In this episode of Startups For The Rest Of Us, Rob talks with Brian Casel of Audience Ops, about recovering from a 40% decline in MRR. They start the story back in 2016 and work through the decline, audience ops rebound, the start of Ops Calendar, and Brian’s decision to learn how to code.
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Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on this show, we cover topics related to building and growing ambitious yet sane and sustainable startups. We realize that starting a company is hard. More than half of being a startup founder is managing your own psychology and much of being a founder is making decisions with incomplete information where the right answer is impossible to find through math or data.
This week’s episode, I talk with Brian Castle about overcoming a 40% decline in MRR and rising from those ashes. This is Startups for the Rest of Us episode 474.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers and entrepreneurs be awesome in building, launching, and growing startups. Whether you’ve built your fifth startup, or you’re thinking about your first. I’m Rob and today with Brian Castle, we’re here to share experiences to help you avoid the mistakes we’ve made.
Welcome back to the show. Thank you for joining me again this week on Startups for the Rest of Us. We have many different show formats. This week is a conversation with someone you’ve likely heard of, Brian Castle. He hosts the Bootstrapped Web podcast with Jordan Gal. And I’ve been listening to that podcast for many years. Hope you enjoy our conversation today.
But before we dive into that, I want to let you know about a MicroConf announcement we’re making this Friday, December 13th. It is by far the biggest we’ve made since launching the conference a decade ago. I really encourage you to go to microconf.com, make sure you’re on the email list. If you’ve attended a MicroConf in the past or you have tickets now, you’re already on the list and you’ll hear about it. But it really is big news and I’m not just saying that to try to sensationalize it or encourage you to go over there. But there’s a lot that’s been going on in terms of the planning of MicroConf for 2020 and we have a lot of new things coming and would love for you to be in the loop on all that’s going on. There’s a lot that’s going to be announced. microconf.com, make sure you’re on the email list.
I enjoyed the conversation I had today with Brian Castle. To set a little bit of the stage, Brian is a frontend designer and UX guy by trade, and then he learned to do some frontend development work. He had been doing a lot of consulting and eventually started dabbling and building products as many of us do. He started at a SaaS app called Restaurant Engine which was originally designed. His vision was for it to be Squarespace for restaurants, but really it evolved almost into a productized service where he had to do a lot of hand holding with the restaurant managers. I think that probably got his gears turning on its software plus service. That offered more value than just straight up building another website builder.
In early 2015, he sold Restaurant Engine for a tidy sum. He talks about that. He said it wasn’t life changing money, but it was enough to go towards a new home. We joined his story at that point where he sold Restaurant Engine and he’s about to start a new productized service. I hope you enjoy this conversation with Brian Castle.
Brian, thank you so much for joining me on the podcast.
Brian: Hey Rob, thanks for having me on.
Rob: Absolutely, man. We joined your story in the middle as I like to say where things are going up into the right. You’ve launched Audience Ops, productized service, and you launched it 2015 and over the course of about the next 18 months, it is all up into the right and you grow from zero dollars in MRR from April of 2015 to 50K of MRR by September of 2016. What was that feeling? Have you ever launched a product that grew that quickly. It’s productized service so it’s not all software, we get it. Have you ever launched anything that had had that much success for that long?
Brian: No, definitely not. I definitely didn’t expect to grow that fast. Looking back on it, it sort of makes sense. Obviously what I’ve learned with productized services is that you can charge a lot more per customer and that helps accelerate the growth rate. If you really nail a market and you’re solving a problem, specific value proposition all that, then I found that growing a recurring productize service like that can really happen. You can grow that revenue pretty fast.
But when I launched it in April 2015, I did not set out to even hit that. The goal was what’s the fastest thing that I can do to get 10K MRR and hit that within two months.
Rob: Right. Like you said, it’s the average revenue per user, a lot of people don’t realize it when that’s $500 a month or $1000, does not take many customers to get you to that 10K, 20K, 30K price point. I’ve seen it with MicroConf companies, with TinySeed companies trying to launch at $20 average revenue per customer app and get to any scale is a very long road even if you have a big audience or have a lot of traffic. Whereas the folks who are plug and away adding two customers a month at $500 average revenue per customer, that’s a grand a month of MRR that you’re growing. It’s a nice base to have.
Brian: Yeah. Audience Ops has, for the most part, been between $1000 and $2000 a month in terms of average per customer. I think it’s great to be able to grow a service like that so quickly. It has some downsides to it too when you’re charging that much because you just see crazy swings in MRR. You can add just a couple of customers, lose just a couple in a week and you’re seeing swings in 5K or 10K MRR. That can really screw with you.
Rob: Right. Stuff we won’t dig into here is you’ve talked a lot about productized services, there are pros and cons to them, you can grow quickly as you’re saying the price points are high and that’s great. Obviously the cons are hey, it’s not as easily scalable as pure software. You do have to hire staff. 50K MRR SaaS company might have 3, 4 people working on it. And a 50K productized service probably has a team of 15 or more. There’s pros and cons to this.
But the thing that’s cool is you launched it and 18 months later, obviously there was a lot of work that you had to do but you have this 50K MRR business now that’s supporting you because after you exited your prior app restaurant engine, I imagine you didn’t want to sit and burn through that cash. You mentioned to me offline that in 2016, you actually spent most of your restaurant engine money on a new house.
Brian: Yeah, that’s right. It wasn’t a life changing exit or anything, but it was a chunk of cash. I looked at that and I really thought about what is going to be in my next business to replace that income. I wanted to get into SaaS software right then in 2015. I looked at a few ideas, but the thought back then of basically burning all of that cash within a year and then maybe getting somewhere close to 10K MRR, which was a big maybe. That kind of scared me.
That’s what lead me to start looking at I kind of know productized services fairly well at this point. That seems to be the fastest way to get to a viable recurring revenue source to then free up my time. Obviously, a lot of work goes into building the team and the systems to remove myself, but that’s always been the goal with the service companies is to grow the cash flow to fund my time to work on stuff.
Rob: You’re a 50K MRR with Audience Ops, it’s fall, September 2016. Since everything is going up into the right, you’re feeling great, you already had two full time W-2 people, you turned 2 more people, they were contractors, you put them on salary and then you started looking at launching the SaaS app. You’re starting to build OPS Calendar. You did some validation there and started upping your expenses. What was the thought process there?
Brian: Right around that time, I guess it was around September into October, I had the idea for this software called OPS Calendar at the time, it was like an editorial software calendar with some process stuff built into it. You can automate content processes and things. Essentially, that was the precursor to my product today—ProcessKit. But back then, that’s what I was doing. At that point, I didn’t personally have the ability to just build an app myself. I‘ve always been a frontend developer and a designer, not a backend. It would definitely require outsourcing and hiring developers to build the functional app.
I did some presale, I got 10, 13, 14 people to prepay based on the idea and a promise that they will someday use this idea. That, combined with the growth rate on Audience Ops, and I had some profit saved up at this point. Okay, I’m good with spending around 5K a month on an outsourced developer and that turned into two or three guys overseas that I was working with.
Rob: Since we didn’t cover it before, could you give people just a two sentence explanation of what OPS Calendar, what it is and the purpose it would serve if it had made it to market, so to speak.
Brian: The idea with OPS Calendar, it was essentially an editorial calendar software with some production process stuff built into it. You and your team can build a process for how you produce blog articles, and podcasts, and social media, and map all that stuff to a calendar to see who needs to do what by when and also to schedule blog posts and social post to the calendar.
Back then I was running Audience Ops which is a content service, we do blog content as a service so obviously it was born out of that. That was essentially the idea with OPS Calendar at the time.
Rob: Yeah, cool. There’s a six months chunk where really from November of 2016, right after you ratchet up these expenses, things hit the skids with Audience Ops. I think this is one of the tough parts of your journey, it seems like. You want to walk us through the timeline there, what happened?
Brian: We’re three years later now and this is still one of those periods of time that I still look back on. Like, “Man, that was painful.” What happened was basically that growth from Audience Ops, 0-50K, that started to plateau right around October, November into the holidays and then started to decline through the holidays, in the January, February into about March or April is when it started to finally turn back around. It was painful on a number of fronts because it coincides right at the time that I decided to start spending a lot of extra cash on developers and employees all at the same time. There was that part of it.
And then it was also just like, “Why is this happening?” Everything was growing just fine up until that point. What is causing the reduction in leads or the increase to churn, it was probably a combination of both. I was looking at it in a thousand different angles to try to uncover what was actually causing it. It’s still unclear to me to this day. I have a few ideas, some hunches of what it could have been. But when you’re in it and you’re trying to fix it, you just don’t know what exactly is broken. It’s really frustrating.
Rob: Absolutely. That’s devastating. 40%? That’s a huge drop. 50K down to 30K. That’s a lot of salaries, that’s probably all your net profit on this thing. I’ve seen SaaS apps plateau, I’ve seen them right over the top, so to speak, when they start to decline. But I’ve never heard of a drop that fast that wasn’t due to some big platform risk. Like, “Hey, I’m integrated with Shopify and they just completely cut off our access.” Or, “I’m a Twitter client and they cut the API.” Or a Google change. Something that was just decimating.
But just to have that happen seemingly out of the blue, it sounds like, and three years later not have been able to pinpoint what happened, must have been terrible. It sounds like it went on for five months and you were just trying to fix it this whole time. Is that what it was?
Brian: Yeah. There are a few things. It was probably a combination of things that I look back on. One was in summer 2016, it was the first time that I hired a sales person for Audience Ops. There was somebody on the team, actually still on the team today, and I put that person into a sales role to remove myself from the sales. That was one remaining jobs that I was still doing in Audience Ops, the team was handling other stuff. It’s not any fault of his, he actually did a really great job of closing a lot of accounts that summer. Bringing out a lot of clients, but a lot of those clients that he sold and closed churned a lot faster than other clients have come on.
I take that as my fault for the training, maybe some of the compensation structure that I really didn’t structure and situate to have a sales person really set the right expectations for customers. Basically the way that I do when I do sales calls for Audience Ops is for me, when I do it, it’s really about let me tell you exactly what’s happening in Audience Ops and almost talk you out of signing up for Audience Ops to make sure that you’re really on board for this. There’s that, we just saw a string of cancellations.
Then the holiday season hit and that slowed down. It was weird because the previous holiday season was actually a pretty big spike in growth for us, but it didn’t happen in 2016. In January, now we’re in the thick of this six month period where sales are stalling, we’re seeing this churn. I go away to the Philippines, my wife has some family there. We were there for a whole month. My plan was to work a little bit while we’re there, but it’s a completely different timezone and that means I literally could not do any sales calls. Even the leads that we had, I couldn’t really even talk to them. Combine that with terrible WiFi while I was there. That was stressful as well.
Rob: How did that manifest itself? What was the peak moment or a moment you can remember where you lost your **** or you were feeling extremely mad about it?
Brian: Anyone who knows me, I am really pretty level headed, I think. I tend to compartmentalize pretty well. Poor sleep, bad eating habits and exercise and all that definitely starts to pile up. Because it’s like I could go exercise today, or I could keep working and try to fix this thing. That was a choice every single day.
Rob: Right. You just dug in and just grinded it out, I shall say. Probably took a toll on your body and mental well being, too.
Brian: Yeah. Into March, April 2017 is when things started to turn around. It’s almost like I don’t really know because it wasn’t a sudden turn around either. It took all of 2017 to dig back out and back up to where it was. But, we definitely improved a lot of things. That was when we really improved the new customer on boarding process heavily. Again, to reinforce those expectations. That I think had a really big impact on customer retention. If they have a really fantastic first month with Audience Ops, they’re really likely to stay on for a year or more at that point.
I worked on some new marketing stuff during that time and some new content, some webinar stuff. I think that seemed to help as well.
Rob: It’s something I talk a lot to entrepreneurs, especially new entrepreneurs don’t understand that they’ll see someone who’s built a business up to 10K a month. You may be able to sell that for $250,000 or something, there’s all these factors. But whatever, you can sell it for quite a million dollars. But people will say, “Why wouldn’t you just keep that? Just keep it and keep running on the side. It’s only three hours a week or five hours a week. Just keep running it.” Usually, there’s a couple of reasons, one because distraction is distraction and there’s opportunity cost to that. But the bigger one is that none of the businesses we have run on autopilot for years. They always get smacked around by something. Sometimes it’s Google, and sometimes it’s a competitor, and sometimes it’s platform risk, and sometimes it’s something you never would’ve guessed, it’s a key employee quitting, it’s something that you have a tough time identifying like what happened with you.
Then you have to shut everything down, stop doing what you’re focused on, and you have to turn your focus back to this thing that you’re tired of working on anyways. At a certain point, eventually, you give in. I’ve done this with multiple businesses and I’ve seen people do it as well, where you’re just like, “Forget it. I just got to sell this thing. I got to get it off my plate.”
Brian: Yeah. It hasn’t really come to that point in Audience Ops, but I can definitely say that there have been times. This period in 2016 was definitely one of those where it was like my mindset is trying to get this brand new idea for a SaaS off the ground. It wasn’t even in existence yet. It was just like get this thing to market. That was my number one goal. Working with developers, I’m paying for developers. I want that to happen as soon as possible. And then I have to stop and work on this churn problem in Audience Ops. Yeah, that was pretty painful.
Rob: We’ll talk in a second about how essentially you did turn that around through 2017. But I’m curious, that low point, this five, six months where things from November to March, April, when they are just in the thrawf and you can’t dig it out. You said that’s still a point that you remember very vividly. I have moments like that in three, four, five months period as well. I learned a lot from them and they impact the way that I do things today. They impact the way that I think about business and the way I ran my apps after that. I’m curious, what lesson or lessons did you take away from that? That impact the way that you make decisions.
Brian: I found that there are one or two of those points in my career so far that I can look back on, that I feel like really influenced the way that I work today. I think in some ways that’s a good thing and in some ways, I do things to a fault today to try to prevent that from happening again. On the positive side, I’ve been through enough of those ups and downs in the MRR graph to know that no matter how well something might be going today, I still have to play it extremely conservative.
We’re like three years out from that, Audience Ops is actually doing really well and I have a profit savings saved up that I’m able to deploy on new products and ProcessKit and things like that. But I’m actually hesitant to spend anything. Because it’s like just keep the reserves in check just in case, you really never know. You look at the news, the economy and stuff. I look at things almost afraid of what could happen.
Tactically, on the sales side of it, I talked about how that period I had a salesperson and then there was a string of churn that came in the months after that. That has caused me to really delay and delay on trying to put a salesperson in place again on Audience Ops.
I’m actually now doing that finally in the end of 2019 with a new strategy behind it and some new structure, but it took me three more years. I have removed myself from every other aspect of Audience Ops. I really spend less than two hours a week on this business, but those two hours are doing the sales calls. Because I just want to make sure that that message is being sent to new customers as they get on. I’m finally coming around to being okay in letting that role go.
Rob: That makes sense. I was going to ask, obviously, if you brought a salesperson and it didn’t work out, you had to turn the app around but after that, I would think that if you do want to get that sales, you would just try and try again. Most sales people don’t work out. The first one you find, frankly, more of the first VAs that I find, the first one almost never works out. So I just hire one, two, three, four and it’s frustrating and it takes time, but eventually, you find someone and then you’re able to let it go. Is that where you’re at now? Is that something you’re looking at doing, trying again and stepping away?
Brian: Yeah. I’m trying again because I think it will actually help impact the business, growth, and the overall health of the business to get me out of that role. Speaking about it now in 2019, I just have a lot more space to breathe. Financially and time wise and so many more things inside the business are more optimized now than they were back then. The on boarding stuff is really locked in, things like that. I just think it’s probably a better time to try to get that off my plate now than it was.
Again, things did start to turn around in 2017, but it took all of ‘17 into the beginning of ‘18. ‘18 was really when I finally got my bearings back in terms of having some space to play with.
Rob: Right. It sounds like it, and that April 2017 point could have been celebratory because you’re bringing your first paying customers in for your SaaS up OPS Calendar, but your financial runway was basically gone. You had to turn around over the next six, seven, eight months. What were a couple steps that you took, it was all hands on deck at that point, right? We’ve lost 40% revenue, we’re still declining at this point. What were some steps you took to turn this around and get out of the tailspin?
Brian: Just to be clear, there’s two parallel products in play here. One is Audience Ops which is in the site crisis mode, and then OPS Calendar which is trying to get off the ground but then I would have to pause, paying for the developers, right at these critical moments as we’re bringing these new customers on to the software. I just didn’t have the cash to fund for the development and couldn’t move fast and all that stuff. That was really frustrating.
But with Audience Ops to start to turn it around, I did a number of different things to try to attack the problem from different angles. One was that new customer on boarding again. I worked with my team a bit to see how can we just make sure that customers are really happy after their first month and that clearly has had an impact on improving churn over time. Just focusing on retention. I think that also helped with customers like referring other leads to us, that has that side effect too.
I did work on some new marketing materials. A whole round of new content, I think I did a recorded webinar that I put into the marketing system at that point, worked on the email automations that helped to nurture. I just went through the whole funnel. Everything that leads and customers see as they find out about Audience Ops, as they go through the sales process, as they get educated and nurtured and on boarded. I tried to improve every step of the funnel over that in early 2017.
Those are the kinds of improvements that you just don’t see moving the needle overnight, you just do that work then maybe a few months later things start to improve.
Rob: Right, and it worked because you turned it around over the next six or eight months.
Brian: I think it has definitely returned to where it was and has grown beyond that but it doesn’t really see the growth rate that it saw in that very first year. But I think that’s sort of a natural slowing down that a business sees. At least I’ll see it that way.
Rob: Yeah. It’s hard to say without going out and really beating the bushes and trying to generate a bunch of leads and doing cold outbound, focusing on SEO or running ads, there’s a natural threshold that always sets in. It seems to me like you’ve always been cool with that plateau because that plateau provides you with a full time income budget to build other apps which is really what you want to do. That’s your lifestyle choice.
Brian: Yeah, exactly.
Rob: They were working on OPS Calendar, your developers were, and you got your first paying customers in April and then you had to pull them off because you didn’t have the money, and then in July in 2017 you’re able to get them back to work on OPS Calendar, and then you get a little bit of traction right that latter half of 2017 but you never found product market fit with OPS Calendar. By February of 2018, you were still trying to push it forward, but some calamities happened. It sounds like there was a code base thing you want to talk us through what it was like dealing with that.
Brian: Throughout that year of 2017, it was trying to bring those first customers on and got a few handful of paying customers, but over the summer there whatever savings I had was gone from that period of Audience Ops. I’m not one of these people who just goes crazy on the credit card. Once I see a little bit of balance on there, I’m just too risk averse and debt averse to really go too heavy on that. I just pause and I don’t really spend until I have the cash in the bank account. I had to pause those developers over the summer which really, really hurt because I felt like it was at a critical time.
As we get into 2018, I went on a trip and we had been pushing off this upgrade from Vue one to Vue JS. At the time, I wasn’t a developer, I didn’t even really understand what Vue was. The developers chose that framework. That upgrade broke everything. I came home from that trip looking at a situation where I could pay those developers to go fix every single feature that I had just paid them for the last 18 months to build. Essentially, spend all that money and all that time again to rebuild the app, which was not going to happen.
It was also we’re having a hard time converting these customers, even a lot of the early prepaid customers didn’t end up continuing on as full customers. That said to me you know what, this thing isn’t really right. Because we have a process feature in OPS Calendar, and people were using that side of it and they were not touching the social media calendar stuff. That was also a signal to me that really the product that I deep down wanted to build was more of a process oriented tool.
Here I am in early 2018, probably going to “pivot” the product, if you will, to something else. Probably a new name and everything. I’m having a problem with these developers, but at that point I just decided to just stop everything. Just pause all work on OPS Calendar, take a month and figure out what I’m going to do. My conclusion was that I’m done with being limited by not being able to build apps myself. As a designer and front-end developer and product person, I’ve always felt, and this really brought it to a head was this experience with OPS Calendar, I’ve always felt this frustration that I can’t move fast enough because I’m always waiting for the developers to finish a feature. Sometimes I can’t move at all because I don’t have the cash to pay developers.
Let me bypass that by investing my time in learning back in development. I learned Ruby on Rails. I basically decided all of 2018, I’m going to use all my full time hours to make myself a full stack developer. I know I won’t be a very good one, but at least I’ll be able to take any idea and build it into a product and bring it to market, and that’s essentially what I do.
Rob: You were just about 18 months into OPS Calendar and I’m going to guess tens of thousands of dollars paying developers. You put on maintenance mode. You effectively shut it down. What was that decision like? How hard was it for you?
Brian: I think it was somewhere around $30,000 or $40,000 that I put into over that period of time. It sort of sucked, but it was also I don’t really have any other option here. I’m not going to just keep spending on something that’s clearly not working. I knew that the tech underneath the app, they technically built the features that I designed and speckled, but there were underlying architectural issues that I could just feel as a user.
That was another reason moving to let me just try to build it myself because at least I could design the thing from the inside out the way that I feel like it should be built. It was hard, but it was also I’m moving on. At that point I was also really excited about this idea for what the next version is which became ProcessKit, which is what I’m working on today.
Rob: I’m curious, deciding to learn to code from scratch, you’ll often hear folks send questions in to this podcast and say, “Should I learn to code if I’m going to watch a SaaS app?” The answer’s always it depends. Do you think that’s something you’re interested in? I would at the minimum learn to code well enough to know if the developers are trying to pull one over on you so you have a concept, you can talk to them. I don’t write production code anymore myself, but I wrote code professionally for 10 years.
I can still have architectural conversations. When Derrick and I were building Drip, I could go pretty deep on the tech stuff. It’s an asset to have for sure. But I’m curious, instead of learning to code, why not launch another productized service? Because you seem to be good at them, they seem to work out for you. Audience Ops is obviously successful and profitable. Why continue to seek after something that is showing you so much resistance in essence, which is a true software base SaaS app?
Brian: Number one, I’ve always been interested in software. I’m not new to software today. I’ve been working on it in different forms for many years. That has always been my number one interest in terms of what I want to create on the web. I’ve been building on the web for over a decade. That’s really always been where I’ve been heading with this. Even since I started Audience Ops, yeah I worked very hard on building it and building the team and the processes, the systems and everything. It’s always been with the end goal in mind of removing myself so that I can fund my time to work on software.
Like you said, the scalability aspect. Yes, I believe a service company can run without you and be profitable without you in the day to day like it is for me, but it’s clearly not as scalable as a SaaS that has hit product market fit and has that growth. Just in terms of the value of an asset and all that.
Also, I just wanted to go back to what you’re saying about the decision to learn to code or not, I agree with you. In many cases, it may not be the smartest choice, or maybe you should just learn a very light understanding of it so that you can communicate with developers. I think there are few caveats that made my situation a little bit unique from where most people are that I come across at least.
There was that. That gave me a head start. And then the other thing is that I had the time. I really have full time hours to throw at this. If I didn’t have that, if I was doing this nights and weekends, I don’t think it would be possible to make as much progress as I did over the last now almost two years. I don’t think I would have been able to really make a lot of progress with it if I couldn’t work on it full time every day.
Rob: Right. You had a lot of time to focus and it was something that as you said, you already had a basis for.
Brian: And I had a lot of help too. A lot of my close friends are software developers, Rails developers, I had of people that I could turn to for support and they’ve been super helpful.
Rob: Totally. That’s the thing. You’re in the developer community already even if you’re more of a frontend developer/designer. It’s like you live in that world and it’s not such a far stretch to be like, okay, I want to go one layer deeper and see how it interacts with the service side code. Cool.
That takes us to spring of 2018. Audience Ops is back, profitable, and you were able to free up your time and spent most of 2018, as you said, learning Rails. What was the most surprising part of that experience of taking that six or eight months and digging into service side code and learning to build your own software top to bottom for the first time?
Brian: In the early months, I knew that it would be a very big effort and that it would take me a long time to get decent at it. It was a little bit frustrating going through tutorials and courses and then still not quite being able to build anything real yet, but then just hacking away at it a little bit more for another month or two and then I can build something very simple.
Over the course of 2018, I went through a bunch of courses, I worked with a coach which was very helpful, and then I did some throwaway practice project apps. By the end of that, I was able to put together a simple app called Sunrise KPI. That was the first real app that I’d built.
I should mention that the idea for ProcessKit I had throughout 2018. I bought the domain. I spent some money on that domain. I was putting sketch ideas for what ProcessKit would be, but I also knew that I wasn’t capable of building it yet. I had to get those skills up and it wasn’t until the end of 2018 I had felt confident in actually starting to build what is now ProcessKit.
Rob: Yeah. If someone’s listening to this and they are thinking about themselves learning to code, what would be a piece of advice, either a warning or just a hey, do this, this is what really worked for me, this is what fast tracked me.
I went through a couple of weeks with PHP Laravel, some tutorials. I could follow along with those, but then I found I couldn’t take what I’d learned and go build something simple. I went through a one on one course on Rails. I did a month on PHP in Laravel and then a month on Rails. I found that at the end of the month on Rails, I was able to take that and build something simple. I continued to double down on Rails from there.
I went through a number of courses on that. Tip number one is to stick with something like Ruby on Rails, or PHP with Laravel. Something that has a huge developer community with tons of resources and educational stuff. That’s a big number one. Number two is to try and find mentors. I go to friends like I talked about. I paid a couple of people for paid mentorship for a while and I’ve learned to code in Rails developer communities, I go to that for some help as well. I frequently talked with friends about code questions. I hit up codementor.io quite a bit when I really get stuck.
Rob: Sounds cool. You mentioned ProcessKit which we haven’t really covered in this conversation. You want to tell folks what that is? Is it the next generation of OPS Calendar done in the way based on your learning from the first time?
Brian: At this point, the way that it’s positioned is that it’s really a projects tool. It kind of like a project management software, but it’s process driven. If your projects really follow the same script every time, they’re very repeatable and you’re doing a lot of the same stuff, whether you’re onboarding customers to a service or to a SaaS or something like that and you need your team to follow a certain process, that’s really where ProcessKit comes in. It’s different from the project management tools where you might run your tasks and projects in one of those tools, but you have your documentation, your SOPs over in a silo somewhere else. That’s where those kinds of operations tend to fall apart, the team just never really follows the SOPs.
ProcessKit sort of brings those together, and then also builds in automation steps. You can say if this then that, if it is is this type of project then assign these tasks to these people, calculate these due dates, and link up with Zapier and all that kind of fun stuff.
Rob: Cool. Where is that project in terms of launching? This is the part of the interview where I ask you questions I already know the answer to. What status is ProcessKit at right now?
Brian: It launched, it has customers. I’ve been doing the slow launch things over the past really throughout ‘19. I think I started on boarding the first customers around June, the very first ones. Today, we’re in November. I’ve been sending early access, invites pretty regularly since then. It was up on Product Hunt about two weeks ago and now it’s out there.
Rob: Is it everything you wanted and more to own a SaaS app? Is it just growing up into the right by itself? You make money while you sleep? I was going to say is it back to the same slug as OPS Calendar, but I don’t think it is. This time really is different. I get the feeling that there is more potential here. Is that pretty accurate?
Brian: First I heard your interview with Jane Portman this morning and I completely relate to that, probably so many other early SaaS founders with the long slow SaaS ramp of death. It’s real.
It’s very slow and the revenue is nowhere new replacing the income that I get from Audience Ops. But yeah, it’s less than a year in, and it does have more customers now than OPS Calendar did. It resonates with people a lot more, the problem and the solution, and the positioning. At least with my audience, the people that I’m connected to. But it’s early on. It really just launched a couple of weeks ago. Now that the new website is up, I’m starting to kick into gear. That shift away from just going to the early access list to actually marketing this thing and getting new traffic and new leads and that sort of stuff.
Rob: Now the real work begins is what I like to say. Getting to launch is like 30% of the journey. That’s where folks who are listening, we could do Startups for the Rest of Us drinking game where like if you get to launch and you don’t have some type of launch list that you’ve been building, then you have a problem. That’s the first base or the first quarter of the journey. And then now you’re launched and now the real work begins. That’s where it’s like you probably don’t have product market fit yet.
Now, I’m going to spend the next six months figuring that out as I grow very slowly. Then, you do get to product market fit, now I need to find a sustainable source of leads when it’s relatively scalable. Then you spend the next 6-12 months figuring that out. That’s why it’s the long slow SaaS ramp. These things are in stages and it’s truly the Cinderella stories that don’t have these steps in this order. It’s always a grind.
Even the Cinderella stories, like I said, there are no Cinderella stories, but even the ones that we look at and say, “Oh my gosh, that grew so fast.” It was a complete grind behind the scenes. This is never easy.
I wish you the best of luck with ProcessKit, because it’s essentially a second iteration of a SaaS app. You’ve obviously fought very hard for multiple years to get this out. This is something you really believe in. You can tell that it’s not an opportunistic product. It’s like I’m going to ship dog food to people on the internet because I could make money. You’re building this because this is something you need and you believe in. I hope that you’re able to make it work.
I think longer term, if for some reason it doesn’t work out, would you build another SaaS app again or would you consider doing a productized service?
Brian: At this point, I am pretty committed personally to doing software whether that’s ProcessKit or another idea or several other ideas, I’m pretty focused primarily on ProcessKit right now. I would use the productized service model if it came to that. No, I should say that I’m actually still using the service model in many ways. Obviously there’s Audience Ops that continues to grow, but even in ProcessKit, now we’re launching a Done with You process service to help you and your team improve and audit your processes, get you set up on ProcessKit as a paid service. That’s sort of like a productized service built on the software, which I really love that model.
You asked about how is it. For me right now, in that slow grind on ProcessKit, I’ll be honest, I’m really loving it. I’m really loving doing everything from the design to the code and talking to customers every day because being able to talk to customers and then literally iterate on the feedback that I got on the feature that I could ship by the end of the week, that just feels so empowering. I know that it won’t be forever, but at this point, Audience Ops is back to growth and profitable in steady state and a really amazing, fantastic team that I have that space to breathe now. I’m not worried about having to cut off the development cycles because of cash flow or things being built in the wrong way or things like that.
Rob: Yeah. There’s definitely a luxury to being able to control that whole pipeline, the manufacturing pipeline. Like I said, I don’t write code anymore, but when I was getting started all the way through Drip, everything before that, I wrote at least some code. Even if it was just maintenance, even if it’s just tinkering here, it was just tweaking. Because finding developer to make a three line code change in PHP or Cold Fusion or classic ASP or .NET or any of those things, it’s a huge amount of work to find someone just to do that. If you know the basics of code, to then just learn, I didn’t know some of those languages but I picked up a book or I went on Stack Overflow, whatever and you Google it, and you’re like, “I’m going to make this change and see if it doesn’t break anything.” If it doesn’t, it’s like wow, I just saved myself like a week of recruiting someone just because you know how to do the basics.
It cuts both ways. I think then you can also get mired in it and then you’re not working on the things you should be and that’s where as we started Drip originally, Derrick said, “Hey, I want to build it on Rails.” I said, “Cool.” Originally I was going to learn Ruby but eventually I said, “You know what, I actually think I shouldn’t because I will get into the repo and start tweaking things. And I should be talking to customers, I should be building processes for this business, I should be doing all the other things that don’t involve the coding.” There’s a point where that makes sense. And if obviously for building a venture backed startup and you’re raising money, you probably shouldn’t be the one digging into the code. Maybe someone on your team is. But there’s a balance there.
But that’s not what you’re doing. You’re building something that you want to build, that you want to exist in the world, and you’re willing and able to take it slow and that gives you a luxury.
Brian: Taking it slow, I’m as impatient as they come with things. I constantly want to move fast and execute and ship something new every single week. But bigger picture, that what’s this podcast and MicroConf and everything is all about. It’s about embracing that slow model of taking your time and making sure that things are done right. I’m all about it.
Rob: That’s right. Ambitious founders who want to build interesting things, build sizable business but are not willing to sacrifice their lives, their health, their relationships, whatever it is, even in your case, it’s a lifestyle that you don’t want to sacrifice to do it and that’s what it’s about. It’s about retaining that control.
Rob: Thanks so much for coming on the show, man. If folks want to keep up with you, and they like the podcast, they should search for Bootstrapped Web, podcast you release every week or two with Jordan Gall. I’m a listener, have been for years. If they want to keep up with you on Twitter, you are @casjam and of course processkit.com is where your SaaS app lives. Any other places folks might want to look out for you?
Brian: Audience Ops is still kicking. Great team over there. Yeah, you hit it. That’s it.
Rob: Sounds great. Thanks again, man.
Brian: Thanks. Thanks, Rob.
Rob: If you have any questions for Brian or myself after hearing this interview, I’d love it if you would tweet me @robwalling or send a question into questions.startupsfortherestofus.com and I would be glad to have Brian back on the show to answer questions you have about any of his experiences, or productized services, or anything else that you feel like he could lend some insight into. If you have an unrelated question for the show, you can leave me a voicemail at 888-801-9690. Or you can always email us questions.startupsfortherestofus.com. You can find us in all the podcasting marketplaces and directories, just search for Startups.
If you’re interested in the full transcript or to make a comment on an episode, just hit up startupsfortherestofus.com. This was episode 474. Our theme music is an excerpt from We’re Outta Control by MoOt, it’s used under Creative Commons. Thank you for listening, and I’ll see you next time.
Episode 365 | The Real Impact of Revenue Expansion
In this episode of Startups For The Rest Of Us, Rob and Mike define revenue expansion, talk about how it differs from revenue growth, why it’s important, and ways to increase it.
Items mentioned in this episode:
- Baremetric Article
- Price Intelligently Article
- Geckoboard.com article
Mike: In this episode of Startups For The Rest Of Us, Rob and I are gonna be talking about revenue expansion opportunities. This is Startups For The Rest Of Us episode 365.
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 built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. For this week, Rob, tell me the two most recent non mainstream board games you’ve played.
Rob: I played The Legend of Drizzt board game which is this $65 behemoth massive thing with these figures in it. It’s set in the D&D world. Drizzt is a character who’s been in a bunch of books, fantasy books by R.A Salvatore. It is pretty cool. It’s a simplified version of D&D in essence, you don’t have all the rules and the mechanics but it’s a lot quicker because you can play around in an hour.
I back a lot of games on Kickstarter so I could probably name five that are super not mainstream. There’s one called Mint Mint Tin Apocalypse. It was $2 or $3. It is literally a mint tin and then a couple wooden meeples and then some six sided dice. It’s cool because it takes 10 to 15 minutes to play and it takes 5 or 10 minutes to learn. It’s a long term, you’re gonna play all the time. When I know we just have a few minutes, you sit down and you can just hammer it out. It’s fun and it’s super cheap.
Mike: Aside from the board games, what else is new?
Rob: From the time this podcast airs, I will be wheels up to MicroConf Europe two days later. I’m excited to get to Lisbon. We’re gonna have folks speaking like Peldi Guilizzoni from Balsamiq, Andrus Purde who is the former head of marketing for Pipedrive, now has his own company called Outfunnel, we have Craig Hewitt from Podcast Motor, Mike Taber from Bluetick, Mojca Mars, a Facebook ad expert. We have several other speakers. I’m excited to get there and see some folks that we maybe haven’t seen for years as well as meet the new attendees who are coming for the first time.
Mike: On my end, when this podcast comes out, there will be an announcement for the tickets that will be available. I will be speaking at FemtoConf over in Germany in the spring. I believe it is the first week of March, it’s March 2nd to 4th. It’s over the weekend, it’s Friday, Saturday and Sunday. The tickets are actually going live the day that this episode goes out. If you head over to femtoconf.com, I’m told that they should be available, if they’re not it’s not my fault.
Rob: Aside from the fact that we like Christoph and Benedikt, I really like that they have the Drift right on their homepage, femtoconf.com, ladies and gentlemen. What are we talking about today?
Mike: For today’s episode, we are going to be talking about revenue expansion opportunities. I’ve been thinking about this a little bit just because it’s been on my radar for Bluetick to look at different ways that I can either rework the pricing or find other things to expand the revenue opportunities for Bluetick. I started looking into some of the different ways that that could be done but it also gave me the idea for this particular episode. We’re gonna be talking about revenue expansion.
Revenue expansion is different from revenue growth which typically comes from new customers. Expansion revenue is any revenue that is generated in excess of whatever the initial purchase price that the customer agreed to pay. If they signed up for $30 and they’re paying $30 a month, that’s great, that’s considered a new customer. It becomes expansion revenue if they move from a $30 plan to a $50 plan or to a $100 plan or if they add more users or purchase other services or other products that you have.
There’s a bunch of different ways that those types of things factor into it. The bottom line is when you’re defining expansion revenue, it’s really additional revenue that comes from your existing customer base that you would not have gotten otherwise.
Rob: The holy grail of running a SaaS app is having enough expansion revenue that you have net negative churn. I talked about this a few episodes ago. In essence, you always think of churn as lost revenue because of people cancelling. You can get to the point where if people are naturally upgrading to higher tiers as they use your product.
A good example of this is being ESP where as you add more subscribers, you naturally bump up every few months if you’re having any kind of success, you start paying more, that can be more, that amount can be more than the amount of revenue you’re losing because of people cancelling. When you see that effect, it’s called net negative churn. I’ll say it’s rare, it’s becoming more popular, strong word.
I’m seeing and hearing about it more as people catch onto how incredible it can be as a flywheel for growth because having low churn means you can grow at a certain pace. Net negative is super charge, it’s a completely different trajectory. If you’re lucky enough or smart enough, or both, to stumble into a business where people automatically have expansion revenue like ESP, I think web hosting if you do it based on maybe traffic or the number of sites.
I’m trying to think of other areas, Wistia for me. We had a small plan and we just keep adding videos and we’ve gone up. It’s not super often, maybe once or twice a year, we wind up going up. Mixpanel and Kissmetrics, they go based on number of events. As your website ramps up, you naturally go up the scale. I guess Help Scout or any types of support software where it’s a per seat, that’s a big one.
Per seat expansion is a big one because as a company has more success with their product, they are likely to either bring more people in because it’s working. What if they already have employees, they’ll add more seats or they’re likely, if they’re a startup, we went from 2 employees to 8 in the span of about 18 months. We just needed to add more people to all of our systems.
There are opportunities for some natural ways to get expansion revenue and to try to get to that Holy Grail as I’ve said, net negative churn. I hope I didn’t steal your thunder, I was going off the top of my head. Did I totally decimate this outline with that diatribe?
Mike: No, just the first little piece of it. We’ll link up in the show notes a couple of different blog articles specifically about how new recurring revenue is different from expansion revenue which is different from churn revenue and how those can combine to create that negative churn effect. Those blog articles, some of them are from parametric or Price Intelligently and then there’s also another one from geckoboard.com.
You already talked a little bit about why it’s important because it relates to negative churn. The bottom line here with going after revenue expansion is that it helps to offset your existing churn because, as Rob just said, when you’re losing people just on a regular basis, you’re going to lose people on a monthly basis or quarterly basis, whatever it is, that your billing cycle tends to be on. That helps to offset that.
It’s easier to get more money from your existing customers because presumably you’re keeping them happy, than it is to acquire new customers, it’s typically a lot more expensive to acquire those new customers. We talked about these acronyms like CAC which is cost to acquire a customer, that number tends to be substantially higher for a new customer than it is to get expansion revenue from existing customer where you’re doing some cross sell or upsell or you’re asking them to opt into this other thing.
It’s a lot easier to do those things because you already built that trust. When they’ve never purchased anything from you before, they’re much more reluctant to take that first step because they’re pretty sure that it’s going to take up time. It’s not that it’s not valuable to them but they’ve got other things that they’re doing in addition to paying attention to your product and other things that it can do for them. There’s only so many hours in a day for them to focus on the things that they need to do. That adds one more thing to their plate.
Let’s dive into some of the different ways that you can increase revenue. The first one, Rob alluded to this where some of the examples he came out were Mixpanel or Kissmetrics or hosting providers where as the customer becomes more successful, they use more of your services and by virtue of that, they start paying you more because they’re using more of the resources that you offer. This is essentially increasing their consumption.
There’s another way to look at it, which is to decrease the friction that it requires to use whatever that is as well. Some examples that come to mind are Apple’s iPod or the Fire TV from Amazon. Those things make it a lot easier to download music or to purchase movies or rent movies. Those devices make it a lot easier for you to consume them and to consume them at a faster pace. Those are some examples of that.
If you go over into the physical products world, this occurred to me a while ago, I’m sure somebody has talked about it at some point, if you remember going to McDonalds back in the 90s for example, the straws were insanely small. If you ever went and got a milkshake, it took you forever to drink the milkshake because the straw was so small. You go to McDonalds now, the straws tend to be substantially larger. They’re probably six to eight times the size that they used to be and put through a lot more liquid in there and drink it faster.
That leads you to increasing the rate of consumption, it also leads to larger portion sizes as well. As a consumer, you have to be careful but as a producer of whether it’s content or digital assets or something along those lines, if you can increase the rate that somebody is using your product or services by decreasing the amount of friction, that’s almost the same thing as being able to deliver more.
Rob: Another example that McDonalds was I think a pioneer of, we’ll talk a little bit later but that is cross-sells. When you’d order a burger, what was the famous saying, “Do you want fries with that?” We’re trying to encourage you to do that, and then they had meals. I remember, I’m old enough to remember, when you go to McDonalds and there were no meals. You order a hamburger and then you order french-fries and then you order a drink if you want that.
They started packaging the meals to do exactly this, increase consumption of overall amount of food. You could also call it a cross-sell. This of course can backfire on you, it’s very unlikely to happen to one of us running this small business. Remember that movie Super Size Me, it was a look at how bad McDonalds’ food was. That was the name of it, it was a take on.
You used to pull up to McDonalds and you’d ask for the meal deal, big mac meal deal and they’d say, “Do you wanna supersize that for $0.99?” You’ll get an extra-large drink and an extra-large fries or something like that. That was another way to increase consumption, it was an upsell in essence. A lot of people did that. There were complaints of you’re encouraging people to eat bad food and blah, blah, blah, the politics of it or I guess the morality or ethics of doing that aside, odds are you’re not selling unhealthy food to folks.
You are probably doing something like selling software, selling info products or ebooks. If people use or consume more of them, you can encourage them to do so, then that’s gonna help you increase your bottom line.
Mike: The next one is the very issue on that which is increasing the number of seats that people are using. Not every product is going to have a pricing model that’s going to be able to support this but there are certain cases where a per user model makes a lot of sense. There are ways to incorporate other people unto the team in an environment where there’s your customer or consulting companies that they use, whether they have contractors. Those people may need user accounts.
You do have to be a little careful with this because, as I said, the type of product that you have, you can easily end up in situations where people are just sharing an account and you’re trying to sell a single account for $50 and two accounts for $100 or maybe a slightly reduced price of $90. They won’t go for it because they’ll just decide, “We don’t need that, we’ll just share the account between these people. It’s not that big a deal.”
Just be aware that sometimes it’s an option, sometimes it’s not but there are opportunities to put people into a software package and other ways, other roles inside of it or other responsibilities which give them maybe different options or different features.
Rob: There is actually a really good rule for this on how to decide if your product should be seat based. This is hard and fast, I know lot of time we say, “This is a guideline.” I actually believe that you should not break this one either way. If someone logs into your software with their login, do they see something different than if they login as someone else? A good example of that is Mailchimp or Drip and ESP.
If you and I share an account and we both login with our own logins, we see the same thing, there really isn’t anything different. The only difference is if I were to login as you and do an export, you’ll get notified, you know any exports done but the minimal stuff. If I login to a CRM system or into Bluetick as me versus you, it’s a completely different inbox, completely different list of customers, completely different list of tasks.
The CRM always charges by seat because that’s their upsell and that is the differentiator. It is a minority of products that can charge by seat. Just ask yourself the question, “Does someone/should someone see something different if they login as a different person?” Trello is another example. If I look at my Trello account versus yours, they’re totally different. If we had a business account with seats, you should absolutely charge by seat.
I do see people make the mistake, you mentioned this, of trying to charge by seat when they don’t have the differentiator and then you just get one seat and then save it with everybody because there’s no difference, it doesn’t make sense. It feels to people like you’re being disingenuous if you did do that. I can’t imagine an ESP charging by seat.
There are some marketing automation platforms that charge by seat because they have CRM built into them. Infusionsoft, ActiveCampaign are examples of that. they do have per seat pricing. I’m almost positive if it did not have that CRM view, they would not do per seat stuff.
Mike: The next option for increasing your revenue is to have different upsells. These could either be a higher tier of an existing product or it could be add-ons, it could be additional integrations to give people access to, it could be plugins. There’s a variety of different options that you could give somebody that provide additional functionality on the base level package that you could use as an upsell opportunity.
If you’re using these, you can either have bundle deals on your website where you’ll just say, “Here’s a package deal. It’s $100 for these X things.” Or you can say, “Ala carte, you can get each of these if you want, each of these five but it’s gonna cost you $30 per piece if you’ll buy them individually. Buy them as a bundle, you can get them for $100.” That bundling is also an option for an upsell.
It doesn’t seem like it is but when you start looking at who the types of people are that are buying those things, chances are good that they’re not gonna use all five of them in that particular example. They’re gonna use maybe three or four but the package deal is appealing to them because they have in their head that, “I might use these things down the road.” Even if they don’t use them now, they may have an intent to use them later.
Whether they do or not is immaterial but you can get them to purchase that package deal whether or not they’re gonna use it especially if you position it as a good deal for them.
Rob: This is very different, there’s upsells. It’s different between info products and software. Upsells are very natural and tend to make a lot of sense with information. If someone’s gonna buy a book from you then you upsell them to the videos or you upsell them to a 30-minute console or some interviews you did, that’s pretty natural.
Software can be more of a challenge, it can take more effort. You can always upsell training, really hardcore training. You don’t just want documentation to be upsold, you want that to be free. Something that actually gives someone a mindset view or an architectural overview that they would normally have to pay for, there is that line of you look at pricing of segment.com, their tiers are less based on usage and much more based on the integrations that you use.
I’m sure they know that someone integration with Salesforce tends to have bigger budgets and a lot more value out of segment than someone not doing that. Zapier, I think it’s the same way. There are certain things that are locked behind higher priced paywalls. Drip tends to be that in these apps that integrate with a lot of things because they know if someone is using Drip, they’re probably a more sophisticated marketer, they probably have a larger list, they probably have a bigger budget, that type of stuff and they’re gonna get a lot of value out of these tools.
This takes a lot of thought. The hard part about this is knowing what to lock behind these feature gates and doing it incorrectly is pretty easy. I’ve seen it swing both ways and I do think that if you find one of these other paths where your expansion revenue can be based on number of seats or it can be based on number of subscribers or contacts or it can be based on number of events, there are certain things to fit in, storage size, if your Amazon has three, then go with those.
Probably stay away from trying the feature gate right now, feature gating meaning you can’t get this feature unless you go up a tier, you pass through this gate by paying more money. If you don’t have an obvious way to use one of those obvious numbers that everyone else is using or makes sense for your product, then yes, you do need to seriously start thinking about ways, how do you build tiers when you don’t really have an easy one number like seats or subscribers or contacts to look at?
Mike: That’s actually a really interesting discussion topic just because I think that people look at those features and say, “What should I put in here as a feature gate to create these different pricing tiers?” I remember when Segment used to feature gate based on which integrations you were doing because presumably if you were using Salesforce, you had the money to pay for Salesforce. Clearly, you had money to pay more for a segment license. I think that they’ve shifted their pricing model and you don’t have to do that anymore. When you sign up, they have three tiers.
Rob: I was just saying that they did, I was mistaken. Zapier still does that, Segment used to.
Mike: They used to do that, they don’t do that anymore. I think it’s partially because they got to a point where they were far enough down the road that they had the ability to dedicate somebody to take a hard look at those things and see whether or not they mattered. Having the conversation with the customers to try and find out what the more optimal pricing model was for them.
Rob: They do it now on monthly track users, empty use they call it. It can be dicey, although with Segment that makes sense. How many users are you gonna track in a given month? That’s actually pretty easy to get an idea, you can think of how many either customers or how many website visitors unique in a month. Other times you’ll see like Amazon has pricing like this where it’s number of elastic compute units. What does that even mean? It’s something that is not defined anywhere.
I’ve seen things based on events and it’s like, “I don’t know how many events I’m gonna have in a month. How am I gonna know that?” Kissmetrics and Mixpanel have that problem of trying to define what these things are.
Mike: Even Segment has that problem because the empty use that they advertise, that is for the number of tract users coming to your site, not necessarily the people logging in. It’s not your team. If your website suddenly gets a ton of traffic from Reddit or Slashdot or something like that, you could easily blow through that very quickly depending on the company. You could either end up in a world of trouble with a giant bill or they could say, “We’re gonna turn this off, we’re not gonna allow you access to the rest of this data unless you pay for it.”
Rob: Something that Segment is – I’m looking at not the pricing grid at the top but they have a breakdown of what the differences are between the plan limit levels. Without knowing what their internal data looks like, they both have empty use, that’s monthly tract users, plus they have seats, the lower end only has 1 seat, and the team one has 10 seats. I’ll go back to my question, if I log into Segment as you versus me, do I see something different because as far as I know, you don’t. I actually think that’s probably not a good idea.
They have sources which is how many sources are you going to connect to Segment. The developer panel has two and then all the others have unlimited. Maybe that one is harder to say right or wrong. When you’re first starting out, you don’t have the trust of the market, you don’t have a brand name, you look at people like Segment or Intercom or MailChimp or Drip, we have the luxury of having a brand name and people are actually seeking us out.
We can raise our prices and we can do more complex pricing schemes because people are willing to come and use a tool that they trust and a lot of people are talking about. In the early days, this was with Drip as well as Intercom as well as your tool today, I’m speaking to a listener there, you don’t have the luxury of being able to have super complex pricing because no one’s gonna wanna bother with it because you’re probably struggling to try to get people to come and try it out and try to use it.
I would go extremely simple and I would go for one of these numbers, per seat, per subscriber, per contact or something else that’s very noticeable and easy to figure out until you get to that critical mass. You’re gonna know it by the fact that people are gonna start telling you, “Boy, you should raise your prices, you’re too cheap.” Or you’re gonna look around and say, “I haven’t raised my prices in a year, I need to rethink this.” You should have pretty good flywheel growth by the time you get to that.
Drip is now on its fourth version. We have versioning for pricing. We’re on our fourth version of it in four years. We haven’t done it every year on the dot but we actually did it three times in the first probably year and a half or something and then we really haven’t done any restructuring of pricing since then. Do try to keep it simple in the early days and don’t try to copy companies that are way further along because they have the momentum and the flywheel and the brand and you don’t have that yet. You don’t wanna make this mistake of confusing people.
Mike: Everything that we just talked about is really adjusting your licensing model in order to create more opportunities for upsells using those pricing tiers. Another option that you have that’s available to you is offering some annual plan, whether you offer upfront or you offer it a couple amounts down the road after somebody has started using your product and he’s getting comfortable with it.
Maybe there are certain trigger points where you say, “Let’s offer them an annual plan or a special discount upgrade for three month upgrade. Try this out, the platinum tier for free for 30 days or 90 days.” There are different ways that you can position that and pitch it to people. What you’re trying to do is you’re trying to increase that overall revenue from them so that it decreases the number of times that they’re gonna have to sit down and think about, “Do I really wanna continue paying for this?”
I think Leadpages used to do that really well with their webinars, if you attended a webinar, you could signup for Leadpages account and they would pitch you on a two-year plan. For two years, you are probably not going to go look for another landing page provider because you have this account. Unless it’s not doing what you needed to do, you’re not gonna go look for something else because you’ve already purchased it.
Rob: One of the big benefits of annual plans, especially when you’re starting out is you’re tight on cash. To get someone to pay for 12 months of service in advance, even with a discount, that cash is invaluable. If you can figure out a way to get someone to pay you for that full amount of service and you’re doing any type of paid acquisition, you are gonna be in a great spot. Basically spend a dollar, get $3 or $4 right away. It is a flywheel, it allows you to then acquire more people faster.
It’s pretty incredible, the power of being able to get annual. That’s why you’ll see pretty hefty discounts, 20%, 30%, 40% on annual plans because the cash is just so important to startups in their early days.
Mike: We mentioned this next one several times throughout the episode, it would be cross-sells. If you have other products that you have to offer, cross selling them after somebody has purchased the first product if there’s another one that relates to it or integrates with it, if there are signatures that you can identify with the customer that would indicate that they would probably be a good fit for this other product that you have, then there’s obviously ways that you would wanna interject yourself into a conversation with them to put them in an email campaign or have somebody call them and say, “Would you possibly be interested in taking a look at this over here because we think that this would help your business as well based on what you’re doing and what we’ve seen other customers get in terms of benefits and the similarities between the customers.” That’s another one.
I’m gonna move on from that. The next one is services and customizations. I think this one is a key piece that most software people overlook because we’re trying to build software companies. Our natural inclination is to build a software and sell people software, but the reality is sometimes people need a little extra help, whether that’s onboarding assistance or they need you to do something for them whether it’s a productized service.
There’s lots of different pieces to your application, it’s not just signing up for and plugging in a credit card. There’s usually a lot of other things that the customer is gonna have to do in order to get the value out of that particular product. Because you have all the insights and the backend knowledge and the main expertise for that particular product, you can do those things a lot more efficiently than the customer can.
You can create a service that is going to use your product on their behalf to achieve whatever the goal is and now you’re able to do a lot more because you can dig into the guts of it. If something is not gonna work the way it’s written, you can find ways around it, you can import things directly into the database if you need to and then make the software do it so that you can deliver on that service that you’ve promised them.
They’re more likely to purchase those services because it provides a lot more value to them by having it as more of a done for you service rather than they signup and it’s self-service because that’s most of what SaaS applications are, most of them are self-service versus a productized service where you’re hiring somebody to do something or deliver some sort of value or output. That’s what you’re paying them for, you’re paying them for the output. With SaaS, you’re paying them for the license to use that tool for the duration of them paying for it but they still have to do the work.
Rob: I think there are two aspects to this. You said services, it’s like the productized service. There’s a second aspect which is customization. It’s going to be like if someone came to us, actually we’ve used this with DotNetInvoice all the time. It was downloadable software you run into your own server, it was like self-hosted Fresh Books, a simpler version of that. People would buy it and say, “I don’t want this this thing added,” more like yeah, we’re not gonna build that feature, we’ll pay you to add it.
At first it was like, we’ll charge you $150 an hour and then we moved up to $200 an hour because we just really didn’t wanna them. It made some money but it was a hassle. Consulting, if you wanna be in that business, go do it, it’s lucrative in the short term but if you wanna build something long term, it’s hard to mix those kinds of businesses because they’re two different businesses, serving clients, offering deadlines, doing the contracts.
What if they’re not happy with it, what if they request changes, that’s a type of business. Building your own software product is another type. You’re not gonna move forward full steam on your software product if you’re busy doing a bunch of consulting gigs. The problem is the consulting gigs are like the quick hit, it’s like the crack cocaine where you get the $5000 or the $10,000 because someone wants you to do something.
Of course you’re gonna run off and do that but that revenue isn’t worth nearly as much because it’s dollars for hours. You’re not spending that time marketing your product and building features that other people will use. Even the market itself speaks, if you were to go raise venture funding or you were to try to sell your company even through a broker or you were to go public or whatever, any type of valuation, software recurring revenue is gonna be 3X to 7X your revenue multiple.
Consulting revenue tends to be in the 1X, maybe 2X if you’re lucky. It is a third to a fourth as valuable on the open market because it’s just how these things work. I think you have to be really careful about taking the quick hit or the quick dollar because it is gonna slow you down. If you’re super desperate and you really need the cash, there’s times when it’s not an absolute rule, there’s times when you might need to do this but I advise founders against doing this if it all possible.
Mike: The last item on our list for revenue expansion opportunities is to have an affiliate offer. This could be in the form of a direct product that you are offering that is a third party product that you are getting a commission from or it could be a referral. If you have a good relationship with a provider and there’s a subset of customers that you know need something that you’re probably not going to do it but you have a good relationship with somebody who does provide that service or that type of product, then you could setup an affiliate relationship with them where you will refer customers over to them where you’ll get some commission or kickback or finder fees, something along those lines for referring them over.
You could also do this for free, I know that there are people out there who like those types of things and they’ll just say, “Here’s some free business because I know that you’re gonna take care of them and I don’t really want anything from it.” Those opportunities are available as well, you can probably find people who will do the same thing for you. I think it’s much more common to have some sort of an affiliate relationship setup so that there is a specific dollar amount tied to it or percentage. It makes it easier for you to quantify how much work and effort it’s going to take you.
Rob: If you have other ideas for revenue expansion that you feel like we missed in today’s episode, feel free to come to startupsfortherestofus.com, Episode 365. Post a comment or email us at firstname.lastname@example.org. That wraps us up for the day. You can also call our voicemail at 888-801-9690. Our theme music is an excerpt from We’re Outta Control, it’s by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 364 | Plateauing at $1k MRR, When to Spend on SaaS apps, and More Listener Questions
In this episode of Startsup For The Rest Of Us, Rob and Mike take a number of listener questions. They give their insight on a some topics including when to spend money on helpdesk software, what to do when you’ve plateaued MRR at $1k, and how to promote a blog post.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about plateauing at 1k MRR, when to spend on SaaS apps and more listener questions. I also asked Mike a question right at the start that I haven’t prepped him for.
Mike: Damn you.
Rob: Mike, what is the most interesting book you’ve read lately?
Mike: The one that I read recently was one that you talked about on the podcast, it was Masters of Doom.
Rob: What do you think?
Mike: I thought it was really interesting. The story and the dynamics between the two Johns was very personal between them, obviously. The implosion of the John Romero’s company afterwards, after they blew all that money that had come in and basically bankrupted the company. That was interesting but not necessarily unsurprising.
Rob: They were kids, essentially, starting a company and making millions of dollars. They bought Lamborghinis and Ferraris, just the total stereotypical, 20 something with too much money.
Mike: But that was with their money that they got from Doom. John Romero had spent ungodly amounts of money on building the company and an office space in downtown, I think Dallas or Austin, or something like that.
Rob: Where he raised $10 or $20 million to start the new gaming company after they split.
Mike: What was it? $20 or $30, $40 million or something like that and then $100 million of guaranteed money coming if they actually just published the games. That’s my most interesting book recently.
Rob: 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: I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we made. What’s the word this week, sir?
Mike: I decided to let you back on the podcast after the date fiasco. Did you hear that?
Rob: No, I haven’t heard it yet. The MicroConf saved the date that I sent three weeks ago was wrong but did you tell anyone what I was reading? I was reading stuff you typed in the doc.
Mike: I didn’t.
Rob: You typed it.
Mike: I know. I absolutely did not say that to anybody.
Rob: That’s where it comes out now, I said the wrong date. I did hear you say that at the beginning of the next episode. I was like, “That sucks, how do we do that?”
Mike: It was totally my calendar but you’re the one who said it, not me.
Rob: I know, it will forever go down. I wonder if I can get Josh to go back and edit that episode.
Mike: He probably could but people have already listened to it.
Rob: I know. The correct date for MicroConf in Vegas next year, Growth will be April 29th through May 1st, Starter Edition will be at May 1st through 3rd. Mark your calendars, tickets will be coming out in the next couple weeks.
Mike: I corrected my calendar already.
Rob: What else is going on?
Mike: My wife, Ali, who I’ve talked about a little bit before, she took over another fitness studio here in town. It’s been about six months or so. There is an article that literally came out today where she was voted the best athletic club in the annual reader’s choice survey that went out maybe last month but it came in and she was selected. I just wanna say congratulations to her.
Rob: That’s super cool. You have a little article, you’re gonna link it up in the show notes?
Rob: Awesome. For me, two random things. One is have you heard of the eero routers?
Mike: I think I’ve seen something about them but I haven’t really looked at them at all.
Rob: If you have the first world problem of having a house so big that you can’t get Wifi in your kitchen, then these eero can get it at any part of your house. These eero routers are ridiculous. You buy them in a three pack, they’re not cheap, I think it was $300 to $400 on Amazon. They basically mesh network with one another. They don’t use Wifi to go through the walls, they use mesh network at a different frequency that can go through walls a lot easier and you put them around your house.
This house at Minneapolis has a basement and then two stories and the house is wide, it’s longer than a lot of houses. When we first setup just the NETGEAR router, you couldn’t get Wifi, you can get in that one room and then it was blocked everywhere else. With these three eero routers, it is ridiculously fast even way, way down on the basement which is three layers and layers of concrete and all the stuff. It’s crazy how good these things works.
Again, not cheap. NETGEAR router that I was using was $80 and this was, like I said, $300 or $400 but it permanently solved this problem. I used to have extenders, they underscore EXT network, it’s just junk. They’ve had these for years, obviously, for commercial use like in office spaces and such, college campuses. The first consumer ones came out within the last one to two years.
Eero, they keep updating their operating system and I have nothing but good things to say about these guys, they’re not sponsoring the podcast although they probably should. That’s the deal. Do you have any dead spots in your house or does your NETGEAR capture everything?
Mike: No. I cheated and I have a power drill. I drill holes through walls and run Cat 6 cable.
Rob: It seems like something you would do, Mike. I think you would build your own servers and run Cat6 cable through things. We’re on a rental. Who knows how long we’ll be here.
Mike: That’s what the security deposit is for.
Rob: I’m gonna run cable. Even at our house in Fresno, it was a super single story but super long and I could never get Wifi in the living room because the router was over in the office. They would’ve fixed it there as well. I guess that’s it.
Mike: I do have Wifi here. I think I have three different Wifi routers in my house in each general area, there is either wired or wireless depending on where you’re at. Of course, to screw my neighbors who ask if they could borrow my Wifi, create one called FBI van 42 or something like that.
Rob: If they could borrow your Wifi, wow.
Mike: I know, I was like, “No.”
Rob: There’s no chance that’s happening. My other tidbit is I wanna run through a couple of books that I’ve listened to recently and really enjoyed. I still think I keep coming back to my top three, these are not ones I’ve listened recently but I think my top two or three audiobooks of all time are Masters of Doom, like I said and you listened to that, and then Hatching Twitter is another one and then The Snowball with Warren Buffett. Those are all good.
Some other ones I’ve listened to recently that I hold in high regard, one called American Kingpin by Nick Bilton who’s the same guy who did Hatching Twitter. It’s about Silk Road, the bitcoin marketplace that sold drugs. It’s about the guy who started it and it’s very, very well-written, very compelling just like Hatching Twitter. I didn’t really have much interest in the story, to be honest, I really didn’t care about Silk Road, I didn’t think I was going to care but he makes you care by the time you read two chapters, very interesting.
I listened to Angel by Jason Calacanis. Whether you’re an angel investor or not, it’s pretty fascinating to hear inside his world. It’s a good balance of boots on the ground stories, advice for angels, advice for founders who may someday raise money, how to run a good company. Calacanis is such a smart dude and has so much experience with the stuff that he almost can’t help but learn something from this even if you’re not gonna be an angel investor or seek angel investment.
Another one is Tom Petty, The Biography. Oddly enough I was listening to this couple months ago and then Tom Petty just passed away within the last month, that was coincidental. I have always been a fan of Tom Petty, I didn’t know his story. To be honest, the first at least third of the book is really boring and I almost skipped out of it but I started skipping chapters and I got to the point where they did start taking off and it was fascinating from there, the actual rise of them instead of all the years of him growing and stuff. That part didn’t resonate.
Lastly, there’s a new book called From a Certain Point of View, that’s new on audible. It is basically Star Wars episode four, it’s the story of all the surrounding characters. They got 40 different writers and then 40 different voice actors to do these little short stories about. It might be about a stormtrooper who is off camera or it’s about a jawa who sabotaged something. It’s about when R2 tries to sabotage the red droid. It’s noncanon but it’s cool if you’re a geeky Star Wars fan and I enjoyed listening to it.
My 11-year old listens to and I’m listening to it and then we compare notes. It’s like, “Did you understand that one?” We talk about it. That’s been fun. Have you listened to any of those or read them?
Mike: I saw the From a Certain Point of View had come out and I keep seeing it in different places but I hadn’t read it or really looked into it, I didn’t know the story behind it.
Rob: It’s interesting if you’re a Star Wars geek because they make references to things. Unless you’ve seen Star Wars several times, you’re not gonna get it, it’s not gonna be interesting.
Rob: Today we’re answering listener questions, we still have good a number coming in. I wanna keep up with that. The first question is about plateauing at 1k MRR. It’s a follow up to a question that Matt [00:09:05] had asked a few months ago. It was regarding portfoliolounge.com. He said, “Thanks for your reply in an earlier episode. I’ve since listened to most of your past podcasts and realized that funding is not necessarily what I should be looking for. I wanted to clarify and say that portfoliolounge.com has had about 30,000 free members and upgraded subscription options average about $10 per month, sadly the site has plateaued at around 1k MRR. I’d love to get your advice, see what you think about the site and potentially how to grow it.”
What I wanted to talk about today, I wanna bat a few ideas around. A lot of sites, a lot of people find themselves in this situation. You launch an app, it grows to 1k MRR and then it plateaus. It’s like what do you do at that point? How do you attack the plateau? We could also separately maybe talk about the free plan. Whether we think you should do that moving forward, whether we think perhaps it was a mistake or that kind of stuff. You have initial thoughts to kick this off?
Mike: Average of $10 per month, it sounds to me like that’s really targeted at the consumer side of the market. I would love to see if maybe there’s a possibility of going after businesses who needs some sort of an online portfolio, like a photographer. There’s a photographer that we use every year here in Lister who takes pictures with Santa Clause, for example. He has this whole website where you can go out and you can pick the photos and things like that.
I wonder if targeting photographers like that or running a small business would be a better proposition than targeting end users or the consumer market because obviously those people are not gonna be willing to pay very much money on a monthly basis for very long.
Rob: I think this does target more photographers, to be honest. If you think of photographers, they’re really prosumers, if you wanna know the truth, they’re not even SMBs like Beta SMBs. A lot of them do it as a hobby and a lot of them do it on weekends and they make a few hundred bucks a weekend or something. I think they’re that in between.
There are so many portfolio sites, that’s what this site does, pretty basic. The headline is create a portfolio website quickly and beautifully. You think of it as a core space for just portfolio sites and it’s highly focused on that but a lot of other sites do exactly this functionality.
Mike: It’s really more a matter of overcoming the competition especially if those other sites are offering it for free.
Rob: Yeah. I don’t know if they offer the exact same thing for free. Certainly he has a free plan and then has the $10 month upsell which probably gets you to something else. I think the questions to think about is, is your offering pretty much exactly what a bunch of other places have like SmugMug or whatever. If it is, you either need to be differentiated as a product in a way that people care about or you need to have, essentially, a traffic or a lead source that no one else really has access to or that you are at the top of like Google Search Result or you’re way better at paid ads and you’re really getting a better traffic for that, this won’t work for the paid ads with the free plan and the $10 a month.
If you don’t have one of those two in this type of business, you’re done, you’re never gonna get above a grand plateau or two grand. There’s gonna be some very small number of people who just picked you because they found you first but other than that, you either have to be differentiated or have to really own that traffic source like that number one Google Search Result.
Mike: I wonder if there’s another option here which would be to use this as your traffic source and then have something else that you’re upselling. If hosting the portfolio is very much a commodity and there are other sites out there that are doing it for free and you’re trying to charge for it, that’s gonna be a tough road obviously with $1000 MRR, that’s the position that he’s in.
If you have something else that is something that you could sell whether it’s an ebook or some upsell on top of what you have now, I’m not saying go back and retract the pricing and everything but if there are other products that you’re upselling people to, you build your portfolio and then we can educate you on how to grow the traffic or advertising or things like that.
There are other things, I think, that you can do here other than charging directly for posting the portfolio especially if that’s the commodity. Is there some other product that you can have that you can put in there?
Rob: I think that’s a totally reasonable idea. I think another thing to think about is 30,000 free people have checked it out, I’m sure they’re not active, I’m sure it’s a small percentage. You have, essentially, 100 paying customers at $10 a month to your thousand, that’s a third of a percent of all of your free users have ever paid you any money or at least your current customers, I guess I should say.
That’s a problem because that number is too low, the number should be between 1% and 3%. I would look at that and think, “Is there a way that I can get more free users to upgrade or is the free plan just a mistake or a failed experiment.” I would consider if you’re not already sending emails to get people to upgrade, if you’re not already helping them get whatever it is to get them to the paid tier or convince them that it’s worth their value, then obviously that would be where I would start because that number is too low.
It either means that you’re not taking the right steps to get them to upgrade or they’re just never gonna upgrade and the free plan is a waste of time. You need to figure that out. If the free plan is a waste of time, then I would shut it down immediately and I would grandfather people for now and then I would start a free trial instead and do it basically the same way where you have maybe 14 days or 7 days or whatever.
You have time pressure for people to get in and get setup. That helps them actually get value for the product. I think you’ll convert potentially more people in the short term. When I acquired HitTail, there was a free plan and there were some users using a lot of resources that were on this free plan. I did wind up shooting that down. It was a hard decision but the site was bleeding money because of that.
I did get some people to convert from the free plan, it was not a huge number but it did really have a lot of resources from the app and it allowed me to get some revenue, it was 500 or 1000 of MRR in the early days of that, actually maybe a little more than 1000 which sounds like chump change at this point but it was actually a move that I think was worth that I got some pushback. I did grandfather some people in who had been fans of the site and really good JV partners or that one guy who had taught an SEO class in Italy and he’d always mentioned HitTail in the class.
If someone complains and they’re not disrespectful and they have a good reason, yes, you can keep them in but to have 30,000 open free accounts on your platform, if you are gonna shut that thing down long term, it just doesn’t make a ton of sense.
Mike: To add onto that a little bit, go back to the point that you said, what does it take to upgrade people. You can look at the number of images that people are uploading and the pieces of content and try and see how many people are above that threshold and what the average number of images that people upload is. I look at the subscription options and says upload as many as a thousand items, how many do people upload on average? Is it 50, 100, 500, could you tweak that number and drop it down?
As Rob said, are there trigger points that you can use to say, “You’re getting close to this, would you like to upgrade?” Look at those and see if you can play with those numbers a little bit to try and get people more towards that edge where they have to make a decision one way or the other.
Rob: I think that’s a good point. Lastly, I’ll reiterate, if you don’t have some type of feature or positioning differentiation from other platforms on the market, or you don’t have some marketing advantage where you’re getting leads that aren’t comparing you to other people, example, you are the number one search result in Google for some nice term, then long term, this business is not gonna grow, it’s gonna plateau somewhere, it’s probably gonna plateau very low. That’s something that I would keep in mind.
Our next question is about when to spend money on helpdesk softwares specifically. Actually, I think it opens up almost a thought of when do you start spending money on external SaaS apps when you’re starting your own business. This is from Saphia, she says, “I discovered the show a few weeks ago and I cannot stop binging. It’s such a good resource for first time founder like me. What is your take on helpdesk software cost and how early we should put them in place? We’ve launched our SaaS MVP a few weeks ago as a free trial and our prospects are rightly providing feedback and feature request by email which makes me crazy as the only developer in our company. I wanna subscribe to Intercom or Zendesk or Groove but my co-founder disagrees because of the cost and things, we should just do with email for now. What is the right way to do with feature request at an early stage?”
I will throw one other support software in there and that’s Help Scout. We use them at Drip. They work really well for us and they’re quite cheap. I think all these things are $10 or $15 a seat. With that couched Mike, it sounds like he has a couple questions. One is been on helpdesk and then there’s how do you handle feature requests at an early stage.
Mike: These are three different things that you can dive into. In terms of looking specifically at a helpdesk, one other thing that I’d throw out there is an option is Teamwork Desk. If you go over to teamwork.com/startups, they have a startup program where you can get everything that they have for free for an entire year. It’s not that their product is all that expensive anyway, you can get on the ground floor at $5 a month but you can get it for free if you’re just getting off the ground. That’s an option as well.
In terms of when you should start putting things in place, I think that’s more of a general question. I would say that when it becomes painful, if you get to a point where whatever problem you’re trying to solve is taking too much of your time and effort and it’s cutting into your time and resources to do other things, then you really need to bite the bullet and start paying for it.
Rob: I think handling support in the early, early days via a single shared Gmail account is not out of the question, it’s not terrible. I think you’re gonna wanna get out of it quickly but I think it’s feasible if you’re super cash strapped. However, look at a product like FogBugz that is $20 a month for I think four or five seats. In my opinion, it’s not the caliber of Help Scout or of Groove. Zendesk, to be honest, I’m not a huge fan of but it’s just the conversion tool. Those are about $15 a seat so they are a little more expensive.
It depends on how big your team is. If there are five of you and it’s $75 a month, and you really are cash strapped, there’s a point where that money could be used for something else. I think that handling feature requests specifically, handling them via email but then you need an issue tracker. Even if you are handling it in a Gmail thing, you should still be using GitHub issues or you should be using Jira, just anything like that. You can move stuff from email into those trackers as you move them around. You don’t have to manage them in email, that’s crazy.
Mike: I definitely wouldn’t manage them. I use Teamwork Desk for my frontend support. Whenever something comes in where I’m gonna essentially decide to promote it to something on the road map or if it’s a bug, I tend to close them out and them move them over into FogBugz which is what I use for bug tracking for Bluetick because you don’t wanna leave those tickets open for an extended period of time because it’s not helpful to them and it’s not helpful to you.
They’re basically sitting there and it’s not about the cost of the space, it’s about the fact that they are sitting there as another line item that later on you’re gonna have to go in and close out. Just tell them, “We’ve logged this, it’s in our bug tracker. We’ll get it fixed.” Then close it out and move on because you don’t wanna have to track in two places really what the issue is.
Rob: To give everyone context, DotNetInvoice, I did all support straight out at Gmail. When I get a business partner with that, we shared the Gmail account for a few months and then it became a pain in the butt so we moved to FogBugz. I was in FogBugz for years and then when we launched Drip, I believe, we moved everything into Help Scout which I liked a lot. When we got acquired, Leadpages was already using Zendesk and eventually we consolidated in Zendesk.
Like I said, I’m not a big fan of Zendesk, it’s pretty clunky and hard to use but that’s the progression I’ve made. Again, some of those are less expensive than others. I do think that if it’s working and you can manage and you guys are super cash strapped, then you can make things work but that would be an early bootstrap situation that I would look to get out of as quickly as possible. Thanks for your question, Saphia. I hope that was helpful.
The next question is about EU legislation insanity is the subject line of the email, it’s from Juka from close2design.com. He says, “Hi guys, are you aware of this?” It’s a link to a Business Insider article, the title is 75% of Cloud Apps Are Not Ready For New EU Data Protection Rules. Juka continues, he says, “It seems they’re threatening businesses with Megacorp level fines for some vague “noncompliance” but they’re imposing their rules on small companies too, of course. Does that seem like they’re trying to kill small businesses? That seems like potentially an anti-business move. What is your take?”
Mike: This is interesting because Juka sent over a link to the Business Insider story that was talking about this. I looked into it a little bit, you can make all arguments or judgments you want about politicians and their ability to interpret how things are going to impact small businesses especially when it comes to anything that’s technology related.
The bottomline on this particular article is that if you look at the study that came out for this, it’s by a company called Netscope. If you go over to Netscope’s website, they are trying to sell people on a solution to this particular problem. It’s almost like they self-commissioned this study so that when a CEO of a company, they’re having a discussion with this person and saying, “You need to pay attention to this law.” He’s like, “Why do I need to pay attention to this?” “Here’s the study that you can look at as a reference and here are all the problems that you could possibly run into.”
It’s basically this giant marketing collateral piece that they put together solely to scare those CEOs and executives into purchasing their products and services. I don’t see this much different than some of the security vendors, they’re really trying to sell based on this position of making people fear what is going on or what can potentially happen and saying, “We have a solution to this particular problem.”
I don’t know is it something that most small businesses are probably going to need to pay too much attention to and the whole thing is trying to consolidate different laws from all of different member states of the EU and they’re trying to consolidate it. Instead of having to follow 28 different sets of rules, you only follow one. I do understand that there’s the contention about the level of the fines but you have to go back to them and see how serious are they about enforcing those things and what is their stance and why is it?
Sometimes, government entities will really look the other way when you show that you’re trying to do the right thing and you just screw it up. There are times where they’ll nail you to the wall and you have to interpret, is this the type of entity that will nail you to the wall or they’re just gonna let things go because you’re a certain size and you just didn’t know any better.
Rob: I wonder if the category that it’s in Business Insider called BI Intelligence, all of them are these reports from companies. I can’t find any evidence that they’re sponsored, they’re sponsoring the BI articles themselves, the Business Insider articles but I would not be surprised if that were the case. As we talked about a few episodes ago, there used to be safe harbor and then you changed it years ago, two and a half years ago, and then they’re now changing it again. This thing is such a fiasco and very hard to keep up with for someone that’s not just mired in it.
Having spent myself several thousand dollars on legal fees just to have contracts drawn up, I think it’s just a big pain in the butt. It’s not something that I have personally, beyond just having just that contract written up spent a ton of time dealing with or investigating.
Our next question is about how to promote a blog post. She says, “Dear Rob and Mike, how did you promote your blog post in the early days of your SaaS? I’m interested in channels and methods.”
I think I would almost caution something. There is value in having a blog for SaaS app but these days, given how noisy so many spaces are, unless you’re speaking out from the blog in a way that is unique or that you’re saying something different. It’s probably not the first marketing approach you have to do these days because so many people have followed the content marketing playbook, the playbooks of Kissmetrics or Bidsketch or Groove. There’s been people who’ve executed it really well and to great effect. Because of that, it just gotten harder and harder.
If you’re just cranking out thousand word blog post on some topics, it’s really probably wasted effort. I think you could get more customers elsewhere. With that said, if you have really unique content and you understand the game as it stands today and if you notice now what Kissmetrics is doing or if you notice now what Groove or Intercom, there are several that do content marketing really well. It’s these very, very long authority posts.
Instead of doing a post everyday or three posts a week, it’s one every week, one every two weeks but they’re really long and in depth and they’re trying to be an authoritative or definitive view. Sometimes they’re broken up into multiple pages, sometimes it’s all in one page. It’s almost like an ebook that’s published as a blog post. Google has the tides of turn and Google seems to like this thing more. As you build up equity more overtime, that’s how you’re gonna do it.
With that in mind, it’s a lower volume but higher quality play. There are number of channels to try to get traction, it’s depending on your topic. You look at something like you get on Hacker News, if you write something really interesting that everybody is gonna be interested there, then of course you can promote it. Product Hunt, there’s a section for this kind of stuff. Medium is still a decent source.
We experimented on Drip with going Medium first or Medium was the source and then we republished on our blog post and then we did the other way, we tried a bunch of different stuff. That works also, we never got enough of a following on Medium to justify it. I really wanted the SEOJuice over on our blog but Medium and Twitter, obviously places where people are talking about things and those are ways that you can get some eyeballs to come.
Facebook, unfortunately, as I roll my eyes, Facebook and LinkedIn, both of those have obviously ways to get stories out and then you can promote them for a small amount of money. This is stuff you have to experiment with, you’re gonna know your niche. If you’re at least a little bit B2C or B to prosumer. I’ve seen people use this to great effect on Facebook, seen people use it to great effect on LinkedIn when they’re more of the B to enterprise or B to midmarket.
There’s a couple things, it’s not about just having this cookie cutter thing where every time you publish, you’re gonna submit to 26 different things and hope one of them catches. That’s not gonna work very well because you’re either gonna get banned, you’re just not gonna get tractions, it’s gonna be a waste of time. You really have to sit down and think about a unique piece of content and think about it as a one off project.
Think about what are the best things of all the potential promotional areas I just mentioned as well as there are certainly more, I bet, if you search Google for how to promote a blog post in 2017, there are gonna be more ideas that I did not just throw out. It’s applying the few that you think are really gonna work but really digging into them. If you think it’s gonna be Product Hunt, for example, then I would spend two or three hours figuring out how do you do this on Product Hunt.
I wouldn’t just submit it and hope for the best. There are ways to improve your chances of that being successful and I don’t know them off the top of my head. We had some success with Product Hunt when I was still running marketing for Drip but I’m not an expert but someone out there is. That’s, I think, how you have to think about it these days, really being more focused, just spending more time than you would like probably.
I’m not so sure that blogging is necessarily the way I would go if I had a SaaS app these days and I was just getting started but it does certainly depend on your niche and where you’re going.
Mike: I think I would ask why you’re trying to use blogging because you talked about this a lot, Rob. What’s the purpose of that? Are you actually going to be getting customers from that? Are you going to be heard over the noise? Are you gonna be able to sustain the effort that it takes to continue publishing that new content? I get that there’s this weird relationship between the number of web pages that you have and your search engine rankings and your ability to draw traffic to your site but is that going to be what’s going to do it for your business? Is that the channel that you need or are there other ways to get people to your website, whether it’s speaking towards and getting backlinks from those or publishing on other people’s blogs, for example. That’s a great one.
If you can get published on somebody else’s blog and they’ve already got a built in audience, then you don’t have to build your audience and you can get the back links from them. It’s more sporadic but at the same time you don’t have to do all that upfront work to build your own audience immediately.
Rob: I think that’s a really good point. I think guest posting, JV partnerships, podcast tours, I think these are all things that will likely have more of an impact than just starting your own blog.
Mike: I think that wraps us up for today. 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 email@example.com. Our theme music is an 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.
Episode 343 | Growing from $1k to $5k MRR, Projecting SaaS Revenue Growth, Refining Your Sales Process, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike talk about growing from $1k to $5k MRR, projecting SaaS revenue growth, refining your sales process, and more listener questions.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about growing from $1,000 to $5,000 of MRR, projecting SaaS revenue growth, refining your sales process, and more listener questions. This is Startups for the Rest of Us episode 343.
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 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. What’s the word this week, sir?
Mike: I’m hoping that in another week or two, I’ll have my completed self sign up process in place. It’s been rather painful to rework those pieces of code just because it’s core to somebody signing up so it has to work properly. I’ve found places where if the signup process previously had failed, at some point along the way, it left a bunch of orphan data and I’m like oh God. And then you start over and then it leaves all these things in the database and I’m just like, “Alright, I got to start refactoring some of that stuff.” The cleanup is kind of a pain in the neck but things are progressing pretty well at this point. I’m hoping to have that cleaned off of my plate in the next week or two.
Rob: That’s nice. One thing that we do, we have a two step sign up process for trial. If they do the first step but don’t enter their credit card, we cookie them. If they come back, we just present them with the credit card. We don’t want to make them do the first step again.
Mike: That’s sort of what I’m looking for right now but I’m looking for ways to create the account and have it as a placeholder without also creating a subscription inside the system. That’s the part that’s hanging me up a little bit. I’m trying to figure out exactly how to do that. The cookie idea is interesting but at the same time, I don’t necessarily want to leave their credentials sitting there in a cookie or someplace either.
Rob: Oh yeah, no. We store it in the database and then cookie them with an account ID or at least a user ID. We wouldn’t store that in a cookie. It’s just an idea. It’s a nice elegant way. Some people will come back and be like, “I can’t believe it. I didn’t have to enter my stuff again to get in.” It’s like a usability thing for people who get stuck in the middle with the credit card and then come back a few hours later and see that it’s already there at the credit card screen.
Mike: Yeah, that’s exactly what I’m looking for. I’m looking at trying to get around because like I said, data structures don’t really support that just yet.
Rob: Got it. That’s a bummer. For me, you probably hear, I’m sick this week. I’ve been working but I just kind of feel hazy and everything is just taking longer to get done. I hate being sick a lot because I feel like I have a bunch of work to do. I got things to do. Who’s got time to be sick these days?
Mike: My son was sick this past week so he was out for one or two days at school.
Rob: That’s crazy. We went to California last weekend for Memorial Day and pretty much my whole family got, it’s just a head cold, we all got it. I don’t know. We had it within the first day we were there so I feel like we caught it before we left. I don’t think you catch it on the plane and then the next day you wake up. I think there’s a longer incubation period for most colds so the timing was kind of bizarre but it seems to be hitting each of us in its own way right now. But the show must go on. Am I right?
Rob: Every week. Every Tuesday morning, we get this podcast out. Apologies in advance if my voice grates on people, I am heavily using the mute button to cough while you’re talking right now.
Mike: What are we talking about this week?
Rob: We have a nice backlog of listener questions once again and so I wanted to run through some of those. Actually, there are a couple that really aren’t questions. They’re just comments and accolades for us. This first one is a voice mail about growing from $1,000 to $5,000 of MRR.
Bryan: [Voice mail] Hey Rob and Mike, Bryan Fleming from Detroit City here. I just wanted to call and say thank you so much for the podcast you guys put out. Being here in Detroit, you just don’t talk to anybody who’s doing the SaaS stuff. It is so goddamn hard.
I’ll tell you what guys. A year ago, I was listening to your podcast, struggling along my SaaS business, doing about $1,000 a month. I listened to an episode where you guys were talking about how to know if your business is viable and sketching out your lifetime customer value on a napkin. I did that and it’s like a lightbulb went off. I moved to a yearly re-bill. I increased my prices and here I am a year later, my business went from $1,000 a month to $5,000 a month. I know you guys have seen ones that have grown better but I’m pretty proud of it.
Again, it’s all from listening to your guys’s episode, that was one in particular. I appreciate everything you guys do like I said. You’re the first one I go to on my podcast, really looking forward to it every week. Keep up the great work guys and when I do have a question, I’m going to call back in and hit you up on it. Take care. Bye.
Mike: That’s good to hear. It’s always nice to hear from listeners who listen to an episode and that are able to act on that advice or the commentary that we give and be able to take things to the next level and really move their businesses forward. I really appreciate hearing that from you, Ryan.
Rob: Yeah, that’s awesome. That’s really why we do it. The fact that anyone ever gets value out of anything you and I say, Mike, it’s just a miracle at this point. Our next question is about how to project revenue growth? It’s from a friend of the show, Craig Hewitt. He’s the founder of Podcast Motor at podcastmotor.com.
He says, “Hey guys, after launching my first SaaS product last week, I’m wondering what realistic ranges for growth scaling are. Heard Mike talking about doubling Bluetick revenue from $1,000 to $2,000 in a month on the last episode, it seems like a great goal but is that kind of expectation realistic? Does the same growth curve slope apply at scale? For instance, did Drip see 100% growth months after you were doing mid five digits a month? Be interested to hear your thoughts.”
Mike: For mine, I looked back over the revenue numbers for Bluetick after I started officially selling it to people. There were a couple of months where I did 100% month over month growth but it was not common. It was like I would get 100% one month and then I would double it and then the month after that, I get like 50% or we just stay even in terms of growth.
There is this exponential curve that you end up getting. Depending on which numbers you’re specifically looking at, whether it is growth from one month to the next versus your total size, those are two entirely different things. What I was looking to do was originally, I was saying, “Okay, I want to go from $1,000 to $2,000.” But even a couple of days later, I looked to that and said, “You know what? That’s actually not very realistic.” Because in my mind it was like, “Oh, I’ll be doubling my customer base.” But the reality is that doubling the customer base is not realistic because it took me x months to get there.
What would more realistic is if I were to say, “Look, I want to double the number of customers that I got last month.” That jump is probably too large. If it takes you four months to get to 20 customers, you’re probably not going to be able to add 20 customers in the next month barring some major marketing strategy that you do or a big launch or something like that. That’s not what I had planned. I realized a couple of days later that that was not going to be a realistic goal.
Paul Graham has some advice about the growth rates for Y Combinator start-ups. They’re looking for 5% to 7% growth per week and he says if you can hit 10% a week, you’re doing exceptionally well. If you can only manage 1%, that’s a sign you haven’t yet figured out what you’re doing.
In the early days, I think it’s a lot easier to get those higher percentage growth numbers just because adding 1 person if you’ve got 10, then that’s a 10% growth rate but once you get to 100, adding one is only 1%. Again, you have to look at both the total size that you’re trying to grow and then back track a little bit and look to see how long it has taken you to get there in order to be able to start projecting forward and establish more realistic goals.
Rob: Yeah, there is kind of early stage growth where you’re just scrapping for every individual customer and it can be a little harder to project at that point. But if you have a nice source of folks that you can bring in almost by hand where you have that 300 person launch list or something and you’re kind of individually choosing people out of that, then you kind of get a feel for how many you can logically bring in in a month.
Once you’re past that, let’s say you’ve launched and you start marketing. You have content marketing. You have Facebook ads. You have SEO. You just have all the channels. You’ll start to see that the numbers just pan out. Depending on the number of unique visitors you get to your site, what percent convert to trial or a customer and you can just look at those numbers and that will allow you to start projecting how in a month, two months, three months and then you’ll be able to see which levers you need to pull in order to increase that. This is where it becomes easier to project but harder to make a dent because adding one, two, three customers doesn’t make a dent when you’re going $5,000 a month MRR.
Now, to really dig in on Craig’s question. He’s asking, “Can you have 100% growth once you’re already doing $50,000 a month?” The answer is not typically. That’s not really a sustainable growth pattern. Don’t think of it in terms of percentages. Think of it in terms of flat dollar amounts.
In the early days, I would shoot for if you can get into four figures of monthly MRR growth, you’re doing okay. Early days is like sub 10,000 or 15,000 of monthly recurring revenue. If you can grow at $1,000 or $2,000 a month during that time, I don’t think of it as a percentage. I just think of it as getting the $1,000 or $2,000.
If you can get to that and make it sustainable so that it’s a flywheel in essence that grows at $1,000 to $2,000 a month, that’s a pretty decent start. If you look out a year, then you think, “Wow, I’m going to have grown $12,000 to $24,000 MRR.” And then what you do is you look at how do I know get to $4,000 or $5,000 MRR and then how do we get to $10,000 MRR growth.
The sooner you can get there, your growth will be huge at first. Let’s say you get to $20,000 MRR and you’re growing at $5,000 a month, man, you have a 25% growth rate. But then next month, you’re going to have a 22% growth rate. And then the month after, if your growth stays flat, you’re going to be at 18%. It’s going to get smaller each month but if you’re still growing at $5,000 MRR, that’s actually a pretty damn good bootstrap business. The percentages start having less of an impact at that point or I should say less meaning because if you continue to grow at $5,000 MRR every month, that’s a good business.
At a certain point, your churn will make it so that your $5,000 MRR growth will get smaller and smaller over time. That’s really a whole separate conversation. That’s when you hit a plateau and there was an episode we recorded probably 100 episodes ago with Reuben Gomes about how to see plateaus coming and how to get over them.
I guess what I’d encourage you to do, Craig, when you’re thinking about this is think about it in terms of absolute dollar amount. People say percentages because A, it sounds impressive or B, they want to not give absolute revenue numbers in public. When I used to talk about Drip’s revenue growth on the podcast, I didn’t want to say we’re growing at $5,000 or $10,000 a month so I use the percentage instead.
But realistically, the absolute dollar amount especially for a bootstrapper in my opinion is what counts because that dollar amount is what allows you to hire people, it’s what allows you to buy Facebook ads, it’s what allows you to run the business whereas percentages really have just such a smaller meaning. You do hear about Y Combinator start-ups or even some bootstrap start-ups that get really good traction.
Growing 20% to 40% a month for a while is totally doable. It’s hard work and you really need to catch a flier. It’s a Cinderella situation but it is possible for the time being but growing 100% month over month for more than just a few months is unheard of. I think you would literally need to be like an Uber or something to be seeing growth like that. I hope that helps, Craig. Thanks for the question.
Our next question is from Chris from vendorregistry.com. He says, “I’ve been thoroughly enjoying your new podcast. I heard you were looking for some questions. Vendor Registry’s SaaS platform and marketplace streamlines the $250 billion dollar local government purchasing market by standardizing and centralizing traditionally paper intensive workflows. Since we have so much green field ahead of us, coming up with new ideas takes only 10% of our time. The other 90% is spent debating which ideas to execute first. Ideally, we stop debating. We let the market decide through AB testing however, implementing AB testing requires money for the tools dab time to build out two versions of everything and enough users to generate actionable data. All of which are in short supply. How do you recommend we get started with AB testing given the resource constraints?”
Mike: I think the resource constraints that you mentioned are probably the place to start because you’ve talked about how there’s a couple of different places where you have these resource constraints. There’s time, there’s money, and then there’s the low numbers of users. I think the low number of users is the thing to really focus on just because it’s really difficult to do AB testing if you don’t have a large number of people that you can put through a particular part of your sales funnel and get the results that you need in a short enough time span.
If you’re running an AB test and it takes you 12 months to get a result, there are two problems to that. The first one is that it takes you 12 months to iterate and do any sort of testing to move you to the next level. The second part of that is that because it’s such a large time span, those results are probably not really statistically relevant anyway.
Even if you go through those calculations and you think to yourself, “Oh, well yeah, this is statistically relevant.” It’s probably not just because of the seasonality of that stuff. It may be statistical over the course of another year but it’s not helpful. That’s the root problem. It’s just not helpful for your business to figure out really what’s going on. I would not really look at AB testing at all.
I would probably look at other areas of your business and try and find places where you can really drive the business forward whether that’s content marketing or advertising. You could try various different advertising channels. You could try face to face meetings.
For this particular industry, it seems to me like it’s very much relationship driven and yes, there are certain lists and stuff that you can get on but having relationships with people who can recommend your services, that’s really what tends to drive business in a larger enterprise environment which is kind of what the Vendor Registry falls under.
Rob: I’m not sure how much I have to add to that other than it doesn’t sound like split testing is the way to go for you. You just need a lot of traffic to do it and it does take a lot of time. It’s easier to split test things like headlines, pricing page. I would not build out two versions of anything.
I think this is much more about talking to customers, potential customers and getting a small sample size but getting real feedback, whether that’s in person at conferences, or trade shows, or Skype calls, or emails, or whatever it takes. That’s going to be a faster and more effective way to try to figure out what to build next.
This is the conundrum of being a good product person. It’s figuring out what to build next. I think there’s a big element that your vision of what it should do is a big part of gut feeling based on your experience in the space. You take a method of landscape. Part of that in my opinion should not be the over riding part is talking to customers and getting ideas and getting a sense of where the market wants you to head.
I don’t think split testing is the way to go. You think about how we decide on what’s the next feature to build in Drip. We don’t build two different features and split test them. We make the decision. It’s based on a bunch of factors that we combine and have honed over the past couple of years. Thanks for the question. I hope that was helpful.
Our next question is from a listener who asked to remain anonymous. He says he’s been following the podcast for a few years, can’t get enough of it. He’s a self funded a B2B SaaS startup for about two years. He says, “I have dozens of potential customer interviews and have been quite involved in helping beta users and testing the product myself. It touches on a sensitive business process that impacts other processes so potential customers are on a certain level of configuration and they are very afraid of bugs. I’ve had a few bad experiences with some beta users who keep asking for improvements and never sign up for the product. To be fair, the app has had some bugs here and there as we were in a hurry to push new features. We may have gone too far in the opposite direction asking customers to sign up first a statement of work contract before doing any implementation. It is really slowing the intake of new customers even if they are enthusiastic after we show them the demo. Now that we can slow down on new features, I’m hesitating on the priority to pursue. I have a number of things we’re looking at. Do you think we should remove any barriers from the sales process for the time being, focus on removing all bugs, and send the message that the app will have to be used mostly as is or do you think we should make Screencasts, write tutorials, etc. to let users start on their own? I’m hesitant to do this because based on their objectives and on their existing processes, they will have to use the app in different ways. For what it’s worth, the cheapest pricing tier is $300 a month and the medium tier is $900 a month.” What do you think, Mike?
Frankly, I don’t think we need to stay within this. He said should I do this or that? I’m not sure that either of those is the right choice. I don’t think we need to stay within the boundaries he’s laid out.
Mike: I think this is an interesting question. The problem here is I think that you’re unsure of how to proceed and it partly depends on where your revenue is and I think at those price points, you’re probably at a point where if you’ve been working on it for a couple of years, my guess is that it’s probably profitable.
I think that given that, you probably want to put yourself in a position where the app is making enough money that you can pour additional money from the business back into it and reinvest those profits to build not just the business but also go back and address some of the quality issues or the bugs and stuff that are in there. That’s just going to take more resources, more engineering time, and to get that stuff, you need money. I would probably focus on anything that is going to be bringing in revenue.
It doesn’t seem to me like that’s doing screencast and tutorials. Those are things that are helpful for users but they’re not necessary to get somebody in the door as a paying customer. You can deal with a lot of issues like that that come up on an ad hoc basis or during on boarding sessions. There are ways to get around that without actually having to do the work.
Basically, do whatever that needs to be done in order to drive those sales through, if people need personal demos or hand holding during a personal walkthrough or something like that. You can use those as well. The price points, my guess is you’re probably talking to people directly for most of your sales especially if you’re going to do any sort of annual contract or anything like that. Those are the places where I would focus and then once you have that money coming in the door, then turn around and start deciding where that money should be allocated to help build the product in the right direction.
For people who are coming in, I think the interesting piece about that was that flip flopping back and forth between, “Oh, there’s some bugs. We should get them taken care of.” Versus going to the other extreme because people aren’t actually signing up for it after you go in and address the issues that they brought up. What I’ve been doing is telling people, “Look, if you sign up, then I will look at that as kind of a higher priority.”
I typically track feature request during a demo and I’ll write down some of these name or tag it on a bug in an open case inside my bug tracker and put the person’s name on it. But if they don’t sign up, automatically, it becomes a lower priority to me because it’s not a paying customer. They didn’t sign up for it. But if I get enough of those onto a particular case, then I can probably justify spending time and effort because then it looks to me like it’s impacting sales.
It doesn’t sound like you are tracking any of that information right now. You’re really just micro focused at the individual person who you’re looking to onboard. I’ll back off from that a little bit and try take more of a macro view to it and say is this a big enough problem that we should deal with it or is this something that we can just log and come back to in the future?
Rob: My sense is it sounds like you have a couple of issues. If you have bugs in the app right now, that’s the first thing you need to take care of. I would put the brakes on everything and fix those because if you get a reputation in this space, and it sounds like it might even be a small space where people know each other and are talking, if you get the reputation of being buggy, that doesn’t go away. It’s like your credit score. Once you jack that score, it is really, really hard, if not impossible to get that back. That would be the first priority of all this stuff that I would basically buckle down.
It’s kind of like having performance problems. It’s like we halt almost all feature development if we find that we’re running into performance problem because you just can’t let that stuff go. It’s only gonna get worse and it’s going to tarnish your reputation. As that’s in process, it sounds like you had folks who ask for improvements and never sign up. By improvements, if you mean bug fixes, then that’s fine. I would do that.
But if they’re asking for more features, something that I would do in the early days of Drip, is if someone asks for a feature, I would say, “Is this the one thing that you need us to implement to be able to use Drip?” If they said, “Yes.” Then I said, “Great. Sign up for a trial and we will have this implemented by the time your trial expires. If we don’t, I will comp your account until this feature is built.” We don’t do that anymore. Tens of thousands of users, you can’t. But in the early days, when we were scrappy, that’s the kind of stuff I was doing to try to get.
If someone had a list of 10,000 or 15,000 people, it’s going to pay us a couple of hundred bucks a month. That was a big deal and it sounds like for you, it’s totally worth doing. It’s interesting. I don’t know about a statement of work contract or any of that stuff. That to me, feel a little cumbersome and a lot of overhead but just having them sign up, put a credit card on file, is a step and you’ll find that some people will balk and they don’t sign up and that’s fine. That’s fine. They were never going to sign up. The ones who do are committed to it and then you implement their features. I just found that that’s a good way to do it.
Given your price point, personally, unless you have a lot of inbound interest, I would personally be hand holding and doing very much one on one sales. The fact that between $300 and $900, I’m assuming you have a higher end tier, your monthly average revenue per user is going to be let’s just say $400 or $500, $600 range. That’s a nice chunk of change. That is definitely worth your time or someone you hire’s time to handle, focus and get them started.
I would not tend to go towards the self on boarding at this point just because of the price point and the value. I think that the value the customers bring to your business is worth the time to spend especially in these early days, to do the learning and to handle everybody into the app. I hope that helps.
Our next question is actually not a question. It’s a compliment for us and the podcast. It’s from Alex Summerfield. He says, “I’ve been listening to your podcasts for about three years. I remember when I first listened to the episodes, just thinking about it, part of your intro really fit for me. I tried a couple of ideas but they never took off. After switching a couple of jobs and getting too busy to work on side projects, I finally got sick of my job and started consulting and working on a startup on the side. I listened to your latest episode and heard that just thinking about it part, and it finally hit me that I’m no longer just thinking about it, I’m actually doing it. I just want to say thank you for the impact you’ve had on my life. All the advices helped and I really enjoy hearing the updates on your businesses.”
Mike: Thanks for the compliment, Alex. I do think that it’s really hard to get started and I think a lot of it has to do with barriers that we encounter as we’re going up in the social environments that we either come out of or immerse in on a daily basis. Breaking away from the things that the people around you are doing is just really challenging, to be honest.
If you don’t interact with the people who are starting their own businesses, or entrepreneurs, or even doing software on their own, it could be very difficult to break the mould and people look at you funny and say what is it that you’re doing because you’re the oddball at that point. You’re weird. It’s nice to hear from someone like you who’s gone out there and actually started working on side products with the intent to move forward and start your own thing.
Rob: A couple more questions. Our next one is from Rob. He says, “I’m part of an early stage bootstraps startups company in the UK with two other co founders. We are between three to six months from launching a product and having any revenue. One of my co founders is pushing for job titles/corporate roles to be assigned like CEO, CTO, etc. Is it important to allocate corporate titles/roles? Is it best to get this sorted early in the life of a company or is it just a distraction?”
Mike, as you think through this, I think corporate titles versus corporate roles is two totally different questions so maybe we can tackle each of those individually.
Mike: I was going to mention that because when you’re doing customer development, it seems to me like CEO and CTO, when you’re talking to a prospective customer, you may think that that sounds impressive but for the most part, especially if you’re early on, you don’t even have a product yet, those titles, I feel like they detract from whatever it is that you’re trying to do because they say, “Oh, you’re the CEO of this company that really has nothing.” And you’re asking people for help. Versus if you are the CEO of a company that has a full blown product and it’s been in the market for three or four years, that has weight behind it.
That early on, I would just say founder or co founder. I wouldn’t even worry about those corporate titles when you’re talking to customers or prospective customers. They’re basically meaningless at that point. In terms of roles though, that’s what people tend to think about when they think of titles like, “Oh, the CEO does this. The CTO does this.” Really, internally, that’s where that matters but externally, it doesn’t.
You want to have a clear expectation of each other and what it is that you’re expected to do inside of the business. And then externally to your clients and customers, I would just say you’re a founder or co founder. I wouldn’t go into what it is your actual title is because it really doesn’t matter. But internally, you do need to be clear on what is your responsibility versus what your co founder’s responsibility is so that each of you know what they’re supposed to working on and when they should be getting guidance and input from the other person into the things that they’re doing.
Rob: I don’t have much to add to that. I think that’s a very good summation of it. There are certain things that are distractions. I found that using the phrase co founder is really helpful especially in the early days when folks know that you’re still being scrappy and doing customer development.
Last question for the day is about sending promotional emails to existing customers. It comes from Bruce. He says, “Thanks for the great show. I have a simple software product I’ve been selling online for several years. My customers all need to provide their email addresses so I can send their payment confirmation and so I can authenticate them when they log in to use my product. I don’t state on my signup page anything about what types of communications the new customer should expect to receive from me when they provide their email. I’m releasing some improvements and new features. Some of these improvements will benefit existing customer with no additional payment. Some new features I intend to sell to existing customers as add ons. Is it okay to email my customers to tell them about the new features? They haven’t given explicit consent to receive email from me. I noticed that whenever I send a SaaS part because I’ve received a lot of emails providers even though I don’t recall opting in to any mailing list. If you guys think it’s ethical, legal, or wise to send emails to my existing customers, would you recommend I add an opt in checkbox or some small print stating the customer is going to expect to receive occasional information/promotional emails and only send only send emails to customers who opt in or have had the chance to read the small print? Thanks in advance for your advice on this. This app is called countingdownto.com.”
I like the way he phrases it. There are legal implications and then there’s ethical. That seems a little strong but your own moral compass is how it feels. What are your thoughts on this, Mike?
Mike: I think we have to provide the standard podcast disclaimer that we’re not lawyers and you can’t rely on us for legal advice, especially given that this business is based in Canada so laws there are different than they are here in the US. Given that, my thoughts on this are that if somebody is signing up for your SaaS product, there are a couple of different types of emails that you could send to them.
When they purchase it and then you send them a receipt, that’s what’s considered to be a transactional email. They purchase something from you, you send them a receipt. That’s completely legit. You are almost expected to send that email and that does not fall under any sort of spam laws that I’m aware of. When you get past that and you start talking about newsletters, and product updates, and things like that, that’s where it gets into the gray area which I think that you’re a little concerned about.
If you’re running a SaaS, it seems to me like you almost have to have people on a newsletter of some kind or a product updates email list of some kind. That said, I would default to adding them to it but I would explicitly give them the ability to opt out at any time. Even if they are an ongoing customer, you might want to segment that list a little bit to give them a profile page that says only email me about product updates and include me in my newsletters. Two different options and then you segment your list based on those two things.
That way, if somebody wants completely out, and they only want the receipts from you, you can still send those email receipts to them. But if they also want to receive your newsletter and the product updates, you’re still going to be sending those to them. Again, just segmenting between those two types of people or if there are other segments that you want to include in that, I would do that but I would opt them in by default and them let them choose otherwise if they want to. That’s probably the way that I would approach it for that.
But again, there are obviously legal implications as well. As to what Rob said about the moral implications of it regarding your moral compass, if you sign up for a SaaS, you expect to get email and told like, “Hey, this is how this product can provide additional value.” I think what you’re probably seeing is when you sign up for new products, people are sending you a lot of onboarding emails. I think that those fall into that grey fuzzy area where a SaaS vendor could easily overwhelm you with a lot of email to the point that you start to consider it spam more than anything else, especially if you decided to not use the product.
There is a difference between those emails that are being sent as onboarding emails where you don’t have the opportunity to opt out because some vendors will send those and you can’t opt out. That’s part of their on boarding process. Depending on whether you allow them to opt out or not, that factors into it.
Rob: Yeah. In the US, CAN-SPAM says if you have a commerce relationship or customer relationship with someone that you can send emails to them related to the business transaction and I think otherwise, there’s always this grey area. It’s like if you read the verbiage exactly, you could interpret it one way or the other. But in general, you do see SaaS apps. If you sign up, they don’t explicitly make you opt in and they send email and people are not being investigated by FTC or FCC or whoever would investigate that. I think the precedent is that this is generally considered a legal thing.
Like Mike said, your moral compass is going to vary. There are people who will say, “Oh, I should explicitly opt in for every single email you’re going to send me.” People get so far into the protection of your email address and your inbox and that no one should ever email you and then on the other end of the spectrum, there are spammers. You gotta ask yourself what’s it worth. There’s some business value to you.
People genuinely do generally really want to hear about feature updates, specifically feature updates to the app. Absolutely! Who doesn’t want to hear that? It’s pretty rare that people unsubscribe. Like Mike said, you should give them the opportunity to do that. Even if you’re sending things that are up sells, my guess is that’s going to be pretty valuable information for people because if it’s an up sell, it’s likely going to have some value that a good chunk of your list is going to at least be interested in and interested in hearing about.
Everything you’ve mentioned in terms of content, it’s not like suddenly you’re taking customers and just starting sending random blog posts with some content. These are really applicable to what they’ve signed up for and what they’re paying you money for. I don’t personally have any kind of issue with you doing that. It sounds like you’re not going to be overly promotional based on how careful you’re thinking about this, which some people don’t do.
Anyways, that’s my take on it as well. It sounds like Mike and I are pretty much in line on this. I think that’s the general consensus of the industry and where it’s at today.
Mike: Yeah. Coincidentally, it’s the first that we’re recording on and I’m getting ready to send out an email to the people who are current subscribers for Bluetick to tell them like, “Here’s the list of all the different updates that have been added over the past four to six weeks that you might be interested in hearing about or maybe you didn’t know about this feature or this was something that was requested by a couple of people.” Just to let them know because there’s a difference between features that a specific person requested and you can let them know when those things go in but you still have to let the rest of the customers know that that new feature has been added. Otherwise, they won’t know anything about it.
I’ve seen a couple of support requests come in and say, “Hey, is it possible for us to be able to do this?” I’m like, “Yup. I actually just added it a week ago and I haven’t gotten around sending out basically the product updates over the past month.” I do think that it’s a good practice to get into. Just be sending those out especially if you’re running a SaaS where it’s regularly changing and the expectations of the customers are that over time, that SaaS app is going to get better.
That matters a lot more I think in the early stages than when you’ve got a late stage SaaS where it’s like you’re not really adding a lot of features. You’re adding scalability and things like that. But if you’re adding features at a very fast pace, it’s probably best to email them on a monthly basis and say, “Hey, here’s all the new things that are going in that you’re getting essentially for free just for being a paying customer.
With that, I think that wraps us up for the day. If you have a question for us, feel free to call it into our voicemail number at 1-888-801-9690 or you can email it to us at firstname.lastname@example.org.
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Episode 339 | Updates on Bluetick, Drip and Other Madness
In this episode of Startups For The Rest Of Us, Rob and Mike give updates on Blutick and Drip. Mike talks about some progress he’s made as well as his current MRR with Bluetick. Rob gives his update on Drip continuing to scale and fill new positions.
Items mentioned in this episode:
Mike: In this episode of Startups for The Rest of Us Rob and I are going to be talking about updates on Bluetick, Drip and other madness. This is Startups for The Rest of Us episode 339. 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 1st product or you’re just thinking about it, I’m Mike.
Rob: And I’m Rob.
Mike: And we’re here to share experiences to help you avoid the same mistakes we’ve made, what’s going on this week Rob?
Rob: Well I’m back to feeling really good about Drip because for the last maybe month, prior to last week, which I talked a little bit about it. We just had you know scaling issues right, it’s like stuff comes up, you don’t know if it’s database, you don’t know if you can add more horsepower to it, code implementation, you know what it is. So, different times of day certain ques would back up and it’s like we’re shipping a lot of features, the team is kind of firing on all cylinders right now and I feel like we’re the most productive we’ve been in ages perhaps ever,
Rob: I mean just given that the time size is so much larger, we’re able to just ship stuff faster and yet, like every week was ruined for me because there would be this delay or whatever, this page load is slower, just whatever that like makes me feel like we’re aren’t living up to the promise that we make to our customers, but we turned like a big corner last week with it and I just feel great about everything. So that’s my week.
Mike: Yeah, I know what you’re saying. I think the best analogy, I might have heard this someplace but I kind of feel like I thought of it on my own at 1 point, is like when you’re working on a SaaS app like everything is in motion while you’re working on it, so it’s almost like being a heart surgeon like you have to make sure everything stays up and running while you’re still working on it.
Rob: Totally, that’s right, Reid Hoffman the founder of LinkedIn said building a startup is like jumping out of an airplane and assembling the parachute on the way down right, because you kind of in free fall and you’re burning through cash and the analogy works really well for running a SaaS app and having to do kind of performance improvements, refactors, anything like that that impacts a lot of things and this is where unit testing is such
Rob: a nice scaffold right, unit testing is like having good test coverage, it’s kind of like jumping out with the parachutes already half made or maybe the parachute is, I’ll just stop there because that was a really dumb analogy anyway.
Mike: I was going to point out, I wasn’t sure where you were going to go with that.
Rob: You’re like you’re really taking this too far, let’s ditch the parachute thing.
Mike: That’s almost like my analogy against a heart surgeon.
Rob: How about you, what’s going on this week?
Mike: Well minor champagne moment, I’ve recently crossed the 1,000 dollar a month MMR with Bluetick, so things are going in the right direction. Of course, because it’s the beginning of the month you look at the statistics for growth and stuff like that and they’re just tanked at the bottom which because it’s the beginning of the month instead of the end.
Rob: I know you’ve got preorders up front but this is active customers right, these are people that are actually using it and not people who have paid you and are planning to use it.
Mike: Yes, these are people who have paid me and are currently using it.
Rob: Sounds good.
Mike: Yeah, most of the people I had who had come in as preorders and then converted over into paying customers, a lot of them I had essentially applied credits to their account to give them credit for that preorder to some extent, mostly to kind of boost them over from being a preorder and kind of having an indefinite beta period over to like being a paid customer and those payments are I think going to be starting to kick in this month but even with all of that it’s still over 1,000 dollars a month and my goal for this month is to double it but we’ll see how that goes.
Rob: Wahoo, a 1,000 bucks a month man.
Rob: Are you going to Disneyland, are you going to go out and buy a new car?
Mike: No, I had a beer last night, that was about it.
Rob: Nice, that was your champagne moment, was to drink a beer.
Mike: Yeah, champagne, beer, I’m sure somebody’s going to have a coronary over that analogy.
Rob: Nice, do you feel like the pace is picking up in terms of how quickly you’re adding customers?
Mike: It is and that’s both intentional but also as a byproduct of people talking about it because they are
Mike: using it and they’re having good experiences so they’re turning around and referring other people to it and saying hey I’ve been using this and it’s been working really well for me, that and coupled with some of my outreach efforts, they’re either going on podcasts or talking to people who are on mail lists. It’s a combination of things but I’m definitely pursuing things a lot more in that regard as well and it’s unfortunately a juggling act too because there are things that come in and people say hey, can it do this or can this be modified, can we add a feature or a function over here that does X, Y or Z and it’s prioritizing those against all of the other things that are going on, it’s really pretty hard.
Rob: Yeah, that’s how it always is right, especially in the early days man, it’s tough. That’s why starting on your own and really being the single founder is such a hard road to go if you’re going to build an app like this that’s not in a small niche market where you can move slow and there’s no competition and you can kind of trudge along but building something like this, where there is competition and you’re going to have to be keeping up, you need to get to the place where you’re keeping up enough revenue to basically hire somebody
Rob: soon and essentially, Justin Calcian says hire your cofounders, right that’s what he does now. He doesn’t have cofounders but he hires really early because he races around and he has a little he can back it with and he’s able to give our less equity but he brings people in very early, you don’t see him building something solo or alone because there’s just too much to do when you’re launching something that you want to see grow pretty quickly and it’s in a big market.
Mike: Yeah, I meant there is definitely things that are kind of falling on the floor right now, I mean 1 thing that’s been sitting on my to do list for well over like a couple of months at this point has been working on the sales website and even people who come through the sales funnel when I start talking to them, the biggest chuck of questions that they have is kind of what does this actually do, because the website doesn’t explain it very well and really the website is just 1 page, so there’s not a whole lot of explaining that it can do on that 1 page, it doesn’t provide use cases or examples or screenshots really, I mean there is very little there to go off. Most people are really reliant on what they’ve been told by other people or what they’ve heard about either from me or from other places where I’ve
Mike: done like a podcast interview or something like that.
Rob: You know it’s really cool when you say that some of your new customers are coming from other people using like word of mouth was a big driver in the early days of Drip, not as much with hit tail but there was some but if you have that already, like if you have that when you only have low double digit number of customers, that’s a good sign, right it’s a really good sign because as you grow that’s just a snow ball that allows you to continue kind of leveling up and when you add 100 or a1,000 if you still get that same percentage of people, you’ll always be lower as time goes on right but if you can get folks talking about it, it’s a really nice way to be involved in every conversation right, you always want people to say remember how like infusionsoft and Ontraport, it was always just the 2 of them and just by nature of that fact Ontraport which is nowhere near the product that infusionsoft is, you know had all of this growth and then I remember when Drip started to be part of those conversations when they would say of infusionsoft or Drip and I would like see it, I would say it’s
Rob: not in every conversation about it, but I would see it in these online forms, these threads and then get thrown out and I remember when that started happening and it was gaming changing because you just become another viable option rather than a tool that no one has heard about.
Mike: Yeah, 1 of the things I do, I think it was 1 of the 1st questions that I ask in the survey when you go to Bluetick’s website and ask for an invitation code, 1 of the questions in there is where did you hear about this, so from that I’m finding out exactly who people heard about the product from, so it’s nice to be able to track it back to people who either placed preorders or are current customers, I even have 1 customer who like has a bunch of customers that he works with and he’s going to start recommending it to them because he’s had such a good experience with it and they wanted to use it internally 1st and things have gone well in that respect, so now they’re turning it around and going back to their customer base and say hey let’s get you on boarded with this so that we can help you more. So, what about you, what else is new?
Rob: Well, you know as I talk about most weeks most of my updates involve scaling
Rob: Drip and hiring people, right. That’s kind of a big focus of mine now, there is some other stuff, I might get into it later depending on how much time we have today but I feel you know we have been pretty consistently, just we’ve had an open job, at least 1 job opening since we got acquired and most times we have either 2 or 3, so we’re constantly, we’re hiring other new front end like IUIUX, new rails folks or new people to help with scaling and I feel like I’m kind of in the groove of hiring at this point, like I’ve gotten pretty good. You know it’s kind of this skill that you go in and out of because when you’re not hiring you forget how to skim through a resume really quick, how to do a quick phone interview, how to do a quick phone interview but we’ve just been doing so many recently that I feel like I’m kind of in the groove of it which I don’t know that I necessarily want to be, hiring people is not an aspiration of mine, like I think we’ve always talked about like my book start small stay small, the small was about head count, not about revenue right. I always want to grow revenue but it’s like I want to keep head count down, but
Rob: in this case it’s even just looking ahead as we’re Xing, 2 Xing, 3 Xing every so often it’s pretty frequent that we’re doubling our customer base, we just have to hire a little bit ahead of where we actually are, as well as like I said earlier, being in a competitive space we need to continue delivering features, which as we’ve talked about in the past is harder and harder to do the bigger you get because you spend so much time just maintaining what you already have right, making sure the database is ahead of everybody’s need and the code base and the ques and just all of the stuff that you’re running. So yeah, I guess to summarize we’ve been hiring a lot, I’m hoping we can slow down here pretty soon, we’ve found some really good candidates and I guess it’s getting in the groove of it. I do like doing a bunch of hiring and stopping so that I don’t have to constantly you know being doing it and can kind of focus on other things.
Mike: So, is that going to be the focus of your next book is how to hire people at scale?
Rob: Oh, my gosh seriously. No, it will
Rob: definitely not, and like I say it’s super cool when you get a new person on board and you get them up to speed and they start contributing and like Derek and I looked at each other and we’re like we are shipping a lot of features and it’s because there’s all these people you know doing things that used to be either in our lap or we just pull, hey we have a scaling issue so we’d pull 1 developer off of something and now we don’t have too, like we have dedicated people who that’s all they’re doing and I keep saying we’ve hit our stride. I hate to keep using that analogy but it really does feel like we’re getting the right people in the right roles and it’s kind of a good feeling when you do slot somebody in and you see them start shipping things, you’re like man I’m really proud of what we’re putting out even we’re not doing all of the work anymore because you think back when you’re crafting this software or you’re crafting the UI, with Drip that was really all Derek right, it was he and I deciding what to build and me handling everything else but for so long it was all bottle necked by 1 or 2 people’s bandwidth but now with the growing team it’s neat to see that
Rob: we’re able to maintain the efficiency and still continue that hiring more people actually means we can push out more software rather than in other companies I worked at where hiring more people actually makes things worse, you know it like slows everybody down.
Mike: Yeah, I definitely hear what you’re saying. Do you find that as you are adding more features that like the individual features that you’re adding tend to be more invasive throughout the entire course of the apps, so it’s not like a little surface thing that you can toggle here or add over there, it’s like you’re adding this feature that needs to be added throughout a large part of the pipeline of the applications?
Rob: You know that doesn’t come up too much to be honest. I think in the early days it did because you’re just trying to get to that point where you built something that people want, but I think these days our product is so much more mature that there are things we add now and again that impact everything but our architecture is really solid, so things are broken out into their own subsystems and such. While there certainly are some that come through for
Rob: the most part a lot of these things seem to be more self contained I’ll say, I mean it may impact 5 files or worst case 10 files and you have to go through all of these layers of something and those are the ones that get a little scary right because you’ve got to make sure you have unit test coverage like crazy on that but yeah, I would imagine you’re probably in that boat though right where kind of everything you add it’s like oh gosh I have to go rearchitect this thing in order to do it.
Mike: Yeah, and that’s kind of why I was asking because I find that a lot of the changes that I’m making tend to be stuff that have to be tracked down or tracked all the way through from the front end all the way through the API and then into the service layer and the security layer and then into the database and it gets to be, I don’t want to say frustrating but it takes a lot longer to get some of those things done than I would like especially because of all of the maintenance and ongoing requests or butt fixes and things like that, there are just tweaks and adjustments that kind of invade into that space while I’m trying to get those things done, it’s
Mike: just, it’s honestly like the juggling act right now is really pretty hard, so I was just kind of curious of whether or not you still ran into those things, so maybe there’s light at the end of the tunnel for me.
Rob: Yeah, yeah there is but it takes a while. I remember we refactored Drip, like major database refractor probably twice before we got to launch right, so Derek broke ground on code December of 2012 and we really launched to the world in November of 2013 but we had kind of our 1st group of 10, 20 customers coming on as early as June of 2013, so that was 7 months in and I think within that 1st 6 months before we really had people he had to do a massive rip apart of things we just had made decision to couple and they shouldn’t have been coupled and then there was another 1 when we launched, automation right so that was early 2014 as he was building automation that was just painful, it was like 2 months of standing still and then he built automation, once he had it done the automation stuff was actually not so hard to build but it was like we have to rip
Rob: separate these 2 database tables and you know as you’re falling down making your parachute and it was gnarly but after that like once we hit there, we’ve had limited need to do that because I think the building blocks got in place and the product was solidified. Now us marking automation and we’re not going to add on shipping cart landing page, affiliate marketing management, you know what whatever else, that would all I think impact some of this other stuff where as you’re still figuring out, like where I would guess at your stage, we were still figuring out I should say, so really trying to figure out should I build this feature, what is this product going to become, what is the vision for the product and is my vision still aligning with what the market is asking for and that makes things very fluid, I think is probably a good word for it.
Mike: Yeah, I’m having the same types of general conversations with most people when it comes to either features that they want implemented, like the road map that I have in my head, it’s obviously different than I originally started out with but over the past several months it really hasn’t changed a lot and most of my time is spent trying to
Mike: get those things done, so that’s more of the challenge, it’s not trying to figure out what to do, it’s figuring out what order to do it in and how to get it out as quickly as possible without wrecking things along the way because like you said, there’s that issue where if you go to roll out a new feature or a new piece of the code, if it touches a bunch of different pieces of the application and you don’t have as many unit test around it as you would like than it’s a little scary to hit that deploy button. So most of the time what I do is I deploy it out to my development server and I just try to beat on it a little bit to see like can I break this or is there any obvious things that I might have missed that may not be covered by unit tests because the front of the UI, like there’s very little unit tests are on the front end stuff, like the services and all of the back end stuff, like there is unit tests there but the front end is not tested well but that’s also because I know that the front end is changing a lot, so it’s much harder to put something in place where I’m just going to have to change all of those things anyway.
Rob: Right, and
Rob: you know the front end unit testing, which I guess now becomes what integration or system testing, there’s like a different name for it when you’re going all the way from the top down, that’s stuff runs super slow right and I consider it a more advanced method of testing, not a bad thing to have for some critical paths, I think it’s just my opinion, others may disagree with me but it’s like your sign up flow yeah you should probably have, it would be nice to have a nice UI test for that and maybe sending a broadcast in the sense of marketing, I mean it’s your basically fundamental things but A I would not be testing settings pages or like little corners of the apple out that people don’t use and I’ve heard of folks who separate those front end tests that hit that UI into a completely different test sweep because they can take 30 minutes to run or an hour to run, because they are so slow because they have to speed up browser instances and click on things. So, I don’t know, I would say at this point you will be better off annually QA your stuff and then just having unit tests below the surface, that’s probably what I would have. I don’t think I would spend a bunch of time doing UI tests yet. I actually don’t think the UI
Rob: testing suites are that still, they’re still not that great.
Mike: Oh, they’re terrible.
Rob: I know, I was using Selenium in 2008 maybe, 2007 to 2009 in there to test on an invoice and it was horrendous and I’ve heard there’s like another layer now built on top of Selenium and I heard it’s still not that great.
Mike: Yeah, I poked around it a little bit but realized that there was just too many things changes to really make any sort of difference and it wasn’t worth going down that road. I mean the API and stuff gets tested and some of the different layers but you know once it’s passed that, I mean the front end of the app, it’s all this massive Java script application because it’s all written in angular so there’s not much there other than the smoke tests in that if I make a change on the front end UI I can be reasonably assured that the APIs and stuff underneath are working but that’s no guarantee that if you click on a button it’s still going to do what it’s supposed to do.
Rob: Sure, and that’s where I think about having code that doesn’t have a bunch of side effects on it or places on it so if you’re working in a
Rob: certain part of code you know that you don’t have to go test all of these other things right, that you can test this 1 thing and be fairly confident that you’re not going to break something in the UI and do a cursory test as you deploy it and then just let your customer finds your bugs, no I’m only kidding. That’s like the worst, some of our competitors do that and it has tarnished their reputation.
Mike: Yeah if I can find and fix a bug before the customer ever sees it or knows that it was an issue than that’s the probably ideal scenario but it’s still hard, I mean I’m just constrained on resources and time and speaking of time, things have gotten even worse for me because as of 3 days ago my wife acquired a larger fitness studio here in town, so commence schedule craziness at this point. It’s just her schedule is all over the place and obviously, mine is pretty swamped as it is, so just kind of trying to overlap enough so that we make sure that the kids are taking care of and dinner is ready and all of the other stuff that needs to be taken care of
Mike: is done and out of the way is really been super challenging in the past couple of days.
Rob: 2 people running business in the house, that is tough. I can imagine that is really complicated and having flexible schedules sounds great until you realize that like 2 people with flexible schedules is chaos, like Sherry and I have run into that in the past where it’s like I think I have a flexible scheduled but like you said, you actually have kids and you have like some other responsibilities to get kids picked up and get dinner made and this kind of stuff, so I totally get it.
Mike: Plus our youngest was sick yesterday, so it was either yesterday or the day before, 1 of the days this week he ended up staying home from school and then last night he had a fever and we thought he was going to be home again from school today and it turned out he was fine, but it’s hard to juggle all of that stuff and then plus with her new business, I mean it’s a larger business so she’s got multiple contractors that she didn’t have before and there are scheduling issues, and moving to a new space
Mike: and new software and all of this other stuff that goes with it, it’s a pretty large learning curve is what it comes down too.
Rob: Yeah, I bet man. Well good for her, big congratulations to the both you I guess for her acquiring that studio, sounds kind of cool. I bet that’s a good move for her to kind of up her game, she’s leveling up, stair stepping up if you will, boom.
Rob: how involved are you in her business?
Mike: You know I help look at the business financials and stuff early on but beyond that stuff and just kind of verifying hey is this a good move to make, I really try to kind of stay out of it. Just kind of point out here’s something that you might run into or here’s something else that could be an issue or just don’t worry about this over here, but just kind of try and stay aways from it. I mean that’s kind of her thing so I’m not trying to get in the way, is really what it comes down too, trying to stay out of the way.
Rob: Yeah, that makes a lot of sense. So, speaking of all of the scheduling madness and how to juggle that, Sherry and I made the decision early in the year actually, we were talking to
Rob: someone who said they had an au pair and an au pair is someone who is typically young woman who comes from oversees and wants to come to America and is basically like a live in nanny. So, we were talking to someone who had an au pair and said it was life changing and said it was the best decision ever and so I started noodling on it and we realized that we were both going to MicroConf and I was going to be gone for a week or like 6 days and Sherry was going to be gone for like 4 or 5 and every time we go away for overnights A, it’s expensive, really expensive to hire someone to watch your kids overnight and then there’s always they don’t know your routine and they don’t know your house and there’s just so much to communicate that it’s super stressful. So, we’re just like let’s hire a live in nanny, like let’s see if we can find essentially a local au pair, you know, someone who Sherry was like a young college student would be prefect right, and so we did. So, I interviewed, I don’t even know a dozen people here in Minneapolis and right before MicroConf, like the week before she moved in and she lives in, we have like a basement living suite, it has everything except
Rob: for a kitchen right, so it has a full bath or a 3 quarter bath and then it has laundry and a bedroom and then we share the kitchen but it has been game changing man and for exactly the reason you said, it’s like sometimes Sherry and I just are 30 minutes off of where we’re not going to be there and the kids are going to be there or sometimes we need to be in 2 places at once or Sherry goes out of town, she went out of town for like 4 or 5 days to Austin for a yoga, some training in aero yoga and it’s like during that time I could handle the kids but they get on the bus at 9 15 in the morning and so that would put me to work at 9 40 and now it’s like you don’t need to be around that much to watch the kids because they’re both in school but I can leave at 8 30 or whatever and someone is just kind of hanging out with them for 45 minutes, so it has been game changing for us.
Mike: Yeah, I can imagine. I mean that’s something that we’re kind of struggling with right now is just trying to manage schedules and it’s just really so early on, but you know hopefully that will straighten itself out but I would love to have a nanny.
Rob: I know, it’s something to think about long term
Rob: man, I mean especially 2 people running businesses right, the idea is your schedules are going to be gnarly and in the long run the business should generate a lot of cash, right. I mean it should turn out more money than you would make with a salaried employee and with those 2 things in mind it’s like all right, then we outsource as much as we can and that’s you know, if you’re still mowing your own lawn or snow blowing your own snow I think that honestly, I think that’s not a good use of our time as entrepreneurs. We moved to Minneapolis and 1 of the 1st things that I did, we already had a lawn service but I was thinking like I’m not shoveling walks and it’s not because I’m above it, I used to do it but now the time versus money trade off is insane. So anyway, that’s kind of my soap box about outsourcing stuff and of course I’m not talking about outsourcing someone raising my children of course, I know that’s probably the joke or what folks are thinking, but it is like outsourcing driving them from school to the house, or outsourcing our live in nanny like the kids go to bed at 8 or 8 30 and so she’s hanging out in her room reading and
Rob: Sherry and I are like it’s 8 30, we’re just going to go out for 2 hours and like have a late dinner and have drinks and talk and you don’t have to hire somebody, there’s no clock running where you’re paying somebody 15 bucks an hour while you’re sitting down the street at a restaurant. I think that about wraps us up for the day, if you have a question for us call our voice mail number at 1 888 801 9690. No one ever calls us anymore.
Mike: They don’t love us.
Rob: I know, we get like 1 call every 2 months. I tell you what if you want us to answer like go to the top of the queue of questions, just call it in because we get so few of them and they’re fun because you get to hear the person’s voice, you can remain anonymous, you don’t have to say your name or your URL if you don’t want too but it’s kind of nice to get those every now and then. You can also email us questions at questions at startups for the rest of us dot com. Our theme music is an exert from We’re Out of Control by Moot and it’s used under creative comments. Subscribe to us in iTunes by searching for Startups and visit Startups for The Rest of Us dot com for a full transcript of each and every episode.
Rob: Although you know what Mike, did you hear that our transcription service again, this is like the 5th 1 we’ve used, they just like disappeared. I know, this happens like probably once a year. I seriously think, we’ll we’ve been doing the podcast for 6 years maybe, 5 or 6.
Mike: Something like that.
Rob: And I literally think we’ve gone through more than a half of dozen of these.
Mike: Are we at 7 now, 7 years?
Rob: Are we? Was it 2010?
Mike: I think so, yeah it was.
Rob: Gosh, dude we are old.
Mike: I know, our podcast is older than most businesses who listen to us.
Rob: Yeah, I know our podcast is older than a lot of children. All right, so anyway transcription service I think Josh, our editor is looking for 1 right now, but it’s just funny how these things just come and go. I guess it’s just such a commodity you know, it’s tough to stand out.
Mike: Well I think that’s the issue with all of them and I think that’s why they come and go because you get the transcriptions and they go for a while and they have a really hard time raising the price because most of them tier their pricing
Mike: in terms of how quickly you get it, like oh if you need it in 24 hours this is what it will cost and it’ll be some outrageous number and then it goes down if you don’t need it for like a week or so and that’s the issues is that there’s that race to the bottom in terms of getting it transcribed and I think that most of them just can’t make ends meet and it’s not just because they don’t have enough business but it’s because they’re not able to pay enough for those people and the business just kinds of implodes at some point.
Rob: All right, back to the outro here. Visit Startups for The Rest of Us dot com for a full transcript of each episode. Thank you for listening and we’ll see you next time.
Episode 260 | What is the One Metric That Matters?
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the one metric that matters. The idea of focusing on one metric at a time, the metric that is helping move your business forward.
Items mentioned in this episode:
Mike [0:00:00]: In this episode of “Startups For the Rest of Us,”
Rob and I are going to be talking about the one metric that matters. This is “Startups For the Rest of Us” Episode 260.
[Theme Music plays]
Mike [0:00:16]: Welcome to “Startups For the Rest of Us,” the podcast that helps developers, designers and entrepreneurs be awesome at launching software products. Whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob [0:00:23]: And I’m Rob.
Mike [0:00:24]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week Rob?
Rob [0:00:28]: MicroConf 2016 in Las Vegas, the dates are set. We signed a contract, although we haven’t received the counter-signed as of today, but as far as we know, everything’s in place. Las Vegas, April 3rd through 5th. So if you’re interested in hanging out with about 200 of your closest founder friends, a lot of bootstrapped founders heading over there out in early April. Go to MicroConf.com, enter your email address. The tickets every year sell out way before they make it to the open market. So if you are interested in coming, you want to get on the list.
Mike [0:01:01]: You know, it’s always a little disconcerting talking to people about the dates before we have that counter-signed contract.
Rob [0:01:06]: I know, I know. I’m such a more conservative in terms of stuff, and I like to have everything signed and known, but boy, we’ve been talking to the hotel for months and the odds are pretty good it’s going to go through.
Mike [0:01:17]: Yeah, I think I even remembered that there’s a clause, kind of early on that they kind of throw in there that just says that if they kind of offer us right of first refusal. So if somebody else comes in and says, Oh, we want that date, they have to come to us first and offer it to us, or at least try and get something signed. But because we don’t have a counter-signed contract, I guess it’s, I don’t know, I guess it seems less official.
Rob [0:01:39]: Sure. Well it is, it’s not legally binding at this point. So feasibly there could be a screw up at some point, where they get our signed contract and go to hand it to whatever the VP in charge of signing contracts, and someone else hands him one for the same dates, and they’ve just totally screwed up. It’s within the realm of possibility. But knock on wood, this is what our eighth or ninth conference? And we haven’t ran into any major issues like that. How about you, what’s going on?
Mike [0:02:02]: Well, I’ve been doing a little bit more customer validation on the new idea I’ve been working on, and that’s been going well. I’ve had a couple more conversations this past week. And right now, something else I’m working on is I’m testing whether or not it makes sense for us to move Founder Café off of the Communifire platform and onto Discourse. So I don’t know how that’s eventually going play out, but so far it seems to be going reasonably well. I don’t know all the details of it. It’s kind of the unfortunate part. I know about half of it, because I don’t know the Discourse side of it, or Rails or Postgres. But I’ve got all the Communifire stuff that I’ve been working on. I’ve been working with a contractor to help with the other side of things. And we’ll see how things work out. I’m not real sure it.
Rob [0:02:45]: All right, cool. You mentioned that you’ve been doing a small amount of validation for your new idea. How come so little? I would imagine that you’d be fired up, cranking away on it.
Mike [0:02:55]: So what I did, when I was going through my validation steps, was every conversation I was having with people, I would basically just take a ton of notes during the conversation. And I’m starting to get, probably more towards the end of my list of people that I’m talking to, and I’m starting to hear the same types of things over and over again. So I’m going back through and I’m probably having less conversations now than I have in the past couple of weeks, but it’s more because I’m sifting through all that data I have to try and find overlap between different people and figure out exactly where to go. And I’m at the point right now, where I’m probably going to start – I am at the point where I’m starting to kind of draw up designs for what it’s going to look like and then take those designs back to them as kind of a double check.
Rob [0:03:37]: Is that your next step?
Mike [0:03:38]: Yeah, that’s what I’m working on right now is, as I said, just sifting through the things that they’ve told me, figuring out where those overlaps are and seeing what the lowest common denominator is that I can put in front of them that they’ll say, that they’ll still continue to say, “yes, I’ll pay for that.” And then kind of get the commitments from everybody to move forward.
Rob [0:03:55]: What’s your ETA on doing that?
Mike [0:03:56]: I’d probably say, I started working on the designs this past week, and it’s taken longer than I expected it would to go through some of those designs. So I want to say one week, but I’m guessing it’s probably going to be closer to two or three.
Mike [0:04:58]: Cool. So this week, what we’re going to be talking about is the one metric that matters. And this is inspired by a couple of articles that I’ve come across online, one of which is from the Kissmetrics blog, and the other one is from leanstack.com, and then a third is from the leananalyticsbook.com. And all three of these articles refer back to the one true metric that matters. And essentially the idea here is that you should only focus at one metric at a time. And that metric is the one that is supposed to be moving the needle in your business. And we’ll link up all three of these articles in the show notes. But again, going back to this point, the idea is that you can track other metrics, but there’s one that’s going to be the most critical to you, which is going to depend a lot on the goals that you’re trying to reach at that time. So for example, the one key metric that I’m tracking right now is the number of prospect conversations per week. And because I’m kind of moving into the design phase, that’s probably going to change. But that’s the one metric that I was tracking over the past three weeks.
Rob [0:05:55]: And for me, I haven’t given it any thought in advance of recording this episode, and I guess we’ll see as we go through this if mine fits this criteria because I know we have some kind of does and don’ts of how to do it, but I would say it’s MRR for me. And so you might look at that as MRR growth, how much did it grow this month and is it going to grow more next month than last month. But really the one I look at is just MRR since it is a recurring metric itself, that’s what I have tended to focus on. And I think if I were to commit, of course, there’s everything then falls below that, right, of I could look at the trial count for the past 30 days. I could tell you if we’re going to grow and by how much at this point at the trial. The paid conversion and what we’re going to turn out and the upgrades and all that stuff. But the real focus that all feeds into, MRR.
Mike [0:06:39]: So the first thing we’re going to talk about is why? Why is it that we’re only looking at one particular metric? And the first thing to keep in mind is that these metrics encourage focus. If you only have one metric that really matters, then you can essentially ignore everything else that’s going on, whether – and in your case, for example, you’re tracking MRR and that’s the one metric that matters the most, then you can essentially ignore all these other things like the conversion rate and the number of visitors to your website. A lot of those things can just go right out the window because they don’t necessarily matter. And sometimes these metrics will play into one another and influence each other, so that’s something else to keep in mind when you’re looking at these metrics. And it’s especially important when you’re looking at something like MRR because all those things do essentially influence MRR, but not directly.
Rob [0:07:26]: Yeah, I would agree with that. I mean, I think being able to focus on one thing and not be distracted by trying to chase after a lot of things all at once is going to be a good thing. One point, early on, when Noah Kagan was building AppSumo, I had talked to him and we were talking about kind of what you’re focused on, it was like focusing on one thing. And at the time, I think I was doing, it was early in HitTail, and I was talking about, yeah, it’s just MRR I was focused on. And he said, I’m focused on growing my list. He said, it’s the number of subscribers total and the number of subscribers we’re adding each week or each day. And I remember thinking, oh, how interesting that he wasn’t focused on – there was not, he wasn’t focused on revenue, wasn’t focused on profit, wasn’t focused on deals per month, there’s a bunch of other things that you could look at, but at that point he knew that to get where he wanted to go, he had to build that list. And that’s kind of why I look at MRR as SaaS founder, is that to get where I want to go, I need to get that to increase. Now there’s a bunch of ways to do it, but it does give you focus. The other thing is it tells me what not to look at. As an example, I don’t, at this point, when we’re in heavy growth mode, I don’t look at profitability. Now, we are a profitable company, but I’m not measuring my success based on how much cash we can make in a month on a net basis. I am looking at that growth number as long as we are not doing stupid things like paying more than our customers’ lifetime value in order to acquire them or something like that. If you keep that in mind, I think that focusing on that one thing and then looking at all things that lead to it is a good way to go.
Mike [0:08:49]: And that’s the second on the list of why you should be looking at just one metric, because it helps narrow the field of things that you need to pay attention to. And even if you can’t pick just one, if it really boils down to like two or three, then at least it’s eliminated a lot of the other things that could potentially be distracting. If you’re looking at too many of these different metrics, essentially what happens is it just becomes noise, because it’s hard to get everybody to look at the same thing at that particular moment. If you have everyone looking at the same thing, then what it does is it helps create accountability for everyone. Everyone’s all focused on the same goal, and it becomes very easy to relate the different things that people are working on to the projects or the tasks that other people are working on.
Rob [0:09:30]: This also creates accountability for your team because folks can kind of focus on a single metric and then all be working towards a higher level metric. When I say that, to come back to the MRR example, that as a founder of a SaaS company, that’s what I’m looking to grow. But perhaps the person sitting next to me is working in marketing, her goal may not be to grow MRR directly. Her goal may be to drive more trials. I know that is going to feed towards the company goal of increasing MRR. But then she doesn’t have to look at her job and say, boy, how did I myself increase MRR this month? She can just say, I know I drove this many trials and directly measured that based on her efforts, so I think that having a single company goal as well as individual goals for each person or kind of individual metrics based on what they’re working on that they can directly influence, that all lead up to that company-wide goal, is I think a good way to do it. Or it’s at least something that we found success with at Drip.
Mike [0:10:24]: It also encourages people to kind of experiment within the guidelines of that because you can always look at something that is not necessarily related to that KPI and say, well, I’m going to do this A-B test over here. And that could be very well be optimize a specific part of your sales funnel, but it’s not necessarily related to your goal. And it’s not to say that doesn’t help the business in some way, shape and form, but if it’s not what you’re focused on, then essentially what you’re doing is you’re spending time improving something that isn’t directly related to the company’s current goals. So the next part of this process is figuring out which metric matters. And essentially, there’s four tenets of how to pick the metric that does matter. There are four pieces of this. There are things that you know, which are essentially facts. There are things that you don’t know, which are questions that you have, which you know the questions to ask. Then there’s things that you don’t know that you know. And those are essentially things that are driven by your intuition. You have a gut feel about something. And then the last one is probably the most mysterious of all these is those are the things that you don’t know, that you don’t know. And a lot of times if you start exploring these areas, this is where you’re going to find those unfair advantages. You’re going to uncover things that other people in the market haven’t really figured out yet, and those could substantially drive your business forward.
Rob [0:11:39]: I’m not sure I understand these four in terms of how they relate to picking that metric.
Mike [0:11:45]: So the idea with these four tenets is that essentially what you’re trying to do, is you’re trying to distill all of the things that you do know and that you don’t know into a mechanism for identifying the analytics and the metrics that you should be looking at. So for example, if you are able to directly measure what is going on in your website, the number of visitors that are coming, then you can interpret those as facts. So if you have Google Analytics installed you can, with giving some credit to Google for actually being accurate on all of this, you can look at that and say well, yes, I know that I’m getting ‘x’ number of visitors per month or per week to my website. So those are the facts that you know. And then there are things that you don’t know that you could answer by reporting, by saying, okay, well, we know that we’re getting this number of visitors to our website, how many people are coming over and viewing our pricing page, or visiting our pricing page and then going in and signing up for a trial? And for something like that, you might use Kissmetrics or Mixpanel or something along those lines. But those are questions that you have that you could ask that you just, you know the question, you just don’t know the answer because you haven’t gone and looked at the data yet. And then there’s things that you don’t know, that you know, which are things that you just have a gut feel about. So for example, you might say, well, I think that we’re getting a lot of our trials coming in through word-of-mouth. If your products are growing and your customers are telling other customers about it, then you might have an intuition about that. But you don’t necessarily know that, and it can be very difficult to figure out exactly how that’s happening without doing a lot of analysis of those people that are coming in and having direct conversations with those people one-on-one, for every single person who signs up for your service. And then the fourth category are the things that you don’t know, that you don’t know. And those are things that, honestly it’s going to change a lot based on your type of business, but you might find out that maybe you believe there is a viral component or that people were sharing a lot of information about, oh, you should sign up for this service and your customers were talking to other customers about it. But you may just find out that, oh, it was posted on some forum someplace, and you didn’t even know that that was a great way for people to find out about your service.
Rob [0:13:53]: Okay, cool, that helps clear it up. Finding the metric that matters also depends on what kind of business you’re in. If you’re running a SaaS app, maybe it’s MRR, maybe it’s MRR growth. Maybe if you’re at an earlier stage, it’s just trying to get some customers in the door, customer count. If you’re like in a collaborative or a community software company, maybe something like StackExchange or Reddit, then maybe it’s the number of votes, the number of comments, the number of new content pieces that are created for you by the community. If you’re a media company, maybe it’s the number of page views that you’re getting. If you sell games, maybe it’s the number of in-app purchases. Or if you sell apps and maybe don’t have direct access to your customers, you’re obviously going to have less data than if you’re dealing directly with folks, so maybe you sell a mobile app through the iOS app store, then you might have to look at a higher level thing, like the number of downloads of your free version and then the number of purchases or number of dollars coming from your paid version. And finally, if you have just a transactional business with like one-time sales, so maybe you have desktop ftp client, or you have invoicing software that someone can download and install and it’s not a subscription, obviously your metric is going to be different than a SaaS app, because you don’t have monthly recurring revenue. At that point, maybe it just is total revenue per month of total downloads of your free version, if those tend to highly correlate with getting more downloads and more sales of your paid version.
Mike [0:15:20]: The other thing that factors heavily into this is what stage of your business are you at. So are you really in the early, early stages where you’re just talking to people and you’re just trying to get attention for a landing page that you’ve put up. Are you actively having conversations with people and doing a needs discovery? Are you at the validation stage, where you are creating an MVP for the product? Or have you even gotten past that point and you’ve launched the product and now you’re looking at doing feature optimizations and implementing customer requests, or even further than that where you’ve got a stable app and you’ve hit product market and you’re really just trying to optimize the entire business, based on which of those stages you’re at, your metric that you’re looking at is going to change kind of dramatically from one stage to the next.
Rob [0:16:03]: Yeah, absolutely. I mean, if you’re pre-launch, then I’d say a big metric is how many email addresses can you get on that pre-launch list. If you have a few customers, beta customers in there early and you’re doing customer development, maybe it’s the engagement, maybe it’s like the amount of times they log in or the amount of features that they’re using. Or even like the number of features that they suggest that kind of fit within your vision. I mean, it could be as simple as that, when you’re trying to get to that next step, it actually comes easier and more clear once you’ve broken past, I’ll say product market fit, but once you know that you’ve built something that people want, it becomes easier because then you tend to just have a pretty straightforward metric that you’re trying to grow. It’s going to be probably revenue or trial downloads or there’s something there, but before that at each stage it’s going to be changing pretty frequently as you move between the stages.
Mike [0:16:53]: Right, I remember kind of a specific example from when Facebook was kind of building up in the early stages. One of their metrics was that they wanted somebody to sign up and add, I think the number was like 10 or 20 friends, within seven days. And those people were going to have a dramatically experience and be more “successful” with their product than the people who did not. So that was one of their key metrics that they used very early on. So it was very feature driven at that point. They said if somebody uses this particular feature which is just adding friends, then they will be more successful with the product, and we want to be able to identify those people and figure out how to get more of those people. So the next thing to think about is who is this metric for, you know, who is the intended audience for this metric? If it’s MRR, then it might be to management, but there are different metrics that you can track that could go to internal groups. It might go to the marketing team or the developer team. You might have metrics that you’re developing for investors or for the press, or as part of a marketing campaign. There’s lots of different reasons why you might have these metrics, but you want to be able to make sure that you are identifying these metrics for a very specific reason. And you want to know who those metrics are going to, because that’s going to make a difference. And the specifics of which metrics you’re tracking.
Mike [0:18:10]: So let’s start talking about what makes a good metric. And the first part of this is make sure that your metric is a rate or ratio, because those are going to be better than an absolute or a cumulative value of any kind. So, I’ll give you an example, from earlier in this particular podcast I talked about the fact that I was measuring the number of conversations per week. Now, if I were just measuring the total number of conversations I had, then that wouldn’t necessarily be a good metric. But the fact that I’m measuring them on a per week basis, I’m able to relate one week to the next and figure out whether or not I’m maintaining progress or declining or exceeding the expected rate.
Rob [0:18:51]: And I think it’s interesting to think about with the SaaS app, we never even talk about what’s the total aggregate revenue that the app has ever generated, right? That would be a very bad metric, that’d be an absolute number and it would grow every month, right, because as long as you have revenue coming in, you would just add it to it. And that number could be hundreds of thousands of dollars or millions of dollars, but that doesn’t give you a really good picture of what the business is doing because there’s no rate or ratio to it. So I think, if you think about MRR as it’s basically the recurring revenue that you have at the end of that one month, so that gives you kind of a rate there, and then I think growth, like MRR growth is a ratio as well, right, because it is the amount of new revenue, new MRR you’ve added compared to your total. And so, I know that a lot of start-ups look at their month over month percentage growth, and that’s a big thing that [YEC?] looks at and a lot of these accelerators look at. I personally don’t track, I’ve gone back and calculated it for particular purposes when the audience, whether I’m giving a talk or whether I know someone is actually looking for that number, it’s easy enough to calculate going back, that is not a key driver that I look at when managing the business, but that’s not a bad thing. I think if you are a startup like Paul Graham says, growth is everything, and so for them, even if you’re doing revenue growth, they probably lose sight of the absolute revenue because that’s less important than the growth and the rate of growth that they’re experiencing as they’re working on it. Because growth has a lot to do with whether or not you have traction. And traction has a lot to do with whether or not you’re going to be able to raise that next funding round. So if you’re in the V.C. space, the venture funded space, about every 18 months you tend to have to raise a round. And even if your MRR is going up, if your growth numbers don’t hit the ranges that they need, it’ll be pretty hard for you to raise a round. So you can see how for those guys, given their audience, they’re tracking more growth, whereas someone who’s maybe boot-strapping a business, and probably has other goals, might look at something a little more solid like monthly recurring revenue or some people might even look at monthly net profit.
Mike [0:20:56]: But I think the key point that you’re making there is that those are monthly numbers, that it’s monthly recurring revenue or monthly profit. And it’s important to have that monthly piece of it, because if you don’t have a time period of any kind, then really it’s just a number, it’s a vanity metric at that point, which is essentially meaningless to the business. You can’t compare it to other time periods because it’s just a number. If you are able to compare it to other time periods, that’s when it becomes meaningful, that’s the important piece, and that’s what makes it a good metric.
Rob [0:21:25]: Yeah, it also makes predictions a lot more easy to come up with and probably more accurate. If you’ve been tracking this number over time for these small time periods, so let’s say weekly growth or monthly revenue, you get a sense of where this thing’s going. You can notice pretty early on if you’re looking at the rate of change, you’ll notice on a graph or even intuitively in the numbers, if you’ve been following this, you can kind of feel the pulse of it. And you’ll notice as things are changing, you’ll be able to predict out a month or two. I don’t tend to do predictions for predictions sake, but there are a few conversations I’ve been in where people have asked me, now where do you think you’ll be in three months or six months or whatever, and I have a decent idea. And so far the predictions that I made during the summer were hitting those, barring some unforeseen circumstances, you can get pretty good, if you’re doing this ratio per time period, you can project out and be reasonable as long as a major roadblock that’s unexpected doesn’t crop up.
Mike [0:22:18]: Another thing that makes a good metric is that it’s easy to understand. So for example, monthly recurring revenue, is very cut and dry. You can easily understand that. Same thing when it goes to like profit or conversion rates. But I think that once you start getting into some of the super advanced metrics that are much more difficult to understand, so if you’re aggregating a bunch of data, and then trying to use that to compare against other aggregated data over different time periods, as soon as it becomes a lot more difficult to understand, it becomes much more difficult to also figure out what it is that you need to do in order to start making changes to that number or how to influence it. So you want to try and choose a metric that’s simple and easy for everybody in the organization to understand so that they know what their capabilities are around influencing that number.
Rob [0:23:06]: And another piece that makes a good metric is if the metric helps you make predictions more accurate. I already touched on this a little bit, but I kind of went about it the other way, saying that if you have a good metric, it makes it more accurate. But you’ll want to choose a metric that actually helps you make better predictions. I think that’s a key piece. If you find that yours is not, then it’s probably not a very good metric.
Mike [0:23:30]: And the last thing that makes a good metric is that, the metric has to change your behavior. And one of the things that I’ve seen a lot over the years is that when people are doing A-B testing, for example, they’ll do A-B testing just to do A-B testing. And it doesn’t change what they do. They’ll pick it up, they’ll do it for a little while, and then they’ll stop. And whether they see results or not, the fact is they don’t carry that forward. So it doesn’t change their behavior. So the fact of the matter is, like why are you even bothering. If those numbers that you’re getting out of that aren’t going to change or influence what you do, then why are you even tracking that. It’s essentially immaterial at that point.
Rob [0:24:05]: If you’re interested in learning more about finding your one key metric, we have three links for that we’ll put in the show notes that Mike used to help put together this episode. And if you haven’t read it, you’ll probably want to check out “Lean Analytics.” It’s a book from O’Reilly Press. It’s written by Ben Yoskovitz and Alistair Croll. And it is worth looking at, if you are looking for the single metric that matters. If you have a question for us, call our voicemail number at 888-801-9690 or email us at email@example.com. Our them music is an 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 and we’ll see you next time.