstract way to see this is to realize that if you save someone, let’s say money, just to make it really concrete, how much can you charge for saving someone, let’s say a thousand dollars a month? What can you charge them? You can’t charge them a thousand dollars a month or they haven’t saved any money. You probably can’t even charge them $500 a month. That’s not really saving them enough money to be worth it. You probably need to charge like 10% of that, maybe 20% of that, probably, or else it’s just not worth all this nonsense. So in other words, your price is capped, but when you sell that there’s more value, that you’re going to give them more of what they want.

I mean, you obviously can’t charge infinity, but you don’t have that cap and they’re willing to pay whatever they normally pay for that value rather than a fraction of the value that you’re bringing in. They’re willing to pay for the whole value. So in that particular case, like you said, it was either cut ad spend in half or double the leads for the same spend. So cutting ad spend in half, you can only charge, let’s say 20% of whatever that ad spend was, and that’s a small amount of money that you can charge. But if you say double your leads, the observation is this. Let’s say they’re already spending $100 per lead. Okay. You know that what you’ve done is double the efficiency of their leads, but rather than saving the money, let’s suppose they keep spending the same amount of money as before, they’ll double the number of leads, but they’re willing to spend way more than just what they spent before to double the leads.

How much are they willing to spend to double the leads? They’re willing to spend whatever they were already spending. In other words, if they were spending 40K for this number of leads and you doubled it, they’re willing to spend 80K. You know they’re willing to spend it because they already are. So that means you can charge them that whole extra 40K, not the amount you saved them, the whole extra 40K you get to charge them because they already said with their behavior, that’s what they’re willing to spend for that. So in this particular example that I lay out, instead of this fraction of the savings, instead you can charge the whole amount. In that particular example, it was 8X. But in the book, and I forget if I did this in the article, I give all these examples of, on the left is the save time, save money.

It’s easier, which again is not bad. All those in that column are like, that’s a pretty good pitch. I agree, it is a pretty good pitch. And on the right it’s, oh, I see. So it’s like you don’t say saves time and tech support, cuts tech support time in half. It’s service twice the number of customers per hour or get customers’ answers faster so that they’re happier because generating happier customers that are more loyal and stay longer, that’s the knock-on effect of good support. And wait, I can do that without hiring another person? That’s so much more valuable to have higher retention than it is to just save time and tech support, which is fine, but only so valuable as the money that you saved divided by five or something. So that is a great one that anyone and everyone can do. You can just go to your homepage and say, “Where did I eliminate something bad?” And you can still say that.

It’s not that you should never say that. Again, it’s a good pitch, but it’s not the main pitch. It’s not the main reason why they should pay you money. So you could try changing that positioning and don’t change your price or maybe use that as an excuse to raise your price a little bit. But okay, you could just try not even changing your price just to see, can I convert more? Especially in a sales call where you have a lot more control over the message. If in a sales call you emphasize that, what happens? You can just find out.

Rob Walling: That is one of the benefits actually. This kind of a little bit of a tangent, but within TinySeed, 217 companies, and it’s probably 70 to 80% of them are doing at least a demo, a call close, oftentimes even more in depth sales process. And then there’s maybe 20%-ish that are more self-serve, but usually we encourage them to have a higher tier and do some demos because the close rate is higher and because you make more money. But that is one of the benefits that you’re calling out is if you are on sales calls, you can price test really quickly. You don’t have to do this whole split test thing on a website. And as much as I love self-serve software because I’m more of a marketer than a salesperson, there’s advantages to being able to have those conversations and see someone’s face when you tell them, “Yeah, it’s going to be a thousand bucks a month.

You’ve been charging 99 a month and this is the first time you’re saying this number out loud, right? It’s a thousand a month.” You get to see if they have a conniption or if they’re like, “Oh yeah, okay. We have the budget for that.” And usually you’re like, “What?” I mean, I’ve literally had founders come to me and say, “I can’t believe that worked.” And it’s like, “Well, believe it. You been listening to Jason and I and other smart people on the internet for a while, right?”

Jason Cohen: Yeah. Another one that comes up a lot is implementation costs. I’ve noticed that bootstrapped founders don’t charge for implementation. They always feel like, “I should just do that as for tech support.” And they end up doing 20K worth of work. If you were to pay any professional, that’s what you would pay them. And they do it for free because they’re afraid they won’t get the sale. They’re wrong and they’re just leaving a ton of money on the table, money that could pay for, let’s say, more engineers and stuff in general, not just for that, but for other things. Also, a customer that invests 20K is probably going to stay a long time because they’re really invested in. So they’re paying you for what you want to do anyway, which is to give them a great onboarding experience. And now they’ve onboarded correctly and mentally they’re locked in.

So their LTVs are probably super high. How are you leaving this on the table because you’re scared, but you can do this in the sales call. You can explain that the implementation fee is 10K, 20K, see what they say. A lot of people will say, “Okay.” And you’re like, “All right, I’ll just bake that in.” And if they’re like, “Well, hem and ha,” you can always say, “Well, it’s only five,” or you can always say, “Look, if you sign up for two years, just even contractually, I’ll do it for 10…” Now, will they leave or not? I don’t know, but you’re trying to get something, or maybe you can use their logo and something like, “You’re just getting stuff for free.” Or they say, “Never, never,” and you agree, you just want them anyway, so you do it for free, but you still put on their invoice implementation 20K, discount, 20K.

In other words, you show that you’re delivering all this value so that you have the reciprocity after And that’s still something. So you can always back all the way out to nothing. So you don’t have to be scared about it because you can always undo it just in the conversation and still get something out of it. And you’ll be surprised how many people say, okay. So another thing is I remember seeing SpareFoot do what you’re saying about a different price per person because this is a company that was in Capital Factory in 2009 and they were calling. So this is a company that took storage units online. So you could search on Google for your storage unit and find it that didn’t exist yet. They made that. And they wanted to get paid somehow from the storage unit owners. I was like, look, I’m going to send you leads or I’m going to send you customers and you should pay.

But they weren’t sure how to charge. Should they charge $50 a month? Should they charge per lead, per close? How much should they charge? They don’t know. So they just cold call these places. Hey, I’ve got a lead for you. So what they do is they get somebody online who says, I want a unit that’s 20 by 30 in Austin. And they’d say, okay, we’ll tell you when we have a match. And then they’d literally pick up the phone and start calling around Austin. And each one they’d say something different. Hey, for $50 a month, I’ll send you leads just like this. You want that? Next one, I’ll sell you this lead only if it closes, but then we get their first month’s thing or 200 bucks or whatever. And they quickly found out what people were comfortable doing because they were just quoting a different thing every time to find out.

It was so funny.

Rob Walling: Well, I love the scrappiness of it. Talk about an MVP with no software, right? It’s like a contact form and then it’s a human just picking stuff up. That’s great.

Jason Cohen: Yeah.

Rob Walling: So you’ve done something with this book that kind of calling me to the carpet because you have AI skills that you are giving away with it. And now I’m like, well, gee, is that raising the bar so we all have to do this? It’s really, really impressive and admirable. I was just looking through some of the skills that folks can go to hiddenmultipliers.com and then you just have a link right to the AI skills or I guess it’s skills.asmartbear.com as well, which is your blog. But I’ve heard folks, I’ve seen people on X/Twitter talking about the find your Carol skill, for example. I mean, do you want to maybe encapsulate what that skill does and why it’s so useful? Why it’s so useful to have as a skill rather than just a concept in the book?

Jason Cohen: Yeah. So what I realized is there’s these, okay, maybe they’re frameworks, but they’re also sort of things you have to work through. And I am not a person to write workbooks or those kind of… I just don’t do that. But there is a series of steps that go through to make this stuff. So it’s one thing to say, you should find your perfect customer. It’s like, but how? So in the book I do describe it, but I recognize that reading it in a book is different than having it being facilitated. And you often can’t just read something in a book and then do it. But when it’s facilitated by a person, it comes alive and you can do it. And so I don’t think AI can give you answers, period. It’s not good at that. It doesn’t know how to do that. But I found that I could get it to facilitate you finding the answers.

It could ask you questions and it could sort of in a sense hold you accountable to good answers. It wouldn’t be this simplistic, but if it’s like, who’s your target customer? And you said small business, it could say small business is like hundreds of millions of companies. That’s not a market. What else? Not allow you to be wishy-washy like that. So I actually started by making a skill called Rude Q&A, which is the name of an article I wrote 15 years ago with the idea being, it’s like devil’s advocate, but the idea is that it’s devil’s advocate plus maybe a little rude, sort of like a rude journalist interviewing you who’s trying to trip you up kind of thing. Because of course the point is to exercise you and get you to practice your pitch or whatever it is you’re doing. And another fun thing that it does in the idea of Rude Q&A is it should make false assumptions and then challenge you on those because that’s what people do.

If you’re on a sales call, people think a competitor does something and you don’t and they’re wrong, but the question has that assumption built in and you have to unwind that in a nice and brief way. Again, it’s all devil’s advocate to be useful to you, to hone you. So I started by making that skill, which is in there. So you can run that on anything. You can just say, all right, rude Q&A me about the homepage. It’ll just start yapping at you. And I did this about my own book and it was pretty bad. I’m kind of embarrassed by it. It’s like, I mean, you’ve written about some of these concepts before. Why should someone buy the book? And I’m like, because I wrote it better and I have other examples. And there is some stuff in the book I’ve never said before. It’s like, well, are you sure it’s enough?

And I’m like, damn it, shut up.

Or it’s like, but Alex from Mosey [VERIFY: “Alex from Mosey”] has more things to say and you’re just… And I’m just like, oh my God, well, I can’t defend myself against Alex from Mosey for God’s sakes. Whose side are you on? I’ll admit it. It was like, oh gosh, I don’t know if I have all the right answers over here. I have that skill anyway, which is nice. But then for something like Carol, which is to find your perfect ideal customer, and it walks you through the things which are in the book, which starts with your strengths and weaknesses and what they are, and then what I call keystones, which are the main reason why someone will buy it. They don’t buy it because of a massive rubric. Usually it’s like one or two things where they’re like, ooh, I like that so much. And that kind of drags them through the stuff that are trade-offs that they don’t like as much.

So what are those kind of special identifying things among your better customers? The next one is your inciting events. And this means people don’t just wake up in the morning and say, you know what? Let’s replace our CRM randomly or for WP Engine. I know, let’s move our website to another host. Nobody thinks that for no reason. There’s always some trigger, some reason why now they’re actually in the market to buy. If you don’t hit someone during a inciting event, what happens is you get out of the sales call and you’re like, dammit, they have the problem I solve. They agree they have the problem I solve. They even have a budget. They said they liked the product and I think they weren’t just telling me that. They really meant it and they didn’t buy. Why? And the answer is because they’re not buying it now.

You’re number seven on their priority list. They’re only working on one through three. They don’t have time for other things. No matter how big the organization is, you’re just not there. Okay. So there needs to be this inciting event that you need to catch them at. And then finally there’s deal breakers, meaning we love everything about it, but we still can’t buy even though we want to buy because… So for example, a big company might not buy a small product because you’re not SOC 2 compliant and their governance policy is they must only buy vendors or SOC 2 compliant. So that’s a deal breaker. So there’s deal breakers too. When you have all these things, you can start piecing together okay, then who is this ideal customer where all these things are sort of satisfied? And then finally, how do I describe them? The worst way is usually stuff like a midsize company because, well, I go into more detail on why that’s usually not the right…

The firmographics and demographics are easy to point at and almost never the right way to describe who is the right customer. It’s other kinds of behaviors or attitudes. So for example, if I’m selling Kanban software, it would be wrong to say, oh, this is for big companies or small companies. Everybody uses and doesn’t use Kanban, everybody. The size of the company is not why a team picks Kanban or not. It may be because they want to move quickly and be lean and they hate process. So hating process is going to be correlated with might be interested in Kanban as opposed to Waterfall or even Scrum, much more so than how big is the company, right? So that’s what I mean. So the skill walks you through every one of these. It asks you these things where you can dump in stuff like customer interviews or other things you have, and it’ll walk you through and sort of make you answer all of these things so that in the end you’re like, okay, this great customer where all these things are true has these attributes and now I have who Carol is.

Now the book says all that and gives you examples and all this kind of stuff, so that’s great. But again, it’s hard to see all that and go, well, I’m just going to sit here by myself and think of it. It’s just super hard. So an AI can’t tell you who Carol is, or at least I don’t think it should. I think it’s making it up just like you are, but it can grill you in that rude Q&A way to give good answers until we get to the end. So every single set of skills on that website leverages that Rude Q&A sub-skill, which you can also use on its own to go through these things like how do I find interview questions to interview my customers? How’s my Carol? What is the best strategy for me personally? What fits me personally? How do I fit myself to my company, not just the market?

That’s another one. And there’s a set of other ones. There’s various things there, but all of it is in the spirit of facilitate it with these rude questions, don’t tell me the answers. I think that’s why people like it because it’s like someone should ask me these questions.

Rob Walling: I prefer to do this in the privacy of my own home, not on a podcast like Smart Bear Live.

Jason Cohen: Oh, wait a minute, wait a minute.

Rob Walling: So folks, definitely, you have a podcast with I think four, maybe five episodes out.

Jason Cohen: Yeah, now five.

Rob Walling: Yeah. smartbearlive.com and it’s on Spotify and all the Apple podcasts and all that stuff. And this is a continuation of a show you did probably 15 years ago, if I’m remembering, where you… You know what’s funny is you used to describe it as like Dr. Laura for startups. No one knows who that is anymore. It’s just you and I, the old guys.

Jason Cohen: That’s right. Nobody knows who that is. Also, I think she’s canceled. I can’t remember because most people are canceled, but I think so. Most people are canceled. Nevermind. I didn’t know that. I’m not trying to offend anybody.

Rob Walling: It’s a metaphor for a thing.

Jason Cohen: I didn’t know.

Rob Walling: Yeah, but basically you give, I’ll just say tough love advice to startup founders and the episodes are like –

Jason Cohen: Me and a cohost like you.

Rob Walling: Yes. I co-hosted one with you. I hope to do another one again soon.

Jason Cohen: For sure. So there’s five episodes out and it’s 40% Wallings.

Rob Walling: Oh, Sherry was on. That’s what I’m saying, “This is good. We got to keep our rate up.” Yeah, this is amazing.

Jason Cohen: That’s right. So your kids are on next.

Rob Walling: Yeah, exactly. Oh, they’re going to be great with their Gen Z slang. It’s going to be amazing.

Jason Cohen: Yeah. It’s a new cohost every time. I mean, I do want to do one again. That’s not a rule, but just because one of the things I thought was if the same kind of thing comes up, I want there to be different answers with more… And so a cohost does that, a different co-host every time does that. And also, I always try to pick a co-host who is specifically good for that founder that we’re workshopping and their particular problem. So often the co-host has themselves made a company in the same industry, so they just bring all this industry knowledge that I obviously don’t have. So of course, for me, I bring my general stuff and anyway, it’s my show, so I get to be there. But the co-host brings often this kind of expertise or special stuff. And so every time I feel like we have this new dynamic each time, and yet it’s forever.

It’s like two hours. It goes on forever because it’s the actual messiness. It’s not an interview. It’s not prepared. So it’s the messiness of founders sitting together in a room working on a problem and how that really happens. So of course people take away like, “Oh, I can use this line of questioning for myself,” or, “I saw that founder being defensive. I kind of do that. Okay, okay.” And then there’s the emotional side of you can’t help but love these founders. Everyone, I call them the star of the show, not the guest, because they are. They’re being so brave by opening up their business and their metrics and themselves and being vulnerable and you can’t help but love them and just be like, “Okay, I’m not alone. I’m just like them. I get it. I can’t believe they were willing to do that. Thank you.” It’s just so much love coming at them.

So it’s true that it’s tough love, but also there’s that emotional stuff. And every one of us knows, everyone in the room is a founder, the people listening are generally founder. And it’s like we all get it. We’re all in the arena. We all deserve to be in this room. And there’s something really nice about that in a workshop as opposed to an interview.

Rob Walling: Yeah, I agree. It’s a unique format and there’s a reason it’s getting so much traction. I see a lot of folks talk about it on social media.

Jason Cohen: Thanks. Yeah. It’s long, but at least it’s unique.

Rob Walling: For sure. So I want to wrap us up with a question about your final chapter. So in the book, so folks know there are 11 chapters and each chapter covers a hidden multiplier. Chapter 11 is To Thine Own Self Be True, and in it you talk about building a company in the shape of you. And you referenced that skill, the AI skill that helps you find that as well. You want to talk about what that means and what you’re communicating in that chapter?

Jason Cohen: Yeah. This is also my favorite chapter because it’s personal. One of the hard things about strategy is there are so many different incommensurate parts that you have to consider and try to glue together. What are your strengths and weaknesses? What can you even do? What is the market? What is it like? What do they want? What are the competitors like? Where’s the industry going? What is AI doing to everything? What’s the economy doing? There’s all these different things, and somehow they have to come together in your strategy. And by strategy, I don’t mean an 80-page document necessarily. I mean you identifying here are the couple of most salient, important things that we have to understand. Here’s the positioning of what our product is and for whom, and here are the main decisions we’re making under which all their decisions have to be aligned. We’re going to make decisions every day all over the place, but they all have to be pointing in the same direction or else we’re not moving.

We’re just making a mess instead of all being aligned. So these macro decisions and what’s important, that’s what I mean by the strategy. So you can start anywhere in trying to form a strategy. Most people just don’t do it at all. But I think the typical thing is analyzing the market. What’s the market like? What segments are there? What do they need? What are people saying on Reddit about the competition because I could do the opposite or something like that? There’s nothing wrong with that because it does have to match all that stuff. I mean, you have to make something people want to buy. You do have to do that. But you could also start with yourself and say, “What am I special at? I’m especially good at this and I suck at that.” And say, okay, so if you were to make a strategy that required you to be amazing at something you’re terrible at and hate, that would be the wrong strategy for you, right?

You won’t execute that well. You will probably fail and hate it because you picked one that didn’t match you. So people do that all the time because they don’t consider themselves. And guess what? They fail, but that’s because you picked a strategy that wasn’t right for you. So while you can’t just do what you want because what if nobody else cares? That’s right. That’s right. Again, it all has to come together, but either people don’t consider themselves at all or you don’t realize you could start there and grow outward from there and say, “What can I put out in the world that’s actually really good and natural? That means it’s efficient and I like it. I’ll have motivation to do it for a long time because it’s fulfilling for me. And then let me see if I can find a pocket of people who agree that I can find to buy it.”

So that’s kind of the perspective of the chapter. And of course, there’s not one way to make a strategy. That’s not the point. The point is you’re probably not considering this enough to your detriment, also to your fulfillment and happiness. So one observation from there is you say strengths and weaknesses, but to me, strengths and weaknesses are always contextual. There’s no such thing as a strength or a weakness without context. For example, the example I give there, one of my strengths is, according to Gallup StrengthsFinder, which is one of these personality things, is competitive, which is true. I always want to win and I want to beat people, whatever. Is that a strength? Well, if I’m in a sales call, it’s a strength. If I’m trying to hire someone who has other offers, then being competitive is a strength. But if I’m in a meeting where the point is to debate ideas and find the best idea, then me trying to win is a weakness.

And there’s other areas where that is a weakness. I stopped playing chess because I was so aggravated with myself if I ever made a bad move. It’s like this is supposed to be fun, man. So it was a weakness that I couldn’t turn that off. So is competitive strength or a weakness? And the answer is it’s contextual. So with that in mind, my idea and what’s in the chapter is how do you inventory your attributes, not strengths, weaknesses. What are you? What are your salient thingies that define you like competitive or whatever? And so I have some techniques in there for how to figure this out. And then you say, okay, that’s what I am. Now I need to pick a strategy where these are strengths, where the strategy where being like this means I’ll do a good job and not where I have to overcome a lot of these.

Now, of course, this is a vision statement. Nothing’s perfect, but in general, we want it like that. The other question is, okay, sometimes you need to shore up a weakness. Sometimes you really do. Not to turn into a strength, that’s too much, but to file it down so it’s not just totally hosing you. I give in there some examples of how do I know if it’s really worth tackling a weakness? So for example, when other people at the company are having to proactively work around this thing, they’re doing work, which means they’re thinking about it, they’re talking about it, they’re not doing other work because they’re doing this, that’s such a tremendous waste of time and their morale that you’ve got to do something about it. You don’t have to become a totally different person, but you got to stop that. You can’t do that.

So this kind of thing. Another one is if you look at what are my real goals? I want to make a company that is really big or I want to make a company that is not more than a million in revenue, but it’s kicking off a million in profit and I don’t want it to grow so much that I need more than two employees and I want that to be sustainable. Okay, whatever your goal is, that’s cool. If that weakness is actively harming your ability to reach that goal, then you should file it down, but not because of any kind of, well, that’s a weakness you suck or because I said so, because you said this is a goal and then you said it stopping you. That’s why. And any other weakness that’s not actively doing that, don’t worry about it. You’re going to have weaknesses.

It’s okay. Move forward. But you’re the one who said, this is important to me, so okay, I believe you. And then finally, the worry is like, look, there’s so many things that have to go right in a company, so many things we need to do, and everything’s always on fire, especially early on, but really forever. There’s at least something on fire all the time. And so you’re like, it’s just overwhelming anyway. But the truth is you only need one or two really, really great strengths, special strengths, which the strategy also needs to succeed to win, just one or two. And you can see this in all kinds of products. The iPhone came out and it didn’t even have copy paste. It was super slow. There’s all kinds of issues, but oh my gosh, the form factor and wow, the real internet. So that was it.

The form factor and the internet, it was like all the other problems were like, whatever. When Heroku came out and it was like, look, git push to deploy. Yeah, but I have to switch to Bundler, which I don’t want to do. And oh, I can’t write to the file system, which means I have to rewrite my code, whatever. That was so magical. It was like, screw it. Okay. So you only need one or two things that truly are special, that are worth it or that are great. And then that can overwhelm all these other weaknesses or drawbacks of whatever they are. So attributes, strategy where they’re largely strengths, maybe you file down a weakness if it’s stopping you from a goal or something exceptional like that. And by the way, you only need one or two real special things. You don’t need to do everything.

And once you realize that and kind of catalog that, now you have, you might say guardrails or constraints on what a good strategy even could be for you. And that reducing the solution space of what strategy would be good for you is so nice because if you’ve never done that, you’re almost for sure not in that space right now.

Rob Walling: Jason Cohen, it’s a pleasure having you on the show, man. hiddenmultipliers.com. Folks should check the book out, get it in many formats, including Markdown. Gosh, think of the leveling up. You have it in an AI optimized markdown format or something. Does that come when you buy it?

Jason Cohen: Well, if you get the skills, you almost have it.

Rob Walling: Yeah.

Jason Cohen: Geez. I should say things like the skills, they’re not only free and open, but you don’t even have to put in an email address. There is one for if I announced there’s another skill available, but you don’t even have to put an email. They’re just there and it’s in a GitHub, you can just have it all, including I have a skill that makes the skills. So if you want to make more skills in my style, that’s in there too. You can just take it.

Rob Walling: Oh, nice. That’s great. asmartbear.com, if folks want to check out your writing, Hidden Multipliers for this, and of course you are on X/Twitter @asmartbear. Thanks so much for joining me.

Jason Cohen: Thanks.

Rob Walling: Thanks again to Jason for coming on the show. If you haven’t already, go ahead and pick up his book at hiddenmultipliers.com. And if you want to see him in person… Actually, I’m not even going to say that. I’m going to say you want to see him in person. Trust me. He’s going to be giving an incredible talk at MicroConf in Austin this April. April 18th through the 20th, you should head to microconf.com/us. Thanks for listening this week and every week. This is Rob Walling signing off from episode 857.