Episode 97 | Premature Scaling

Show Notes


[00:00] Rob: If you stick around to the end of this episode Mike and I are going to be talking about premature scaling. This is startups for the rest of us episode 97.

[00:07] [Music]

[00:15] Rob: Welcome to startups for the rest of us, the podcast that helps developers, designers and entrepreneurs be awesome at launching software products, whether you’ve built your first product or just thinking about it. I’m Rob.

[00:24] Mike: And I am Mike.

[00:24] Rob: And we are here to share our experiences to help you avoid the same mistakes we have made. This week the word is Audit Shark, early access.

[00:32] Mike: Yep.

[00:32] Rob: So what’s going on? Did you… Are people using it Mike? What you had talked about on the podcast was that yesterday people had started using it in September 10th.

[00:38] Mike: Yep.

[00:39] Rob: Did that happen?

[00:40] Mike: Well actually I had somebody start using it last week so…

[00:44] Rob: Oh, nice.

[00:44] Mike: I had somebody install AuditShark on a couple of their servers and basically worked through some of the issues that they were having just to basically make sure that everything was usable and functional. And then from there basically to ran some more tests over the weekend and made a huge number of changes of the code over the weekend and then I waited until this morning actually to get my next customer on.

[01:07] So yesterday I touched base with, you know, somebody who was interested in using it as an early access customer and got him installed, he was up and running and you know once we started with the process it was maybe five or ten minutes tops. And most of that was working through some last minute code changes that I had made. So for example I dropped some columns and then forgot to pull out some of the error checking code so they were looking for it, but there was no way for him to enter in that information so I had to make some raw database changes. But other than that I mean things went pretty smooth I think.

[01:38] Rob: Awesome. And so you have two customers or potential customers using it? Well, so that’s an interesting question, are they customers, like are they paying you yet or are they under the understanding that it’s maybe a 30 day trial or how has that worked out?

[01:52] Mike: So one of them is a prospective partner who wants to resell it and the other one is a prospective customer who will be using it for his own servers.

[02:03] Rob: Got it, so he is checking it out, see how it works, see what it does. And is there a trial period you have discussed or you are just kind of going to say how is it working and touch base with them and that kind of stuff?

[02:13] Mike: Yeah that’s probably going to be more it than anything else. Most of—I mean the thing is one of the issues that have right now is because the product is functional but it isn’t necessarily complete. The primary issue is that it works and does what it’s supposed to do but because I don’t have the library populated with a lot of content yet, it’s not as useful as it could be. So essentially what I am doing is I am working with him to essentially do things on, I don’t want to say consulting basis, but in a way I am basically taking a look at his servers, you know, and I am going to be building the policies on his behalf and just I am going to let him know, hey this stuff is ready, you know whenever you what to run it., if you want to double check and watch your servers just to make sure that there is not going to be any major impact or whatever then he can do that and he can run it on his own schedule. It’s very simple to do that for him.

[03:04] And then you know he can take a look at it and maybe later on he just decided, oh well you’ve got some new stuff, I have already seen it in action. It’s not hurting anything; it doesn’t have a very high impact, just go ahead do whatever you want whenever you want.

[03:17] Rob: Right. Sounds a lot like customer development at this point, right? I mean you are actually working with a real customer and basing your features, your new features on his needs.

[03:26] Mike: Yeah, I mean and that’s the nice part about this piece of it, because it’s content driven and I can just develop new content and add it in, it’s not like I am adding new features but I am adding—I guess in a way I kind of am adding new feature because they are new things that the software is going to be looking for but it uses all the same underlying code that I have already written.

[03:45] Rob: Right, you are modifying XML files that the code consumes, is that right?

[03:48] Mike: Yeah basically.

[03:49] Rob:    RUL files, yeah, AuditShark audits. Servers and the security audit scan stuff and you are basically adding more rules and more scans, more points of data by not modifying code but modifying some text file, I assume it’s XML or something so–.

[04:04] Mike: Yeah.

[04:05] Rob: Fantastic. So how do you feel? Does it feel good or is it like—are you as excited as you thought you would be you know because you finally, you are on early access, or is it like a letdown?

[04:14] Mike: I don’t think it’s a letdown. I feel good about where things are at, I mean I am a little disappointed that I am not further a long but I think that that’s going to be the case no matter what.

[04:22] Rob: Sure.

[04:22] Mike: You know I ran into some previously undiscovered scalability issues last week that took me quite a while to track down because I had some—some of my logging code wasn’t actually logging anything and I knew that a long time ago but I just said, well you know, it’s logging code, it’s really not that big a deal. Well, then I ran into an issue where connections weren’t being closed to the database and it became an issue because I couldn’t see where those connections were being opened and closed.

[04:50] Rob: Right.

[04:51] Mike: Now I had to fix the logging code and then once that was fixed then I had to go fix the connection issue.

[04:57] Rob: Right. And that’s early product stuff, right? I mean you are always going to see that at this early stage. So what’s your plan now, like today, tomorrow, this week? You are working on AuditShark almost exclusively, are you writing more code right now, are you building more rules for your two kind of customer development folks, are you looking for other people to do early access so you can get more feedback? What’s your game plan?

[05:20] Mike: So right now I am planning on, I am doing a little bit of code, just basically the bare minimum stuff that I need in order to be able to populate the database, beyond that I am not really doing anything that is code development related. There is a few minor features that absolutely need to be there that, you know, for them to be able to use it that I am still kind of working on. But you know those kind of go hand in hand with populating the library. So until the library is populated, those features are kind of completely unimportant and in order to test populating the library I need those features.

[05:51] So I expect those to kind of be hammered out in the next couple of days, probably two days at most. And then from there on it’s just a matter of, you know, running these policies against their machines, taking a look at the output, seeing what things come back as okay, what things come back as not okay, where I can drill in to find out more information and then essentially determining what other recommendations I can make based on what they have installed, because if by looking at their installation, let’s that they don’t have Apache installed, well why would I go out and build, you know, 100 rules that check what Apache is, how Apache is configured and what versions of everything are there and what vulnerabilities are there if they don’t have Apache. I feel like that’s important down the road but because it’s still early customer development stuff and they are not going to be using that, I don’t feel that it’s as important.

[06:40] Right. Do you have plans right now to get another potential customer or two on board, like as of next week do you think you will have more people using the system in order to vary the feedback that you get?

[06:51] Mike: I would expect that by the end of the week I probably will.

[06:54] Rob:    Okay.

[06:54] Mike: We’ll start talking to people early in the week and then trying to identify specifically who I am going to add in by the end of the week.

[07:02] Rob: Very good. Well sir, let me  join each person listening right and wish you a hardy congratulations on getting it out of the door and getting it on a real server, a few real customer servers.

[07:13] Mike: Thank you.

[07:15] Rob: So this actually ties in with a voice mail we received, J. Speaks called in and he thought I let you off too easy with our discussion about Altiris Training versus AuditShark because AltirisTraining you spent maybe a month, about somewhere between a month and six weeks, you outsourced a lot of it, you recorded the videos and you have had some early success with it. Pretty quickly people signed up and you know you have some demand. And then AuditShark you have been working on it for several years, people can go back and listen to the last 40 episodes to hear all that, but basically it’s just  much bigger project, it’s more ambitious and you know you are just now getting into the really—the focusing and doing customer development stuff.

[07:52] J’s concern was that when I asked you, I said hey you know how come you are going after AuditShark instead of just focusing on Altiris Training, just going after it and ten-exing your effort on that and leaving everything else behind. And you said because you are not that interested in AltirisTraining, it’s not that big of a market, you don’t have a passion for it, you know, some other stuff. He just said it seemed to him AltirisTraining is the obvious choice to pursue based on its early access. So I wanted to hear more from you, why aren’t you doubling down on AltirisTraining and why are you continuing to go after AuditShark?

[08:24] Mike: I think the primary reason that I am not really going after the Altiristraining.com website harder is because of the fact that I don’t see where additional traffic would come from. Looking at the searches that are done for it, looking at the current traffic that I am getting for it, I am still only getting, you know, four or 500 websites visits a month and that includes people who have already bought. And since I have launched it, I think in the first week or so I had several sign ups and since then I haven’t had one.

[08:53] So to me it looks like, you know, there is a market for it and it’s probably as small as I kind of thought it would be. I don’t see it as being something that’s going to just grow and grow and you know maybe that’s just going to take a little bit more effort on my part to try and, you know, figure out how to optimize that pipeline a little bit. But you know at this point I just don’t see any sort of substantial growth.

[09:19] Rob: Yeah tell me—so there is a market for this right, some people are interested in it, potential opportunities for expansion, I mean there could be partnerships, could be, not affiliate deals in the traditional sense but affiliate deals that are like high tech sales on your part, right? Of actually talking to consultants and talking to—and I guess you already have one of those in place, but multiplying that. They are all fairly, they are not really automatable and they are not internet marketing based, right? It will be more about building a real business, more about focusing and doing more medium and high tech stuff, whether it’s direct sales or selling to partners who can then resell it.

[09:54] And my take on it is the reason you don’t want to focus on that is because the idea is not that interesting to you and if you are going to spend all that time that you prefer to spend that time working on AuditShark. And it’s an interesting question, right? It’s like what are you optimizing for. And I think every person who is launching apps needs to ask that, what are you optimizing for? Are you optimizing for to make enough money to quit your job, are you optimizing to, you know, enjoy what you are working on, like are you really passionate about it? Is it some mix of the two? And I think that’s the question you are probably dealing with, is even if you could, let’s say you just stopped working on audit shark all together and completely focused in Altiris Training.

[10:33] Number one, it’s going to take you a heck of a long time to grow it, right, because it is medium and high tech stuff. And my guess is that with AuditShark, after you build a product people want, you are going to be able to get some of that automated—it’s more like the fly wheel traffic effect of getting online marketing going. Based on our conversations it seems like your desire is to go more of that route and you are just more interested in Audit Shark? Is that accurate?

[10:58] Mike: Yeah I think so, I mean I looked at it as something where I could probably build something that would have value in the future but not necessarily a substantial value now and that I wouldn’t have to sink a lot of time and effort into it to make a few hundred dollars extra a month. And at this point you know I had somebody who paid for six month subscription upfront, I do have the potential for, you know, an additional anywhere from 250 to $ 1000 a month in sales that, you know, very well could be recurring just through the partnership but at the same time the existing customer base is only paying a couple $ 100 a month for access to the site.

[11:37] So realistically I am looking at, you know, maybe close to $ 1000, maybe a little bit more. I don’t realistically see it going over $ 1500 a month anytime in the near future. The point was really to get it to a point where it was automated enough that I didn’t have to worry about it too much, but at the same time I may be able to just turn around and flip it. I was really looking for in many ways a project to vet a couple of developers that I was trying to identify.

[12:03] There was one developer who I had working on Audit Shark who was not really working out very well and I was very low to find another one and put them also onto AuditShark, at least right away. So in some ways it was a vetting process for finding those developers, you know, finding a developer who I can put on a different project, have him do something that, you know, may very well be meaningful and substantial to me but isn’t going to break the bank, isn’t going to necessarily either positively or negatively impact AuditShark, and that was really what I was more concerned about, was the negative impact to AuditShark.

[12:37] Rob: Yep, and I know where you are coming from because I own a number of websites, they are in the similar vein for me, right? It’s more automated income, automated revenue, and they are not in a niche that I particularly want to go and spend a bunch of time in and they have a traffic source or two that is recurring and that is a fly wheel and that I don’t mess with, but growing it beyond where it’s plateaued would be a lot of effort and I much prefer to spend that effort, you know, on something else.

[13:05] So hey I have two quick updates then we are going to dive into the premature scaling discussion. The first thing is, I don’t know about you but I am looking forward to episode 100. We have a special episode planned, we are stocked about that. Keep your eyes peeled, just three episodes away now. The other thing is I hired a half time contractor to help me with marketing and support and I already have a VA doing Tier one support, but I hired this—he is actually a colleague, a friend of mine who I have known for about a year and he is going to be doing tier two support. So I have been doing tier two for, you know, the last nine months.

[13:42] And so he is going to learn the ins and outs of the app and he is also already creating an email follow up sequence. He is doing a bunch of stuff that’s been on my list since I acquired the app but have not had the time to do. So he is doing a lot of content creation, he has worked on some ideas for info graphics, some viral blog posts, a couple of other things that are just, you know, they are too complicated to kind of outsource easily. And what I like is that I have a lot of task people, I have a lot of task Vas and developers and such where I can give them a task and they can do it. But he is much more of a project person where I can just say here, go do that, research it, proposes titles, and I say alright pick that one, there, now go gather data for an info graphic. Boom! Comes back, you now, it’s like that kind of thing where he is more of a full service person.

[14:21] So basically I had several agencies quote on doing this exact work that I am talking about and they outlines their process of how they would do it. And I am taking that process, and they were definitely going to be contractors, they work for an agency. And I took that exact process and gave it to him and said go do what they sad here. They didn’t give me any ideas, we didn’t steal anything or write anything, but I said here are the steps here are the steps we are going to go through because these are the steps I was going to go through with them. So I am pretty darn sure that going through these steps does not make you an employee.

[14:50] You know and I am  excited to have someone on board who can do a higher level of work with, you know, with less supervision who is more like a consultant, you know, it’s more like a  consultant  than a contractor.

[15:00] Mike: Right, yeah. And that definitely nice to have, my wife and I were having a similar discussion a couple of nights ago that was just about like our previous work histories where, you know, where she used to work at a graphics design company where there would be employees who come in and unless they were explicitly told to do something, they wouldn’t do anything and they would basically sit around waiting for people to assign them work. How does anything get done if you know nobody is there to tell you to do something then what gets done. And the answer of course is nothing, and that’s one of these–, I  would call that a hiring problem more than anything else, I mean you really need to identify those people who are going to be employees who can identify what needs to get done and get it done.

[15:38] Rob: And I think that’s the difference, you know when founders say like I want to hire great people, like great people are the ones who improve your business. You hire an employee improve your business even if you step away for two days, you come back the business is better than it used to be, whereas, average people maybe don’t do that. You know Kagan talks about that in his talks and he says there are minus ones, zeros and ones, and the ones are the ones that improve the business. Zeros keep it so, so, and you will need some of them and then the minus ones are kind of more the toxic people, the people who I actually degrade from the business.

[16:06] [Music]

[16:10] Mike: And this episode is based on some thoughts I had regarding a forum thread came up inside the Micropreneur Academy that popped up a few weeks ago. And essentially what had happened was that Facebook decided they were going to eliminate about 80 million fake Facebook accounts. One of the members of the Micropreneur Academy ended up with what was literally exponential growth because all these Facebook accounts got shut down and people were looking for another place to go and his site offered something that very much appealed to this particular audience and it was kind of a social networking site. And you know people just kind of flooded his server to sign up for accounts. And this wasn’t something that he had planned; this wasn’t something that he had actively gone after, it just kind of fell in his lap. You know obviously not everybody is in this kind of a position but it brought about a discussion about, you know, when is it the right time to scale out the systems.

[17:01] And I think that the obvious short term answer for him is,  you know, it’s kind of too late to scale your code at this point, you basically just have to buy a better server, buy more hardware, you know, throw hardware at the problem until you figure out how to deal with it. But you know the questions came up, well why didn’t you, you know, build for scale to begin with? I mean what’s preventing the site from being to handle this influx of people. So the basic question is, you know, when is the right time to scale, you know.

[17:27] And there is different aspects to that question, I mean the first is engineering your software to scale. And I think that I was reading Dharmesh’s website on startups.com and he actually a blog post that was specifically about this and the direct quote is, “ don’t fall into the trap of spending limited resources on planning and preparing for success, instead spend them on times that will actually increase your chances of success.”

[17:51] Rob: You know I have seen this over and over especially with businesses that I have acquired where the previous owner has invested literally tens of thousands of dollars into either hardware or into bullet proofing software and making this exotic admin area or just automated incredible amounts of things to where their app could handle 50,000 paid customers, but when I buy the app it has four paid customers. They either didn’t know how to market, they ran out of money before they were able to market or it just wasn’t a good idea for an app at that scale.

[18:26] And then you know I will take it over and downgrade everything and go to a—I mean I went from a $ 500 a month hosting plan with one app and I moved it to a shared hosting account that is eight dollars a month and it has never had a glitch, just incredible stuff, right? So that’s definitely premature scaling and I have seen that a lot when I was—I also saw it a lot when I used to consult especially for the government.

[18:47] Mike: Well the government is totally a different story, but so basically you increase your profit margin by $ 500 a month or $ 492 a month just by moving it to a different server?

[18:57] Rob: Yes. It was crazy I know. That might have been the single most profitable move I did that year. It is very common especially for some reason as developers and I am the same way, I have to fight off this urge but when I—I think coming through the enterprise software ranks you have to think a certain way. And with enterprise software it tends to make sense that you would think that way. You know, you are trying to avoid these massive outages, you are trying to avoid of manual labor, you are trying to avoid one off things, all of those things need to happen because you have hundreds of thousands of users or your system is absolutely mission critical, it cannot fail and so you learn to engineer things a certain way.

[19:36] So it’s really hard to then come away from that and sit down to build invoicing software SAS app or a keyword tool SAS app and to think differently, right? Because you think about every edge case and then you spend months building this software that can handle every edge case. Whereas handling those edge cases manually is going to save you those months of development time.

[19:57] Mike: Yeah and if the application itself changes significantly enough, those edge cases may just completely go away.

[20:04] Rob: I agree. And I mean even this morning I was recording a screen cast for kind of a new edge case we discovered with one of my apps and I sent it to the virtual system and I told them if this happens a lot and you feel like you are doing this too much, let me know and I will write the code to fix this, but it’s about 10 hours of work for me. And I know that doesn’t sound like a lot but that’s a bigger time investment than I want to make when this is literally—it’s about a five to seven minute process for him each time he has to do it. And my guess is this is going to happen once a week and I think that’s what has been happening for a few weeks.

[20:38] And so, hey that’s a nice trade off for now because I am going to take that 10 hours, invest that into actually getting more customers which is basically what Dharmesh said, don’t spend the time actually preparing for success, actually increase your chances of success. And so I am going to invest that 10 hours right now into increasing the success. The other thing that people shouldn’t over look is I am not just saving time, right, I am saying it’s 10 hours and he is going to spend five to seven minutes per, but I am saving my time. So him spending five to seven minutes for several months is still worth me saving a few hours of time so that I can push the business forward.

[21:11] Mike: Yeah and I think that’s, you know, that’s really what a lot of  people over look when they are trying to figure out what they should do next and you know people get hang up on these little details where, oh well, this is taking too long to do or oh I can write the code for this. And the answer is not always code, I mean as developers our brains kind of naturally gravitate in that general direction because we like to solve problems and get things done. But sometimes you have to look at the bigger picture and the bigger picture in many cases is Identifying when it is not cost effective to do something, you know, when is it going to save you more time by, you know, skipping over that and just dealing with it when that piece comes up. And there is all these different things that you have to maintain in addition to that once you have written that code. So you write that code and then you own it for the life time.

[21:58] Rob: Yeah I think the big question you should ask yourself anytime you think about sitting down and not building a feature but doing scaling type stuff or handling edge cases with code or admin tasks that could be handled manually is what is the danger of this actually happening and what is the consequence if it happens. And so you can take an example like, you know, some edge case, someone clicks a button in Hit Tail and they are on the old billing instead of the new billing and it can’t do it. And so I can write a bunch of code to go back and you know mess with scripts and mess with data, or I can just pop up a message and say you know what, you are on old billing, click here or you know our Admins already been notified and they will go on and do this manually. And that is like a three minute change, right, to just ping off an email and give a message.

[22:46] Alternatively, I could spend four or five hours and solve this thing for this one person, but the question I have to ask myself is, what is the chance that this will happen again? The consequence is oh, that someone sees a message? That’s a bummer, if 100 people a week saw it then yeah I don’t want my app to function like that, but if it’s once a month then you got to be willing to put up with that in order to save like I said even four or five hours a time because our time as entrepreneurs is so valuable, it’s more valuable than having perfection.

[23:16] Mike: And I used to be extremely guilty of that one, I worked at Pedestil because we would ship the product and we would ship it with this list of known issues and it just buffed at the time, I mean looking back on it I was kind of young and naïve but looking, you know, at the time I am looking at that saying well we know about these issues, why are we not fixing them. And you know of course it’s all about getting the product out there and making sure that people are using it so that you can charge more money for it and so that you can pay the bills and you know pay my own salary which, you know, I should have been able to realize that stuff but I just didn’t and I was too focused on the code itself as opposed to the bigger picture of the business.

[23:55] Rob: As a software craftsman you want the code to be the most important part and you want it to matter, right? You want it to be what matters and what makes the difference and  you want your product to be perfect because that’s what you are good at, you want your be proud of what you are building if you are a craftsman. But when you are an entrepreneur, even if you are still that technician, you have to balance these two things out.

[24:16] Mike: So let’s kind of go onto a slightly different topic in terms of scaling. What about scaling marketing and paid advertising and things like that? I mean it seems like especially when it comes to paid advertising, the last thing you want to do is start dumping money into that and scaling it before you even know it works.

[24:34] Rob: There is some pretty obvious steps that you need to follow before you try to scale a marketing spend, and by marketing spend I don’t just mean paid advertising, I mean investing your time or money into having info graphics made, having viral blog posts written or writing them yourself. Any part of partnership where you do an integration, like this all costs either money or time whether you hire or do it yourself. So before you know that you have a product that people want to use and that will actually convert when they hit your marketing website and that they will stick around for a while until you have a reasonable lifetime value, then you should not scale your marketing, period.

[25:14] The first one is do you actually have a product that people are interested in and that you can communicate pretty quickly because that’s the core of going on marketing on the internet, right? If you have a product that’s so complicated, whether it’s an enterprise product or it’s just such a new idea that putting up a Google Ad or a Facebook Ad or building an info graphic isn’t going to really get people to come in and buy, then you know you have more medium and high tech sales stuff.

[25:37] So the first step is getting a product that people want, the second step is having a website that actually sells it well and that gets a decent conversion rate and gets enough people through the funnel that if you do go out and buy, whether you do the info graphic or paid Ads, you know if you send a bunch of traffic to your site are they actually convert. And then the third thing is plugging that funnel, making sure that people who start your trial actually convert to paid and after they convert to paid they don’t just churn out in the first month or two because then all that money you spend early on is just going to go away.

[26:12] So that’s you know one of the–, there was a startup survey and I wish I could remember the name of it, but it basically said that one of the, if not the most common causes of startup failure, was premature scaling. And what they meant was it was trying to go out on just market, market, market, before they had done those three steps.

[26:33] Mike: It’s interesting because, you know, I am kind of in that position right now with Audit Shark where I don’t necessarily specifically know the product market fit is the yet, I mean I am sure that there is, you know, a way to tweak Audit Shark so that it s the right product and you know it just needs to find the right market for it. In some ways I am having a hard time kind of identifying the terminology that people would use to like search for it. How do you translate what people are thinking into words that they would actually use to go search for this type of product and that’s, you know, that’s the stuff that I am struggling with.

[27:05] Rob: Absolutely.

[27:07] Mike: It takes a little bit longer, I mean I feel like I am going about things a little bit slower than I would like in many ways but at the same time I feel like it’s the right path because I don’t necessarily know all of the fine grain details. So you know I would like to make sure that, you know, once I find that, you know, test it out, make sure that it’s right.

[27:25] Rob: Right, I mean I just ran through this over the last nine months, right, because I had HitTail, I know the old marketing wasn’t working very well. And so I had to figure out what do people call this, is it an analytics package, real time analytics, is it a keyword tool, is it a Long Tail keyword tool, is it Nassio keyword tool, what are the ramifications of this thing, you know, and what are people going to search for, what’s going to make sense in their mind. So that was a lot of—there were some research, I did some competitive research, looked at what Analytics—what people think of when they see Analytics versus Keyword Tool. And then also it was honing copy and I wrote the first version of the website and since then I just tweak and tweak as I find that certain Ads convert well and get a lot of clicks. Then when they come to the website I will start borrowing copy from my Ad and putting it in the website because I know its compelling headline and compelling Ad copy.

[28:18] So it is an ongoing process but you certainly optimize, you kind of optimize up as you do it, right? Your first version is your best guess and then the more you talk to customers the more you get people to come visit your site and the more you do, you know, advertising or even info graphics and blogging. You just learn the verbiage that people used to talk about it and it becomes part of your kind of vocabulary as you speak about it. And then it becomes much easier. If you go back and revisit a page you wrote six month ago, whether it’s the home page or any page of your sales site and you haven’t seen it since, you will realize like oh my gosh, I can’t believe I called it that it’s not that at all, you know, no one called it that. And you will revise it, so definitely a process but the key part of that is starting to talk to customers pretty early.

[29:00] Mike: You know I came across this book on Amazon called Nail it then scale it-The entrepreneurs guide to creating and managing breakthrough innovation. Have you come across this book before?

[29:10] Rob: I haven’t.

[29:10] Mike: Okay. It has 31 reviews and the vast majority of them are five stars.

[29:16] Rob: Oh yeah.

[29:16] Mike: It’s like 28 of them are five stars and I think I am actually going to pick it up and take a look at it. I guess the third piece that I wanted to talk a little about was scaling the business itself and you know how do you go about scaling the business. One of the things I read a while back was this thing called the lily Pad Strategy. The basic idea was to treat your market as if it was a pond and you know you are addressing this little tiny piece of the market and that’s represented kind of by a lily pad. And in order to address the entire market space, what you need to do is you need to jump from your lily pad to an adjacent lily pad. And instead of trying to go to a lily pad that’s clear on the other side of the pond, you want to go to an adjacent one because that is much more reflective of what your product currently looks like versus something that’s on the other side of the pond where their expectations are completely different and the product that you currently have is not going to even remotely resemble something they are looking for.

[30:11] Rob: So does the Lilly pad strategy mean that you should just make small tweaks to your product, is that what it’s saying? I guess I am missing out on what the adjacent pad–.

[30:20] Mike: Oh, so let’s say that you have a product that is like a CRM package for a dental practice and you’ve got this CRM package but it’s specifically for dentists. Well an adjacent market might be a CRM package for like a chiropractor practice, you know, some sort of physical therapy because it’s still in the health care but it doesn’t branch out into things like mental health where there might be other, you know, logistical hurdles in terms of regulations that you need to deal with. Maybe there is laws that deal with how that data is going to be stored that are radically different from the mental health perspective versus physical health.

[31:01] Rob: Right, okay. So this is about growing your business, like growing your market and taking over new adjacent niches.

[31:08] Mike: Yeah, so I thought that, you know, the article it was very interesting about discussing it in terms of these Lilly pads which are market verticals which are right next to each other and some market verticals are going to be really close to each other and then there is other market verticals which are much, much further away. And you start branching out and you start addressing all of these different needs which you start ending up doing, is you essentially morph your product into more of a generalized solution that addresses a much, much larger portion of the market as opposed to the niche product that you started out with.

[31:39] Rob: Right and you see that like with Fog Bugs, right? Fog Bugs originally started as a bug tracker and then it moved into like a project management tool, and then it added like estimating and you could do Adgil development with it and it had built in estimating algorithms, and then they added a Wiki so you could so specs and roll that right in. so it kind of expanded into a larger tool, I think that’s pretty natural.

[32:03] My experience to be honest is with smaller shops like you know one to five person software companies, is that most markets they are going to be in are going to be large enough that there is low hanging fruit that people leave behind and they expand too quickly. I guess that’s what we are talking, premature scaling. It’s if let’s say I am a one person software shop and I have a product like Hit Tail, there is still a lot of the market that I could reach that has never heard of my product and so if I were to right now start going after—I have had suggestions like you should get it localized and globalised, do both. And so get it into other languages and handling other currencies and you should just start going after Western European markets and all this stuff. And it’s like, yeah okay that could work, but to me that’s way too premature to branch out into other markets.

[32:56] Well I think people need to use caution and thinking, well since I have tried some marketing and I am pretty much tapped out I am going to branch into this other market, because that’s that—it’s that downward cycle I would say of constantly thinking you need to build new features when you really you don’t know how to market yet. And you don’t know how to market your app yet and you haven’t optimized that part of it and you are expanding too quickly.

[33:18] Mike: Yeah I mean all of those things are great things to think about, but I think that maybe some of the listeners might question, you know, what are the things that you can look at in your business to figure out whether you have reached the market potential for a product versus, okay I have kind of saturated this piece of the market, I really need to start looking at either adjacent markets or complimentary products or just an entirely different product.

[33:39] Rob: Right. Well I think you can look what traffic sources you are currently harnessing, and I don’t just mean online traffic but you know if you take inbound phone calls or whatever other types of stuff you are working on, I think that a product that people are actually interested in using and that totally clicks with them and you have a high retention rate, I think that a product like that has a much larger market and a longer life cycle than most people have attention for.

[34:07] And so I would ere on the side of if you have an app that people are actually paying for and saying wow this is fantastic and offering to give you testimonials, which I have seen happen, then you need to double down and really look at where is all your traffic coming from and what have you not even touched, because I can almost guarantee you that if we sat down I could point out five areas that you haven’t even thought about, five places you haven’t even thought about marketing.

[34:32] So I would almost say, as a rule, don’t expand out until you are way, way down the line. I feel like you are going to have so much experience and so much knowledge as an entrepreneur you are going to know when the time is right that you should scale it out. If you are hesitant or wondering, my app kind of isn’t really taking off, should I just add more features or go onto other verticals? I think that’s the wrong time to do it. But if you do a full pivot, then that’s one thing, right? If you realize wow this other market really needs it more and I am just going ditch and leave the other one behind, but if you are thinking about expanding and just building a bigger and bigger product, trying to capture a few more crumbs from other verticals, I don’t think you built something that people want.

[35:10] How about scaling like internal business stuff, like if you know in terms of building the product and maintaining it and then supporting the product and then marketing, what are your thoughts on scaling those areas in a business?

[35:23] Mike: You have to find either employees or contractors, consultants even that you can essentially hand those tasks off to that have some sort of a measurable goal that they can measure the results against and they have to have a process to do that measurement. And I think that’s probably the most important thing to figure out whether or not they are making progress or not and make sure that the time lines are short enough such that they can measure those results and figure out whether they are making progress. And if they are not, how can they go backwards a little bit, take a couple of steps back and then maybe come at the problem from a slightly different angle in order to actually move things forward again.

[36:00] Things get to a certain point where you just can’t manage everything yourself, at least not all in your head or, you know, there is only so many hours in a day. You are going to have to have other people that you rely on that you hand some of these things off to.

[36:14] Rob: If you want to go to the next phase then you do, otherwise stay where you are if you are happy. You know and that first phase is that solopreneur, it’s the micropreneur we have talked about over and over and doing everything yourself and that can work for a while. Step two which I do actually think or phase two which I do actually think people should move into, that’s where you are outsourcing and you are outsourcing mostly to task based contractors and we talk a lot about that here in the academy, hiring VAs, hiring developers. But you are still the entrepreneur and the manager and you are handing off just some of the technician aspects of it.

[36:46] And then phase three, this is where you know a lot of people don’t want to go and actually historically you and I have not gone here, but I feel like I am slowly being pulled into this as I want to grow larger and larger, that’s where you do hire that consultant level, the project level  person. And like you said whether they are an employee or a contractor it’s kind of irrelevant, it’s can you hand off an entire project to them. And they go handle it and they are just at a higher level and they go based on goals rather than here is the process, you know, that you plug this into. And then past that I think is hiring like full time employees, but I think early on you really need exceptional employees to really push the business forward and then I think when you get to five or ten employees then you need to start having a little bit more process in place because you are just not going to find 20 phenomenal employees.

[37:33] You are going to get some people who are just kind of average and you need to have processes that help the whole thing function and you did get more process oriented. And obviously growing up from there requires even more process and that’s typically the time that a lot of founders sell and leave because it’s not necessarily fun anymore if you like early stage startups. To be honest I typically haven’t stuck around with companies as they have grown past teams of about 15 or 20 developers. That’s when I historically I have just found out that it’s like this is way too much headache, you know. But what’s required for that size business is not a bad thing, it’s just it’s not a good fit for everyone.

[38:06] Mike: Right.

[38:07] [Music]

[38:10] Mike: If you have a question or comment you can call it in to our voice mail number at 888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from “We’re Outta Control” by MoOt, used under Creative Commons. You can subscribe to this podcast on iTunes by searching for startups or via RSS at startupsfortherestofus.com where you will find a full transcript or each episode. Thanks for listening we’ll see you next time.


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2 Responses to “Episode 97 | Premature Scaling”

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