In this episode of Startups For The Rest Of Us, Rob along with co-host Jeff Epstein, answer a number of listener questions on topics including competing against a giant company, splitting from a co-founder, having enough features and more.
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Rob: Welcome to this week’s episode for Startups for the Rest of Us. I’m your host, Rob Walling. On this week’s show, we enter listener questions on topics like competing against a 900-pound gorilla, splitting from your co-founder, and whether there is such a thing as having enough features in your app. I welcome Jeff Epstein back on the show to help me answer your questions. This is Startups for the Rest of Us episode 462.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing startups. Whether you’ve built your fifth start up or you’re thinking about your first. I’m Rob and today with Jeff Epstein, we’re here to share our experiences to help you avoid the mistakes we’ve made in the past.
Welcome back to Startups for the Rest of Us. Thanks for joining me. You took on the show, we covered topics relating to building and growing startups in order to provide ourselves a better life, improve the world in a small way. We strive to have a positive impact on other people, be it your customers, your team, your family. We’re ambitious founders but we’re not willing to sacrifice our life, our health, or our families to grow a company.
We have several show formats for Startups for the Rest of Us. Every month or two, Mike Taber comes on and updates us on his entrepreneurial journey. We also have some tactic and teaching episodes, I do some interviews now and again, founder hot seats, and today’s episode is all about listener questions. It’s questions from you and folks like you who are listening, they write in or send an audio question and we do our best to think it through. I really think about what I would do in their shoes and then answer the question.
Jeff Epstein comes to join me today. If you remember back to episode 453, we talked through his journey as a non-technical founder, of building a SaaS app to between $5 million and $10 million ARR, and then exiting that. He had a pretty stressful and impactful journey, life-changing journey for him, and he has a lot of experience under his belt. I think you’ll enjoy the questions that we answer today.
Before we dive into the questions, I want to remind you that MicroConf Minneapolis is next April 19th through 23rd, so you’re going to want to block those dates off on your calendar. Also let you know again that the TinySeed application process opens on November 1st. It will run for about a month, so if you are interested in potentially being part of our next batch, enter your email at tinyseed.com.
As well as tease again about my secret podcast project I’ve been working on for about three or four months and I hope you enjoy that. I’ll have more info on that as I get more of that produced. Just want it to be a bit further along before I start putting stuff like that out in public. With that, let’s dive into our listener questions today.
Jeff: thanks so much for coming back on the show.
Jeff: Hey, thanks for having me, Rob. I appreciate it.
Rob: Absolutely. We have some good questions to run through today. The first was from Twitter. I actually did a casual call-for-questions to see—after your episode went live—if anyone had a question for you and Fuego Online sent this question. He said, “Did Jeff Epstein feel way out of his depth? I know I do sometimes and I have a technical partner.”
Jeff: Yes, definitely out of my depth many times. Not necessary as much being technical or not technical, but I think it just depends on the stage of the business. For me, that probably happen pretty regularly where you feel that way.
Rob: I think that’s really common. I feel way out of my depth most of the time I’m doing something interesting, I’m learning, and it’s stretching me. I say I feel out of my depth. He said way out of your depth, which I do think is a differentiation. There’s comfort zone and then there’s almost that breaking point.
I have to imagine there were several moments over your eight- or nine-year journey that you’re on the edge, of like, “Oh my gosh, this might not work,” or, “Oh my gosh, this is the most stress I’ve ever felt.” Is there a time you could take us to?
Jeff: Yes. For me, I certainly felt over my head in many scenarios, and like you said, I’m a first-time founder. So, everything is essentially new for me. As we grow, there are new challenges ahead and there’s so many situations where I felt that way.
Two probably stick out in terms of really a horrible feeling of what did I get myself into. One was when we changed co-founders pretty early on before we even finished fund-raising. The early employee and I didn’t see eye-to-eye and he left the company. I was left with not much in terms of a team. That was one.
Another one was actually much later, maybe five years later and it was when for the first time you realize that there’s a lot of things happening that you are not aware of. This was when we’re about 20 people or so. It was one of those situations where you’re like, “Wow, I really need to step up my game.”
Basically, what happened was there was just a lot of people that weren’t happy with some people in the company or just the way things were. A lot of it was my fault, some of it I frankly didn’t know about and didn’t have the communication structure in place to solve those things or to get the feedback channels filtered up to myself. That was a really eye-opening experience and been pretty painful.
The one thing I would say is, I’m pretty confident in myself being able to learn quickly. I think that’s—for better or worse—kind of my superpower, so to speak, where if I just have the information, I figure I can do something pretty well with it. For me, it’s just a matter of figuring out what the issues are, what the problems are, and what are the available options to start fixing it. When that happens, I think I’ve done pretty well.
Rob: I would agree. I’m going to keep saying on the show more than half of being a successful entrepreneur is managing your own psychology. Part of that is believing that you can get it done, taking things that seem like roadblocks and saying, “How do I turn these into speed bumps? What are the five, six, seven options here?” No matter how bad, no matter how good, lay them all out, look at it, and move ahead. It’s like having confidence in yourself that you can figure this out.
There’s so few things that are actually company-ending. There are obviously a few, but so many of them in our heads. I know I’ve done this. You just catastrophize it. You’re like, “Oh my gosh, this is the worst thing ever. What have I built?” This will be done in three days if you handle it well. If you actually do the right thing, it will smooth over and be done in a week or whenever.
Let’s dive into our next question and it is a voicemail about competing in a space when there’s an 800-pound gorilla, namely Shopify.
Ahmed: Hi, Rob. This is Ahmed from Toronto, Canada. I have a question regarding starting a startup in a very competitive space like, say, ecommerce, specifically competing with a company like Shopify, which is pretty much a company that has been doing everything right in terms of technology, focusing on the low-end market. They also have Shopify Plus targeting more enterprisey customers.
They have a core set of features which are then built upon by app developers. They have a market effect with agencies. They have a very good content marketing strategy on their blog, and they’re dealing with B2B customers who might not be as price-sensitive as the B2C customer. So, concerning all these things, do you think it’s possible to still carve out a niche within the ecommerce space and compete with a company like Shopify? Thanks. Bye.
Rob: What do you think, Jeff? This is a tough question, obviously, but what are your thoughts on it?
Jeff: It’s surely not an area where I would necessarily look to start a company. I think if you have one, if you’re growing and doing well, there’s certainly going to be opportunities. I’m a fundamental believer that companies such as Shopify or Amazon always have blind spots and they have specific areas which don’t make sense for them to focus on, which OS or niche businesses spring up to serve those needs.
If you’re looking to start, it wouldn’t be my top choice, but if you are already building a brand and a company, you have customers. I would say focus on why customers are choosing you or why they’re considering you and make sure that you really hone in on those areas so that you can continue in that niche market for now.
Rob: Yeah. I love the answer of blind spots. That’s the first thing that came to my mind, is where are the disgruntled Shopify customers? Go to the forums. When you get this big, you’ve heard of like quickbookssucks.com where everybody rags on QuickBooks. Is there one of those for Shopify? Where are the disgruntled people who say, “Oh, Shopify doesn’t do this well,” or like you said, it’s not worth their time to go into, whether it’s a vertical niche, or whether it’s to build a certain type of feature, or whether they have just technical debt, or thousands of lines of code, or tens of thousands, tens of thousands of customers, and you just can’t change things overnight.
This is the playbook that we did with Drip. When we launched Drip, it was a mess. Think of not Drip itself, the market. Think of Mailchimp, they’re dominance with their free plan. Free up to 2000 subscribers. How do you and could possibly enter that and charge at that level? We had Infusionsoft, Pardot, Marketo. Those are all but marketing automation providers. We had Constant Contact and AWeber who had their own niches. It’s like the SMB was Constant Contact and AWeber was more into the info marketer space.
No one in their right mind would enter that space and yet we found ourselves competing against them. It was exactly what we talked about here is we looked at people didn’t like Infusionsoft because they charge this $2000 upfront fee, because they’re $300 a month and up, because they’re aggressive with their sales, because the product was not very good, it was hard to use, it was buggy.
Mailchimp, a company I’ve always respected, wasn’t moving fast enough with the automation. People wanted to be able to click a link and move from here to there. There were features that people wanted from Infusionsoft but Mailchimp and AWeber were not building. So, we as a startup, what’s the advantage?
One of your advantages is you move so quickly. We could build and launch automations in months. Where did it took them? Literally, years. That’s, to me, the advantages. It’s not an Achilles heel, it’s not like you’re going to kill them. The metaphor doesn’t quite work, but it’s a vulnerability or, as you said, a blind spot that even if they are moving there, they haven’t gotten there yet, and that’s what I would look at. I don’t know the ecommerce space well enough to know what those are for Shopify, but I do know that, that’s what I’d be looking for.
Jeff: One thing I would add, Rob, and this is where you had a ton of ability to kind of see the future is that you were looking at marketing automation companies for yourself and to leverage them. If you’re going to get into this type of business, it’s more than an intellectual exercise. The person needs to actually know or have their own specific pain. That would be really big here instead of just guessing that they maybe are power users or that they’re selling and they’re looking for another way to do something that they can’t do with Shopify. That would be a really great way to start.
Rob: Yeah, it’s a good point. If you’re going to enter a less competitive space, you don’t always need to be your first user, you don’t always need to build for your own pain. If you’re going to enter a space like competing against Shopify or Mailchimp, I would never say always, but I would say it’s a really good idea. It’s another tool in your toolbelt to have that domain expertise. So, thanks for the question. I hope that was helpful.
Our next question comes from Nick. He’s got a couple of questions. He has some kind words about the podcast. He started with, “I love the refreshed format of the podcast. Insightful and you could really feel a new surge of energy. Well done. Thanks for continuing to make it such a great show.” Then he transitions into talking about his business. He says, “Each stage of my business has brought fresh challenges and right now I have a couple of questions. It would be great to hear your thoughts on. The first question is this, splitting from a co-founder when your business is successful.” Jeff, we know your story, we know that you went through this yourself. I’m curious to hear your take.
He says, “My co-founder and I have been in business together for 12 years. Initially, we ran a successful niche consulting firm before pivoting into a product business in 2016. A product is a B2B app that helps financial companies. It’s growing slowly and steadily. We just hit $1 million in ARR.” Congrats on that, by the way. “While I’m loving the product journey, my co-founder feels differently. He’s 20 years older than I am and he wants to do other things with his time.
Our working relationship has probably run its course, but he feels his best exit is to market the business for sale and I don’t share that view. While I’m open to doing it, I’d like to keep my options open. We’ve been fortunate to find product market fit, and while our addressable market is small, I feel our business has further to run. I’ve looked at options to buy him out, but he would want a market-level multiple evaluation, which is significant. He’s also not keen in acting as a silent partner.
Currently, I hold a majority stake. I am willing to buy more shares but would also appreciate a new strategic partner who can add value in our sector. What would be my best course of action?”
I don’t know that we can recommend the best course of action, but I do think we can bat around a few ideas because I don’t think this is necessarily clear-cut. What are your thoughts, Jeff?
Jeff: In my former life, I’m an attorney, I went to law school, and talked to quite a bit of founders. One thing that is so important, having gone through it myself, is understanding how you can unwind or exit a business from a founder perspective, especially when you’re close to 50/50. It’s not clear here but it sounds like the founders have a pretty large stake each and one of them is obviously the majority. That’s always challenging.
Your best course of action, again, depends on a lot of factors. One is, do you want to retain a good relationship with this person going forward? Also, how much of a hassle do you want to have in terms of managing this process versus running the business? Legally, again, I don’t know your operating limit. You should have one; kind of the rules of what you’re allowed to do or able to do are probably contained in there.
Generally, as a majority owner, you have most of the power. You’re certainly would be able to block or not have a sale of the business happen. A couple of things that I would think of off the top of my head is maybe try to find an independent. Someone who can value the business in a fair way. Everyone loves to sell, even if it’s a house or some other asset. The reality is it’s a lot harder than it seems and it usually sells for a lot less than you expect.
I think that having on through a business sale is not at all you would expect and I’m sure Rob can say the same thing. Just putting a number on it from the minority perspective, that’s probably not the best outcome. Ultimately, hopefully you guys could sit down and come to a conclusion. You might have to get creative in terms of an earn-out or payments over a period of years, and/or maybe phasing out the hours worked. My recommended course of action is come to the table and figure something out as partners instead of trying to go the legal route.
Again, as a majority partner, you should know that you probably do have the upper hand in some way based on you are the majority and you probably have the voting ability to do things that might not be favorable for your co-founder.
Rob: Yeah, I think you’re dead on with that. Look at the operating agreement. Typically, it says other founders have the first right of refusal. If you get an offer, they have to match that, that kind of stuff. To me, there’s a lot of ways you could go, but I feel there’s three options. One, you could just sell the whole business and, as you said Jeff, that might take six months or a year to do. You lose the asset, but you get cash and then you know what fair market value is. There’s no quibbling over it. You’d run a profitable process. By the way, Nick, if you want to do that, ping me back. I know some people who do things like that for $1 million ARR SaaS companies. They run a full process and get good revenue multiples for them.
The other option that I think about is like you said, Jeff, an earn-out. Have someone assess it or try to get some offers and then use that as the assessed value, in essence, and then try to buy him out over time. Let’s just say, $2 million is what we value the business at. You owe him $1 million. You’re not going to pay him that today unless you have that in the bank, but can you pay him $100,000 a quarter for the next 10 quarters or something? I have seen that done not often, but I have seen it done with some tech businesses in the past.
The other option I think about is—it may sound complicated—finding someone to just buy his share. Again, you need to try to look for market or assessed value, he owns X percent, then you try to find someone that you would be willing to work with, whether they are a silent partner (or not) but they buy in and then as you take dividends out, they also are able to participate in that.
I think off the top of my head, those are the three options I’d be looking at. Of course, each of them comes with different timelines and different complexities. Do you have any other thoughts?
Jeff: I think those are great, great options and a really good summary of what Nick can probably do, to be honest.
Rob: Nick has another question about the app. “Obviously, it’s a three-year old B2B app, it’s generating $1 million in ARR with 15 enterprise customers. It’s a small customer base. It’s also a simple but important problem for insurance companies. With 12–18 months sales cycles, we are growing slowly but steadily in our niche market and have three developers. Thus far, we have been customer-led, relying on customer development to identify and prioritize features.
However, with our 10th release, things have slowed down. The app is stabilizing, support tickets have dropped off, feature request are drying up. We hold a user forum twice a year and then deliver the most requested items in our last release. We tried tabling some more radical ideas at our last meet-up, but the feedback from several power users was that we shouldn’t mess with it and to keep things simple. Is there such a state as having enough features? How do we know what to build next? Should we refocus on technical debt? As ever, your thoughts are appreciated.” What do you think?
Jeff: I do thing there are probably times when it makes sense to focus on technical debt. Then, it may not be time to just add more features. I think that makes sense. I don’t know if that’s a constancy. I think there can be points in time. Saying that the business is, tickets are slow, or things like that. To me, running a business is a fluid situation and it’s always changing.
I wouldn’t suggest a full stop. Perhaps it’s time to think about some ways that you can grow the business, but it also comes down to what you want to do from a business perspective. You could add features that allow you to find a new customer segment or you can say, “Hey, we just want to deliver the product faster and essentially get rid of some of this technical debt.” I think that’s a decision that, as a business owner, you have to make.
There’s no right or wrong answer. It really just depends on what your goals are. Having no more requirements, so to speak, from customers is typically a pretty good thing, but again, I don’t know your background and how you started the business. There are many cases where businesses are started or features are added that not suggest by the users per se. There are some things that the users don’t know can exist, or should exist, or does exist. I think it’s a good position to be in and I congratulate you on getting to that point. That’s pretty rare even for a brief time.
Rob: Yeah, I would agree with that. It feels to me every software product, every tech product has a life cycle. When you first build it, there’s not enough features, it’s clunky, then it gets to product maturity, and then eventually it gets to where it sunsets, where it’s just too old, 20-, 30-, 40-year old code bases, while I know they still run—a lot of the IRS and our social security system here in the US and probably in many countries around the world.
I’m guessing most SaaS apps aren’t going to make it that long. The code base is either going to go clunk, or the market’s going to change so dramatically, or there will be an entirely new form of servicing those needs.
With that in mind, it sounds like there is a chance. Three years is fast. Typically, I would expect it to be 10 or 15 years. I think of a tool like FogBugz or Basecamp. When you’re around a SaaS app that’s around 10 or 15 years, you do eventually hit a point where, “Huh, we don’t necessarily need new features, but our UX paradigms are 5 or 10 years old.” So, you need to revamp that. You have UX technical debt, in essence, or UX debt, or just technical debt. If it were built in classical ASP or PHP 1.0 or something, you would want to go back and refactor those. Given the code base is only three years old, it’s unusual but it’s not out of the realm of possibility.
I think I’m in the same boat as you, Jeff. There’s a couple of things I would think about. One, you could focus on technical debt now while you figure out what you vision for the product is. What is it that you can build that they’re not asking for? Oftentimes, it’s a mix of customer requests, internal employee requests, and founder vision or CEO vision. Those are the three things that I have most often built into a product.
Do you have a vision for something else? If not, then yeah, why not technical debt? Or why not put more funds into either marketing or sales? I know there’s long sales cycles, but can you double or triple the number of conversations you’re having such that someone’s closing every three months instead of every six months if you double that?
I don’t think it’s a bad thing to take a little break and maybe give the team time to go back and circle up. It will become obvious when you need to add more features because customers will be asking for it or there will be a competitor that you see doing something this is starting to take your customers or at least a competitor that’s getting ahead of you. That’s the time where you start thinking about heading back to features.
Jeff: I actually have one more thing that I was thinking about. I think you do have an opportunity to also ask your customers and it depends on the question you’re asking, If it’s, “What else do you want, maybe?” They say nothing. But if you ask it or you frame it as, “What else are you paying for?” or, “What else are you doing?” or, “Why else would you pay for, perhaps?” Maybe there are some different answers there or maybe it’s the way that you’re gathering feedback that you can just tweak it a little bit. Maybe get some insights from customers, of things that are maybe closely related, things that you could build that would immediately paid for so that they could pay for the development itself.
Rob: Nice. Thanks again for those questions, Nick. Our next question comes from Evan and he’s asking about a single-use niche product. He says, “First time caller, long-time listener. Honestly, I love listening to you, guys. Here’s my question. I built a script for a company I worked for, realized how much other people could use it, and then in my spare time, I refactored the idea and turned it into an enterprise product. I’ve been officially launched for almost two months. I’ve done just under $6000 in revenue, and 98% of that is profit,” which I would expect you probably have no expenses aside from hosting or something.
“The problem is that this is a single-use product that I’ve essentially built to use when people are migrating to another software package. It’s really not worth the plug because it’s so niche,” he says. “Anyway, I’m really trying to figure out how much time I should be putting into this thing.” So, is a migration tool to software company X. “Software company X could just roll out their own migration tool and kill my revenue overnight. However, they played pretty nice, thus far, and they featured my product in quite a few support articles and have started to build it into their support flow for when they get tickets regarding the problem.
Would you recommend continuing to make this product better and attempt to figure out how I could possibly get recurring revenue? Or just take it for what it is, single-use product that does what it does, and that is right now the only tool out there that does this? $6000 in almost two months isn’t a ton of money. I make decent money at my full-time job as a software developer, but it is a pretty nice supplemental income.” That’s our question, Jeff. What do you think?
Jeff: To me it seems like this is great. Sometimes, people may overanalyze what’s going on. To me, this sounds pretty straightforward. It seems like he solved a really great problem with something that was pretty simple, and it’s a single-use product that probably is a problem that this company is facing, and it doesn’t make sense for them to really spend any time or money on it, so they’re more than happy to find a solution that does the job for their customers. As long as you’re not bragging about how much money you’re making to the world and it doesn’t seem like it’s enough for the company would want to build this, to me it seems like a really awesome revenue stream that you have for the foreseeable future.
That being said, there’s very little context in terms of what it can do or how you could turn this into a recurring business. I would say that I wouldn’t over-engineer it or overthink it. I would just capitalize on what you can earn. Throw a little bit of money in the marketing and see if you can attract more people to want to use this. I think this is awesome. I don’t know what you think, Rob, but to me I think it’s pretty straightforward. It doesn’t seem there’s much there to do a company unless you want a really start building other features and tools around that. I don’t know what it is, to be honest, without all the context.
Rob: I agree with you. What a fortuitous thing you stumbled into. That’s cool. $3000 a month, while you say it’s not a lot of money, if you’re working full-time it sure wouldn’t be, but that makes most people’s house payment. It’s step one of the stairstep approach, to be honest.
For those who aren’t familiar with the Stairstep Approach to Bootstrapping, it’s something I laid out in a talk at Dynamite Circle five years ago now and then I blogged about it. Basically, don’t go for SaaS right away. Don’t go for recurring revenue. It’s too hard, too complicated, takes a long time, just all these things are against you. But, if you find a niche and you can build a WordPress plugin or another one-time use thing like this import tool, or a Shopify app, or whatever it is, find something where there’s a single sales channel and it’s going to plateau.
I did this with DotNetInvoice where it was like, “Hey, it’s a downloadable software, I’ve got $300 a pop for it.” Really, there were some SEO and AdWords, but that was about it. The market was not huge for it and this sounds very similar. So, now you have this opportunity to then take that and parlay it up into something bigger, if you want. You could potentially build on this. It doesn’t sound like you have direct ideas on how to do that, but I don’t think this needs to become your big thing. This can become $36,000 a year going into a bank account that you then use to buy a bigger app. Or, this becomes learning.
Have you learned how to do copywriting, toyed around with LinkedIn and Google AdWords? Have you ever done that before? Because now’s your chance to learn on a real product that has enough budget you could play with and not worry about chewing through your paycheck. I see this as an opportunity to stairstep if you do eventually want to get to recurring. I keep saying, doing things in public creates opportunity. This is something you’ve done in public and you never know what the next customer’s going to ask for, that brings a life of like, “Oh wow, that would be a crazy thing I could add to this that would double the value or that would make it recurring.”
I think this is all upside, personally, and frankly longer term, maybe wind up selling it to company X. It’s a migration tool for them, so why wouldn’t they? If you were like, “Hey, I’m just going to shut this thing down.” In their shoes, I would buy the thing from you. If it’s only doing $36,000 a year, maybe your exit is for $100,000 or $150,000 or something. Still, it’s worth something.
I feel like you’ve gotten further than so many software entrepreneurs or aspirin entrepreneurs ever get. So, I think you’re in a great place and have a really pretty cool resource that you can now use to parlay up that stairstep and maybe eventually buy out your own time and then get into recurring revenue as well.
Jeff: Love it. It’s all profit, almost. It really is amazing. I wouldn’t sell yourself short at all. It might not be the idea but like what was said, parlay that into something bigger if you want. I think having flexibility and optionality is huge. Reading the question again, I don’t know if it’s something that you don’t quit your job over, but keep milking it and see where it goes.
Rob: Yeah. Me from 20 years ago, I would have killed to own a software product that did $3000 a month in net profit. That was my goal. First, it was like, “I just want to make my car payment, making money on the Internet.” Then it was like, “I just want to make my house payment.” And then it was like, “I just want to cover my salary so I could quit my job.” This is an envious position, so hope these thoughts are helpful.
Our last question of the day comes from Will and he says, “Hey, guys. I’ve been mowing some stuff over for a bit and I’ve noticed something. The more I do my own projects on the side for money, the more I feel like I’m not as good of an employee. That doesn’t mean I don’t work hard and deliver, but I’ve noticed that after a certain point, I really had to fight the desire to rock the boat at my day job. For instance, I notice stuff like the following,” and he has a list.
“Companies using large numbers of developer hours to avoid having to pay $20 a month for a tool. Companies building their own internal tools when extremely cheap options exists like time trackers. Companies having really broken internal processes that would completely destroy a startup but they chug along on momentum.” This must be a non-startup like bigger companies. “Companies having highly technical products that are sold by people who don’t understand what the technology does. Companies having no idea what their sales funnel looks like. What the customer lifetime value is, et cetera.
I guess what I’m saying is that the process of going entrepreneurial has forced me to re-examine the things that made me a good employee, only to find that a lot of them don’t really suit where I’m headed. I usually don’t mention these things when I notice them as a developer, because people don’t really like devs jumping in on this stuff, but they bug me a lot.
Did either of you undergo a similar epiphany at some point? If you did, what were the main things you had to unlearn as part of making the transition to your own products? I think it’s easy to become a little too domesticated inside the walls of a cubicle and I’m wondering what else I should be doing to try to avoid that?” That is an interesting question. What do you think, Jeff?
Jeff: I love this question because it’s something that I’ve seen quite a bit. I’m going to get on my soapbox for a minute. There’s a couple of things to unpack here. I love the self-awareness and I think for many companies—it obviously depends—culturally, you should find yourself and hope to find yourself a company that wants to improve, first and foremost. If that’s the case, then pointing out things that can be better isn’t rocking the boat. It’s doing your job and the mindset that you’re “rocking the boat” hopefully isn’t correct.
That said, there’s a way to do these things. Even just reading this, it looks like a lot of things are black and white, and what I always used to say to the engineering team is I know a lot of time writing code in an engineering mindset tends to be black and white, but business is really shades of gray. There are probably dozens of factors you’re not considering from a sales funnel perspective, especially not being in the sales team or the way the company spends money.
What I would suggest is I would find an outlet to say, “Hey, I have some things that I’ve noticed that could help the business.” Someone in the company should say that’s important enough to listen to, but I wouldn’t just assume that you’re right or that you have all the information.
A lot of times, there are plenty of things that we did from a business perspective—again, we’re much smaller—that many people thought was the absolute opposite thing that you should be doing, but many times, if you explain to them why—one of our cultural values was understand why—then they’re like, “Oh, I never ever thought about that,” and, “Yeah, that’s okay. I didn’t expect you to think about it, but that’s why we’re doing this.”
I think it creates a lot of challenges inside companies when we use to say we don’t want know-it-alls in the organization. Be curious to understand why and then be helpful. Anyone in the company is going to want to save money or know that things can be done differently, but sometimes again there’s red tape and other reasons why things can’t get done the minute that it makes sense for someone.
Rob: I think your advice is better than what I was going to say. I was going to go from my own experience. Yours is from your own experiences as well but…
Jeff: Mine must be right.
Rob: Yeah, but yours is from the company side and I think that’s a really good point. Don’t assume that you’re right; that’s really good advice. I was going to say, as an employee, as I became entrepreneurial, I absolutely had the exact same thing. It wasn’t with sales and everything, but I became more and more disgruntled and frustrated with development, them hiring crappy developers we had to work with, the code was buggy, they wouldn’t let us go refactor. This was, let’s say, 2003–2006.
I got so annoyed that I would quit jobs over not feeling fulfilled. It wasn’t just like, “Oh, I’m building dumb software,” because I was fine to build this software I didn’t care about, but the processes were broken and no one would fix them.
What I did was left and I started consulting because then I get to control and processes or I would go find another job where the processes weren’t broken. I am a little bit broad here, but if you don’t like to see those things you’re seeing, then don’t work it like a Fortune 5000 company. Go work for a startup, go work for a small company. They all haven’t figured it out, but smaller teams have less dysfunction, in general. There’s less politics, there’s less of all the broken stuff, and frankly there’s more of a mindset of, “Let’s fix this stuff.” There’s less inertia and there’s less, “We do it this way because we’ve always done it this way,” and there’s more, “Let’s try to get better.”
Again, I’m generalizing, but that’s if I were in your shoes and you can Jeff’s advice, which I think is great, or you could take mine, or you could take Jeff’s and then take mine if it doesn’t turn out well. This is what we’re doing, Jeff. We’re getting people to quit their jobs.
Jeff: No, I actually think the advice is complementary, too. I think that makes a lot of sense. Really, the first part of what I said is you should find a cultural fit and that’s the challenge. And you also should remember the trade-offs. A stodgy, slow-moving company probably is just inherently more stable, if you look out 5 years and maybe not 50 years. You may make more money there or may have more benefits there. Those are personal trade-offs that you have to make.
Listen, if you want everything done exactly your way, there’s only one way to do that and that’s to start a company. But let me tell you, very soon after you start it, it won’t be your way anymore once you have other people to answer to, whether it’s investors and employees. That’s just the reality. If you want something on your own, you are going to have to do a side project.
But I totally agree with Rob. Set yourself up for success in terms of aligning with how the company’s going to work. Again, these are questions that ideally you’re finding out in the interview process so don’t want to be surprised when you start. So, do your diligence and find out, especially if you’re a developer, you have a lot of options for places to work. The lowest employment in a long time and everyone’s looking for technical talent, so you’re in a good position.
Again, I wouldn’t shy away from or train yourself away from speaking up, but I think there’s a time and a place. Don’t complain in front of the whole team. That’s not the way to get it done. Privately message someone who can help or say, “Who can I speak to about these things? I love to make some things better.” At some point in your organization, someone is going to raise their hand and say, “We should listen or we should take this into consideration.” Again, that’s my two cents.
Rob: That’s good. I had this personal adage, I don’t know if I ever written about it or said it. I’m sure I swiped it from a business book or something. It’s to say or do positive things in public and negative things in private. If you’re going to reward or congratulate someone on a good job, do that in public so that everyone knows. If you’re going to tell someone that they’re screwing up on the job, do that in private.
That’s actually one of the reasons I have such an issue with Twitter, to be honest, is there is so much open public negativity and it’s like, “Why didn’t you just email me?” in a lot of times. They’ll be someone you know and they’re complaining about you, or your company, or something you did, and you’re just like, “Dude, just email me. We can talk about this. (a) I would fix it, (b) I didn’t know what was going on. Why do you have to yell at the top of your lungs from your rooftop, telling everyone I screwed up?”
I think this is a good case of that and the reason I started saying that is because you brought up, don’t braze these things in a big public meeting with 8 or 10 people. It’s bad form, it’s rude, and I would not be happy with that. So, set up a one-on-one or a one-on-two with supervisors who are mature and can handle this kind of stuff.
Jeff: One thing to add—I don’t know if it’s helpful—I found the people that wanted to help the business in a positive way are the best employees, but on the flip side, the people that complain publicly are always the worst employees. It’s a really fine line. They both arguably wanted to help, but the people that are like, “This is wrong,” or, “This is bad.”
Again, it’s so frustrating just to think about some of those situations where people are like, even after they left they would maybe blast or post something like, “Hey, you can’t do these things. You can’t do this.” You don’t need to talk at 40 people publicly at lunch how something’s wrong when it’s a minor thing that can be addressed in five minutes.
Rob: Yeah. Negativity is toxic and it spreads, right?
Jeff: For sure.
Rob: Well, thanks again, man. Thanks so much for coming on the show.
Jeff: Of course, yeah. My pleasure.
Rob: And if folks want to catch up with you, you’re @jeff_epstein on Twitter.
Jeff: Awesome. Thanks, Rob.
Rob: And if you have a question for the show, leave us a voicemail at (888) 801-9690 or you can email us an MP3, or a Dropbox link to a WAV file, or even a text question to firstname.lastname@example.org. If you’re not already subscribed to us, you should search for “startups” in whatever podcatcher you use and subscribe. You can visit startupsfortherestofus.com to get into our mailing list. We don’t email that often, but when we do, it’s tasty, yummy goodness. You can also get transcripts of each episode. I think they’re about an episode or two behind right now, but some folks really like transcripts and actually have used a hack to search our website using the site: in Google just to figure out if we’ve talked about a topic. With 462 episodes, we’ve covered a lot of ground on this show. Our theme music is an excerpt from We’re Outta Control by MoOt, used under Creative Commons. Thanks for listening. I’ll see you next time.
In this episode of Startups For The Rest Of Us, Rob and Jordan Gal answer a number of listener questions on topics including LinkedIn outreach, building features versus fixing bugs and more.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, Jordan Gal and I discuss the LinkedIn outreach, how to divide time between new features and fixing bugs, and we answer more listener questions. This is Startups for the Rest of Us episode 452.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Rob and today with Jordan, we’re going to share our experiences to help you avoid the same mistakes we made.
Welcome to this show. Each week, we talk about building startups in an organic, sustainable fashion that allows you to build yourself a better lifestyle, maintain freedom, purpose, and healthy relationships. Some weeks we talk through tactics, other weeks we do interviews, we have founder hot seats, and some weeks we answer your questions. This week, I was very pleased to be able to sit down with Jordan Gal and answer some listener questions. I hope you enjoy this episode.
Jordan, thank you so much for joining me on the show today.
Jordan: Thanks very much for having me, Rob. It’s post-4th of July Q&A session. I’m excited.
Rob: I’m stoked to have you. Folks will know you from Bootstrapped Web and you run CartHook. Before we dive into the questions, I’m curious what your take is on where you’ve come from and where you are with CartHook because CartHook is approaching 30 employees. It’s a fast-growing SaaS app. When you look back a few years ago, I think when you and I first started talking—I angel invested in CartHook for those who don’t know—I think you were like 5K MRR.
Jordan: I was going to say way back in the day.
Rob: Yeah. It was really early like what? What is that like? Did you pinch yourself? Is it surreal? Did you dream of one day having a SaaS app with 30 people? I can’t imagine what that feels like.
Jordan: I think it’s the opposite for me that before this, the struggle was like a nightmare, and this is like, “Oh, this is where I was supposed to be.” That’s how it feels to me. This was the plan and I always telegraphed in my mind, like, “This is how it’s going to feel like when it’s the way it’s supposed to be.” Before that was just this annoying nightmare to go through to finally be like, “There we go. This is how it’s supposed to feel.”
Rob: It’s such a trip. As you go through it, it’s these small changes. I remember thinking, “Wow. If I had a team of 10 or whatever, it would just be these huge thing and it would be so bazaar and it would be amazing.” When we got there, it was like this just feels normal now. You didn’t go from 0 to 10. I didn’t go from working alone having 10 people. We just hire them one at a time and you just build the team. Does this feel the same way to get to where you are?
Jordan: Yes. It feels incremental. In hindsight, it was fast. We worked from 4 people to 24 and we’re hiring a few now. That happened over the span of two years, I think that’s pretty fast for a 24 in two years. It was incremental along the way, weeks go by, months go by, new people get added. We have that additional element of having two offices, one inPortland, one in Slovenia. I would feel it in Portland when you hire a new employee. All of a sudden you have someone new in your day-to-day life, but we only have 11 people in Portland. Slovenia, I go back every 4 months. Everytime I go back, I have two new people to meet. That was more abrupt changes on the Slovenian side and the Portland growth felt more natural; it’s one by one.
Rob: Your role as CEO, I know in the early days, you do everything. You do anything that is falling through the cracks, basically. What’s your role like today with that many people? What are your top three high-level priorities over the course of six months or a year?
Jordan: It has changed and I’m happy with the change. I’m not very good at doing things day-to-day. I don’t have amazing work ethic, I don’t have good discipline, I can’t sit down and focus for many hours at a time. I’m just good at thinking and strategizing what should be done and I’m generally not that good at executing it. To have people now in positions where they are far better than I was in those positions feels good and right.
Now, the nature of the role is worrying about what’s going to happen externally, but mostly worrying about internal. Do people have what they need? Do they know what they need to do? Are they happy? Are they going to stick around? Are they happy with their interpersonal relationships inside the company? Does everyone know what we’re trying to accomplish? It’s a lot of like worrying and checking in on that worrying like looking under the hood a little bit to see, “Hey, is this functioning properly?” Every once in a while, something will pop out where it’s evident, “Ooh, this is wrong or broken.” I have to go to action mode for a week or two to fix it. That’s what it feels like.
Rob: I think it’s a venture capitalist that said that with venture-funded startups—which you are not, to be clear, you raised a couple of angel rounds but not taking institutional money—they view a CEO’s priorities as three things. One is hiring the high-level folks, not every individual when you hit the certain scale, but making sure that, basically the right people are getting on the bus, keeping enough money in bank so the company can make payroll.
Jordan: The money, the bank thing, that’s very clear. I used to think that relatively risk-loving in my personality, but what I have found in running this company and speaking to other founders is that I’m actually pretty conservative when it comes to the runway, to the cash on hand. Some people push it. They go 90 days, 60 days of cash and I’m always 12 months. I am very uncomfortable with less than 12 months of money in the bank.
For me, one of the driving forces is the mojo, for lack of a better term, the happiness that’s happening inside the company, how much people love their job, and that would get wrecked by layoffs. Not only do I want to avoid laying someone off because that just sucks all around, especially if it’s your fault, and that they have to pay the repercussions. At the same time, I really, really want to avoid what that would do to the energy in the team. So, I keep it pretty conservative.
Rob: It makes a lot of sense. It’s more like a bootstrapper mentality. That’s how a voice for you do is like a bootstrapper who happened to raise funding because he wanted to grow quickly and wanted to go into a space that was competitive, but still, you’re ethos has always been that. Much of the bootstrapper, that MicroConf ethos.
Jordan: Yes. That’s proving yourself out.
Rob: I remember the third thing the venture capitalist said. The reason I forgot it is because it’s just so fundamental, it almost doesn’t need to be stated, but it’s setting the vision for the company and the direction, the high level stuff. It’s obvious, right?
Jordan: Yes, but it’s surprisingly hard. Everyone tells you, the advice is always repeat yourself a hundred times more than you think. Once you’re sick of hearing yourself, that’s about right, all those things about repetition, but it is true that it is hard to keep everyone aligned on what you’re thinking. As the number of people grow, it becomes more and more challenging.
We, at this point, anyone that gets hired, I talk about that vision in the interview so they know where we want to go and the right fit person gets excited by that vision as opposed to, “Woah. This person is crazy.” Then, when someone joins and I do the first one-on-one with them a few days after they joined, I talked about the vision again and I always offer like, “I’ll go to the whiteboard right now.” It’s pretty much not their choice, I’d set them up in the white board anyway. Once a quarter, we also do it. Once a quarter, we talk about our roadmap, right back to the vision, right back to the core tenets. It’s becoming a lot of repetition and it’s still not enough.
Rob: I want to come back to the comment you made earlier. You said that you aren’t necessarily disciplined or get stuff done day-to-day. I question that reality. Maybe that’s the reality now when you have this big team, but back in the day when you were at 5K a month, I remember you were cold emailing, cold calling, doing sales calls, you were getting […] done. I wonder if it’s just the situation you’re in.
Jordan: You know what it is? It is the situation you’re in and I think I have some advantage in being a little older where I’ve gotten to myself more over time, so I’m able to fool myself or force myself into action. The cold email I would do and then I would outsource as soon as possible. Then, demo appointments would pop up in my calendar and it wouldn’t be my choice whether not to do them. It is just on my calendar. I’m doing it.
Rob: In code, we call that a forcing function. You just force yourself to do it. That’s funny.
Jordan: Yes. A lot of forced habits. Even if I don’t want to do this, I’m just going to commit to it anyway. Kind of like the first time you asked me to talk on stage at MicroConf. I was like, “No.” Just answer yes and then you’ll be forced to do it.
Rob: Then figure it out because, “I can’t back out of it once I told Rob yes.”
Rob: That’s funny. Cool man. Thanks again for coming on the show. Are you ready to dive and do some listener questions?
Jordan: Yeah. We’ll see if we can be helpful.
Rob: First question is a voicemail about setting up developers who are taking deferred compensation.
Chris: Hey, Mike and Rob. This is Chris Bowls, I’m calling from Kentucky. Working on a new SaaS concept involving the building industry. I’m early right now, but I’ve got three developers who have agreed to take deferred compensation and stock before we began receiving revenue for their compensation. My question is, for these three developers, they’re all in the US, is it best to set them up as an employee, or as a contractor plus investor, or as an employee who is awarded shares? Do you recommend these developers have Class A or Class B shares with voting rights? I’m currently a solo founder, but one of these developers could transition into a CTO. What do you recommend for that? Thank you.
Rob: Obviously, you and I are not lawyers. We can’t give legal advice. I’m curious if you have a gut feel if your face with this scenario, a gut feel of how you would approach it, or even you would find the right answer to this. It’s not a clear-cut solution, at least from my perspective.
Jordan: It doesn’t sound clear-cut, but I think what happens often with business people like us is we conjure up legal realities that are wrong, then we start making assumptions based on that wrong belief, and then we complicate everything. I think this requires a re-orientation and that is best with a conversation with a real lawyer.
I think a lot of this stuff is a little off-base like voting rights. You don’t need to talk about voting rights. It’s early for voting rights. If you’re the founder, you don’t want to talk about Class A and Class B shares. It’s way too early for a lot of these stuff. I think a lawyer would help orient the person toward just getting things set up easily and cleanly. Same thing with independent contractor versus employee, I think you go independent contractor. You keep everything simple as possible before it has to be complicated. It ends up complicated, so why complicate it off to that.
Rob: Right, why start there? I think that’s my take, too. This one does sound sufficiently complex that I really do think that he should talk to a lawyer because I just think you can easily make a misstep with something like this. And I agree, the Class A, Class B, the voting, it doesn’t seem like it’s relevant yet.
Jordan: In our company, the only time that came up is when investors come on board. That’s still a question of whether or not you want to create a different class. Not all investors will force you to create a separate class. The separate class is the thing to avoid because what that creates is a situation where investors have X voting rights and you have different voting rights. Deferred compensation, not ideal, but you can understand how it happens if the developers are saying, “Yes. I’m willing to work and you don’t have the cash flow yet to pay me, so let’s defer it.” The second you touch employment, you’re talking social security taxes, you’re talking employment taxes, benefits, and so on. An independent contractor would keep that much cleaner.
Rob: As long as they fit the definition. I mean, the IRS has a definition of that. If you’re managing them day-to-day, directing them what to do and when, controlling their schedule, then they’re not independent contractor. You don’t want to mess with that kind of stuff. My guess is when you’re in this early stage, you could just give them a block of work and say, “Here’s the deliverable, here’s the deadline.” They can get it to you.
The fact that you have multiple developers working on it, I feel it might be easy to actually make that reality. I hope that was helpful, Chris. Not sure if it was, but if I were in your shoes and you don’t have a lawyer, I would head to upcounsel.com and just have a 30-minute counsel with someone could be helpful.
Our next question comes from Marcelo Erthal. He says, “Hey guys. I’m a digital entrepreneur and a big fan of your show. I’m in Rio de Janeiro, Brazil. We have a web app for the B2B market where we need to contact a specific person in the enterprise that we are prospecting.” I assume that means a specific title. “We found LinkedIn a great tool for this kind of job, but the problem is that when one of my sales guy leaves, he leaves with all the contacts and connections in the space, forcing the new person to start over again from scratch. Do you have an opinion on this? Should I have a LinkedIn profile owned by the company?” What do you think about this?
Jordan: I’ve never even considered that, but it sounds like a reasonable problem. My default was, “Oh, just do it under your own account,” but maybe you’re trying to connect with someone, you’re trying to have one of your salespeople to connect to them directly and then have a conversation. It would be pretty awkward to switch in the middle. What do you do about this?
Rob: It’s a tough one. My gut is that the company account is going to just be so impersonal. When you get contacted by a company account, unless there’s a human being attached to it with a headshot, it’s just a logo contacting you gets no response. I don’t feel like that’s really a good answer.
Jordan: I’m going to say, LinkedIn itself, it’s impressive that they’re making it work.
Rob: Yeah. That they’re making sales on LinkedIn.
Jordan: Yes. LinkedIn is tough. Maybe for enterprise, it’s different.
Rob: I can’t help but wonder if you could start the prospecting on LinkedIn, but then basically, bring them into a CRM essentially, or bring them in to somewhere where, when the salesperson leaves, they don’t have all the connections. I think of it like the hub and spoke model of social media where you have your Twitter account, your Instagram, your Pinterest, whatever, but you’re really trying to get them on your email list because your email list is the core thing that you own and everything else you’re just a digital sharecropper. Twitter, Facebook, whatever, they can ban you at anytime, you don’t really own those followers the way you do with email list.
I wonder if he couldn’t approach it in the same way where you are using LinkedIn as a channel but it’s just the spoke, and you’re actually trying to get them into either a conversation with you team or you’re trying to get their email address or you’re getting them into a CRM where you can have data about the interactions and all that. That’s what the big companies do. Even they have people prospecting on LinkedIn or cold calling or whatever, their relationship is documented in a CRM somewhere so that when that salesperson leaves, they don’t take everything with them.
Jordan: Yes. I think the personal connection and conversations that had been had on LinkedIn sounds like you’re going to lose. But if you get them into a CRM, then the company actually has that asset and that value. If you want to do that as early as possible in the LinkedIn process, my guess is a lot of CRM these days have direct integrations with LinkedIn. If you think about something like SalesLoft, they’re deeply integrated with LinkedIn, and that’s how I would approach it. It’s not really a prospect, it’s not really a lead until they’re in your CRM.
Rob: And unless your sales cycles are really long, there shouldn’t be so many hanging relationships at any given time. You have people who have become customers, you have people that you’re reaching out to, and then you have people who I guess didn’t become customers, but then you have that in-between and there’s always so many in that in-between for now. Well, I may buy in the next month or two. I feel like keeping that number small is probably the way to go.
Thanks for the question, Marcelo. I hope that was helpful. Our next question is a voicemail about how to balance time between new features, refactoring, and fixing bugs.
Colin: Hey guys. Thanks very much for the show, really enjoying it just now. I am Colin Gray. I run a podcasting company in Scotland, thepodcasthost.com, so we people start podcast. We also created a SaaS product last year called Alitu which helps people to produce podcasts and there’s a lot of automation for them.
The thing I’ve been struggling with as we’ve been running for a year now, I have a team of four developers, two full-time, two part-time. I’m struggling to figure out how we should be balancing our time between brand new features, fixing bugs, maintenance, refactoring, that type of stuff. I’m really interested to hear what you guys think around how you balance a new development work with the reliability work because we still get bugs, we still get people that get in touch, it’s not very many. We must be in the less than 2% […] by now in terms of reliability, but what do you think is reliability to aim for in terms of support tickets, bugs, that kind of stuff, and how much time should you be spending on that versus new features? Thanks very much.
Rob: I like this question. Thanks for sending that over, Colin. I think it’s a pretty common thing that, as first time founder, you wouldn’t even think about this before starting an app but at a certain point you have to. I’m curious to hear your thoughts, Jordan.
Jordan: This is the ongoing struggle between making progress on the roadmap and how much time it needs sprint to give to fixes and how much should you have a few sprints in a row that are just features and then a sprint entirely devoted to bug fixes. Everyone has a different way of doing these. A lot of it ends up on gut feel on where your customers are and what you need to be doing.
Generally speaking, I have a few thoughts on it. The thing I like to keep in mind is to make sure we never go too long without giving customers new features. Yes, we have all known issues internally and we’re thinking about, but we need to keep the momentum going. Momentum in the product, momentum in sales, momentum in all the different things, and pushing out new features keeps that momentum going.
For some of the detail that Colin talked about their year in, which tells me, yes it’s starting to pile up and you’re starting to deal with things that are popping back up, but it’s still relatively early on. I assume the codebase isn’t a hot mess the way it gets into it after a few years. The other thing he said was that they get a few support tickets here and there. It sounded from the words he was using and the tone of his voice that it’s pretty minimal. I would say that the tolerance for bugs is a big issue. I know our product is a check out product so the tolerance is extremely low if we have bugs that costs people money, so our tolerance is very low.
Depending on the type of bugs and the type of customers, those bugs might be annoying or might be absolute deal breakers. I think that helps guide you on how far to push it, on how hot to let the fire get before you start throwing water on it. I would lean more toward new features even at the discomfort of the shame and embarrassment of people getting in touch with things that are broken. That’s my general take on it. It sounds like he’s in a pretty good spot. It’s an ongoing struggle to figure out, but I would lean toward being a little bit uncomfortable and a little bit embarrassed.
Rob: I think that’s pretty good advice. I categorize these in my head into two buckets where it’s like there’s user-impacting or customer-impacting bugs or cruft, or there’s UI cruft. It may not be a bug, but it’s all the stuff that is maintenance, like bugs plus an old-looking interface, plus a clunky interface you know needs to be revamped, that impacts the users in that they notice it. That’s one bucket.
The other one is the cruft, bugs, and other stuff that users don’t notice but are a pain in the […] for your dev team. It’s stuff that needs to be refactored or it’s that one the alert that dumps too much information once every few weeks. It just floods the Slack channel or floods your error logs with something. It’s one-off things and users don’t know it, but you know it’s getting on the dev nerves.
I agree with you. You are going to want to probably let some of these go longer than you want to, but I would encourage that you let your developers, give them some leeway to fix the things that are bugging them. What we did in the early days when you’re just shooting from the hip all the time and it’s like, “Hey, what’s the next feature we should work on?” We were literally planning one feature out and we were doing that. We had three developers full-time. We were probably doing 50K MRR and we were still doing that approach. It was super agile and we could make decisions very quickly as we respond to customer needs.
At that point, we would often say, “Let’s just look in the stack and if there’s stuff that we think is bothering people or is bothering devs, just pull the next one off, spend the day, fix it,” and then we all felt good about ourselves and like, “Ah. We got that done.” Then went back to features. Another few weeks later, we’ll be like, “You know? We haven’t really attacked something like that in a while,” and we go back to it.
When we started formalizing it, as the team got bigger, by the time we had 8 or 10 developers, that’s when we started saying, “One morning a week,” which winds up being about 10% of your time because it’s about 3 or 4 hours, “everyone would pull one thing out of the queue, whether it was user-facing,” because a lot of the designers would do user-facing stuff and a lot of the devs would do the cruft that they wanted to refactor, you basically have one morning to pick something and fix it.
That became a cool cadence.It sounds like it would be drudgery, but they actually really like it because it makes their lives better and makes their lives easier. I always felt like there’s something between 10% and 20%. 20% was a full day and that felt like too much to give up every week to just fixing these stuff. Codebase would have been immaculate, but as you said, it negatively impacts your feature velocity. I think that’s how we’ve approached it.
Jordan: I like that. It does end up being seen and felt as a little break. We’ve had entire weeks where we go by and it’s almost a break. We’ve been pushing really hard on this ramp. We just went six weeks straight, all out. The end of it was stressful. Everything went to QA at the same time like it shouldn’t and then everything got out the door. A week of refactoring, going back, and polishing things up is almost a little bit of a breather.
The thing that we had to watch out for is that some engineers have a tendency to refactor as they go. They’ll be in the part of the codebase working on a feature, they’ll be touching an adjacent part of the code, and it won’t be up to snuff compared to what they’re building now. It has some logic in it that we thought was right 12 months ago and then the tendency to want to refactor that before coming back to the feature that you’re working on is dangerous. That’s how things start floating and not being on time. We definitely had to figure out the engineer personalities and help guide people away from too much refactoring.
Rob: I agree. Like with anything, it’s good to know the personalities of the people that you’re working with and know if they err on the side of being much more, “Hey, I’m just a hacker. I’m going to throw stuff in,” and then you know that they need heavy code review to bulletproof their code, and then other people take a really long time to build their stuff, but it is super bulletproof. You often have to encourage them to maybe go a little faster, let’s have a little bit of risk in this to get it done 20%–30% faster. I hope that was helpful, Colin.
Our next question is a bit of a long one. It’s from Dragos. He says, “Hey guys. First of all, I want to thank you for doing the podcast and giving your thoughts on so many entrepreneurial things. Writing to you about my startup, it started as a dream and ended as a lack of motivation and a desire to sell it.
More than a year ago, I started working on an idea where I would change the way people build WordPress sites, make it easier and smoother. It began as my problem because everytime I had to create a WordPress site, I had to search for a theme, buy it, do a bunch of other stuff.
Even if I was a developer, I didn’t have the knowledge of the technology required to build the app nor the cash needed to make an MVP so I borrowed money from my sister and I hired a small agency from Eastern Europe. Seven months later, I had a rough MVP…” Wow, seven months. That’s a long time. “A theme builder that allows people to create one page WordPress sites in just a few minutes.
During the development, I tried to create anticipation and manage to build a list of around 200 people. The problem is the post-launch. I only got one customer. Since then, I’ve had a few thousand visitors, but I have not had any new customers. I blame the execution, the fact that I do not know who my customers are, and I don’t know what to do next.
I’m in a position where I don’t have the technical knowledge which is AngularJS to continue the project. I don’t have motivation, I don’t believe in the idea like I did in the beginning, and I’m afraid to invest any other money. It’s easy to quit as I have tons of other ideas but should I persevere on the initial plan? How do I decide when to do that, when to stop, and just consider the startup a failure?” What do you think, sir? This is a tough one.
Jordan: It sounded like it was going to be a tough one, but then when you get to his tone toward the end, you start to realize this is just a failure. There’s nothing wrong with that. It’s time to move on. That’s my gut feeling after hearing this. The amount of energy and probably money also to turn this from where it is right now into something that works and turns out to be a success, I don’t think it sounds like it’s worth it. I don’t think he has the motivation and drive to do it. I would just choke it up to a lesson and move on.
Rob: I think I would agree with you. It’s funny when I said this is a tough one. I didn’t mean it with a tough decision but that’s how it sounded but it’s a tough email to read because I’ve been there. We’ve all been there and it’s hard.
Jordan: What makes it tough is that pretty much everybody listens to this, including you and I, have been in this exact same situation. It’s tough when you’re in it, but it is one of those things that people from the outside that have a bit colder approach to it, just look at it and say, “I’ve been there too. There’s no shame in it. It’s just one of those things you should just move from if it didn’t work.”
Rob: Yeah. I think if he had the motivation, that’s the thing from me. When you’re a bootstrapper or doing stuff from the side, you never run out of money. Running out of money is what kills venture-backed startups because they burn through the cash and they shut down. Since he’s not a developer, I guess he has run out of funding that he wants to put into it.
Realistically, if he was super motivated to do it, he could learn Angular himself or he could take some of the money he’s making out of his day job and invest it in. If he had the motivation and really thought it’s going to work, but when you don’t have the motivation or the desire, it doesn’t matter. That’s what kills startups. You just get fed up with it at a certain point, you don’t believe it in anymore, and if you still believed it was going to work, you could totally try to make a verticalized version of this like, “I’m going to make this for pet groomers, or for designers, or for whoever.” Pick a niche and you can try to go after it, but it doesn’t sound like that’s that interesting and he wants to move on to the next thing.
It’s the hard balance. I feel like it does come back to knowing yourself like do you tend to just skip from one thing to the next, to the next? In which case, you should stick with things longer than you normally do. But if you are someone who tends to just grind it out and spend two, three, four years working on things that then fail, well maybe you should move on quicker from things in the future. It sounds like given that it took seven months to get that MVP, which is brutal, and that he has said thousands of visitors, this is a real tough one to turn around.
Jordan: Yes. It’s almost a blessing in disguise that it got so little reception. The really dangerous ones are that get just enough reception to keep you motivated to keep going, but will probably not lead you to where you want to go.
Rob: Yeah. That take years and years to get to 5K MRR, 10K MRR, whatever, right?
Jordan: Yes and then say, “Oh, man. I should just stop it,” and then that sunk cost is even more painful. It’s never seen as a sunk cost. It’s always look back at, “Well, I’m two years in. Should I really stop it at this point or should I keep going?”
Rob: Our last question for the day comes from Robert. He says, “So many products fail, but when does fail early not apply? It’s not like fail early can be a universal practice because almost everything seems to fail anyway. None of the advice that seems reasonable seems to work without getting hung up and never shipping. When is it a good idea to spend extra time getting it right from the get-go? Have you ever seen someone fail because the MVP was shoddy, only to see something similar succeed with a higher quality MVP and a more thorough team? Likewise, have you seen a really thorough product with thorough marketing and industry experienced co-founders fail miserably?” There’s a lot of questions here.
Jordan: Yes but it sounds like he’s searching for what is it that makes things successful and other things fail. That is so intangible. There are so many factors there. That mystery has no solution. Everyone has seen these things. Great team, great product rate, everything total failure, and the opposite of someone who doesn’t know what they’re doing and get lucky or looks like lucky and have spectacular success. I don’t know if you can expect to find that intangible thing that makes something successful while others aren’t. It’s tough to define.
Rob: I agree and some parts of his question, of his letter or his email, he said so many products fail. When this fail early not apply? He’s talking about building an MVP that’s thorough versus not. I think back to last episode where Laura Roeder was talking about launching a competitor to pager duty. That’s where you can’t build a shoddy MVP.
I think another one is like to compete against MailChimp, like what we did with Drip. You’re building an ESP, you can’t have a shoddy MVP and get that done. Now, you can go circuitous and you can build an addon to things and then slowly branch in, but I think what I’m getting to is like a mature market where there’s a lot of competitors who have mature products, that’s where just an early MVP that doesn’t have a huge differentiation is very unlikely to get traction.
I think of Josh with Baremetrics years ago, where he is first to market with this one-click analytics. Even with Peldi with Balsamiq where he was the first one to really build this mockup tool in the way that he did it, you can build a pretty basic version because no else was doing it and that basic version was good enough. People would put up with either bugs or just a lack of features because it was a novel new thing and you really couldn’t get it anywhere else.
Jordan: It’s like it requires practice to get a sense of whether or not something is on the right track. I hear you on the MVP, but I think the MVP is internal facing. We know that this is not quite good enough but we’re just getting it out there. The reaction from the market that external pieces is what tells you whether or not you’re on the right track and should keep going or should stop.
Our check out was an MVP when we launched it and it effectively tortured people and then they would cancel but not before the torture. They went through some torture first. The reaction from the market was so strong that we knew we were on the right track. We couldn’t have a shoddy MVP in a check out product, but we did. The reaction was so strong that we said, “Okay. We’re just going to have to bite the bullet here for six months and re-build this thing again, but we know we’re on the right track.”
MVP is one thing. The market is the other. Beyond that, it takes some practice. I went to see Jason Fried talk in New York a good 10 years ago. Basecamp was the hottest thing ever then. I went to go see him talk and at the end of the conversation, I asked him effectively something to the effect of, “Why are you guys so good at this? Why is this product making money when others aren’t?” His response was that they effectively have more practice making money. The more practice they get, the better they get at it. The sense of whether or not a product is working, or the MVP is good enough, or the market is responding properly, I think that stuff just takes practice.
Rob: Thanks for the question, Robert. I hope that was helpful. I realize ‘it depends’ is not always the answer we want to hear, but some of these are just difficult to answer.
Thanks again for coming on the show today, man.
Jordan: Rob, thank you. I appreciate it.
Rob: It’s great having you. If people want to catch up with you every week or two, they can go to bootstrappedweb.com which is where your podcast lives.
Jordan: Every week or two, that’s very kind of you.
Rob: You like that? You ship two or three episodes a month, right?
Jordan: Yes. It’s the summer that throws us off, with all the travels, Brian’s out there in the world, but we’ve got big plans, come back strong in the fall. I’ve taken real effort into this […] to be more open. It’s turning into the low light podcast and those are my favorite business podcasts these days, the super successful stories. Sure it’s entertaining, but the values of someone like your last episode with Laura Roeder, that’s it right there, man.
Rob: It’s the struggles, right?
Jordan: Struggle especially when you come across someone like Laura where she’s ridiculously good at what she does and you get the sense that everything she does works. You have a podcast episode like that and it helps you identify everyone struggles. It’s always just helpful to hear someone in her shoes be open about it.
Rob: There was one line in my MicroConf talk this year that I keep coming back to and it is there are no Cinderella stories. You can look at any startup, she got to seven figures in a year. That’s crazy, but you know that under the covers, that was probably very hard to manage. The things that we see from the outside, they just look amazing, and it’s like, “I wish my company was doing that.” Maybe you do, maybe you don’t.
Jordan: I think that line in your talk, sparkle a lot of conversations in MicroConf that went somewhere to the effect of, if you’re jealous or envious of some situation, just go ask them about it. As soon as they start talking, you’ll realize, “Oh okay. It’s not that amazing.” It’s nothing that you should be envious about. As soon as you actually get the details, you’ll realize how hard it is.
Rob: The growth might be envious but the challenges are not. If you have a question you would like to hear us answer on the show, call our voicemail at 888-801-9690 or email us at email@example.com. You can obviously attach an MP3 or a WAV file to that email. Our theme music is an excerpt from We’re Outta Control by MoOt, used under Creative Commons. Subscribe to us in iTunes or any podcatcher of your choice by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions on topics including how to market a podcast, what to do with business profits, building features vs. integrating and more.
Items mentioned in this episode:
- Big Snow Tiny Conf
- Business of Software Conference
- Brian Casel “Tiny Conferences”
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about when to pull profits out of your business, the balancing act of building features versus integrating, how to market a podcast, and more listener questions. This is Startups For The Rest Of Us episode 417.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: Well, I talked a little bit about this at MicroConf Europe, but I am getting used to my CPAP machine which is a device to basically help prevent your airways from closing when you sleep. I had a diagnosis for sleep apnea about three or four weeks ago, and they said, “Yeah, it’s not looking good.” Basically, sleep apnea is your body decides to stop breathing in the middle of the night. Various times I would just wake up and be gasping for air just because my brain would freak out because it’s not getting enough oxygen because I stopped breathing. Anyway, this machine will help prevent that which will improve my sleep presumably. It’s actually going fairly well so far. I’m cautiously optimistic about it, but it’s an ongoing issue for a while, so I’m glad that it seems like it’s headed in the right direction. But it’s probably too early to tell.
Rob: Sure. It like straps on your face, right? It looks like an oxygen mask or scuba thing. I guess, it’s on the front of it.
Mike: Yes, I sound like Darth Vader.
Rob: Do you? That’s interesting.
Mike: Well, a little bit. It’s not that bad like when I breathe, I can hear it because the thing is right on my face but it’s not so bad. But if I talk, obviously, it sounds like Darth Vader.
Rob: Well, it’s got to be tough to get used to because if you roll over in the middle of the night there’s a cord or some type of hose attached to it, right?
Mike: Yup. I don’t know. Like I said, it’s taking some getting used to, but it seems to be helping so far. I don’t know. Like I said, cautiously optimistic.
Rob: It’s always tough with these types of chronic things. You deal with for years until at some point, you realize you’re like the bullfrog in a boiling pot of water where it’s like, “I’ve let this go way too long.” I had that with my shoulders, neck, and back. I got to where the point where every day I was just in pain all day everyday no matter what I did. Eventually, Sherry was like, “This is dumb.” This was when I was 38, “You’re 30 years old. Figure this out.”
She had me start doing yoga and then she’s like, “Go to a deep tissue almost acupressure.” I would say it’s a massage but it’s not like I’m going to the spa and get a massage, it’s a medical intervention massage where it hurts a lot. I started doing those twice a week and then it went down to once a week and eventually, I fixed it. It took me six months, but eventually I fixed and it’s like, “Wow, I can’t believe I let that go on that long.” That seems to be what’s happening is you’ve struggled with this kind of stuff on and off and tried different solutions for years.
Mike: Yeah, that’s exactly right. It has been going on for years and it’s just gotten progressively worse in this past year. I almost can’t even function. I was just not getting enough sleep. The sleep therapist I saw, he’s like, “Hey, I need you to track your sleep for two weeks.” I’m like, “Well, I’ve been writing it down whether I get a goodnight of sleep or not.” And he’s like, “No, here’s an official chart. Fill this out every single day for two weeks. Log how much you actually sleep.” I was looking at it and I’m just like, “I’m only getting 15 or 20 hours of sleep a week.” I was bad. I didn’t think it was that bad, but it was pretty bad.
Rob: That’s weird. You were literally, just to be clear, you were sleeping from midnight to three in the morning or something and then you are up. It’s like insomnia type stuff or you’re just up when you didn’t want to be?
Mike: It was a combination of that and also going to sleep and then waking up and then not being able to get back to sleep. Of course, all of the advice says, “Well, if you wake up in the middle of the night, don’t get out of the bed because that’ll disrupt your body.” And then of course, there’s the conflicting advice which says exactly the opposite which is like, “Oh, if you’re not tired, get out of bed, and change your environment.” I’m probably exaggerating a little bit with 15 or 20 hours, but anyway, yeah, it was just awful. I don’t think there was any night where I was getting more than I think five or six hours of sleep.
Rob: That’s tough man. I’m not able to function like that.
Mike: How about you? How are things going with you?
Rob: They’re good. Just got back from Croatia 48 hours ago. I forget every time how much I love flying West and how leaving here, leaving Minneapolis and going to Europe is so hard because it is 10 times harder in terms of getting the sleep and the time change and all that crap especially we had three kids with us, they did great, they’re good travelers but still, it’s just a pain—you’re tired, at the wrong time.
Flying West, it’s like a dream man. We got back here, we just had to stay up a few hours then we got a goodnight’s sleep. We all woke up at four in the morning which is not a bad thing. We got up, we had an early breakfast, and then the next day we all slept ‘till six in the morning. Now, I’m hoping to try keep this schedule because I tend to be tired in the morning and I sleep later than I want to, 7:30, 7:40. But it’s been great getting a jump on the day, and it’s like built in. I need to remember this. I feel like the way is always easier.
Mike: I’ve experienced the same thing. I think I got back at 9:00 or 10:00 o’clock at night because I’ve left at, I think around 1:00 or something like that and then I had three hops. I went through the capital of Croatia, and then over to London Heathrow, and I made the mistake of getting in the wrong line. I apparently missed one of the signs. I’m sitting in this line and it’s going through customs, and I’m just like, “I’m not sure that I’m if the right spot. Shouldn’t I be just transferring from one airplane to another? Why do I have to go through customs here?” and so I asked somebody, and I’m glad I did because I was going to end up in England. I would’ve had to go all the way back through security. It would’ve been bad. I was at the wrong terminal too.
Rob: That makes it tough. Cool. I’m glad you dodged that bullet. Other thing I want to mention is MicroConf Las Vegas. It is March 24th through the 28th of 2019. Growth Edition is the first two and a half days, and Starter the latter two days of that. We’re going to be putting tickets on sale here in the next, I’ll say, three to four weeks. If you’re interested in coming, you’re going to want to go to microconf.com, click on Growth or Starter Edition, and then enter your email. There’s a Drip pop-up widget in the lower right and you will be on the list to get tickets. We’ve been selling out every year, at least with Growth, it got started selling last year, but you’re going to want to be on that list to get tickets early.
Mike: Yeah, there’s also a place, it’s a description on the website if you’re not sure which edition of the conference you should go to, there’s some descriptions there that’ll kind of help you decide. If you have any questions, obviously, just drop an email to us in the very near future and we’ll help you out.
Rob: Today, we are answering some listener questions. We’ve got a nice crop of them in while we were in Europe. First one is a voicemail and he’s asking about what to do with profits once your business is successful.
“Hey Mike and Rob. My name is Joe, I’m a solopreneur, like a lot of your listeners, but unlike them I’m in the free-to-play mobile game industry rather than a B2B SaaS, but a lot of what you guys talk about still applies. I’ve been listening to you for five years now, so thank you for all the episode. My question is about what to do with profits when the business has been very successful. Up to now, I’ve been treating the profits as capital for future runway, for when the business takes a downturn. But the business has been doing well for a few years now and I feel like my family should take part in the success of the business as well rather than use all of the profits just for future runway to pay myself. I was wondering what you guys think about that and if you have any advice. Thanks. Bye.”
In addition, Joe clarified, he said, “I’m wondering if it makes sense to do something like have half the profits go to future runway and the other half go into savings for the family or maybe increase my “salary” every year because the business is doing well, so that I have more money to spend on and save for family things.” I like this question. I don’t think we’ve ever gotten a question like this and I like it. I have a lot of thoughts on it actually.
Mike: Well, do you want to go first? I’ve got plenty of thoughts on my own too.
Rob: Okay, let me go first on this one. I think there’s some traditional business thinking. When I first got out of college, I worked for a construction company–electrical construction. The guy who ran that company had been running it since the ‘50s. His philosophy was, “You take the profits at the end of the year, you invest half of them back in the business.” He kept them as retainer earnings—it’s what they’re called on your balance sheet. Then he took the other 50% and he split that in half, so now you’re talking 25% and 25%. He took 25% for the owners of the company. Originally, it was just him but then there were four or five, six different executives who owned pieces, and then the other 25% basically share with the employees. It was either an end-of-the-year bonus or they would buy us—I worked there a couple of years and they bought us brand-new Dell computers. This was in the late ‘90s, it was actually several thousand dollars, or they would sometimes get cash bonuses and that kind of thing.
Now, Joe’s probably not in that situation, it doesn’t sound like he has a bunch of employees but that’s one way to think about it. This half and half idea, I think is interesting. I think that’s one approach you can take. Other approach is more of what I’ve done with my apps and my companies, is have a number that I want in the bank. It’s kind of like your emergency fund. Like in personal finance, first thing you do once you’re out of debt is you save up three to six months of living expenses and you put those in a money market or savings account, you don’t touch them. That’s for when your car breaks down or you have to move quickly or just if anything goes wrong. I believe in the same thing for a business. You’ll have to figure out what the number is. But I remember, with HitTail, I believe I wanted like $30,000 or $40,000 in the bank, and then everything above that, I started putting into a different account. Now, some of it I pulled out for personal stuff and others I put in to invest in other products.
When Drip started getting bigger, that number got a lot more. It was like $100,000 would only cover payroll for a few months. That number then had to go up to $100,000, $150,000, $200,000 and you’re going to have to figure out where that comfort is. That’d be the other things is you don’t need to necessarily split it 50-50, you could just have a threshold where it’s like, “Hey, everything beyond that, I just basically take out for the family.” Those are my thoughts. What do you think, Mike?
Mike: I think there’s my answer to this and there’s also, I’ll say, some subjectiveness that you would have to run past a tax attorney for that . I agree with you that having a number in mind that you want to have in the bank at all times as kind of a cash cushion for the business is a great idea, and depending on how many employees you have and what your regular expenses are in a monthly basis for your family are, that’s going to factor into that.
Whatever that number happens to be, let’s say that it’s $60,000 and you’re paying yourself $10,000 a month—just for sake of simple math—you get that in the bank and then above that, that’s when you have to start looking at, I’ll say, tax advantages. Because one of the things that he had mentioned is paying himself salary and from talking to my CPA, for example, his advice—again, this is not general tax advice for everyone, talk to your own—but he had said, “Take your salary and actually cut it in half and pay yourself half of it as salary, the other half as the owner’s dividend.” Essentially, what that does is it pays all the FICA and all the other stuff on taxes, and it’s a reasonable salary, and then the rest of it comes as owner’s dividends and it’s taxed at a different rate. I would definitely look in like talk to a CPA and see what you should actually do once you get beyond that cash cushion.
Rob: Yes, that’s a great tip. I just want to chime in and say my accountant has told me the same thing, not tax advice, but you want to be able to justify a salary. You don’t want to pay yourself $1 a month because then the IRS is going to come in and say, “Well, you’re the CEO of a small software company, you should be making at least 60K, 70K, 80K depending on where you live. As long as you can justify that though, if you keep it as low as you can, you will maximize on your taxes. I like that. I think increasing salary is probably not what you want to do.
Mike: The other thing you can do is planning for the future in terms of what you can invest that money in in terms either a SEP-IRA or various investments to basically for retirements. I would definitely look at those, I would probably avoid, again not tax or legal advice, I’d probably avoid keeping a lot of cash in the business beyond what your comfortable with because let’s say that the business got sued for example or something happens, if that money is in the business, it’s considered a business asset. It’s not to say that the opposite can happen because if you get in a car crash then they come after you personally then they’re suing you for the money that’s in your bank account.
There’s different ways of looking at that risk profile but those are, I guess, my general thoughts on it. But I would be cautious about just dumping it all directly into “salary”. There’s other ways to, I’ll say, pull money out of the business and ease up any sort of financial burden on your family or just make it a more comfortable life.
Rob: I think that’s good advice. To recap, I think 50-50 is totally reasonable. I think just having a maximum threshold of an emergency fund is another reasonable approach. It sounds like both you and I vote, don’t increase your salary unless that’s just something you want to do because it sounds like you’re going to pay more taxes on it; you pay the FICA and all the other stuff.
You know what, Mike, I like that you brought up personal liability and business liability. I think in general, owning a business is you’re going to have a lot more liability than on the personal side. Because you’re right, you could hit someone with your car, the odds of that are just less than your business screwing someone’s launch up and then they sue you for damages. But on the business side, you should have that LLC or that S Corp or whatever that protects you on the personal side, if you don’t have a personal umbrella policy—this is going a little off on the tangent but I just want to do my little spiel here—a personal umbrella liability policy here for $1 million or $2 million is very, very inexpensive.
As soon as you have means, as soon as you have enough, someone could sue you and you’re worth enough that it’s worth suing you, I think everyone should have one. I believe that I have $1 million umbrella policy by the time we owned a few houses in LA, and I’d say, in my late 20s or early 30s and we have $1 million umbrella policy and I believe it was $300,000 a year.
That was just if someone hurt themselves at our house, so they decided that, we did get in that car accident, but I had enough money at that point where I was like, “Well, I don’t want to lose these several hundred thousand dollars of my net worth.” and it was worth $300 bucks. As you get more money, you need to increase that, you need $2 million or $3 million umbrella policy. But that’s just a little side piece of advice that I think helps me sleep at night.
Mike: I think, at the end of the day, that’s exactly what he’s asking is like, “How do I sleep better at night with the finances that I have and how do I deal with this?”
Rob: Thanks for the question, Joe. It was a good one. Our next question is a response to our response to a question in episode 415. In episode 415, Chris Palmer wrote in and he asked a question about, “How many presales do I need to do to validate an idea?” You and I, in the past, have kind of thrown around 30. That’s the number Jason Cohen used, and so that’s what I kind of latched onto when you and I battered that around. Maybe it’s 20, maybe it’s 40 or whatever, but we kind of said that and Chris said, “Look, I’m selling into the enterprise and so maybe I can get three people to verbally commit but that’s going to be about it.” You and I talked back and forth.
Nick Mair wrote in. He said, “Hi, Rob and Mike. Great show. Regarding the question from Chris Palmer on the number of customers required to validate an enterprise concept. We validated our idea by pitching a deck of five slides to five enterprise customers. Commitment in principle and strong interest from three to five companies was enough for us to move forward. Next, we bootstrapped into it by finding a willing “development” customer […] going to work with him to help us get the product right in exchange for a low, one-time lifetime license fee. We asked for a letter of intent on the condition that we could demonstrate, we could build a working MVP at our expense.” Letter of intent, you and I had talked about that a little bit. “We built the MVP with £15,000 of our own savings from separate consulting income. The MVP’s success and the letter of intent led to an upfront commitment of £30,000 towards funding a full V1, paid in stages to de-risk for both parties. We agreed $10,000 on the start and £10,000 on deliver to user testing and £10,000 on user sign-off. We were live nine months after the MVP. We had a great reference of customer which got us going. We’re not installed at eight and growing subtly. The one- to two-year runway you need to get traction in enterprise is tough, but I’m not sure it’s harder than B2B SaaS, it just needs a different funding approach. I hope this is helpful to Chris and others in the space.
That was Nick Mair’s response. He’s from Atticus Associates Ltd. Totally appreciate that. I think that’s great insight. I want to point out that I love when our community gets involved like this. That you and I had opinions, and we had thoughts about it, and I listened back, and they were totally reasonable, but Nick has actually done it and he has another point of view in something I never even thought of pitching it as a slide deck. I actually think that’s a really good idea.
Mike: I agree. I actually met Nick at MicroConf Europe this year. I had dinner with him. He kind of talked a little bit about what their approach had been. I’m glad he wrote in because he explained a lot of these things to me over at dinner. It was fantastic listening to him and hearing all the different things that they did and the path that they went. You can look at it and say, “Well, you’ve only got eight customers. What happens if one of them leaves?” because that’s probably going to be a huge chunk of money. But at the same time, at the enterprise level, you’re probably going to, at least have some sort of heads-up that they’re not happy or there’s problems.
Unless the business is shutting down or something like that or they’re ripping you out and replacing you with some other vendor, but chances are good that if you got in there to begin with, you’re probably going to have like an internal champion of some kind because that’s how enterprise tend to happen. You’re going to get at least some sort of heads up about what’s going on and why they may be unhappy.
Rob: Yeah. A little secret here is that Nick is a smart guy and Nick has been successful. You and I sit on this podcast and we give our best advice, and we give our best ideas, but sometimes when there’s someone out there who has done this, they just know a little more about it. I appreciate Nick chiming in. He actually offered to connect directly with Chris, so I connected them via email. That’s why we do this, right? That was so stoke. I’m just super excited that Nick may be able to give some advice to Chris that will help his business get off the ground. It doesn’t need to always be us.
That’s what we learned early on with MicroConf is I think the first year you and I had felt like we had to do everything, and we had to have everything in place and if people weren’t having fun, it was our responsibility. What we’ve learned over the years is that no, MicroConf has become an entity unto itself. The speaker show up and they deliver value in that, the attendee show up and they deliver value to one another, and that’s the most important part. You and I, at this point, are facilitators, we’re involved as well but the conference doesn’t hinge on us anymore. I don’t think the podcast, it does a little more because it’s our voices, but it doesn’t have to. We don’t have to have all the answers when smart folks like Nick and others we know can weigh in.
Mike: It’s kind of a, I don’t want to call it a double-edged sword, but I would say it’s certainly not something that we have thought would happen early on, but I’m very glad that it has happened that way. Because I think you’re right, I think that MicroConf could, in theory, go on without us but in terms of the podcast, if either you or I left, or if two new hosts came in or something like that, as long as the content and the tone and everything else, like the general philosophy and ethos where they are, I don’t know it’s going to be that big of a deal. Maybe I’m wrong, maybe the listeners will feel very differently, and we’ll hear about it in the comments but you’re right. It’s nice to be part of a community where it’s bigger than just the people who were there early.
Rob: Thanks again for writing in, Nick. Our next question is from a longtime listener. He says, “Hey, Rob and Mike. I’m the founder of zoomadmin.com, it’s cloud management software as a service. We’re still in development but want to start a podcast with other founders and record our journey, sort of like Startups For The Rest Of Us. My question is, how would you go about marketing a podcast in 2018 both paid and free channels?”
Before you dive in on this, Mike, because I know you have thoughts on it, zoomadmin.com, when you get a chance, get an SSL certificate. It’s not giving me the superbad warning but it’s not secure and Google Chrome is kind of having a little bit of a conniption on me about it. It’s just one of those little things that when you get to launch, you’re going to want to have an SSL cert.
What do you think about this, Mike? I think the first question I would say is, I mean, starting a podcast will be fun, but it’ll be a lot of work. Do you think it’s more of a distraction than its worth? Is it going to help their business pound-for-pound, hour-for-hour? Are there other activities they could be doing that will help their business more than starting a podcast?
Mike: It’s a hard question to answer without the context of their business. If they’re still early on in development, who’s the podcast going to speak to? Because it seems to me, if you’re going to try and start a podcast that’s going to target other founders, you can leverage their audience certainly to help increase the number of people who will listen to the podcast. But are the types of people who will end up listening to it and learning about a journey, are they going to be interested in the product?
I do think that there’s definitely some overlap, but I don’t know how much there is. I will say that, I think building a podcast is going to be a long journey, and yes, you can get a lot of listeners but that doesn’t necessarily translate directly to sales. You’re going to spend a lot of time and effort building this podcast and building the community and listeners around it, but at the same time, I feel like there’s probably much less overlap between the people who would listen to it and want to hear the journey versus actually be interested in the product. I do agree with you, I think it’s a very valid question about, “Is this the right marketing strategy that you should try?” I can’t say I have a great answer for that. If you would podcast about serving hosting, for example, that ties directly to the podcast, so it would be, I would say a better fit, but how interesting is that as a topic?
Rob: Yep, I would agree with it too. I think that’s why I threw out the question. I think hour for hour, there are other activities that you can do that are going to help your business more. Let’s put that aside for now because that’s advice we have, but his real question is, “How would you market a podcast in 2018 both paid and free,” which I think is a fun idea because I’ve often thought about paid promotion of a podcast and what that might look like and whether the numbers could work. Free promotion, what are you going to do, right? It’s social media, it’s all the socials, and then it’s trying to do your best to search engine optimize yourself in the iTunes podcast store or Stitcher or whatever—those are the free channels that I can think of. I would start Googling how to do that. I can throw out ideas here. I know that keyword stuffing kind of works reasonably well because these search engines are not Google, the iOS, or the iTunes podcast repository is not very intelligent in terms of how it indexes things.
Rob: Yeah. There’s a lot of search engines that are still easy to game and this is one of them. I would kind of dig into that if I were a new one. When I launched the podcast, I would it with four episodes live because as soon as someone subscribes for the first time, it downloads all the available episodes up to three or four. If you only have one episode, someone listens to it, they don’t like, they’re going to leave. But if they download all four of them, they might give it more of a chance. It’s just a little bit of a hack to get more episodes onto someone’s device so that they might listen through them and see if it gets better because your first one’s probably be kind of rough. Please don’t go back and listen to episode one of this podcast. It is beyond rough.
Mike: I think that’s an understatement. All that’s great advice. Another thing I would say is, you had mentioned SEO, one of the things we do at Startups For The Rest Of Us is we have transcripts of all of our episodes. I would advise doing that, and it does cost money to have them done but it is worth it in terms of just having raw content on your website. You can just go to WordPress and just type in whatever search term you have, and it will go back through and it will search every single podcast that you have ever published. In addition to that, you also have the search engines that are coming in and indexing that content. That is going to be helpful as well.
The one other piece of advice I have is if you’re going to start interviewing founders of other companies, let them know when you publish the podcast and have them invite their own audience to it because that can help you to grow your own audience for the podcast. In terms of paid advertising, I think that you could do newsletters and things like that. Find bloggers who are speaking to an audience that’s very similar to the types of people who you want to be listening to your podcast and the materials aimed at and see if you can put a plug inside their newsletter. I think that’s probably the strategy I would go to.
I don’t know how well a paid advertising on Google or Facebook or something like that would work. I have my doubts about it. I think it’s going to be hard to track through a conversion for that like, “Oh, did this person actually subscribed to the podcast or not?” because you’re kind of doing blanket advertising at that point. It’s going to be hard to measure conversion rate and then pull them out like, “Oh, this person downloaded the podcast.” Well, how do you know that? You really can’t because those things are disconnected at this point. I would say it’s more like billboard advertising where you’re bringing out awareness to it versus somebody signs-up for an email list then you can stop advertising to them. You have no idea whether or not they did.
Rob: Yeah, I like the idea of using paid channels to grow a personal brand. It would be tough to make it work with a podcast for exactly what you said. You don’t know who’s taking what actions. Podcast listeners are also not that valuable compared to say, email subscribers. Podcast as the promotion, it is the thing that brings in the traffic. Driving traffic to a podcast via paid acquisition, I can’t imagine that working. I could imagine in the free channels. That’s the thing, the podcast content is what you share on social and then that brings the folks in and then you try to get them to buy or to sign-up for your email list. Those are your two typical calls to action.
But to pay to drive someone to a podcast then try to drive into your email list or whatever, I just think it’s going to be too long of a funnel—personal opinion, haven’t tried it, but I’m guessing it would be. It’s not something I would dive into especially if you haven’t launched yet, if you’re in early stage product. I think there are more important things for you to be worrying about.
Mike: I think I’d point to Groove as an example of how to do that because they blogged about it. I do think that maybe there’s some value in having a podcast where you talk about the blog article that you just published or the post or something like that, but I would treat that as secondary. I would look at that newsletter article that you publish on a weekly basis as kind of the go-to for like, “Hey, people are following this particular story,” and you have them on the email list. I think the disconnect on the podcast and paying user, subscriber, or like an email address—it’s just too much.
Rob: Thanks for the question. I hope that was helpful. Our next question comes from Greg. He says, “Thanks for the show. I’m a big fan. I have a B2B SaaS that is focused on small businesses. I want to keep focusing on the segment because things have been working out really well. We have $45,000 in MRR.” Congratulations, Greg. “I enjoyed the frictional sales process. Sometimes we get some larger businesses interested in our product. Problem is that we use the system very much the same way as smaller businesses do, so we don’t have an enterprise plan. Additionally, most of them require a more presales work. For example, yesterday, one of the customers had their IT department send us a huge security assessment spreadsheet that would take me hours to complete. It also asked for architectural details I’m not comfortable sharing. For $100 a month, it doesn’t look like this is where I should be spending my time. How should I deal with these requests and how should I avoid wasting time with enterprise types when they are not my target market?”
You and I actually discussed this on stage at MicroConf Europe a little bit. But what are your thoughts here?
Mike: I think that you need to look at your pricing and figure out whether or not this is a market that you want to serve at all. Maybe you’ve looked at it already and decided it’s not worth it or you just don’t want to deal with those types of customers or you look at that and say, “Well, I do want to. How can I justify charging them more in order to make it worth my time?” One trick or hack that I’ve heard in the past is to offer an SLA with your enterprise plans. It probably doesn’t necessarily mean you need to do a heck of a lot more, but it’s just like you increase the cost by $800 a month for having an SLA on it because they’re going to want that. And then you can have all the documentation in order to justify that as the enterprise plan. But I think beyond that, do you really want to have them as a customer or not? That’s the fundamental question that you need to answer before you start going down the road of deciding when to spend your time on that.
Rob: I think that’s a good way to think about it. Can you charge more to make it worth it? This used to happen to me with DotNetInvoice, it was a $300 invoicing tool and it was a one-time fee. We would get approached and someone would say, “Here’s this massive checklist.” the same stuff. I would say, “Look, I’m sorry, we just aren’t equipped to service requests like this. This is just not something we’re able to do.” Some people would be puzzled like, “You don’t want me to give you my money? I want to spend money with you.” I was always like, “It’s $300. It just isn’t worth the time.” Some people would just be like, “Okay, I totally get it.”
Oftentimes I had a, “Look, a larger competitor I would recommend.” I’d be like, “If you want invoicing software for enterprise, go with XYZ, large competitor.” and they’re way more expensive than us. They were 10 or even 100 times frankly more expensive than us but they’re set up to handle that. That’s probably what I’d do is try to figure out someone you can recommend. You could even say, “For liability reasons or legal reasons, we aren’t able to…” […] just too high volume, “…and we aren’t able to do this kind of checklist, architectural stuff is just not something that we’re able to do but go to this competitor and they’re set up to do that.” It ends the conversation.
Our next question comes from Jonathan Sachs. He says, “I know about MicroConf and Big Snow Tiny Conf. What other similar conferences might you recommend checking out?”
Mike: We answered this question on stage at MicroConf Europe because people were asking. A couple of different recommendations that we threw out, one Big Snow Tiny Conf because the way the question was worded was what other conferences aside from MicroConf would you recommend. We also threw out Business of Software which I will say is aimed at a different market. But it’s the type of people who would go to it tend to be part of larger businesses. You’re talking 15 employees and up. There are smaller companies there as well but generally, you do not necessarily get as many founders there, so with MicroConf, it’s like 90% founders whereas with Business of Software it’s somewhere between 10 and 25 or 30.
A couple of others I might recommend is FemtoConf, that is run by Benedikt and Christoph who both have come to MicroConf before. I spoke at FemtoConf this past Spring, so did Dr. Sherry Walling, she spoke there as well. That’s a great one especially if you fit within the Microvenure/Startups For The Rest Of Us/MicroConf-type of community where it’s all small, self-funded, bootstrapped for founders. There’s a couple of others that Brian Casel has a list that he put together. I think we’ll link that up in the show notes of tiny conferences. He listed a couple there which I haven’t heard of or don’t know very much about. The three other he has listed here are TropicalSaaS in Spain, Digital Founders Camp, and then CodeCabin. Do you know of any others, Rob?
Rob: Nope. I think that’s a pretty good roundup. The bottom line there is many have come and go in the kind of software, SaaS, self-funded, bootstrapper space, and most of them have not stuck around. I think that list you’ve given is a pretty good one.
Mike: Some other ones I’ve heard of but don’t know a lot about are things like Rhodium Weekend and Peers Conf and then Release Notes.
Rob: I like Rhodium a lot. I’ve spoken there, and I know the crew there. Chris Yates runs that and he’s one of us. He’s very much about it for the community rather than trying to make a bunch of money out if it or something, so it’s very authentic. He has crafted a community that I respect. It’s a small conference, it’s only about 100-110 people. It’s more about buying and selling websites, and web properties, and marketing them and stuff. It’s tangentially related but it’s definitely different. It’s not about startups and often not about like starting your own thing, and it’s very much not necessarily about software. It’s about websites, web properties, and some people do have web applications, but that’s about it.
Mike: Jonathan, I hope that was helpful.
Rob: I think we should wrap it up for the day.
Mike: Sounds good. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at firstname.lastname@example.org. Our theme music is excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.