This episode is part two in a two-part conversation. If you haven’t already, listen to Part 1 first.
This week is the second part of a conversation between Rob and Jordan Gal, the founder of CartHook. In the episode, Rob and Jordan dig into the 4th, 5th and 6th stages of SaaS growth and compare their journeys 1:1 between growing Drip and growing CartHook. They come across several parallels between their journeys, as well as some differences. This episode is part two in a two-part conversation.
Jordan started CartHook as cart abandonment software and later pivoted into a checkout replacement solution for Shopify. He has been on the podcast several times answering listener questions and has spoken at a handful of MicroConfs. He is also the co-host of the Bootstrapped Web podcast.
Every time we come up against the hill and then climb it and get to the top, when we look outward, we see so much more. So, the opportunity just keeps getting bigger the further we go. We’re not even close. We’re just barely getting started.
– Jordan Gal
What we discuss with Jordan Gal
- 1:10 Rob’s experience with Stage 4: Escape Velocity
- 4:35 Jordan Gal’s experience with Stage 4: Escape Velocity
- 9:06 Parallels between Drip & CartHook’s journeys
- 9:50 Jordon on hitting limitations and looking beyond money
- 15:27 A fast-growing business isn’t profitable
- 17:26 Rob’s experience with Stage 5: Scale
- 21:54 Jordan’s experience with Stage 5: Scale
- 25:10 Stage 6: Company Building
- 27:39 The range of skills founders need when building a startup
- 30:18 Jordan Gal on the future of CartHook
Links from the show:
- Bootstrapped Web
- Jordan Gal | Twitter
- [Watch] Two Years in the SaaS Trenches – Jordan Gal | MicroConf Starter 2017
- [Listen] “We Went from Hundreds of Free Trials to a Few Dozen…On Purpose” with Jordan Gal | Episode 476
How can I support the podcast?
If you enjoyed this episode with Jordal Gal, let him know by clicking on the link below and sending him a quick shout out on Twitter:
Click here to thank Jordan Gal on Twitter.
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Rob: Welcome to the special bonus part two episode of Startups for the Rest of Us, this week. If you haven’t heard the episode that came out on Tuesday, Jordan Gal and I got into such a good conversation, we ran really long. I just let it go. I didn’t want to cut it off because we were talking through our journeys. I wanted to cover the first six stages of SaaS growth. It took us longer than I thought it would to get through everything, given the anecdotes and deep-diving into what it looked like to grow Drip and CartHook.
This episode covers the final stages of SaaS growth that we didn’t have time to cover in part one. If you haven’t already listened to part one, I would highly recommend doing that so you have the context as we finish up our conversation with Jordan Gal of CartHook.
Stage four, I’m calling escape philosophy. This is where you have product-market fit and you’ve discovered at least one, maybe two, repeatable channels that are driving leads. You’re converting. You have repeatable sustained growth. Maybe that growth rate is increasing month-to-month. Maybe it just fits $3000–$5000 a month.
If you haven’t raised the Series A, it doesn’t take that much time growing it to $5000 a month to build a hell of a business. For me, I put escape philosophy. It was for about $25,000 MRR up to about $80,000 MRR. It’s probably about $1 million when I think about it. Maybe three of three. During that time, we’ve already done some integrations, but we realized they were working really well. The more integrations we build, not only did we drive traffic, but we were able to retain customers more because they would link them up and there’s just a lot of value created. We did quite a bit of content with some success. It was enough success to keep doing it but it was not the main driver of growth. There was an ROI there. We did some pay-per-click and it worked.
I was doing a ton of podcasting, public speaking, and that was raising it. It was hard to measure but it just continued to have Drip in the conversation. They used to say Infusionsoft and Ontraport as the lower-end marketing automation because I ran thousands a month. Soon, I wanted Drip to be the number three or number two, frankly, just to be the other one that was mentioned in all the blog posts and in all the conversations.
I started hearing it on podcasts and seeing it on blogs with people I’ve never met, never talked to, didn’t reach out to, to say hey, should you mention this? It just started getting on people’s radar because enough people were using it. We also have a ‘Powered by Drip’ link that contributed during that time. I was doing more outreach to influencers and friends who I knew. We were doing cross-promotion and stuff.
It was a bunch of things. There was not one thing that worked amazingly for us. There were about probably two that drove half of our trials in any given month and three to probably grow 75% or 80%. During that time, we grew to a headcount of five people in total. It was me and Derrick, then we had a guy doing support, and another developer. They’re our first customer success.
A person, Ana Jacobs, who many of you know from MicroConf, she’s been in MicroConf circles. She was in Fresno and she was doing essentially marketing work and agency and really wanted to get into products. She was an early game-changer for us because I was doing all the sales demos and trying to do onboarding calls. I’m just not good at that. You’ve got to know your strengths and that’s not my strength at all. She was able to take that off my plate. Not only did I think our conversion rate went up but we’re able to handle bigger customers who wanted someone to hand-hold them.
At a certain point, I started saying I’m just not going to do these anymore. Although Drip’s starting price was $50 a month, we have people approaching us like hey, I remember bringing a list over and we’ll pay you $500-$800 a month. That’s substantial growth for an app that’s doing $40,000–$50,000 a month. The fact that we were able to service them, work with them, and do the extra that they want was a big transition for us during this time.
Still total chaos in terms of the business. I was starting to burn out, in all honesty. I made personal mental health mistakes in terms of just not hiring more out. Everyone was doing their job in terms of building products, onboarding customers, and anything else I took on. I shouldn’t have done that. It seemed like the right decision at that time to keep the business moving forward. I was trying to maximize growth. In fact, I maximize my personal unhappiness because I was doing a bunch of tasks that I didn’t want to do.
That was my escape philosophy phase. Really, your escape philosophy was more with the second product, what CartHook is now. You listed it as a $20,000–$80,000. I think we’re actually in a similar range of thinking about these stages.
Jordan: Yes. We broke every rule. We did not do what I would suggest anyone do. We just built an isolation and we just launched. We fully went the ‘build it and they will come’ route and it just happened to work. This stage for us was, again, a huge success and so much pain.
I’m looking at our ProfitWell graph from all time. It was a theme for us where we have a few months of incredibly fast growth, then sustained period of no growth, and then forcing our way out of it again. The reason it happened to us, it’s the same thing that happened in this phase from $20,000–$80,000, we got the product right. That’s what people wanted. That guest at a customizable check I would upsell that worked with Shopify and allows you to do all this marketing stuff, that’s what the market wanted.
As soon as we released it, the word of mouth was huge and we got overwhelmed with demands. We did one thing that was really, really, important for the whole trajectory of the business as soon as we released it and got too much demand. In the first 30 days, we had, let’s call it 100 or 200 sign-ups. It was $100 a month. We were like this. We found the right thing, but the product wasn’t quite ready yet. After that first month, it was just total chaos. We couldn’t keep up. We couldn’t onboard people. We didn’t even know how to support our own product. What we did, we decided we need to slow it down.
How do you slow down demand? We did it in two ways. We first said you have to do a demo. You got to talk to me. I want to understand who you are or what you’re trying to do and build a relationship. The second thing we did was we tripled the price. We went from $97 a month to $300 a month. We assumed those two things would lead to slower demands. No such thing happened. It just stayed exactly the same, which is where we realized okay, we mispriced the product. Thank God we realized it in 3X the price, and then I just went to work just doing one or two demos every day for forever.
Those demos are really important, obviously, to hear what people wanted but also for the psychology of the team. It was just still the four of us at this point. We eventually hired a few more. We ended up with a team of six or eight towards the end of this phase. In the beginning, it was just the four of us. The motivation we got from my conversations was wild. People were like, I cannot believe you built this. This is exactly what I want. We just heard a variation of that over and over and over. That gave us the motivation to just keep going.
The problem was that the product was just not good enough yet. A checkout product, you can’t be 75% good. If you do anything wrong, you cost people money. We went through this period of growth despite the product not being good enough which just meant a lot of very, very, frustrated customers. That just gets you after a while.
For me, mentally, in this period, I had a really rough time because I’ve basically gone two years of working on this product, took this huge risk, took money from friends and family, then from my point of view, I got it right. I found the right product at the right time for the right market which is rare enough, and then the tech just couldn’t satisfy it.
The tension within the team was tough. The tension with the customers was tough. We just kept growing. We got to around $80,000 in this phase. I’m supposed to be happy, right? I just went $0–$5000 in one year, $5–$20,000 in another year, then $20,000–$80,000 in four months. I’m supposed to be happy. I was anything but happy. It was mentally very difficult. As we brought in new employees, they just entered a world of pain. If you’re trying to support people, trying to help people get onboarded, everything we were doing was just filled with pain, but we knew we were on to the right thing. That just helped us get through it. It was not pretty.
Rob: Yeah. You effectively caught lightning in a bottle. You were early to that space of this replacing the checkout in Shopify. Again, it’s being prepared but getting a little lucky to have been at that place right at the right time and done that because if you have done it a year later, the window is over. You couldn’t do it.
It’s interesting to hear about our journeys. The parallels and then the not parallels. Drip was essentially entering a completely crowded market and trying to build a less expensive, easier to use version of these clunky, expensive tools that were generally not loved. That was a very different approach than what you took with CartHook which was I see an opportunity, I need to shoot this gap and get there right as this opens up. You’re being early.
I had a talk called The Unfair Advantages of Building a SaaS. One of them is being early. In this case, you were early. It was because you were there. Outsiders couldn’t have known that this opportunity was available. That’s the thing. Doing things in public, creating opportunities.
Jordan: Yeah, that’s right. I’m curious to hear from your side. At this stage for me is when I started to hit some real limitations in my experience. When it was a group of four of us, it was pretty straightforward, Guys, let’s make some money together. Let’s do this. Let’s change our lives by building this thing together.
Once we started hiring people, that got tested. I remember, specifically, one conversation that Ben pulled me aside and said look, man. You’re our leader. We need you to go beyond money. Our employees here don’t stand to make millions of dollars if we sell this thing. They need to work for something more than just that. That conversation with Ben I appreciate and think about all the time. That was a real turning point on me needing to look beyond money and create something of a mission, something more important.
I had a challenge because I am very against the ‘change the world, make the world a better place,’ […]. I didn’t want to become a phony and say that that type of thing is our mission when I didn’t believe it. I needed to figure out a way to authentically create a mission for the company that I felt was honest and sincere. Did you encounter something like that as you started to grow the team?
Rob: Not in that way. I think it’s because, from the start, building Drip wasn’t about making money. I never said that. It was more about building a really cool product. There was a lifestyle component to it, but by the time we have three, four, five people, it became, we are truly innovating in this space and building an amazing product for people who don’t like these other alternatives. Isn’t that cool? We are makers and we want to have a very high standard of building an amazingly easy-to-use product that is super powerful for people.
All of our team members, including me, loved the product. We were enamored with this power that we could have. When we looked around our competitors, we were like, that product’s like a toy compared to Drip. That product is super hard to use and expensive. We genuinely believe that we were not making the world a better place but we were email marketing and marketing automation just more accessible. I think at one point I said we’re trying to bring marketing automation to the masses, which is a little bit manifesto-ish and highfalutin. It sounds, in retrospect, whatever, but it really was.
That was something that our team was just onboard with. We talked about that during the interview process. As everyone comes in, it’s like look, this is Drip. You’ve heard about it. You’ve seen it. It’s this product that’s genuinely helping marketers do better things and be more relevant. The codebase is great and the product is easy to use. It’s powerful. It was just all of that. We were proud of it. There was a sense of pride among the Drip employees that I think, partially, I was really proud.
Derrick and I were really proud of what we built but also because it was a damn good product. I think from the start, I didn’t do it intentionally, right? It’s how we think about it. Derrick and I are makers. You know why I wanted to make money? It’s so I can make whatever I want to do, so I have the freedom to do that. Money has never been an end to me. It was the freedom that was the end. I think I accidentally stumbled into, oh, building a great product motivates other people as well or at least the people who should be on that bus.
Jordan: Yeah, I admire that and I think it’s fantastic. That was not my journey. I went into it trying to be clever. How do I basically make $50,000 a month for myself while not doing any work type of thing? It’s not surprising that you went in with that mindset and didn’t have to figure it out in the middle.
For me, it had to get figured out along the way. It’s only recently, over the past two years, that I fell in love with what we do. It took longer to get there. Where we found authenticity is in helping other entrepreneurs. That’s where we get our pride. As opposed to, we’re so proud of this product. We’re very proud of the results. We see these companies come in and just become more successful because of our product. Then, they hire more people. Then, they grow.
What we like to look at is we like to look at the individual level and not the business level. The people running the company, the people working at the company, they have better lives because we help them find more success. It took some time for the clouds to part and to have clarity on that.
Rob: That’s what it became for us was as well, actually. Users would come in from another tool. We call them Infusionsoft refugees where they were coming and try to escape this tool that they didn’t like. They would be so over the moon with it. They would tell us which is so much easier, or this is changing my business. That did become our huge part of motivation, it wasn’t the results. I’m glad you called that out. I think it started with, oh, didn’t we build a great product? Then, it became, oh, aren’t we helping entrepreneurs get more leads or do this easier?
Another memory I have from this escape philosophy phase was up until that $25,000–$80,000 MRR, I kept thinking we’re going to be profitable soon. We would be profitable. We’d break even then we’d grow. Then, I’d hire. Then, we’d grow. Then, I’d hire. We were never very rarely losing much money. Never raised funding. I was pulling some money off the HitTail for a while. At a certain point, Drip was totally sustainable.
I kept thinking much like you, like when is the time when I can start making money at this business? It comes down to this thing that says something that I said at several MicroConf talks of a fast-growing business isn’t really profitable. If you do want to make money out of it, you can. You’re just going to slow the growth.
Jordan: Yes. That is one of the absolute, most critical conversations in the entire experience of building this company. It was the conversation I had with you where I was not trying to be a jerk but it could’ve been viewed as a jerk question. I think we were at $10,000 MRR and you were over $100,000. I was like, you must be profitable. What are you possibly doing at that stage if you’re not pulling profit at $100,000? I could not even fathom it. I couldn’t imagine.
That’s what you said to me. You said look, when you get here, you will have a trade-off decision. If you starve it too early, you’re going to kill the whole trajectory of it. You might also exhaust your team because you won’t be investing in hiring to keep up with the growth. It might sound like an easy decision to be profitable but wait until you get here and then let me know. You were right and then another $100,000.
Rob: Oh, man. We should couch this whole thing of CartHook and Drip are very successful apps in the grand scheme of things. In terms of so few products making it to product-market fit, even fewer make it to a million ARR, fewer make it to multiple millions of ARR. I don’t want to normalize it and say everyone should travel the same journey that you and I did or anything like that.
I do want people to know that if you grow and you do grow fairly quickly in a space, you do have success, I think it’s good to be aware of these stages so that as you enter them, like when you hit product-market fit, it’s like okay, now I should be thinking about repeatable marketing channels. At a certain point, you find one or two and it’s like okay, mental check. I’m in an escape philosophy phase. What did I say about this? It’s going to be chaotic. It’s this and that. That’s really why I wanted to talk through this to get people set. Again, it’s not going to be for every app. It’s $20,000–$80,000. It’s this and that. I think certain apps grow faster and slower, obviously, but I do think that these stages can be helpful as a mental model.
That actually brings us to stage five which I’m calling scale. For Drip, that was $80,000. It was about a million, $83,300 and up. For us, we went into a million, and then into multiple millions. We have 10 people. We were acquired. I stuck around for a year-and-a-half. By the time I left, I believed there were about 60 people working on Drip under the lead pages umbrella. We weren’t independent of the whole scale phase. We were acquired basically mid-scale, I would say.
Part of the early scale was hiring more people, which again, was that decision, that tradeoff of we’re not going to be profitable. We’re still growing. I think this market’s very big. Part of that decision was I was burning out pretty bad but also do we raise money? Or do we sell?
I got five potential acquirers contacting us in a span of about 15 months. As you do when you get on the radar and you built this many brands, two emails a month, three emails a month, from people who said we will fund you. Sometimes, it was junior venture capitalist prospecting and stuff. Other times, it was serious people who I knew had the money and really wanted to invest in a fast-growing SaaS app.
That was a big decision for us as to whether to get acquired and take the chips off the table or whether to basically raise a round, double down, and be like all right, we’re going to do this for two, three, four more years before we think about next steps.
Jordan: We’ve talked about the corporate and the financing side of things a lot through this journey. I think you did things exactly right on the corporate position you are in. Like the amount of equity you had, you hadn’t raised money. You got to this point and then the risk-reward calculations of selling or not, I think you did the right thing. You don’t know what’s going to happen in the future and you built something that’s growing really fast, is very attractive, and you don’t need $100 million acquisition in order for it to be a success.
If you raised a bunch of money, if you’re at the exact same revenue that you were at but you had raised $3 million, you’re in a completely different world. You limit your option set when you take money early. I’ve always thought about that. What we’ve always looked at is how do we raise just enough to get going but to keep those relatively low acquisition offers into play? It’s just much more likely to get acquired for under $50 million than it is to get acquired for over $50 million.
Rob: Yeah. It was a calculated gamble. Derrick and I have talked about it since then over beers. I asked him—this was probably six or eight months after the acquisition, we’re having beers, and we’re still both working at Drip—do you ever wake up and regret it that we sold? He said never once. I said me neither. I have never woken up in a day.
I think part of that is the acquisition took 13 months. We have a hell of a long time to think about it. Derrick and I were very cautious. We think things through. We’re not flipping. It was not an impulse decision. By the time we got to that point, it was like no, we really want this to happen. The harder part would have been if we got there and that hadn’t happened because we were bought into it at that point.
I’ve heard you talking on your podcast about taking some chips off the table about the big raise from the clubhouse app and the founders each took a million off the table, I believe. Some people think oh my gosh, that’s catastrophic. How can you do that? It’s a pre-launch app so I’m like wow. I can’t even believe it.
Aside from that, taking enough chips off the table, I was like look, my whole net worth, I’m worth millions and millions of dollars in completely illiquid private company stock. I have whatever I have, $50,000 in the bank, and I had a couple of $100,000 in a retirement account. That’s my net worth right now and I’m concerned. There was a huge stock market drop and SaaS valuations were cut in half as we’re talking about the acquisitions. Recessions, competitors were just jumping at our heels. There was all this stuff going on that I was thinking, it was exactly that type of press. Let’s not talk it through the podcast before but it really is.
It’s like do I take some chips off the table here or do I double down, keep going, and see what happens?” It would be different for everyone, but I do think having a small win early on and getting to some money that is in your bank account where you can then take bigger risks like, I’m now in a position where I can just take bigger risks. I can grow a TinySeed which is not going to really pay me much for years. I can do that now because of this.
Stage five for Drip, as I’ve said, was scale. It was $80,000 and up to acquisition. For you, you named it out about $80,000–$200,000 of MRR. You want to talk through what your experience was like getting there?
Jordan: Yes. This was the opposite. Book cased by failure first and then really big success towards the end of the stage. When we got to $80,000 with all that pain, we came to the realization of okay, you know what we’re going to have to do? We’re going to have to break another cardinal sin. We’re going to have to rewrite the app. And we did.
Rock, who is now the CTO, is probably the CTO right now because he’s successfully pulled off a rewrite of an app with hundreds of customers and hundreds of thousands of dollars a day in payment processing. We got stuck at $80,000. We got stuck at $80,000 for months and the churn is wild. Churn was like 15% per month. Just growing and losing $20,000 in both directions every month. Just adding $20,000 in MRR and losing $20,000 in MRR. Just over and over and over. That’s why that stage was so exhausting.
We came to the conclusion that we had to rewrite it. It has to be better. We have to take the lessons learned, all the mistakes we made, and just make a better version of it. That’s what we did and then it worked. They pulled it off between Ben, […], and Rock. They pulled it off. As soon as we released version 2, the thing just popped. We went from $80,000–$200,000 again in just a handful of months. That stage was really okay.
Let’s build out the team, let’s build out a support team, a success team, QA, different engineering leads. Let’s get this thing ready so we can actually handle what we have in front of us. Let’s get marketing so I’m not doing it. Let’s get success so I can stop talking to customers. All these different things like building up the company. It was the rewrite and the growth from that is what allowed us to hire about 20 people. That’s when everything just became much more promising. That’s what I look at as that stage for us. Then, at the end of the stage, we got stuck around $200,000. That’s kind of what led us to the next phase.
Rob: I’m calling this the sixth stage of SaaS growth. Obviously, there are many more because we’re going to wrap this up around a few million single-digit ARR. Getting to $20 million, $50 million, $100 million. Of course, there are stages you get to 100 employees, 500, then 1000. We’re not going to cover those because we haven’t done them. After the scale phase, you specifically called out that there’s this transition of all right, we’re scaling but north of about $200,000 at least for you, given the timing, it became company-building where you have to, as a CEO, as a founder, your mindset has to shift. Talk us through what that phase has been, what it feels like.
Jordan: Yes. We built a team in that stage five, the $80,000–$200,000, but we really didn’t build the company infrastructure. We hired the people that we needed but when someone got hired, it was, here’s a laptop. Here’s someone else that does the job similar to yours. I wish you the best of luck. That was effectively our employee onboarding.
The next stage, the company-building stage is when we really have to figure out a lot more around process, a lot more around org structure, reporting structures, where the lines are in the company of who’s responsible for what, and under what circumstance. I needed a lot of help with that. I had never done it before. We hired people, coaches, actually, thanks to an intro from you, who has been hugely helpful (and still is). That’s the phase that we’re in now. We are well over $200,000 in MRR. It feels like we’re just now really starting to set the foundation for being able to grow to 50 and 100 employees. Before we do that, we really need to get our act together in many ways.
It feels like for a very long time, survival was just the only real goal. Now, we’re transitioning into, how do we make this a great place to work? How do we make the mission something that’s clear, that’s everyone’s working towards? How do we attract great talents? How do we keep the employees happy so that they don’t get bored of them wanting to go on to their next challenge? That’s pretty far removed from me convincing a potential customer that they should use our product because of X, Y, and Z. It’s just a new skill set that I’m being forced to learn.
What I will say is, I started off at the other end cynical. How do I make a repeatable revenue? This process of going from that to building a real company, by far the most fulfilling experience has just been the other people involved. Developing other people, watching them succeed, watching their confidence grow once they really settle in.
I talked about this week, we signed our biggest customer ever. I didn’t talk to them. It just makes me really proud and happy about what we’ve done, what we’ve built, and just watching the team kind of start to turn into a higher caliber version of ourselves. That feels like the stage we’re in now. It’s tough to tell what comes next. I’m sure it’ll be crazy because it’s been that way the whole way. This stage right now feels pretty amazing.
When the crisis hits, we just have the ability to take care of people the way we have been able to, it feels amazing. It’s much more fulfilling than starting out and saying let’s make money together. That part of it has been great.
Rob: Building a startup changes you for the better, doesn’t it?
Rob: Yeah. You know what, with Drip as we talked through these stages, just the range of skill sets that you need if you’re going to start a company as a founder to do the customer development, to convince a developer to help you or to pay them or to scrap and cold email, to do a launch, and then to grow to $20,000. Then, to start hiring. Then, hire more. Then, hire managers who hire managers. Then, being at a company-building. What a broad range of skill sets that you have to learn on the fly or makeup as you go along or what have you.
This is a reason back in the day when venture capitalists would fund a company. The founder would grow it to a certain amount. Then, they’d oust the founder. They kind of have a clause. Either the VCs owned enough or they have a clause and it’s like hey, we can boot you. Oftentimes, the founder isn’t the best person to run a $100 million company because a $100 million company with X thousand employees is a very different skill set than what you and I have talked about today.
Personally (I’ll speak for myself), I don’t want to run a team of even 30 people. That doesn’t sound fun to me. Certainly, 50, 100, 1000, people. Maybe I don’t understand what that requires, but it sounds like a burden. It’s partially because my goal was never to build companies. My goal was never to make a bunch of money. It really was to achieve freedom so I can work on interesting problems, interesting projects, and make things. It all comes from making. When I roll that back, it’s like if I want to do that, then I need to make money. If I want to make money, I think I’m going to use my skill set and start a company.
Companies were a means to an end and have been. I, of course, loved talking about it or I wouldn’t have done 500 episodes of this. I’m curious, from your perspective, you’re going to come back on the podcast and you’re going to talk to us about stages seven and eight. Who knows what they’ll be. Do you see yourself running a team? You think you could be happy running a team of 50? 100?
Jordan: Yes. I think I could. I think that’s what I want. I remember when we started out. I remember looking at the Inc. 500 magazine every year as I grew up. The only thing I paid attention to was the ratio of revenue to employees. I didn’t care about the total revenue. I wanted the ratio. I wanted the revenue per employee because looking at a company that made $100 million but had 1000 employees, I looked at that and said that just sounds miserable.
If a company was making $20 million with eight employees, I thought to myself that’s what I want. I want efficiency, I want a small team. I want everyone to be in a small tight community. I still want that efficiency but I think I wanted it to be a lot bigger.
One of the things we’ve said is that every time we come up against the hill, then climb it, and get to the top of that hill, when we look outward, we see so much more. The opportunity just keeps getting bigger the further we go. We’re not even close. We’re just barely getting started. The more we grow, the more it feels that way.
Right now, if an amazing acquisition ever came through, something that I just could not say no to, I am 100% certain that I would regret selling because we’re just starting.
Rob: Just starting, man. I love it. I’m serious about you coming back to talk. We’ve got to figure out what’s after company-building.
Jordan: There’s not too much drama. That’s all I ask.
Rob: I love this conversation. This may be the longest episode of the Startups for the Rest of Us ever. I couldn’t cut it off. I feel like what we’re talking through, I think it’s insanely valuable. It certainly was entertaining for me to listen to your stories and reliving them with you.
Jordan: First, thank you for guiding along. Sorry for making it long. Just 2X the speed. I am proud of us that we stayed away from the darkness.
Jordan: There’s a lot of darkness that we just didn’t touch on and that’s always there. There’s a skill in ignoring that darkness and moving forward that we exemplified in this podcast.
Rob: There are a whole nother hour and 10-minute episode of us just talking about the worst part of each of these stages. That’s something. Maybe that’ll be in your memoir.
Jordan: Thanks for having me on, man. I really appreciate it.
Rob: Absolutely. If folks want to keep up with you, you’re @jordangal on Twitter. Of course, carthook.com, if they want to check out what you’re working on. Bootstrapped Web, that’s the podcast I tune into every week. They can hear you on your journey, man. Thanks again.
Thanks again for joining us. Again, to recap these first six stages of SaaS growth are prelaunch, post-launch/pre-product-market fit, product-market fit, stage four’s escape philosophy, stage five is scale, and stage six is company-building.
I appreciate you joining me twice this week. I look forward to seeing you next Tuesday for episode 500. Talk to you then.
Episode 499 | The (First) Six Stages of SaaS Growth – Part 1
This week is a conversation between Rob and Jordan Gal, the founder of Cart Hook. We dig into the six stages of SaaS growth. We compare our journeys 1:1 between growing Drip and growing CartHook. It’s shocking how well the journeys line up with each other. Some of the differences in the journey are also quite striking. This episode is part one, and part two will go live later this week.
Jordan started CartHook as cart abandonment software and became a checkout replacement solution for Shopify. He has been on the podcast a few times answering questions, and he has spoken at MicroConf a few times. He is also the co-host of the Bootstrapped Web podcast.
The finer points of the episode:
- 6:00 – Stage 1: Prelaunch
- 8:33 – How to create your own luck when your SaaS app is in the prelaunch phase
- 13:37 – Stage 2: Post Launch
- 14:25 – The journey to finding product-market fit
- 22:25 – The most challenging parts of the journey for Rob and Jordan
- 23:29 – Stage 3: Product Market Fit
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Every week on this show I cover topics related to building and growing startups using an ambitious approach that’s also sane, and that allows us to be human beings, have relationships, and hopefully not burn ourselves out.
This week’s episode feels like it’s going to be one of my favorite episodes in a long time. It’s a conversation with myself and Jordan Gal, the founder of CartHook. He and I dig into the six stages of SaaS growth. What we do is we compare our journeys one-to-one between growing Drip and growing CartHook.
What’s interesting is that we took different paths to get there. He raised money, we didn’t, and yet there are so many parallels between the two journeys and the stages line up shockingly well in terms of MRR ranges, of pre-launch, to product-market fit, and to escape velocity. I was struck by (a) some of the parallels, and (b) some of the deviations.
When we started, I figured it would be a normal-length episode. We wound up chatting for almost 1 hour and 15 minutes, so I’ve broken this up into a part one and a part two. Part one is what you’re listening to today, and in part two, we’ll go live on Thursday. I would kick it next week, but of course, episode 500 is next week, and I’ve been planning for that for several weeks. We’re just going to do a twofer this week. I didn’t want to drop a 70-minute episode in your feed today.
We cover the first few stages of SaaS growth in this episode. What’s interesting is I was going to call it the six stages of SaaS growth, but you’ll hear me, towards the end, realizing these aren’t the only six stages. There are stages after this. I have the parenthetical, the first six stages of SaaS growth as defined and discussed in the conversation you’re about to hear.
A little background on Jordan, in case you haven’t heard of him before, he started CartHook, which was cart abandonment software and became a checkout replacement solution for Shopify. It’s doing several million dollars a year in ARR. Jordan has been on Startups for the Rest of Us four or five times answering listener questions, walking through his journey. He’s just a founder in the space. He’s come to several MicroConfs, he’s spoken at multiple MicroConfs, and he’s executing well and doing what a lot of us are trying to achieve. He’s done a really good job executing over the last six-plus years as he’s grown CartHook. The time flies quickly. He’s also the co-host of the Bootstrapped Web podcast, so you may have heard him on there. With that, let’s dive into our conversation.
Jordan Gal, thanks for coming back on the show, man.
Jordan: Absolutely. Great to be here.
Rob: It’s always a pleasure. I’m really stoked to be talking through our journeys, our entrepreneurial journeys, and looking at these six stages of building and growing a SaaS. What’s a trip, what I like about this is I floated this idea to you, like would you be interested in coming on to talk about your journey because you’ve just made it so far so quickly. I know it probably doesn’t feel that way, but I was thinking back to growing Drip, there were some pretty distinct stages. There was the pre-launch, the post-launch, trying to find product-market fit and all these things. I was wondering if ours would at all match up.
When I typed mine out in an email, I shot it over, and how do these match up with what you have, it’s pretty close. The revenue numbers are not exact but the general headspace and what you’re trying to do at these stages, at least at this end of two is shockingly overlapping.
Jordan: Yes. I think because we both started at zero. We were forced into going through these individual stages. It is really different from stage to stage. I’m excited to go back into it. I’m a little worried about all the memories and emotions that it’ll bring up because it’s been a hell of a ride. A lot of it is good and plenty of challenges.
Rob: I’m wondering how much PTSD this is going to bring up for either of us. It’s as you said, of course, there are some great memories. I can reminisce and say oh, man. Remember the good old days? Remember when it was just two of us doing this thing? But you know what, it was super stressful when it was just two of us because we didn’t know if we were building anything people wanted. It was six months of just grinding it out with no market validation and all that. It’s easy to romanticize any of these stages.
Jordan: Yeah. It’s also easy to forget how far you’ve come. Rok and I had a moment the other day. Rob’s my CTO and really my co-founder at this point. We’re really partners. He runs the tech team, I run the rest. We had a moment because we hit 100X from the time he joined. We were like you know what? Let’s take a little time out, get on Zoom, have a drink, and have some laughs because we just keep going through these milestones. There’s so much to worry about and think about, it’s tough to even look back at what we’ve done.
Rob: I’m glad you guys took that time. That was something I was not good at with celebrating the wins and celebrating the transition, and oftentimes, even realizing we were making the transition from one stage to the next. It was Sherry, my wife, who encouraged me to slow down and be like you realize you just built a million-dollar business the day that we crossed $83,333. I was like wow, that really is something that I’d been wanting to do for a while.
Jordan: Yeah, and they change. Recently, this week I had a new milestone. We closed our biggest deal ever, and I never talked to the prospect at all.
Jordan: The team did everything. We’ll get into these stages and the stage that we’re in now. Let’s get there. Let’s start at the beginning.
Rob: Six stages. I’ve named each of these stages because what I’ve noticed is I’ve already (and a lot of folks already) used terminology around this, like pre-launch, post-launch, pre-product market fit, and post-product market fit, but I’m tapping into your and my later experience. Have a couple of stages that I think are cool to define and think about because I think if you do get into the multiple millions of dollars, that you will enter those. We’ll get to those in a bit, but pre-launch, we’re going to start there.
Obviously, I could tell a bunch of stories of pre-launching different stuff, but I’ll stick to Drip for my examples here. Obviously, you’ll stick to CartHook. Pre-launch, for me, was a bunch of customer development, and it was a bunch of validation. That was even pre-building. It was going out. I had 17 email threads going with founders saying if we build this would you pay this much for it? I got about 10 or 11 people said yes, I would at least try it out.
For me, it was a lot of marketing as I had a contract developer who was building into the background first half-time, and then he switched over to full-time. That contractor is a guy that a lot of folks may know. His name is Derrick Reimer. At the time, he was just a 1099. He was a friend of mine who wrote Ruby, and he was a good developer. This was going to be really the first app that I had built that I wasn’t going to write any code on. It was partially an intentional decision to pick a language I didn’t know.
My memory of that was me and this contractor both working remotely. We would chat on the phone once or twice a week, and we had met once to basically spec out what the original version of Drip was going to be. I was thinking about that, I was building the marketing list, I was going on podcasts, and I was running some Facebook Ads to landing pages to test value propositions, I mean all the smoke test stuff. I was also doing some MicroConf stuff, speaking, and the podcast. I was staying busy, but it was very much one of many irons in the fire that I had going on. I’m curious to hear how your experience with pre-launch compares to that.
Jordan: Similar in that your real pre-launch started years prior. What allowed you to really hit the ground running was years of work prior, and yes, the same for me. I ran an ecommerce company with my brothers several years prior to starting CartHook. My customer development was my own experience. My pre-launch was consumed with figuring out how to get a product built if I am not technical myself. Going through all these different options, talking to agencies, looking for freelancers, looking for employees, and looking for co-founders. I just went through all these different options.
I knew the product that I wanted to build. It was a cart abandonment app. It was something similar to what I used as a merchant. I knew it made me money and didn’t cost too much. The ROI was great. I knew I wanted to build something that specifically generated new revenue for merchants so I could price based on a percentage of revenue. I had all that, and my pre-launch challenge was how do I get someone to build this? As often happens, it was preparation plus luck. The luck for me came in the form of bumping into an old family friend of my wife’s.
We were doing our 18-month excursion where we lived in a different city for a month or two to figure out where we wanted to move. While we were in San Francisco, I bumped into the younger brother of one of my wife’s friends from back in Connecticut at the laundromat. I had just known him through the years as the computer whiz kid. It was just a coincidence. We ran into each other, then we started having coffee, and then it turned out that he had been doing a bunch of freelance work. He really wanted to basically learn more on the business side.
We just had this match between I want something to build, he wanted to build something, and that’s what happened. I gave him a piece of the company, basically took three months off from freelancing, built the first version of the product, and then handed the baton over to me to start selling. That was my version of pre-launch.
Rob: Wow. The younger brother of a friend of a sister in a laundromat? Sounds like you’re making it up. It sounds ridiculous.
Jordan: Look, his line item on the cap table will speak the truth. That it’s very real, it’s there, and I hope it really works out for him.
Rob: Quite a trip. A lot of questions for you actually because I haven’t heard you talk much about this stage of your business. As an investor, I guess I should have said that upfront. I’ve invested a couple of times in a couple of rounds in CartHook. I’ve been along on the journey with you, but I wasn’t involved yet at this point. I’m wondering, did you validate this idea? I’m imagining this already existed at the time. Why did you decide to build something that already existed, if that was the case?
Jordan: I liked the low-risk approach of that. I used to use a product just like this, and it was a terrible product. It made me money. When I looked at software ideas after selling the ecommerce business, what I did was I looked through our credit card statements. In the ecommerce business, where were we spending our money? I just identified that app as really high value and really low quality. What I said was okay, what if I build a better version of that?
At this point in time, I don’t really have the intention to build a company. My intention is how do I make $10,000 a month so I can do whatever I want. I don’t know where the software thing is going to go, but I like the idea of recurring revenue.
Rob: Life’s now business.
Jordan. Exactly. I wasn’t full-time on it, I was just exploring. I had worked in a previous business where I was a partner that had this quirk. It generated revenue about a year after doing the work. I had about a year of income without doing any work. That’s when I just said okay, I need to register to replace this income, so I can maintain this freedom to explore. I wanted specifically low risk. I didn’t want to come up with something new and not know if it was going to be wanted by the market.
I had my own validation. What I did, really, as part of being able to convince Charlie, the developer that joined me as the original co-founder, I did the legwork to show him that he wasn’t going to waste three months of his time.
Rob: That’s what I was going to ask you.
Jordan: That was the big thing to convince him. I said look, I’m the business person. I’m not just talking. I used to be a merchant, and I’ve been emailing. I did the cold email thing—30 different people a day—I had an inbox full of people saying, yeah, that’s interesting. I would be interested in looking at that. I would pay for that.
Rob: We get emails in the podcast and I get just emails to me personally about how do I find a developer, a technical co-founder if I’m not technical? I always say you prove your worth as that non-developer side. You prove that you can market, you can make sales, that you will hustle, and you will do work alongside that developer so that they’re not working for three months, like you’re saying, while you’re sitting around doing your thing, and then suddenly you’re going to magically market this thing. Most people aren’t able to do that. I didn’t know that.
My next question was going to be how did you convince him to do it? I love that you basically lived that. You showed him that it was worth it and that you could potentially build it. It’s interesting. You thought that you could build something similar but just better because the UX, the user experience of the other one wasn’t good?
Jordan: Yeah. The design was horrible, the UX was horrible, and the onboarding was terrible. It was a bad piece of software but it made me 3000 or4000 every single month, and I paid them $79 a month. I would never cancel it because it kept making me money. I basically said I want to be that guy. That was where I landed. I had a few other ideas. That’s my pre-lunch.
Rob: What’s cool is the parallel of when I launched Drip. I say ‘I’ because at that time, I viewed it as another one of my apps. As we get later on, it’s we because it was Derrick and I as co-founders, and then it was a team of people. When I launched Drip, I absolutely viewed it as a lifestyle business. Similar to you, I was thinking I had already grown HitTail to about 25,000 or30,000 a month. That wasn’t super interesting to me anymore, I wanted it to be bigger, but I didn’t expect it to grow as quickly as it did from a start.
Once we got into it a little bit I did, but I was really mostly thinking about it like you were just like hey, I want to freaking build a business that throws off a bunch of cash. It’s funny that we wind up going down similar about different paths.
Let’s talk about post-launch. For us with Drip, as we were working on this, it was from about obviously zero in MRR. We built for about six months and then started a slow launch where I would launch to 300 people on the list. I think the total list was 3400. It’s about 300 people every couple of weeks. Getting them and we were trying to get onboarding set. We were trying to not churn everybody out. By the end of that launch, we were between 7000 and8000 a month in MRR.
Over the next six months, we were flailing trying to find product-market fit because I was driving traffic, I was marketing it, and I was doing all the things that I had done in the past that had worked and they weren’t working. Churn was too high, trial-to-paid was not great, and it just wasn’t working. From about 0 to around10,000 or $12,000, I view this as a pre-product market fit stage, post-launch/pre-product market fit.
For those you’ve heard product-market fit on the podcast a bunch of times, I have a text expander in my head of product-market fit equals you’ve built something people want and are willing to pay for. That’s how I think about it. And are able to reach them at scale and have a bunch of leads because to me, that’s escape velocity, which is two steps from now. That’s the stage I’m […] to. But at this point, it was me and I believe Derrick at that point I’d say hey, I’m thinking of buying a house, I need a couple of pay stubs, W-2 in order to buy a house. We switched him over from 1099 to W-2, and I think he was making about the same amount of money, but it was more of an accounting thing.
At the time, I believe, Derrick and I were the two W-2 employees, in essence, working on it. It was still super scrappy, we had no office. Derrick would come over to my house. There was a […] on my property and we would sit there, chat, map this stuff out, and talk about what we were building next. It was totally freewheeling. It’s just week-to-week, day-to-day. I was doing the email support for the first few months until we brought someone in. That’s my post-lunch, pre-product market fit story. I will add, this was perhaps the hardest part because it was the mental game of not knowing if we were going to find product-market fit.
It took us from November 2013 until about it started changing in May, but it really peaked in terms of churn just plummeted, trial-to-paid doubled, and just every sign of product-market fit you can imagine happened in a 90-day span from May to August of 2014. Depending on how you measure it, it was somewhere between six and nine months from launch to where, oh my gosh, the unit economics on this business all of a sudden are amazing. The ROI of dumping more leads into the top of this funnel is going to scale this thing. That was the moment that I feel like that was product-market fit. That’s that stage three, so I won’t go into there yet, but I’m curious to hear similarities and differences of your post-launch, pre-product market fit stage.
Jordan: Look, good for you because mine was an extended torture session of 12 months, I guess. It was not pretty. This stage, like really good off the ground, launching, and generating some revenue was really no fun. What happened was Charlie passed the baton over to me. He built the product to a point where it’s good enough and now let’s start to sell it. I started with cold email and it worked. I got it to 500 MRR, then1000, then 1500. And then, Charlie got the offer of a lifetime for just his dream job at1500 a month. I had to just tell him you have to take this job. I’m not going to let you stay with me. I’m not even doing it full-time. It’s making $1500 a month. This is your dream job. You have to do it.
He agreed and he took the job and committed to continuing to help nights and weekends. Then I was alone again. I was doing it half the time, I didn’t really know if it was going to go anywhere, and I was just filled with doubt on it. I just kept going. I figured out a cold email system that allowed me to grow faster. I had information built with, got sent over to a VA, then they qualified, and then they sent those records over to another VA that loaded them up into the cold emailing software. What got spit out of the process was scheduled demos for me. Then I would just do a few demos a day and then we started to grow. That got to about $3000 a month and then a little bit more luck came my way.
For me, this first phase really ended when Adii Pienaar, God bless him. We know Adii from the MicroConf community and just from the startup scene overall. He’s a great guy. He built a company called Conversio that just recently got acquired by Campaign Monitor. He’s obviously from WooThemes and WooCommerce prior to that. When Adii was starting his new company, Conversio, he emailed me and effectively offered an acquisition/partnership. He said look, I think what you’re doing with CartHook is interesting. I have this thing going on. At the time, it was called Receiptful. He said would you think about joining me?
I knew that it was too early to have any financial impact, but the conversation got me thinking. It made me perk up and take the opportunity more seriously with what I was doing. By coincidence, I was in New York at the time and started telling some of my friends about this potential partnership/acquisition interest. That’s when my friends, who all went into finance and made far more money than all of us, said why would you do that? It’s so early. Why don’t you just take a few bucks from a few of us and really give it a go?
That’s what started the next chapter for me because when I entertained really taking money, I knew I needed a full-time technical co-founder. That’s when I found Ben Fisher and that’s when we teamed up and the business changed trajectory. That first phase was just 12 months of doubt, pain, taking every credit card over the phone, and just doing it that way until it got a little bit of interest. Then I used that interest to parlay up into investor interest and then raise money. That’s when the next stage started for me.
Rob: That is crazy. That is also another case of serendipity in essence, right? Just a weird conflux of ATP and are asking you all that stuff and not getting you talking to some friends who decide to convince you guys around. What’s a trip is that’s when, at least the way I have it in my Google spreadsheet that I track my angel investments, I have September 2015 of writing the first check. My memory is you were around $5000 MRR at that time. Did you raise me on this?
I probably told you this in the past, this was a pre-Drip exit for me, so I had some money, but I was not in a place to be crazy with cash. I was still trying to grow Drip, and I was honestly trying to conserve cash. I had done a couple of angel investments prior to that. One of the things that I liked about what you were doing because we knew each other, you’ve definitely done Attendee Talks. I don’t know if you’d spoken at a MicroConf yet or not, but we had definitely hung out at MicroConfs.
The way that you executed, you just hustled. The whole cold email system that you explained to me at the time (and I was super impressed by that), the fact that you had scrapped as a non-developer founder to $5000 MRR in SaaS, which I knew is hard enough to do if you’re the one writing the code and doing everything. The other thing is the Bootstrapped Web podcast. I listen to you talk every week or most weeks, I guess. Three weeks out of the month. I was like this guy’s sharp. He just thinks about things in a way that I think makes sense. It felt to me like you were going to be successful. It was literally a bet on you more than even an abandoned cart.
I was like, an abandoned cart? Cool. I don’t know the abandoned cart space, I don’t know if there are 10 apps, I don’t know ecommerce. But if you’re telling me you think there’s an opportunity there—I’ve seen you execute on this—I want to be involved in this. That was a big piece of it for me.
Jordan: Thank you for saying that, by the way. All of us have these serendipitous moments come through. What I got good at over the years was just identifying how to take one small little thing and just keep parlaying that up into bigger things. That is a theme throughout the company. The way I found Ben Fisher, the co-founder, is he signed up for my product. He just had a cool email address, then I looked him up, and he sounded legit. I got on the phone with him and then impressed him enough to join me as co-founder. It was, again, a tiny little breadcrumb. I think all of us are surrounded by these things.
Building up the radar on knowing I should pursue this little tiny thing because there might be something bigger. I don’t know if it’s talent, skill, luck, or some combination of them.
Rob: I had said that post-launch/pre-product market fit for me was the most painful, agonizing part of the journey, do you share that sentiment, or were there times later that have been worse?
Jordan: Two stages from now was the worst for me. I’ll explain that. For me, stage two—post-launch—just felt like an extended torture session that I had to go through on the way to the next thing. I didn’t like it. It wasn’t for me. I would love to skip it on any other company in the future. It’s just something that I had to just deal with until we got somewhere better.
Rob: If you look at the State of Independent SaaS Report that we did or just look general on the internet and see revenue reports, most people don’t make it to the next stage. Stage one was pre-launch, stage two is post-launch/pre-product market fit, and stage three is product-market fit. Again, build something people want and are willing to pay for. For me, with Drip, keep in mind I also had an advantage that I had an audience at this time. That’s a big part of what got me to 10,000–12,000 without having to do the hustle and send the cold emails. I was able to lean on that audience for that initial kick-start.
Stage three I have as product-market fit. The numbers that I wrote down—this is starting to be from memories, so you got to give it a little fuzzy around the edges—is from about 12,000 MRR is up to about25,000 MRR. That was me and two W-2 employees. It was me and Derrick. As we were going through this phase, this is when Derrick and I started talking like you’re indispensable here. Derrick was starting about going off and doing his own thing because he’s entrepreneurial. That’s when we had to have that conversation about let’s figure out a way to make this work for everyone and make it worth your while, basically, to stick around so you don’t feel like you’re working a day job.
During that time, we hired a second developer. We were just building the product out. We were playing catch-up. We were first at launch to try to compete. We were just going to be like an email capture thing and autoresponders, then it’s like we’re going to compete with MailChimp and AWeber, and then we realized that the real market with the real money in it was—not that MailChimp’s not a real market with real money—that we could go up-market and compete against the Infusionsoft. At the time, it was Office Autopilot that later rebranded to Ontraport. It’s really not on most people’s radar anymore. Then ActiveCampaign was just coming about. They had been I believe white-labeled software, downloadable software. They were not really SaaS for that long before then.
We realized, wow, there’s so much more money the higher price points there. This product-market fit stage was from 12,000–25,000. We were building out the product and I was just trying to find repeatable marketing channels that extended beyond my audience because I really had exhausted just the usual my things. I call it a concentric circle marketing where it’s like first I’m going to talk to everyone who listens to me—my email list, Twitter, and podcast list. The next one out is my friends’ audiences, so I go on podcasts, I do that. The further out you get it’s like can I make content and SEO work? Can I drive cold traffic from pay-per-click ads? Can I do webinars?
This was a very scrappy phase of just trying to find repeatable channels that drove repeatable traffic. Again, at about 25,000, that’s when I felt like we had started hitting our stride, which is stage four. I won’t go into that yet, but I’m curious to hear how your product-market fit, essentially5000–$20,000, how that went, and how you think about it in retrospect.
Jordan: I remember when Drip launched. The power of getting off the ground. I remember because I was in the struggle at that time. I don’t know about the timing but I’m pretty sure we were under 10,000 in MRR. Once you get to10,000 MRR in 60 days really shows the power of an audience. We still see that these days. We see my podcast co-host and friend Brian Casel launching something with an audience. We see Adam Wathan and Steve and how much value they give. Whenever they launch a product it’s so much easier. I will remember that for the future.
For us, this stage, that 5000–20,000, was bookended with success at first and then failure toward the end of the stage. Right around 5000 is when we raised some money. We raised friends and family’s money. It was like275,000, and that allowed us to go full-time, focus on it, and hire two engineers. It was myself, Ben as co-founder, and two engineers. Those two engineers are still with the company, by the way. One of them is Rok who’s the CTO. The other one is Jan who is now on infrastructure.
We built something actually worth paying for. We improved the cart abandonment product and then I went on a search for a flywheel. Just something better than the cold email because as soon as we left the Volusion market, which is where I built my ecommerce business and it was really easy to email the owner of the company, cold email stopped working. Then we had to figure out a better way. What we ended up figuring out were partnerships. What we would do is we would do the integration with a platform, then we would try to do some co-marketing, and we hit onto this perfect situation with a platform called Cratejoy.
Cratjoy was a brand-new ecommerce company run by Amir. He used to work at Zynga, who’s super smart, and they were growing like crazy. Full-on hyper-growth was just crazy. Every one of their merchants kept asking them for cart abandonment email. They didn’t want to build it themselves, and I just stuck my head out at just the right time and said we will build it for you, and then you could just tell her customers that they could use us so you don’t have to worry about it. He was like that’s exactly what we need to do.
We did the integration and then what they did is they took us and just built us directly into their admin. Everybody that created a new account saw CartHook right in front of them and then a lot of people signed up. That ended up being so critical to the whole life of the company because as we started growing in this way, the failure bookend of this phase was really coming to terms with the fact that cart abandonment was just not going to do it for us. The market started to get crowded, everyone started to go cheaper, our differentiator started to get worn away.
Our thing was that we captured the email as soon as it was typed into the field, and only the larger, much more expensive solutions were doing it, and then everyone else started doing it. I just did not like the future of the company in cart abandonment, and that’s when we made the decision to build the second product. But we couldn’t have done it without the flywheel, specifically from Cratejoy because what it allows us to do is spend six months building a new product while the revenue just kept growing anyway.
Rob: You self-funded yourself out of revenues in essence. I remember the conversation where we talked on the phone and you said I see this opportunity that’s not cart abandonment, and I want to build a second product. I was like, shiny object syndrome. I was like you need to convince me. Every founder ever wants to build a new product, why? You convinced me. My memories were like look, this is super risky, it’s another product. You now have to go find product-market fit again, but you’re mired in this every day and you’re thinking about this 100 hours a week. This is where you want to go with it, then you got to trust your gut. This is that founder gut-check moment.
Jordan: Yeah. It was very risky but I pretend to be more risk-loving than I really am. I always want to protect the downside. In many ways, I’m risk-averse, but I want the cake and to eat it too. I want to take additional risk while also protecting the downside. That’s the situation I found myself in when we said at the very worst, this thing’s just going to keep growing but slowly, because of the flywheel we’ve built. Even if we take this risk, at worst, I pare everything down. It ends up as two people doing 20,000, and we can survive. It was definitely a huge risk to take to build a second product with a team of four people and100,000 in the bank.
Rob: You had this cart abandonment app that was thrown off, let’s say, $20,000 a month and you used it to build the second product. You want to tell folks what that was and why you saw an opportunity there? Why was it unique? There was timing involved in this.
Jordan: Yes, there was. That’s right. Here’s what was happening. Everyone knows Shopify now and the incredible success story rocket ship like ridiculous performance that they’ve had, especially since going public. When we were in the ecommerce market, this was four years ago, Shopify was becoming successful and being talked about, but it was not the clear, straightforward, obvious winner in the market.
What was happening was as Shopify got better at making it easy to launch a physical product business and the ecosystem around it of fulfillment and importing from China, all these things started coming together in such a way that made selling physical products almost as straightforward and hands-off as selling digital products.
What that did is it started to attract all the marketers that were traditionally in the digital marketing space selling courses and e-books, it started to attract them into the physical product world. It is much easier to sell a physical product than it is a digital one in many ways. You put a picture of it on the site, you write some copy around the benefits, you put a price, and then there’s a buy button. It is much more straightforward than a digital book that explains how to do X, Y, or Z. That started attracting people, and at the same time, ClickFunnels was exploding.
The reason ClickFunnels was exploding was because it was building products in the market of those traditional digital marketers, but it was showing them how to very easily build things that sell physical products. The problem with ClickFunnels was that it didn’t have the infrastructure on the backend like inventory, fulfillment, and shipping. It just had a great system to just put up a landing page and be able to sell, most importantly to sell with post-purchase upsells. What people were doing is they started selling physical products on ClickFunnels. They would find success, but then they would run into the issue of not having enough infrastructure to do fulfillment, shipping, and so on.
They were dealing with CSV exports and losing their minds. Then they went over to Shopify, which had a much better system for selling physical products. But when they did that, they lost a lot of the marketing strategy functionality around the checkout and post-purchase upsells. There was just this huge pool of marketers that wanted to sell on Shopify with the post-purchase upsell functionality. That’s what we saw as the opportunity. If we build post-purchase upsells and a customizable checkout for Shopify, all of these people that are currently on ClickFunnels and want to come over to Shopify will come over along with our ability to provide them what they want. That was the moment right there in the market.
Rob: That was the right bet based on your growth since then. It’s a trip, and you no longer have the cart abandonment functionality at all, right?
Jordan: That’s right. We sunset it from the public eye, maybe 6 or 12 months ago, and we just left some of the merchants that wanted to stay on. It is amazing how long people will keep software around if you keep making them money. We haven’t touched the thing in three years, but we still have people paying us $100 a month because it keeps making them money.
Rob: It’s back to your initial premise of I paid 3000 or4000 a month, or I made 3000 or4000 a month from this software, and I was never going to cancel it as a merchant. That’s the thing.
Sorry to break in here but that is the end of part one. To recap, Jordan and I talked through the pre-launch stage, the post-launch/pre-product market fit stage, and the product-market fit stage. Part two that comes out in about 48 hours, we will cover the remaining stages of SaaS growth. Thanks for listening. I’ll talk to you then.
Episode 477 | Assessing Product-Market Fit, How to Find a Mastermind, and More Listener Questions with Brian Casel
In this episode of Startups For The Rest Of Us, Rob and Brian Casel of Audience Ops, answer a number of listener questions on topics including assessing product market fit, finding a mastermind and more.
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This week, Brian Castle joins me on the show. We talked about assessing product/market fit, how to find a mastermind, and answer many more listener questions. This is Startups for the Rest of Us episode 477.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing ambitious 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 our experiences to help you avoid making mistakes we made.
Welcome back to the show. We have a listener question episode today, Brian Castle, who you may know from BootstrappedWeb Podcast. He was also on the show just a few weeks back talking about his experience growing a productized service called Audience Ops. It’s a content creation service that he grew, then had a 40% decline in revenue, and then built it back up through 2016-2017, and then he taught himself how to code and has since launched an early stage SaaS called ProcessKit.
Brian has a myriad of experiences under his belt. He’s still an early stage SaaS founder but he has a lot of productized service experience. He’s a blogger and podcaster. I enjoyed the conversation today. I felt like we attacked some pretty interesting questions in a very Startups for the Rest of Us kind of approach—building the ambitious startups, being meticulous, disciplined, repeatable, taking on these questions in a pragmatic way, and answering in a way that we would approach them.
Before we dive in, I’ve had a few questions about what I’ve been up to lately. I think the biggest thing I’ve been focusing on is TinySeed batch two. Applications closed about a month ago. I know I’m having a ton of conversations with the founders of companies who applied to be part of TinySeed and that’s been super exciting. Moving on that process, it’s super time consuming but it’s critical to making this whole ecosystem work. I’m just really digging in and spending a lot of time on that in addition to working on MicroConf stuff.
In fact, to the state of independent SaaS, the survey that we ran a couple of months ago, that report is almost done. We’re putting the finishing touches in the next week or two. I’m going to be doing a live video presentation of the high-level findings and the most important findings of it here in just a couple of weeks at the end of January.
If you’ve already responded to the survey itself and included your email, we’ll certainly notify you once that’s available. If you’re not on the list, obviously, microconf.com, that would be the place to get on that list. I think it says “[2:42] SaaS report” or something in the header, there’s a landing page where you can find about that. Whether you come to the live video event or not, we will have a full PDF report of that that will be made available.
There’s some crazy, interesting, findings. I’m super stoked to be digging in this data. I have this mental model of how these all shakes down but to actually have data to look at and to sift through, and to see which of my assumptions, and my experiences match up with that, and which are, perhaps, contrary or countered by the data has been super fascinating. I’m enjoying it a lot. I can’t wait for us to share that with you and the rest of the MicroConf community.
With that, let’s start answering questions with Brian Castle. Brian Castle, thanks so much for coming back on the show.
Brian: Hey, Rob. Thanks for having me on.
Rob: Absolutely, man. We’re going to answer some questions today. I think you said the Question & Answer episodes are some of your favorites. Is that right?
Brian: Yeah. I was just going to say yeah. This is one of my favorite types of Startups for the Rest of Us episodes. I’m excited to dive in.
Rob: It’ll be fun. I’ve already reminded people in the intro of your areas of expertise and everything. We have some voicemails to kick us off. We actually have a comment; there’s an interesting one about how to accept payment by check in a clever way that I had never heard about. I’m really interested to hear…
Brian: I saw that one.
Rob: … your take on it. I was like, “Hey, I learned something. That’s great.” Let’s kick us off with our first voicemail which is a question about the product market fit survey.
“Hey, Rob. This is Daniel from [00:04:13]. I’m curious whether you ever come across the product/market fit survey methodology and what your thoughts on it might be or if there’s other quantitative number-based survey methodology you’ve used to assess customer feedback? Thanks a lot.”
Rob: To give listeners a little bit of an idea, I’m pretty sure he’s talking about the Sean Ellis’ product/market fit survey which is one question and then with a follow up and it’s, “How disappointed would you be if this X product went away? You’re no longer able to use X product.” The answers are: Don’t care, mildly disappointed, really disappointed, somewhat disappointed. It’s four or five different options. If someone selects the top two of being really disappointed or incredibly disappointed—the topmost severe disappointment—if at least 40% of your current customers select that then Sean Ellis said that’s when he deems you have product/market fit.
I like this survey. I respect the hell out of Sean Ellis; he’s a great growth marketer. I like this survey because it gives you data and information. I think one of the cons is I don’t see the product/market fit as binary. This makes it look like, below 40%, you’re not; above 40%, you are. I feel more like it’s a gradient where it’s a spectrum of having product/market fit with certain audiences and often times, you have a little bit of a product/market fit but not a lot. When you start getting a lot, you really, really, know it.
With that context for the listeners, I’m curious, Brian, to hear your thoughts on this.
Brian: I definitely, completely, agree about what is product/market fit and that is not binary, 100%. We don’t have a lot of context in terms of what the questionnaire wants to use the survey for. What’s its current situation? Is it a new idea? Is it doing customer research to validate it? Or is it an existing SaaS with 1000+ users and maybe considering doing a pricing change or something? What is the goal for using that sort of survey?
I think the usefulness of it really depends on different situations. Without knowing that background, I have a couple of thoughts on this. I really do like using surveys in general. I’ve seen that one. I’ve seen different versions of it. There are all sorts of good questions that you can include but I always want to really stress that it’s really important to couple pure data from surveys especially if you can have enough responses to have meaningful data with actual conversations with customers. You’re really going to find much more real information from actual conversations or just understanding the language that people use or their body language and things like that.
One thing I do a lot in all of my products, especially early on during the validation stage but even ongoing, I even put this into an automation flows that happen all year long where a person gets a survey, asks a few questions like that like, “How did you hear about this? What’s the problem you’re trying to solve? What are the current solutions that you’re currently using for? Currently paying for?” A lot of those I actually have free form text answers. I could use multiple choice and you can get harder data that way. But I like freeform because it gets them at least typing. Then I can read those responses then I’ll handpick the ones that just gave a lot of information. They seem really into this problem and they want to answer questions about it. Then I’ll personally invite them to call us. That’s usually the flow—survey to reading their responses to picking out people then talking to them.
Rob: Yeah. I think that’s a really good way to do it. I agree with you that talking to customers is going to get you so much more contacts than a survey. With that said, I should’ve Googled this survey before, so I wasn’t stumbling around describing it. The question is, “How would you feel if you could no longer use the product name?” There’s only four choices. I remember there being five maybe it changed over the years. But it’s very disappointing, somewhat disappointed, not disappointed, not applicable, and no longer using the product. It’s a 40% or more say very disappointed.
I’ve run this survey with three and maybe four different products. I remember it being harsh. HitTail was growing very quickly. Everything was working. It was a smaller scale app. It peaked in low-mid six figures of annual recurring revenue. But it was growing and it seemed like people were using it. When I did it, I didn’t get 40% that were very disappointed. I think it was 25%-29% range. I remember being pretty shocked by that and also disappointed. I remember running it with Drip. I’ve run it with two others before that. I have no memory of what the answers were.
I remember running with Drip. This is when Drip was really starting to take off, it was starting to grow very quickly, and I knew we were onto something. People were coming in, and churn was really low. I think we might’ve hit negative at that point. We sent this out. I remember being just like, “Oh. This is going to be a 70%.” I think it was a 43%. I remember being shocked. It’s a harsh judge. I guess what I’m saying is this, it really is a high bar that if you get near 40%, you’re probably doing pretty well with your product.
Brian: Yeah. Especially, since it’s just one question, it’s sort of like jumping off point to go dig in deeper. It’s like, you do the survey, you get the data back. It’s below 40% or above 40%. “What does that mean?” I don’t think that should mean, “Let’s go change everything and the product now.” I think that should mean, “Let’s go talk to customers.” Then understand what the underlying issues are that leads to that number.
Rob: Yes, indeed. All right. Our next question is from a longtime listener and many time MicroConf attendee, Andrew Connell [00:10:10].
“Hey, Mike and Rob. First, kudos to Mike for being so open and honest about Bluetick and what you’re working through. Hearing what and how someone else is working through the issues that you’ve got such as what you’re doing is one of the most hopeful resources for the rest of us. Thanks a lot, good luck, and keep it up.
Now, for a bit of a show feedback, and questions, I love the new format. Change is always good and it’s nice to see the change. From a fellow podcaster who’s been doing this for six years on my show, I like that listeners develop a connection to the host. A change in the format is just like moving houses; it’s still in the same family, but the environment has changed. Well done and keep it up.
This podcast, this community, and MicroConf has done a lot for me since discovering it six years ago. However, I now feel like a fish out of water. My business is in info products. Mostly, one-time sales but some description stuff. It’s not something I’d call SaaS though. This is an awesome community and dominated by SaaS businesses, topics, questions, tactics, etc. MicroConf even feels more like it’s microSaaSconf these days and that’s coming from a four- or five-time attendee. I’m sure there’s plenty of stuff that applies to different businesses, but I suspect you get my point. I don’t want you to take that as a complaint or a gripe. It’s just an observation. Maybe it’s unfair but I’m a firm believer in doing your thing. You guys keep it up and do what you’re doing. I’m curious on what you would think about this.
My question is more about advice on other communities to explore. Over the last year, I’ve been looking into the different conferences trying to find other podcasts and communities niching down to just the info product world. Info products and non-SaaS businesses have some very specific challenges. There had been other challenges that SaaS businesses have. From the last few years of MicroConf, I suspect that there’s a pretty good tight of community because we bond together and have a pretty good side of meetups and dinners of considerable sizes. Maybe I’m wrong or maybe there are other listeners who hear this commoner question who may identify with it as well.
I guess I should have told you who I am, I forgot to mention at the beginning, this is Andrew Connell from [inaudible 00:12:10]. Keep it up and just curious to hear what you guys think about this. Thanks.
Rob: What do you think, sir?
Brian: Yeah. A few things, I think within the MicroConf community, people might be surprised even though it clearly has the emphasis on software and SaaS. That’s certainly true from the speakers and the overall themes of these conferences. I can personally say for sure that I’m friends with multiple people who return to MicroConf every year and they do not own SaaS businesses. They ran ecommerce businesses, I know some info product people, and those who are in that community. I think that’s a really good thing. I think you can still find those people within MicroConf.
Outside of that, one to consider would be Dynamite Circle from Dan and Ian from the Tropical MBA podcast. I was active in that for a while; not so much recently. That community is pretty sizeable similar to the MicroConf community as well. It has a wider variety. There are some info products stuff. There’s ecommerce folks in there, some stuff related to travel, and working from anywhere. That’s a good one to look into. I don’t know about info product stuff specifically in terms of communities, that could be hard to find, but those are my thoughts.
Rob: Yeah. Tropical MBA or Dynamite Circle is what I was going to suggest as well. Good community. I’ve always considered them like a sister podcast to us. They’re more about being a digital nomad but also have a nice variety of e-com and content websites. There’s a lot of Amazon and ecommerce sellers. There have been some WordPress folks and even some SaaS folks who straddled both lines. Like that community. I spoke at their event at Bangkok in 2014, I believe. It had been a long time. I admire what they’re up to.
There is a Rhodium Weekend or Rhodium. The Rhodium community from Chris Yates is very authentic community similar to MicroConf in the sense that Chris has just groomed it over the years. There’s just a lot of good people. That’s more of a buying and selling website but there are definitely folks there who do info products.
The thing is that then you get into the internet marketing stuff. You can look at DigitalMarketer and the digitalmarketer.com from Ryan Deiss. That’s an online training. I believe they run traffic and conversions. You can go to that conference. It’s more about marketing and less about the product. That’s where software and SaaS are pretty unique. We do get together and geek out about our products in addition to other things. The product is the thing that unites us.
Whereas Dynamite Circle, it’s not the product you have. It’s more of the travelling and going against the standard script of the rest of the world. That’s the unifying factor. Whereas with eCommerceFuel—and other community—they are more like us where they unite around ecommerce. I would agree with you that I still think that we do get info product questions. I have a course although I took it off of Udemy because Udemy, I don’t know if you’ve seen it lately, but it’s kind of a train wreck as a seller. They just keep changing the terms. It was more headache than it was worth.
I had a course on there about hiring BAs. I have multiple books. I’m a big believer in info products especially in that stair step—that step one to get you to the point of quickly buying out your time. I think they’re fantastic. For me, personally, long term, that recurring revenue, that growth, that high sales multiple, if you just had to sell, that’s the beauty of SaaS. That’s why I think so many more people aspire to run a SaaS company than aspire to run an info product empire. I also think there’s a lot more opportunity and there’s just a lot more people successfully doing it.
Obviously, there are folks, yes, can you make a $100,000 or $200,000 or $1,000,000 in an info product launch? Of course. We see people doing it. But they’re really few and far between. It’s a hamster wheel of content creation. Again, it doesn’t have the sales multiple that SaaS do and all of that stuff. I think they’re fantastic for a certain purpose, but I haven’t come across a whole community that is united around just building and aspiring to do info products.
Brian: Yeah. I’ll just add one shameless plug here if you don’t mind. I run the Productize which is a course but it’s also a community. We’ve got a pretty good Slack community in there now. It’s for people who are primarily consultants and they’re looking to step up to running a business with the team and a productized service business. There are folks there who coupled that with training program. There are some software people, WordPress people in there too. You’ve got a good little chat going in there in the Slack group for people who are going through that transition phase, so that’s another good one.
Rob: Glad you mentioned it. productizecourse.com is where you’ll go to find out more about that. Thanks for the question, Andrew. I really appreciate it. I hope to run into you at the next MicroConf.
Our third voicemail of the day is an interesting one. It’s about building a very similar app and making it more stable. He’s wondering if that’s competitive advantage worth pursuing.
“Hey, guys. I want to start by saying thank you for the work that you put into this show. I find it to be truly inspirational so keep up the good work. I’m working on my first SaaS app. I’m a web developer by day. I work on it on nights and weekends. The idea for the product actually came from my wife. She works in a totally separate industry and interacts with a certain SaaS app on a pretty regular basis. One day she was describing to me how frustrated she was with this app. It was slow, unintuitive, and sometimes experience downtime during the middle of the day.
I sat down with her to take a look at it. It really seemed like it was on a shaky foundation from a technical perspective. However, it’s the only product that meets the specific needs that it solves which is why her company uses it. Our current working hypothesis is that if we build a more stable, intuitive, and functional version of the app that has feature parity, we will have enough differentiation to break into the market. What’s your take on this? Do you think functional superiority with the same set of features is enough to differentiate us? Or should we be thinking about extra features that would set us apart from them? Thanks, appreciate it.”
Rob: Mr. Castle, what are your thoughts on this one?
Brian: Yeah. It’s a good question. I like the fact that your wife is a user of this other software so you have that really close used case where you can get that personal research into how she and the other members of the company use the product. That’s always good. You probably want to expand beyond that and maybe talk to her coworkers or other people who are using it. I also like the fact that there is this solution out there in the market. It proves that some people do buy the solution, but it’s not overcrowded from what it sounds like.
I would also just have the question in your mind to understand how easy it is to reach that market. I don’t think you mentioned what type of company it is or which industry it is. Even though you might be able to build something for that market, how easy it is to go find other people who are in your wife’s position in other companies throughout the world or throughout the country or the region? I think that gets to that question of product founder fit.
Sure, you might be able to build the same product or achieve feature parity, but do you have the inroads or the communities or the channels to be able to reach those people? I know there are enough of them. I think that’s something you can certainly vet out over the next few months.
Rob: Yeah. I like the pros you pointed out. I think the fact that they proved the market out by having this app is good. I’ve mixed emotions about this one. I think you need to ask more questions. The first question I have is we can all, with our high standards, and our impeccable taste in UX, and usability go use an app and say, “Oh my gosh, that app sucks. I could build it better.” Do their users care at all? Do they care at all? Do they care one bit?
An example: I was a contractor/contract developer for a consulting firm that was redoing an app for the Los Angeles County. They spent a million bucks and they paid us to build all these stuff. The old app was literally a main frame, it was a terminal app that they would log into. The UX is typing. It was just wasn’t particularly fun, it was hard to train people, it was a pain in the butt. The delete key didn’t work, command this didn’t work, there was no undo, there were all these things you couldn’t do.
We built a modern, quick web front end on it and a bunch of the users were either so used to the old UI that they were like, “Oh, I used to like type this and then hit three tabs and it got me to the other thing and this doesn’t do that.” I’m like, “Yeah, you don’t need to do any of that. You just do one click and it auto populates from this XML import.” They’re like, “Oh well, this just seems complicated.”
Change is hard—I guess is one thing—and also, a lot of people just don’t care, and they’re used to using something. That’d be the first thing I would really try to stress out is like, “Does everyone at your wife’s work, are they complaining about this software and just dying for a better solution. Do they really, really need something better or do they not care?”
Second thing I would ask is, what are switching cost? Because without knowing that, if it’s just an export of a CSV and an import of CSV and everything is set up, awesome. But if its switching cost is to retrain someone or retrain your whole team on it and move a bunch of data and do a bunch of other stuff, that’s tough. If everyone’s on annual contracts, that means you only have a once a year when you can basically get to those prospects because they can’t just cancel for the next month. Once they’re on a year contract, they won’t get there. Think about switching cost and I would inquire about those.
The last one is one that Brian brought up, and it was a first one that came to me is you build a better product, can you get in front of the users? What are the traffic channels? How expensive are they? Are these people online? If they’re not online, you’re talking about customer pain. I’ve talked about competitor pain and customer pain, in this case, you probably won’t have competitor pain. You’re going to be the pain to your competitor because you’re going to build a better product. But you will have customer pain. Or could feasibly have customer pain if it’s more of a brick and mortar type business where you can’t just run some Facebook ads or do some content marketing and generate a bunch of leads where it’s literally cold calling or going to the events or whatever.
Since you haven’t told this about the industry, we’re just completely conjecturing here. I’m not saying you shouldn’t do it, but these are the three yellow flags or the three big questions I would have with just doing this approach. But can this approach work? Absolutely. Look at what Xero has done competing against Quickbooks, most people don’t like Quickbooks and Xero built a web-based admin or a web-based competitor to it. I think the fact that there was Infusionsoft and then Drip and ConvertKit and all these other tools were able to come in and do similar things, that’s what we were doing. We’re trying to build easier-to-use, more modern with the integrations we wanted, just a more pleasant experience overall and it worked. It can definitely work but I think you need to answer some questions before you dive in with both feet.
Brian: Yeah. Just one quick thing to add–kind of a low hanging fruit. First thing to do on that last point to figure out how could you actually reach this market. A question to ask your wife is to understand how her company bought the software that they’re currently using. Whether she bought it or a manager or somebody else was the decision maker. Did they go through an enterprise sales process or did they just Google and find the website and buy it that way? Did they pay monthly, did they pay annually? I think those are better questions to understand than even how the product works, to understand what you’re actually getting into.
Rob: Totally agree. That’s a good point. Thank you for the question, hope that was helpful. Our next question is not a question, but a comment from Kenneth Caw and he has written in a few months in the past. He says, “Hey, Rob, enterprise sales guy here wants some help,” and he has actually written in when I had David Heller on the show to do a hot seat about enterprise sales and he had written in with a bunch of good suggestions. He says, “A lot of people don’t know this, but Stripe actually released a way to receive payments by paper check this year.” This was a question that I believe in the Laura Roeder Q&A episode. We were asked, “How do you manage paper checks and how do you keep track of them and this and that?”
He’s pointing now Stripe can do it. He said, “This makes things so much easier since they provide your customers and the address for the check to be sent to, receive and process it on your behalf.” That’s crazy. “Coincidentally enough, we used to do the same thing as you did with Drip, which is to set a discount code to the customer in Stripe and then put reminders in and then check it. When payment is due, once a year, we deal with six figure checks sometimes, so this has been a total efficiency improvement since Stripe deals with the invoicing, follow-up reminders, analytics tracking, repayments, etc. Best of all as a remote company, we don’t need to depend on someone making a trip to our company’s PO box to look for the check.”
I’m not sure why Stripe doesn’t advertise this enough, but you should let your listeners know about that. Since all one has to do is simply enable a checkbox—pun intended—in Stripe, which saves us bootstrappers precious time and resources managing this. Plus, it gives you an additional reason to deal with enterprise customers that want to do pay by checks.” Big smiley face because Ken is of course an enterprise sales guy.
Thank you so much, Ken, for writing in. Did you have any idea about this, Brian?
Brian: I had zero idea about this.
Rob: I never heard of that. That’s a great service. When he said by check I thought he was going to say, and his subject line is this payment by check, use Stripe. I thought he was going to talk about e-checks where it’s like just an ACH thing where you get the routing number. But I mean literally, an address the mail to check, that is bravo, Stripe.
Brian: That really is pretty incredible. I knew about the ACH thing. I kept promotional emails from Stripe. I have not received anything about this feature. It seems like a pretty killer feature.
Brian: I’m curious about your thoughts on accepting checks in general. I’ve seen this in my business in Audience Ops, I’ve had quite a few leads actually, ask for the ability to purchase our service using a check or having us invoice them and then them paying us like a more traditional agency or consulting model. I’ve refused those. We only stick to credit card and debit cards through Stripe subscriptions. I know for a fact that I have left some money on the table because of that, but I opt that way because I just don’t want to deal with chasing people down for checks in the mail.
Rob: Yeah, that’s the tradeoff. At Drip, once we started accepting checks, it was late, it was after we had a much larger team. There were salespeople that could manage it. That really is what it is. It’s like putting something on your calendar to remind you to check in with someone. But the bigger thing we did is we just said we had a minimum for a check. If I were in your shoes, I would only accept it for annual prepay. I would not do it on a monthly basis. It’s like, “Hey, if you really want to pay via check, then you gotta pay 12 grand all at once or 24 grand or whatever the price point is.” That would be how I would approach it at your scale because it’s not a requirement.
But yeah, once you get up in the 25K and up, maybe even 20K and up annual contract value, you need to start doing that at least in the B2B SaaS base. It’s great that Stripe accepts it. Obviously, it’s enough of a pain point that they started doing that. They wouldn’t have done that if people weren’t asking for it. But I also think then I wonder it says, they’ll take care of all the reminders and all that stuff that’s pretty fascinating. I’d like to almost investigate this a little more because again, we had to hand build something that reminded a salesperson to reach out and make sure that the check came through.
Brian: Yeah, for sure. The other thing that I would at least keep in mind for my business is that we’re a recurring service and that’s part of the reason why we don’t do checks is that we need the payments to keep coming in so that our team keeps working. If there’s a delay, then we would need to know to pause the service for a period of time. I guess if this works automatically through Stripe and then Stripe can just mark it as unpaid or paid, then that can be your indicator.
The other question that I would wonder about is international payments. Because that’s sort of a headache that we’ve seen just because credit cards internationally tends to decline, especially for higher dollar amounts more often than like US-based for whatever reason. We’ve had to fix failed payments more often with international. I wonder if this could somehow help that. I’m not sure.
Rob: My guess is no. I’ve not even Googled this, but international checks are so complicated with the banking that I would guess that would be a V2 if they were going to try to tackle it. There’s also big fees attached to it with sending checks and trying to cash them. If you send a US check to a Canadian or vice versa, there’s this big fee they charge to do that internationally. We experience all the same stuff you’re saying with the international credit cards being declined more often than that. I don’t think this would help.
Also, one other thing to throw in is, I wonder how much Stripe charges as a fee for doing that. This is something to think about. If you’re signing a $30,000 annual contract, a 3% fee on that is $900. That’s where it starts to make sense to maybe take a check because you can basically cash that for free. If Stripe’s still charging 3%, you have to think about that, but if it’s more like ACH where it’s half a percent or 1%, this could totally be worth it.
Thanks again for the info, Ken. Always appreciate your insights. Next question is from [Mereck 00:29:46] and he says, “Hey guys, great show. Would love to get your thoughts. I’m a cofounder in a small software house.” I think he’s an agency. Because they’re consulting from their hired hourly or by project. “The issue is that my cofounder doesn’t help company anymore. He made some significant contributions in the early days including his know-how, some money investing directly and working for free. But right now, because of an unplanned change of direction in the company, and a change of the market situation, we can’t find paid work for him. Not because he does not have value to give to the market, but for now the company is too small for two founders/CEOs.
He was upfront about his expectations about work and skills in the company and he still help out a few hours a week for free. No hard feelings between us, we aren’t looking for a legal resolution. I’m wondering if we should wait for the company to grow, if we should return him the money he invested, buy out his shares, or what you think? Thank you so much for your thought.”
This is an interesting one. We don’t often get a lot of too many consulting questions. But I feel this could happen with a SaaS startup. Skills no longer and neither might be an interesting one. I guess if you’re a salesperson, co-founded it and then you decide to go way down market and not need sales, that can be something. Curious if you have thoughts on this, Brian.
Brian: This one is tough. I don’t know all the details on this. One thing that stuck out to me is that he talked about refunding the money that he invested. I guess the partner’s actually put up some of their own cash other than just putting in their time. If it were just time and you’re talking about giving him compensation for the time that he spent, that’s a tricky one because you should have some agreement going into this thing that, “Hey, we’re all investing in this idea. We don’t know if it’s going to go anywhere. There’s no promises.”
Then there’s the question of, how was the initial partnership agreement drawn up, if there was any, which there really should, generally speaking. And there’s the concept of vesting and a vesting schedule. One model that I think we’ve seen recently is the user list. You spoke to Jane about this, is that right? They sort of paused her vesting so that her initial time was still–that value remained, but then from a certain date going forward, she’s phased out a bit. That’s one model to look out.
Rob: I think consulting firms don’t normally vest, but in this case that would’ve been super helpful. If he was above a certain number of hours per week or whatever he was vesting and then at the time that he leaves then yeah, you do, he either leaves it in until it grows. It’s up to him. If he owns 10, 20% of the company and he only vested that much, then he could say, “Hey, please buy me out.” And then you have to figure out, “Hey, we can buy it out over a year or two. We can pay this much per month out of cash flow.” Or if he wanted to grow, he could gamble and leave it in and expect the company will grow and it’ll be worth more when you get there.
I believe our consulting firms, obviously, there’s going to be a range, but I think valuations are around one times annual revenue. I don’t know if it’s looking ahead or looking back. I’m not exactly sure. But someone in the community might have more info on that. But I know the multiples compared to SaaS is pretty low because it is just hours. It’s a […] for hour-type thing.
Brian: Recurring contracts can help improve that.
Rob: Exactly. But assuming that he’s fully vested, and he owns a third or half of the company, I really do think it’s a conversation. I don’t think there is anything you should do here. I think it’s up to the two of you. With consulting firms, they can have pretty good profit margins. The cash coming off could be used to buy him out. I think that’s probably the long-term play. Say, you don’t have someone with stock who really isn’t working on the business.
The hard part is how to value if he’s doing all this work for free. I don’t know how you guys figure that part out. It’s just what’s fair there? Do you agree on hourly rate and try to estimate? Or is that just what created the value in the company and his stock reflects the value of that in essence.
Brian: Again, we don’t really know all the details here, but if it’s purely consulting and the work that he was involved when the work existed was just consulting project that started and finished, then I think that the question is, “How much does his contribution to those projects live on after he stops working in the company?” I think the simplest view is split whatever revenue came from those projects 50-50, whatever your partnership agreement was, and then new projects going forward that he’s not involved in, he doesn’t really have a part in those. That would be a simple way to look at it.
The other thing to consider depending on how big the numbers are that we’re talking about here and everything else, you might want to just talk to a third party. I know that there are professional arbitrators, but there are people in this community who…
Rob: It’s like mediators. That’s a good way to think about it is to get someone, other party, to just give you guys some direct advice knowing all the details because that’s the problem is, I think there’s some gaps here. Hope that was helpful, [Mereck 00:35:03]. Wish you the best of luck figuring that out.
Our next question is from Fred Myer and he’s asking for some advice for finding or starting a mastermind. He says, “Hi, I’m a web developer and owner of two lifestyle businesses looking for a mastermind to start or join. The easy to Google options don’t seem attractive. Do you have any advice on finding or starting a good mastermind?”
I’m going to assume that since he’s a web developer, he’s looking for a software-oriented mastermind. My recommendation is always Ken Wallace’s mastermindjam.com if you really have no network. My first recommendation is always, go to your network, go to events, be part of the Startups For the Rest of Us and the MicroConf community and you’ll find people. But if you haven’t done that, can’t do that, whatever, MastermindJam is a good alternative that Ken matches people up. What do you think, Brian?
Brian: Yeah. Totally agree. I recommend MastermindJam all the time. I also recommend going to conferences like MicroConf, like the upcoming MicroConf locals, that should be a good one too for this. Yeah, just getting into communities like that. In the past, when I was really early on in this industry and I didn’t know too many people, I had a bit more focus on my local community. I would go to local meetups. At the time I was into web design and WordPress, I went to local web design and web development and WordPress meetups. I met some really good friends through that. That turned into local mastermind groups.
These days, I’m not in a weekly mastermind currently like I was for a while. But my mastermind group now was borne out of the MicroConf community where we do TinyConfs a couple times a year. We all fly to one place and have a deep dive. We chat on Slack throughout the year. I find that that’s a good format for me right now.
Rob: Yeah. I think that makes a lot of sense. Sir, we are all out of time for today. If folks want to keep up with you, they can head to, let’s see, there’s productizecourse.com, there is audienceops.com which is your productized service where you and your team create content for content marketing for folks on a subscription basis, and castlejam.com, is that your personal website?
Good. Good call. Are you still @casjam on Twitter?
Brian: Yeah, my teenage AIM screen name lives on through Twitter.
Rob: I know. I registered software by rob.com in 2004, 2005 and started blogging. It’s like, “Why didn’t I just registered my name?” Maybe it was taken or maybe I didn’t think about it, but years later—it was literally in the past, probably 18 months—finally, I bought robwalling.com from the previous owner and redirected in it. It’s just so much easier. It’s so much more memorable. It’s like once people remember your name they can find you versus trying to remember this derivative of your name.
Brian: My whole life I’ve had people mispronouncing and misspelling my last name because they think it’s like the word castle. But then in recent years I’d have people mispronounce or not understand even what casjam even means which it doesn’t really mean anything. I just got sick of explaining that whole thing. It’s my name. That’s where my blog and newsletter and links to my podcasts and products and all that’s on there.
Rob: That’s the center. Very cool. If folks, they listen to this podcast, they will like the Bootstrapped Web podcast where you and Jordan Gall chat every week or so about this kind of stuff. I’m a long-time listener, long time first time; long time listener, first time caller. Anyways, alright man, I’ll let you go. It was a pleasure having you.
Brian: Yeah, good time answering these questions. Thanks for having me on, Rob.
Rob: Absolutely. That wraps us up for the day. If you have a question that you want answered in a future episode of the show whether by me or a guest, you can leave us a voicemail at 888-801-9690. You can email firstname.lastname@example.org. Obviously, you can have just plain text in there, you can attach an MP3 […] Dropbox link to an AIFF. You know the drill.
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Episode 472 | From Amazing Launch to Near Bankruptcy to Profitability with Shai Schechter
In this episode of Startups For The Rest Of Us, Rob talks with Shai Schechter of RightMessage, about his amazing launch and then finding himself near bankruptcy and how he was able to right the ship.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, I follow a journey from an amazing launch, to near bankruptcy, to profitability with Shai Schechter of RightMessage. This is Startups for the Rest of Us Episode 472.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing startups, whether you’ve built your fifth start up or you’re thinking about your first. I’m Rob and today with Shai Schecter, we’re here to share our experiences to help you avoid the mistakes we’ve made.
Welcome to this week’s episode. I’m your host Rob Walling. Each week on this show, we look at ambitious startups, founders who are looking to make a tiny dent in our corner of the world and maybe that only impacts the five people around them or the thousand people that use their app, but it’s folks who want to build interesting things and have a greater purpose, that is around building something larger than themselves, but they are not willing to sacrifice their life, their health, or their relationships in order to do that.
These are not the typical Silicon Valley startups where fundraising can be a goal at itself and where people build slide decks instead of building businesses. We want to build real businesses with real customers who pay us real money. Along the way, we like to be meticulous and disciplined such that we can build these businesses over and over. We find repeatable ways that work over and over and it’s not just a luck shot. It’s not hitting the startup lottery that allows us to build successful companies.
I just got back from a three days on the North Shore of Lake Superior. That’s about a three hour drive north of where I live in Minneapolis and I got a little room in a lodge with a fireplace and a Whirlpool tub. I had this great view of Lake Superior and you can’t see the other side of Lake Superior because it’s so big. Aside from the waves, when it gets windy, there are only two-foot waves, three-foot waves. Aside from that, it really does feel like you are on the Coast of California or the Coast of Oregon. It’s this coastal feel to it.
It was great for me to take a step back and to basically have a personal retreat and to reflect on what’s been going on over the past 18 months. I used to take retreats like this every 6-12 months. Something Sherry and I have both done over the years. I’ve really fallen off the wagon in terms of doing that to my detriment. I don’t remember the last time I took even three days away from the family just thinking. It was either 18, maybe 24 months to go. I really did enjoy my time away. I feel like it allowed me to think. Of course, some work stuff crept in, but I just wrote that down or sent it to my Trello board.
The deeper thinking, the high level thinking about both my personal growth along with growth within the family as a father and a husband, as well as growth at work and where we are taking TinySeed and Microconf and the podcast over the next 12-24 months. That was the high level visionary thinking that I really wanted to get done and it was super fun. I like thinking long-term and then coming back all motivated.
So, here I am back in town and I’m raring to go tomorrow morning once work kicks off. While I was off at the North Shore with crappy wifi, I recorded this interview with Shai and I think that Zencastr did it’s job. We’ll know in the final recording, but I think it will come out and you won’t even notice that there were times where it came in and out and I eventually had to pair with my phone.
As I have said before, the show must go on and that we should appear every week on Tuesday and even some weeks on Thursday. I hope you have been listening to and enjoying TinySeed Tales. If you haven’t already pinged me about Tiny Seed Tales, if you listen to it, I would love to hear your thoughts, positive and constructive. You can Twitter DM me or frankly, you can write into the show. I read all the emails and you can say, “I don’t want this played on the show,” but email@example.com will come directly to us.
I enjoyed this interview with Shai Schechter. You probably know him as a co-founder of RightMessage. He and Brennan Dunn, who is the other co-founder of RightMessage, had met back in 2014, 2015 via Brennan Dunn’s Double Your Freelancing Community. Shai actually did some consulting work for Brennan and met him for the first time in person at a Double Your Freelancing event in Sweden. I know that they’ve connected many times in person at MicroConf as well, as they both come to a lot of the MicroConfs that we hold.
You are about to hear the story of RightMessage which started as a conversation in 2016 about productizing what basically Brennan had hand-coded for his own purposes. Shai had been working on similar stuff for his clients and they frankly threw out a proof of concept pretty quick on Twitter and for the next couple months, they validated the idea, trying to build an audience, figuring out if the idea would fly.
In the first half of 2017, they had given it a name, bought a domain name, and they were trying to get $10,000 in pre-orders, basically just beating the drum and building the audience. By June of 2017, Shai and Brennan had a crude product that beta customers could log into and they could use in a rudimentary fashion. As I like to say, we are going to join the story in progress. That’s actually something I like to do in these interviews is to try to get past the less relevant details and really get to the meat of the interesting pieces of it rather than telling the entire origin story. We are going to join this startup story already in progress. I hope you enjoy the conversation with Shai as much as I did.
Shai, thank you so much for joining me on the podcast today.
Shai: Thank you for having me.
Rob: We are going to dig into some RightMessage story today. I think a lot of folks listening to the show will be familiar with RightMessage either from having followed Brennan for years or I’ve mentioned it a few times as one of my angel investments and bootstrappers, but you did a really well thought-out talk at MicroConf Europe just about a month ago. It was well-received. It was the story, the first year, a year-and-a-half of RightMessage. I realized that the story had the beats, the ups and the downs, the thrill of victory, the agony of defeat, all the things that make a good startup story. So, I wanted to bring you here to talk a little more about it. We’ll touch on some points that were on the talk and obviously go deeper on a few today that I’m super interested in.
Shai: Cool. Sounds good.
Rob: To kick us off, we talked offline before this and you mentioned in June of 2017, you have a crude product the beta customers can log in and play around with, but really you took the next six months to do the slow launch or the customer development. Essentially with those early users because six months of building is not actually that much time, especially if you are still doing it part-time and transitioning into it.
Your official launch was in January 2018, so it was just about two years ago. What was that like to finally be able to launch it? What was your confidence level at that point based on this six months of early access or beta and then finally be able to say, “We’ll launch. We’re sending the email. We are doing the big Twitter storm. We are pulling out all of the guns and doing the big splash”?
Shai: Honestly, we were fairly confident about it just because it’s been so long building up that audience. We had people who were trying to get into the beat even when we weren’t letting people in. It was that feeling of people banging the door down, people were really wanting it, and that was a good feeling. It meant that we were confident going into the launch; we’ll talk about how it was maybe overconfidence later. At that point, everything was really good.
Rob: That was right around the time you guys raised an angel round, right? A little more than $500,000. I participate in that and if my recollection, that was late 2017 early 2018. Was it before you officially launched?
Shai: Before officially launched. That was the second half of 2017. We had an email from one of our very first customers basically saying, “You are probably going to say no to this and you are bootstrappers, but I think you should take money and here’s why,” and he laid a bunch of reasons. I showed the email in the talk where he was like, “I think you should take half a million or a million or whatever,” like this very casual, “let’s throw money at this.”
Rob: And to us as bootstrappers, we’re like, “What do you mean half a million, or a million, or whatever?” These are huge numbers. Having extra $10,000 or $20,000 a month to spend on a product would be amazing, but he is talking huge numbers. What was that conversation like then because obviously you and Brennan must have sat down. Was it an instant no? Did you have to grind that out between the two of you like, “Hey we should.” Did you ask for advice? What was that thought process like?
Shai: At first it was an instant no. It was a very easy, “We bootstrap.” That’s what we know. We don’t like the idea of institutional money. We’re talking about angels and the seed at this point, but we don’t like that idea. It’s not for us. It’s great for some people, some businesses, but that’s not what we do. We broke it down into rather than just a blanket “No,” we wanted to say, “No, because…,” so we broke it down into all these things that we’ve seen as the downsides of taking money.
We didn’t want to give up control of the business. We wanted to control where it was going. One of the points was that we always want to be doing what’s best for our customers and the audience that we built. We don’t want our shareholders who are trying to get us to go to a different direction that’s going to benefit them and maybe not the best interest of our customers.
Another one was that we were moving really fast on building this, building up demand for it. We’re going to have to stop doing all of that if we are going to put together a pitch deck and going out to investors and finding them. We laid out these reasons to him and he essentially shot each one down one by one. Not in the way that they are not legitimate, but in the sense of we can work around them.
Where we have said, “We want to have control,” he said, “Okay, so you’ll take the money, but the investors will not have any control. They won’t take any board seats, they won’t have any say, you’ll do what’s best for your customers, you two will still be in complete control of what’s happening. You don’t want to spend that time pitching, you won’t have to.” He was like, “I’ll put together a syndicate of these investors that I know. You won’t lift a finger. We will get this money together for you. You will give away a percentage of the business. We’ll […] safe. It’s an easy way of raising money.” He just put a line through each of our objections.
At that point, I think it would be naive to say no for the sake of it. It was always about, “I don’t want those consequences,” and when those were taken out of the table, we were like, “Actually, this money would accelerate us. It would help us move faster. We could hire a few people. We could do things quicker than the two of us can,” so we said yes.
Rob: It’s really interesting when you do that, when you remove the dogma or the binary nature of yes, you should always take funding, no, you should never take funding, but when you actually start looking at the reasons, it was like 20 years ago, we being the bootstrapper MicroConf grouch, we probably have not taken funding because the only funding available was institutional from venture capitalist and in those cases, all of the things you raised, all of the objections you raised were true.
You needed a deck. You needed to spend six months raising […]. You needed a huge amount of money. You lost control, often they would have more board seats. It was not just a founder-friendly environment, but I’ve been beating this drum for several years now. There are opportunities these days to raise these small, not institutional rounds, as you said. It was from people like the CEO who emailed you. Somehow, I got involved at some point. I don’t even know if I mentioned if Brennan mentioned he was raising or if I approached him or what.
It’s a bunch of small cheques. I imagine it’s a bunch of other SaaS founders and your network, the two of you that came in. They really don’t put the pressure on you that maybe we all think would be suddenly be on you having raised a around.
I’m curious. We are going to walk around the rest of the story and how the funding impacted some of your decisions, but looking back, do you regret raising the money. Do you think it was the right choice?
Shai: I don’t regret taking the money. I regret some of the decisions we made spending it, but I don’t regret the fact that we took the money. I think that was a smart move.
Rob: That really kicked you in. You guys raised just over half a million dollars. What did that feel like? Again, as a bootstrapper, to look into your business bank account and see half a million dollars in there. Was it like the world is your oyster right now? We are basically launching here and the next month we have a bunch of demand. We have people saying, “Take my money please,” and we have half a million in the bank. Talk me through with that. How was that like emotionally?
Shai: It was great. I don’t think there’s another answer I could give to that. Anyone would enjoy that feeling. Everything was going right. You get all these extra validation. The fact that people were willing to put that money in is just more validation. Everything was good. There’s money sitting on the bank. It was exciting.
Rob: Sitting on top of the world. In early 2018, you mentioned in your MicroConf talk that the first four months after the launch, everything was growth. It was the first half of 2018, it was 15% growth, 25% growth, 45% growth. It sounds like that feeling of being on top of the world is just continuing. Then in mid-2018, the wheel started falling off the bus. Talk us through what happened there.
Shai: The nature of it was, we get to launch and everything. We’re like, “This was going really great.” Launch week went really great and then a few months after that was just every month we were growing more than the month before and we had hired a few people by this point. We’re spending a lot, but if our growth carried on how it was, we would be back to profitable long before we run out the runway.
I remember saying that time when we took the money, “We are not even going to get through half a million dollars.” That was the minimum that was even suggested for us to take. We’re not even going to spend all of that. We are not going to get anywhere near zero. As it kept growing we were like, “This is all going good.” We started spending more money and we started growing faster and then, churn caught up with us. June 2018, MRR was the same it had been in May and that was very new feeding for us because we have been growing. I think April to May, we grew by $6000 MRR and then May to June, we flatlined.
Even then we were like, “Okay, it’s kind of normal. I’ve seen this happen after a big launch.” All that launch audience is now used up. People who had been following you since before you launched have now bought in and it’s not uncommon for that growth to slow a little bit. The problem was a few months after that, it carried on flat lining and we were like, “Okay, maybe everything hasn’t fallen into place perfectly as we thought.”
Rob: I’ve seen this multiple times actually. It’s pretty common, as you said, after a launch. If you have a lot of growth, you are adding a lot of people in the top of the funnel, you’re adding a lot of people getting on boarded and often times, your highest churn is in the first 60 days of someone being in your product. If you are growing and suddenly you flatlined, that churn, the high churn early days takes about two months to catch up with that. It’s like this massive wave that hits you hard. If you keep growing, you’ll never notice it, but the moment that you slow down, it can overwhelm you. What I find interesting is in your MicroConf Europe talk, as I understood it, it wasn’t just the first 60 days of churn. You guys had a real churn problem. I forget the exact numbers, but what was your churn like around that time?
Shai: I don’t know exactly the reasons, but I will so often seen trying not to […] 60 day thing. Ours was a little bit longer and it took about four months for any churn to really kick in for new accounts. I think part of that is launch customers are much more forgiving. A typical customer might come in and you know in the first month, two months maximum whether they are going […] exceptional product. With launch customers, they’ll wait for a bit longer, they know that not everything is fully baked yet, and that also falls into that false sense of security. Churn at that point was getting up as high as 15-20%. It was over 15%.
Rob: Of each month, right? That’s obviously tough. For folks listening, if you think about 20% churn means you don’t have customers in five months, 15% churn gives you about six and two-thirds months. If you are not constantly adding folks, even if you are, that’s just a very tough business to run. Based on the funding you had raised, you had hired out ahead of revenue. You essentially had what they call burn. You were burning cash each month. You were losing, I don’t remember what the number was, $10,000 a month or $20,000 because you had staffed up with the idea that you essentially had product market fit and you’re going to continue to grow and therefore would hit that number in a few months.
Shai: Absolutely. To a point you have to do that, right? If you are never going to be in a position of burning money, you have to question why you have taken the funding. If you only ever going to be spending money that you are making, then you don’t need money from external sources. There has to be a point of like, “We are going to spend a little bit more beyond our means because that’s going to help us recoup that faster later.”
Rob: Right. It’s going to accelerate my growth because I can hire that extra engineer to get product features built faster. I can hire the marketer to get me beat the drum more, however that works out.
Shai: Exactly, but it’s a function of we are confident that we are going to make X amount of money back in Y amount of time. If you can’t get your revenue as high as you think you can, as quickly as you can, that’s when you run into a problem.
Rob: And you guys did. The latter half of 2018 did not sound very fun and I guess even early 2019. When did you and Brennan realize that you had a problem, that you needed to act on in essence by cutting out expenses?
Shai: Later than you might think. Later than we should have in hindsight. I think when things are growing as quickly as they were, and everything was moving upward so fast, when the following month flatlines, you see that one was the anomaly. An algorithm might think that was the anomaly. You then add in layer into that like human emotion, optimism, all those things, and we were like, “Yeah, this is just a one off. Next week it’s going to recover. There’s no problem here.” It’s only after that it happens in a few months and then MRR is actually starting to trickle downwards where a few months it was growing 40%-45% month over month. At that point, burn is higher than ever because you’re so sure that you’re going to recoup it.
Towards the end of 2018, when it had been several months of it not growing how it had been at the beginning, was when we went, “This isn’t the anomaly like that beginning, but it was the anomaly, and we need to do something about this because the money is finite.”
Rob: There’s two things I want to touch on there. One is what was the problem? Why was churn so high and why did you peak and then essentially start declining? What was the core reason for that, that you see looking back with a year of hindsight?
Shia: The core reason for the churn was because we were selling something that these people hadn’t been doing until that point. This idea of personalizing your website was fairly new to people who are using it. Like 90% plus of our customers went switching from a competitor. They were switching from they hadn’t been doing this before, they have been doing other things to try and increase conversion on the website, but what we were selling was brand new.
A lot of people would use it and if they had enough education on how to make it successful for them and they weren’t immediately seeing results, they were like, “Yeah, this is kind of a nice to have. Other people aren’t doing this and they are getting on fine, so we don’t really need it.” It was very much seen as, “My business isn’t quite ready for it yet, it’s a nice to have but it’s not essentially,” is what we were hearing a lot.
Rob: It’s really hard to invent a new product category. We often want to do so we have no competition but inventing a new product category really requires a lot of time, a lot of money, because you are having new to-do’s, perhaps a new role at a company, the Chief Personalization Officer or something that doesn’t exist today, maybe that’ll exist in ten years, but do you have everything in place that can last ten years?
When we saw HubSpot invent inbound marketing and I talked to Dharmesh Shah at one point. He said it took them four years, they wrote a book, and it was millions of dollars if not tens of millions to get that concept into the people’s brains. It’s like cool. If you are in that position, then do that. But I experienced the same thing when we were getting Drip off the ground and we had all these different worlds for what it was.
It’s not an ESP and it’s not a marketing automation. It’s this other thing. After a while, I realized no one wants to use that other thing. They want to use something that they already used, but better or different. It sounds like that’s the path that you realized you were on was perhaps needing to come closer to some existing products.
Shai: Exactly. Coming closer to something that already exists in their mind, that they can compare you to something else is really important.
Rob: Talk to me about you and Brennan realized, we have a real problem here and I know you did some gradual fixes. You raised a little bit more money. You did a little bit of consulting work. You tweaked stuff along the way, but that moment where the two of you realized, “We have to lay people off and make some massive changes,” because when you are running a SaaS app like this, 70%–80% of the cost are the people. It’s your developers, support people, and that’s the bottom line. When you look at it, it’s like, “We can shave our AWS bill by 10% and that saves us $300,” but it’s everybody’s salary […]. Talk me through what that was like when you guys realized you really have to make a change. How did that feel?
Shai: It was difficult. We had a really good team. The whole company was remote, but we were really close. We built a solid team there, so that realization is not a nice feeling. One thing that helped was that we realized that some of the hiring decisions were actually not in the company’s best interest anyway. What I mean is, part of the reason we didn’t realize that there was a problem until later was because we had hired people into roles that maybe we still should have been doing.
Without meaning to, Brennan and I obstructed ourselves away. We put a layer of obstruction between ourselves and the customers with things like customer support being done by somebody that we hired. Various customer-facing roles being […] to people. There’s a lot of things to be said. They were feeding things back to us, but we weren’t on the front line. We weren’t seeing stuff as much as we should have been. Part of what really helped was actually this could really helped anyway for us to start filling those roles ourselves, but the fact that means letting people go is not nice.
Rob; Not fun at all. That’s the thing the pre-product market fit because it sounds like you never really achieved full product market fit. I view product market fit as a continuum. It’s not a binary state and you had some product market fit with some people but it was just not really catching on. Before you do have that, work catches, and suddenly your churn plummets and your trial-to-paid goes way up before you have that moment. It’s very hard if the founder step away because you need that tight feedback loop and you need to reiterate super quickly. I find it insightful that you are bringing that up and then almost in retrospect, you noticed, “Oh, well. That’s one place where we screwed up.”
Shai: 100%. If you look at our revenue graph in the first few months, it looks like what you would expect when there is product market fit. That made us think that we had product market fit and various other things made us think as well. In hindsight, we did not fully have product market fit and if we have been looking more carefully at things like our churn graph was not representative of our3 product market fit churn graph, but the revenue was growing so fast at the beginning that it looked like we had it.
I’ve spoken with a lot of people who have had something similar happen where part of it as a community is we got better at launching and it’s a big thing. I’m starting to see where several years ago, I definitely was not as good as launching something. My first launch is where you launch pretty much nothing and you try and scramble to grow up from zero. It’s only because we’ve now got better at building the audience, pre validating all that stuff, that we are able to get that really fast growth at the beginning and the knock on from that which doesn’t necessarily mean that everything is going to keep going that way.
Rob: It’s a good point that you bring up revenue growth can mask high churn. Revenue growth can confuse us or it can make us think that we do have product market fit but it’s really that churn number and customer happiness. Even customer onboarding is like activation because activation predates churn, a customer’s journey and how many people are you using this, what type of value are they going to get.
It’s complicated and we wish we can just look at a dashboard of numbers and predict what’s going to happen but there’s a lot of nuance to it and there’s a lot of mixed signals. That’s the hard part, is when you are getting hundreds of new people trying it and they are saying, “This is amazing and I’m having so much fun. I’m doing this. I feel like the results are really working out.” You are like, “Oh man, we are just killing it. We are on a rocket ship,” but then in the background when you see mixed signals and you see churn is high but I’m hitting all the feedback and we just grew by $6000 in MRR last month. Those few things are hard to reconcile because which one should you believe when you are in the moment? It’s not this black and white. It is black and white in retrospect of that’s where we messed up, but in the moment it’s confusing.
Shai: Yeah, 100%. You have this thing on the same day, you have someone tweeting out about how this is the single best tool they have ever used in their business and then you got someone else churning because there is no value in this. You say, “Which one of these do I listen to?” The answer is probably the one that is churning. It’s not that simple. As with a lot of things in business, you don’t know which one is the anomaly.
Rob: Yeah, that’s really the point. I hate to say this, but I think a lot of us are just a little too glass half full. There maybe a few too many optimist or maybe we just have the optimist streak as founders of like, “Hey, this will work out. We’ll figure this out. It’s going to go well.” I think we do need that because of how hard this journey is, but I also think that dose of reality coming in of like, “Hey, I’m not saying this guy is falling, but there’s a chance that this is going to tank here in the next few months because of this high churn number.” Having that in the back of your mind is like Plan B. What’s your Plan B if this doesn’t work out? Are we paying attention to all the numbers?
That’s the thing. It’s not a binary of, “Yes, we have it. We are growing fast and everything’s great.” It’s also not binary of, “Oh my gosh, the sky is falling.” It’s always this needle that’s moving back and forth between the two and it’s judging like, “If it swings the other way in either direction, what do we do? It’s thinking ahead those alternate realities in the future of what we do, what’s our plan?”
Shai: I think there’s a couple of interesting points there. One is that I agree with you about the optimism thing. I think it’s the reason that we start businesses in the first place. I think that’s always going to be there for a lot of us because if we were less optimistic, we would go and get jobs and we wouldn’t start these businesses because of all the things that could go wrong.
That’s where the double edged sword comes. For us, because we were spending so much money, even when we did start to know that maybe something or everything wasn’t going perfectly, there wasn’t so much we could do at that point because we already committed. You can’t just switch off those employees for a month and get back on track. There were some stuff that you might need to do when you’re in that situation. It’s going to be kind of a longer-term fix. We didn’t have the luxury of long-term fixes because we’re running out of money. When you’re burning that much money month-to-month, you force yourself into a certain corner were if things do start to get wrong, there’s no easy way out to that point.
Rob: Yeah. That’s where it comes back to that question I asked earlier of do you regret raising funding? Is the moral of the story, that, funding is bad, and you shouldn’t have taken it? My take is no. That’s actually not the take. The take is you get the funding at the solid valuation. The investors never busted your jobs as far as I know. I never busted your jobs. I was replying to the emails, offering the help. We were at least on one or two phone calls talking about these steps.
My impression is having investors was almost a net positive in a sense that you can get advice from people who were in it with you. That’s just my take for the outside. What’s it like from your take, you and Brennan’s take in terms of was it the right call to raise the funding? Did that cause us to make bad decisions? Or is it more about, “Funding was good, but we should’ve just spent the money differently”?
Shai: I do regret taking the money. I think it makes sense to do that. Like you said, we had a good valuation because there was some track record involved, there was some prevalidation, we’re already making revenues. We got it on good terms. It did help in a lot of ways. I think the mistake wasn’t taking the money. The mistake was not looking carefully enough. It was the worst case scenario, like not looking at, “What if things aren’t going to grow as fast as we think they are? Are we still going to be okay in that position?” I think taking money was a reasonably good call but there are consequences to spending it so fast. We definitely spent it as fast as than we should have.
Rob: That’s a trip. If everything had worked out and you had kept growing it $6000 a month, it would be a Cinderella story.
Shai: Yeah. I guess that’s the thing. I don’t know the answer to that part. Was the expected value there positive? Were we actually doing exactly the right thing by spending all that money? Because growth could have continued as it did. Having to fire people, having to lay people off is just the consequence of what happens if it doesn’t work out. The fact that you didn’t have to do that, and you’re playing with people’s employment, with people’s lives at that point, for me I’d rather stick to the path that doesn’t risk having to do that at all. I think other people would look at that and say, “You made all the right course along the way.” When it doesn’t grow as fast as you want, you just lay people off, you move on, and at least you tried.
Rob: Yeah. I think that’s kind of a different world view. That’s like the Silicon Valley world view. It’s not really what I would espouse nor I think you guys as well.
You obviously have to make some layoffs there which I’m sure is really tough. You guys also made some adjustments to the product. Talk us through how you went from being this thing that was another item on the to-do list and it was something that was inventing its own category. You shifted into being part of an existing category, doing it quite successful, and finding some product market fit with it.
By the way, folks can see all of your numbers at rightmessage.baremetrics.com, as you guys are in the open startup ecosystem there. They can look at your revenue growth as of today. It looks like your MRR is about $28,000. Given that it’s down to just yourself and Brennan at this point, you guys must be pretty profitable, I’m guessing.
Shai: Yes. That was the other thing. Because we had all that burn—I’m glad you brought it up—it was kind of that feeling of we weren’t doing nearly well enough. You take a step back, we have got to $20,000 MRR within a few months of launching a SaaS product. That’s something we should’ve been pretty proud of. But we couldn’t look at it like that because the flip side of that was, no, we’re burning money. We have a loss-making company. There was no time to be like, “Yeah. We actually got a lot of customers right now because all we could focus on was we’re burning through our funding.”
Rob: It’s like a bootstrap success but a funded failure. It is what it is, right? It’s because you’re spending so much money. A $20,000 MRR, 3-4 months after you launch, most people listening to this podcast would kill for those results. That’s an interesting mindset shift.
Shai: Yeah. There is the flip side of being really difficult to have to make those calls and the layoffs, there is now that kind of sensitive, almost, relief. I was just listening to Laura on here […] a few weeks ago. She said something similar. It was like, “With absolutely no disrespect to people who were affected, the flip side is, there is that feeling of relief.” The company is on the same track right now. You can think a little bit more clearly when you’re not burning money, when everything is moving upwards. You got your bank balances going up month a month. It does help you make clear decisions.
Rob: For sure. We know that’s how you did the financial side. You’re able to cut expenses, get to profitability. Product-wise, how did you go from being trying to invent that new category to essentially fitting and sliding into an existing category?
Shai: At this point we were speaking to a lot of customers. We weren’t abstracting the way at this point. We’re really digging deep to where the mismatch was, where some people were not getting the value from the product that they should have been. It all came down to, like you said, it was such a new product category. What we ended up doing was saying, “The people who are succeeding, what are they actually using this for?” A lot of them were swapping out the calls to action on their website. They’re swapping out the content and their calls to action to be more personalized to segments of their audience and they’re actually killing it.
We showed all the graphs. We showed conversion rate within our product. These people are 2X or 3X in their conversions by using our platform to personalize their calls to action. Many pivoted to be like, “We can be your call to action builder with high conversion rates than the one you’re using now.” Now, we’re not competing with the product category that these people weren’t using before. You all have calls to action in your website already. What if we just fit ourselves into that category and essentially pivot to have more competitors? We were in the space by ourselves where we’re like, “This is great. We have no competition,” but the flipside is, no one knows that they need you. Can we just pivot to say, “We are a call to action builder but better in various ways.” Now you have something to switch from. That was the theory and it kind of worked.
Shai: Yeah. What we did is we said, we’re going to make that entry level plan. We still got the more advanced, more flexible, you can personalize anything on your website. That became the premium plan. The idea was if we can get people in with something they’re familiar with, we can then upsell to the more advanced platform later once they’re ready for it. A lot of people were bailing because they weren’t ready for the full personalization. Maybe they didn’t know what their segments would be. You can’t personalized until you have segmentation in place. We brought in this kind of entry level.
We brought in about the same price. We didn’t really reduce pricing. We took the stuff that we have been selling and we put it in a higher price. Then, we bought this call to action plan. This more limited plan at the same price that we have been selling it before. Feature-wise, you’re getting less for your money but that’s not always a bad thing. We were actually limiting the thinking you have to do, at which point the product becomes a lot more valuable.
Rob: Well, sir, it’s been quite a journey. Congratulations on making it through. It’s hard to say that it’s not an atypical startup journey because no startup journey is typical. Definitely, the ups, and downs you’ve experienced, I think a lot of us experienced even without raising the funding. There’s just a lot of hard decisions and a lot of decisions you have to make with incomplete information, in essence. I know that you guys, at this point, are on a much better trajectory. The fact that you’re profitable, I know it let’s you sleep better at night. I feel like the lessons you’ve learned, you’ll take with you moving forward. I really appreciate you coming on the show to share it with folks who can basically learn so people can avoid the mistakes that we’ve made.
Shai: Yeah, 100%. The more I spoke with people about this before and after the talking […] MicroConf, I found that a lot of people saw that similar curve of, “Everything is going really nicely up and now everything isn’t.” It’s what you do at that point.
What you do is going to be very different depending on you. If you’re profitable at that point, you’d taken money—all those things—and also is it a churn problem like we had? Or is it top of the funnel problem? Is it […] at the bottom. That experience of just because it’s growing, it might not keep growing forever. It’s something a lot of people are seeing as they get better at launching in the first place. As we keep getting better at making money, we also potentially going to fall into these kinds of traps. I think it’s important to be aware of them.
Rob: Yup. If folks want to hear my own story with Drip, I did a talk a few years ago at MicroConf. If you go to robwalling.com, it’s listed there. It’s called An Inside Story of Self-funded SaaS Growth. That’s on Vimeo. While we didn’t take funding, it’s very similar to what you said, the launch went really well, I had pre sold it, we thought we have traction, then we just plateaued, and then just sat flat. It was super stressful for me.
I had also hired out. I had a revenue because I had some money coming in from another app at the time. It was some of my darkest times running a startup. It was that same Trough of Sorrows, what Paul Graham calls it. I feel like it’s pretty good name for it.
Thank you, sir, again, for coming in on the show. If folks want to keep up with RightMessage, you are @rightmessageapp on Twitter and rightmessage.com. If folks want to keep up with what you’re up to, where would they head?
Shai: Yeah. I’m @shaisc on Twitter, and shai.io on the web where I’m going to start writing a little more about this stuff. There’s a lot of scribbled notes that I have that I’m going to start publishing. There’s an email list to have people on.
Rob: Sounds great, man. Thanks again for coming on.
Shai: Thank you for having me, Rob.
Rob: If you have a question for the show, leave us a voicemail at (888) 801-9690. Or email firstname.lastname@example.org. Our theme music is an excerpt from We’re Outta Control by MoOt. It’s used under Creative Commons. Subscribe to us by searching for startups in any podcatcher you use and visit startupsfortherestofus.com to leave a comment or for a full transcript of each episode. Thank you for listening and I’ll see you next time.
Episode 448 | Let’s Talk About Bluetick
In this episode of Startups For The Rest Of Us, Rob and Mike talk about the current status of Bluetick. They discuss the Google approval process, external/internal motivations, current roadblocks, and Mike’s future with Bluetick.
Items mentioned in this episode:
Rob: Mike, which program do Jedi use to open their PDF files?
Mike: I don’t know what.
Rob: Adobe Wan Kenobi.
Mike: Oh God.
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about Bluetick, where he’s at, and maybe where he’s headed. This is Startups for the Rest of Us Episode 448.
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 build your first one or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. To where this week, sir?
Mike: I strained my back somehow about a week or so ago, so sleeping the past five or six days has been rather rough. It’s on the left side. When I try to sleep, it gets really, really tight throughout the course of the night and it wakes me up. It’s been rough getting any kind of measurably good sleep for pretty much the entire week.
Rob: That’s a bummer. How did you strained up?
Mike: I have no idea. I think I was just alive and that was it.
Rob: Just. I was just old and I moved.
Mike: That’s a good way to put it. The thing is, I just woke up and it was like that. It got progressively worse over the course of two or three days or something like that. It was bad for about four or five and then it slowly gotten better over the last two or three.
Rob: Strained back is no good and no sleep is no good. You’re going back to your pre-CPAP machine days aren’t you?
Mike: Yeah, pretty much.
Rob: We’ll get into some of that more in this episode. We’re going to talk about, as I said in the intro, what’s going on with Bluetick and you and such. Before that, we have some good comments on recent episodes. In Episode 444, you and I went off on Gmail desktop clients. Carl posted a comment saying, “I switched everyone over to Mailbird last month,” everyone at his company. “We switched away from Office 365, Dropbox, and GoDaddy’s email service, and switched to G Suite Solutions. I needed to find an alternative to Outlook and I found Mailbird. It works great, love the Google integrations. My only complaint, one of my coworker’s complaints is that capability of right-clicking to create new folders does not exist. Not a deal breaker, just a complaint.”
What was the one I was using? I don’t remember now. It was Mailplane, like an airplane. When I right click, I often do right-click, paste as text or paste and match style or whatever, because I’ll be copying something that’s all weirdly formatted and I want it to go in the format of the email. In Mailplane, that’s disabled. Not a deal breaker, but I have to flip over into Atom, your […] text editor, I paste it in there then I Shift Command-A Command-C and then go back and paste it in. It’s this extra step that when you’re in a Chrome browser, you can right click, paste the match style, and then it’ll just go in. How about you? Are you still using the desktop Windows client you were using?
Mike: Yeah, I use it on occasion. I flip-flop back and forth between them because it’s an IMAP client and it’s got all that stuff. It’s nice to be able to use one or the other when I need it. The one that I did find with it was that I use the labels feature. I will take things and put them into, I refer to more folders than anything else, but in Gmail it uses labels for that. The one thing I find is that, if I go to use the shortcuts to move it into a folder or apply a label to it, some of my labels, depending on the folder, overlap.
For example I’ll have a customers label but there’s a customers label underneath a couple of different products. When I started typing it out, it doesn’t show me which customers label it is because it basically drops everything before the slash. I have no idea which customers label it actually is because it just doesn’t show me. I still use it on occasion but once I get into those use cases, it becomes a barrier for me. It makes it more difficult. I don’t know why they don’t show the whole thing, but whatever.
Rob: It’s weird. When we bring these things up, it’s like, “That’s kind of a nitpick. Right click, paste and match style, is that really that big of a deal? Is it the labeling?” It can be. It can become that. For me, it’s not that big of a deal, but label stuff, that gets in the way of your workflow and it can get in the way of the perfect solution unless you get used to the new way they do it.
Mike: Like I said, I flip-flop back and forth between them a little bit. I did notice when I was using it that I could shut it down and I would just have Gmail closed, but I’ve noticed that recently I’ve been having Gmail open again. With that, I know that I’m actually just going to close that tab entirely right this second because I forget to do that. Email can be distracting and disruptive. That’s a problem that I’ve uncovered with my workflow, is that when that is open, I tend to get pulled back into my email quite a bit. When that happens, I’m not as productive.
Rob: For sure. Another comment on Episode 447. Paul Mendoza was commenting on the Google verification stuff that you’ve been struggling with for several weeks. He says, “I’ve been dealing with Google verification stuff for months, you can see my day-by-day interactions with Google here. We just got a response from the security vendors, but our app still isn’t approved but I’m sending them emails almost everyday.” He has a URL. You can come to 447 if you want to check that Google verification status. He feels your pain, apparently. It’s not just something that you have manufactured in order to create drama and good radio on the podcast as you’ve been known to do. You haven’t been on […].
Rob: We got another couple of comments, because 447 we started diving in, we typically do our chit chat at the top end of the episode. When we talked about the Google stuff, we wound up spending 18 minutes just talking about that because I was asking questions and going through it. We’ve got some compliments like, “Do more of that. You guys aren’t digging into Bluetick enough,” was the comments, “or your own projects enough.” Part of the impetus for today’s episode was comments we’ve received but also, I think it’s been something that’s been on our minds for a while.
We have always liked doing updates, sharing what we’re up to, and what we’re working on, but it can be hard when it’s not good news. It’s hard to show up week after week and try to have an update of what you did in the past week if you didn’t get anything done or if things are going backwards. I think we tend to do update episodes every few months and I feel like this one today is really just a conversation about where you are, where Bluetick is, how you’re thinking about things, and try to find out more about what’s going on and even to give advice.
We talked for a while before this episode started and you’re bringing up things that I was telling you how I would approach them. We haven’t necessarily always been a ‘big advice for each other’ podcast. It’s a lot more answering listener questions. I think that can be helpful today, too, for you to hear how I would think of approaching different problems or how I have approached them in the past because I’ve done some of this stuff as well.
Mike: Do you want to relabel this as Mike’s therapy session?
Rob: Yeah, it’s going to be 50 minutes and I’m going to bill you […].
Mike: That’s actually cheaper.
Rob: Cheaper than you thought it would be.
Mike: Cheaper than a regular therapy session with […].
Rob: Indeed. Bluetick today, you’ve been working on it for two or three years, and it’s still not supporting you full time.
Mike: I went back and I started looking at my funnel metrics and stuff where I started tracking some of that stuff. I’ve got data in here from November of 2017 and that’s when I started tracking the numbers that I have here. I think that was shortly before I flipped the switch and said, “I’m just going to start billing people. If you’re not ready, then you can either cancel or that’s the end of the free trial or whatever that we have for you.” Obviously, my memory is kind of fuzzy as to exactly what state those things were at at the time so I don’t remember whether it was November of that year or what have you.
Rob: Was that November 2017?
Mike: Yes, November 2017. The reality is it’s not nearly where I would think that it should be if things were going well, the product had product market fit, and I was actively growing it. It’s just not. It’s not enough to support me full time. I don’t necessarily need it to, but at the same time if it’s going for an extended period of time and it’s not making enough money to do that, then why continue?
Rob: Yeah. It’s a waste of time and effort, opportunity cost, could you be working on something else that would be dramatically more lucrative whether that something else is a different product, or whether that something else is consulting, or heaven forbid a salary job? Not that you’re going to go do that, but you have skills. You’re a developer. You can write code. That’s a very valuable skill. To be wasting, I don’t mean wasting time on a day-to-day basis, but having 18 months, you’ve been charging for it, and to be only ramen profitable and not full time income is a struggle. It’s not just that you don’t have full time income but it’s not headed in the right direction anymore. You basically peaked at some point last year in terms of MRR.
Mike: Yeah and it’s more floundering than anything else. It’s not on a tailspin and I’m not bleeding out customers every single week or anything like that. It’s not tanking quickly, but it’s certainly not growing quickly, either. It’s really just meandering; go up on some months and then go down on some months. I have some customers who’ve been around since the very beginning and there are customers who will stick around for three to six months and then that’s it. I don’t feel like I’ve delve into the numbers of how long people have stuck around for and what the amount of revenue that I’ve gotten from each customer is enough, I just haven’t. It’s because I’ve spent a lot of my time on other things.
I feel like I have a hard time prioritizing where I should spend some of that time. Objectively, I think it’s like, “You should spend all of that time on marketing activities, analyzing what your current customers are doing, and who you should be targeting as those customers. One thing I struggle with is the fact that Bluetick has a very good use case for cold email and I don’t want those customers. I have a hard time justifying adding a lot more customers on there that are using the tool for that.
Rob: Is it an ethical thing? You just don’t like cold email?
Mike: Yeah, mostly.
Rob: Or a moral thing? Wait, what ethical is this? External and moral is internal. You’re internal code is like, “Meh. Not a fan of it.” Is that the idea?
Mike: The problem is that it depends on the customer. There are some customers that I’ll talk to, I’ll do a demo for somebody and I hear what they’re doing and they’re doing cold email. I’m like, “It’s not just a great tool that you have, but it’s also a great service. You’re doing great things with it and you are trying to make the world a better place,” versus some of the people just doing the cold email. They’re really bad at it and they’re doing things that are shady or scammy. I’m like, “Yeah. I don’t want those as customers,” but at the same time the tool works exactly the same for both of them.
How do I filter one out versus the other without having a conversation with every single one of them and how do you do that in the marketing that you put out such that you are catering specifically to a type of person who has a certain mindset?
Rob: I hear you. There are ways around it. You have options. You could, on your homepage, just be like the best tool for warm email interactions and then you could put in the FAQ, “This is not for cold email.” You could put it in your terms of service, “This is not for cold email.” You can have flags if people go in it, you see patterns of people doing cold email type things that you flag and you say, “Hey, this isn’t for cold email.”
We had to do this with Drip. People can’t use Drip for cold email. We had to build things and communicate that along the way. It was a pain. It was a lot of work and some people got really pissed off. Some people came in, signed up, uploaded their cold list and started emailing. Our system would automatically block them or they’d get enough complaints that are email spam. Dude would block them. That’s what you have to do if you really don’t want to do it.
The struggle is, with Drip, it will get you blacklisted. So, it’s a big problem for the business itself. With Bluetick, it’s not because they’re using their own inbox. You’re not going to get Bluetick itself, your IP doesn’t get blasted. You have to decide, “Hey, if ethically or morally or whatever, I only want to service certain type customer,” then you can do that. Just make it clear upfront.
It sounds to me like is it an excuse? If you accepted all the cold email, would Bluetick be where you want it to be? Or if you just focus on the warm email use case and ignore the cold email, would Bluetick be where you want it to be?
Mike: I don’t want to say it’s an unfair question, I think the question is a little bit off because it’s more a matter of holding me back from doing the marketing which would acquire those types of customers. It’s not about accepting them as customers or trying to turn them away or whatever. It’s more about holding me back from doing the marketing. I think it’s a very valid question about is that an excuse? I have a whole load of things I’ve looked at and thought about that comes to mind is, […] every single one of them is like, “Is that just an excuse?”
If you looked back at the stuff I did with AutoShark and then with Bluetick, I’ll […] frankly a lot of excuses along the way with AutoShark. If you think about objectively the stuff I’m going through with Google right now, there’s a huge question mark of this $15,000–$75,000 for a security audit. I’m apparently at the end point with Google where all I need to do is get this security audit and get a letter of—I forget what it is—authentication or something, this audit letter that I have to send into Google that says, “Yes, Bluetick is all up to snuff and we don’t have to worry too much about security vulnerabilities for the product,” but at the same time, is that another excuse?
If the products were much further along or had more customers and was making a substantial amount of revenue, would $15,000–$75,000 matter? The answer is no, it wouldn’t. The problem is I can’t point at Google and say they’re killing my business when the reality is the business isn’t making enough money. Really, that’s just the driver that says, “Here’s a hard line that you can’t cross unless the business is making enough.” If the business was making enough, that wouldn’t matter. The actual amount of whatever that is going to come out to would make no difference or whatsoever. So, is that an excuse?
I was saying in a way it kind of is, but at the same time I could almost point at anything that I’ve come across and say, “Is this an excuse?” Anything that comes up on the business as to why something is not working, you could ask that question and I think it’s a valid question to ask. I don’t have a good answer for some of those things. I just don’t.
Rob: That’s the thing. The cold email versus warm email thing, you don’t want to market it because people are using it for cold email. There are solutions to that. If I were in your shoes, I would decide, am I willing to let people do ethical cold email and warm email? If the answer is yes, then that would be on the website. That would be in my onboarding. I would mention that in every demo. I would probably do demo only for now in your shoes because you don’t have such an influx of trials. I’m guessing that you can’t do some type of demo with everyone at a minimum of screencast, 15 minutes of screencast that seriously talks about, “Look, we only do ethical cold email.” Just make that part of the whole deal. If that’s your hard line, then take the hard line and then move forward. That’s one option.
Second option is to not take the hard line and just say, “Hey, this is legal and it’s not going to hurt my IPs so I’m okay with people doing that.” That’s the second option.
Third option, shut the product down. It’s to realize, “Boy, I really built a product that people are going to misuse,” and the nuclear option would be to shut it down. Now that’s tough. I don’t know if I can come up with an easy fourth option. I feel like the ethical cold and warm is a perfectly viable non-nuclear option, and again, to just communicate that in every onboarding sequence.
Some people will sneak through, unfortunately. The good news is, it won’t get you on a blacklist like it did with Drip where we get on the blacklist and it’s like this, “Oh, […],” moment where a bunch of us were running around trying to figure out how to ban this customer and this and that. You’ll just have to have a conversation with that customer and say, “Look, by our judgment or by my judgment, you’ve gone over the line. I need you to migrate away or I need you to improve your things.” You can get a conversation with them where they say, “How do I improve my cold email?” You say, “Here’s a good example of a super ethical one. You only hit them four times over the course of a month, not 17 like you’re doing,” and blah, blah, blah.
All of this is work. It all takes work and that’s a crappy part. It’s the same thing with the Google approval, I think, that it totally gets in your head it seems like and it becomes this road block where really, it should be a speed bump that you look at your options. I say should. You’re going to encounter these over and over. I feel like if you look at the mess of speed bumps rather than roadblocks, knowing that there’s almost without exception, there’s always a way around it.
There are a few exceptions that are not. You can get sued into oblivion. You can get seriously injured. There are these extreme things where you can’t work or where your business is completely decimated because the whole platform just blocks your IP. There are certain exceptions but I don’t see that. Aside from Google disapproving you here in the next week or two, everything else you’ve mentioned to me is a speed bump, but I feel like it impacts you more than that.
Mike: That’s absolutely true. As you were talking through that and shifting the marketing to saying much more of it is ethical cold email and warm email, I actually got excited. I was like, “That’s exactly it.” I think that there are other ways to force that as well. I was talking to Josh from Referral Rock. He said that one of the things that they had done early on was that they charged a setup fee and that works really well for them. I was thinking about doing that as well and trying to figure out how can that work in there. That fits in really well with the idea of pitching it more towards the ethical cold email and warm email for people and then forcing people to do a demo.
That’s part of what the setup fee would be and making sure that they’re doing things the right way, that they’re not just spamming a ton of people just because they have the technical capabilities to. Honestly, that would make me feel a whole heck of a lot better about it. I was actually trying to figure out, “How can I justify this setup fee and how can I do that stuff?” I think that it falls directly in line with that. It makes total sense as to how that could happen now whereas before, I struggled a little bit with how do I present it or pitch it or make sure that people are doing the right things and everything is going well for them. I’ll say it’s like software augmented by services to some extent.
Rob: Absolutely. I feel like that’s one issue but it’s not as if we can now, “Alright and that’s the whole session, Mike, you’re all good,” because there are some deeper issues going on. It seems to me like the two biggest issues that I see with Bluetick and what you’ve been up to, number one, I don’t understand how Bluetick is any different than any of the other tools. I don’t think you’re differentiated. You can convince me otherwise but I don’t feel like there’s anything Bluetick can do that three or four other tools can’t do. That’s a problem because you’re picking up crumbs at that point.
The second thing that feeds into that is you have struggled to ship things. Whether it’s health issues, the distraction from the Google approval, I know you’ve had sleep issues for a long time. You talked at the last podcast about how you had a five- or six-hour workday. Two hours of it was with calls, then your kids were going to get home, and you’ve spent an hour on the Google thing. Your workday was just poof. Gone. You’re not shipping new features. You’re not shipping marketing.
When you look at the people who are making progress in these early stages, they’re shipping something every week. You look at Derrick Reimer. Even though he shut Level down, he was shipping features, he was shipping emails, he was shipping blog post. You look at Peter Suhm, who is the founder of Branch, which is a TinySeed company, was just announced today, he’s doing the same thing. He releases a blog post almost every week and he ships new features to Branch almost every week. You’ve struggled with that going way back.
I think that’s where we talked a little bit offline before this. You have reasons but you were saying to yourself like, “Are they reasons or are they excuses?” The health issues, there’s testosterone levels a few years back, there’s CPAP, there’s all that stuff. It impacts your motivation and that means that you haven’t shipped enough stuff fast enough to differentiate Bluetick and everyone else that you’re competing against is moving, I would say faster than you. You never catch up. Again, my impression is they are better tools, they just have more features, and they do more. So, how can you possibly grow an app that isn’t differentiated in any way?
Mike: A lot of them have definitely caught up in terms of the features. Some of them even started out further along than I was at the early stages. My difference in feature was intended to be the fact that Bluetick does not miss emails, whereas I know that people who were using the Gmail API, those types of customers tend to miss emails here and there. I feel like a lot of those problems have tended to go away. I don’t know whether that’s because the Gmail API has just gotten better in terms of what data that they’ve been sending or the frequency, but I don’t hear about those problems nearly as much as I used to.
Maybe the tools have just gotten better and they’ve fixed those problems. I don’t really know the answer to that because I don’t use those tools on a regular basis. But the fact is you’re right. I’m not shipping things nearly as much as I could or should be. There are certain things where I’ve gone through and I’ve reengineered something or changed how something works, and I’ve got all these data that is going through the system. I’m terrified in some cases of breaking stuff.
I’ve been going back-and-forth recently with one of the vendors who supplies the component that I use for synchronizing with IMAP. They won’t give me access to the stuff where I know for a fact it breaks and I can’t test it. I can’t put an automated test in place and they won’t give me a way to do it. I’m just like, “I don’t know what I’m supposed to do here,” other than switching to some other component which again is non-trivial work. Is that an excuse?
Rob: It’s a problem but you’re going to encounter a problem almost everyday as an entrepreneur. If they become, they should be speed bumps. You could mock up an interface of some kind. Again, we had a bunch of APIs that we interfaced with Drip and we couldn’t hit the production or staging APIs so when our unit has ran, they would hit a mocked up interface. There’s a better word for it, but you know what I’m talking about.
You could feasibly break things but that’s what integration testing is for, and then you just have a checklist of like, “These are the five things that I’m always worried about breaking because I can’t test them well.” Those are in a Google Doc or a Trello board or whatever. Every time you do a big push or everytime you modify that code, you test those things. That’s how I would think about it. Again, it’s not perfect but it makes it into a speed bump. It makes it into a bump in the road rather than an actual road block.
Mike: The specific issue with that piece of it and the problem that I have with that, there are certain things that come up on occasion and I literally can’t do that because they’ve marked the class that I need to use as internal and sealed and there’s no interface for it. I literally cannot do it. The only way that I found to get around it is to create a constructor that uses the internal private constructor for it and basically fake the data, but I’m looking at obfuscated code at that point and I don’t know what the hell half of it does. I think all of this particular example is kind of immaterial, I agree it should be more of a speed bump than a road block. Going down the rest of that specific example is more of going down the rabbit hole more than anything else because it’s not the only thing.
Rob: The thing is, when these things come up, it’s not going to be perfect. I know that sounds silly to say, but you’re an engineer, you’re left brained, and you want every I to be dotted, every T to be crossed, every edge and corner case to be handled. Mike, your software is going to break sometimes. There is […] software that is doing seven, eight, nine figures a month and the stuff breaks. You can build a company with software that isn’t 100%. My guess is your software is going to be pretty dang good because you’re a developer and because you’ve been doing this most of your life, but at a certain point, you can’t let perfect get in the way of good and in the way of shipping.
Mike: And I do. I absolutely let that get in the way. I don’t know why it’s so hard for me to just let it go. There are some things where I can just say, “Oh, we’ll just do this. Yes, […], go ahead.” Then there are other things where I’m like, “No, it has to be right.” For whatever reason, I fixate on those things.
Rob: That’s the problem. If you can’t identify when you’re fixating, then tell yourself stop and approach this from a different mindset. What would XYZ person do? How should I think about this differently is probably a better question that when you find yourself fixating to stop yourself and have the introspection to say, “What is the hack to get the solution? What is the 95% solution to this? What are the three or four options I have?” We’ve talked about a few topics here and then each one, you see, I’m just breaking them down into what are your choices here?
You’re choices with this API or whatever or it’s the component that you don’t have internal access to and it’s sealed and whatever, Mike, here are your options. You can completely shut your entire company down. Honestly, let’s look at them. You could shut the company down because of that. You could build a solution that is 80/20 or 95/5, however you want to phrase it. That’s like the one I said earlier which has been attacked together. It’s not going to catch everything and you have a checklist, and that’s probably good enough for now. Or you can spend a lot of time fixating on it. You can fight with the guy over email, you can try to reverse engineer it.
Mike: I can replace the component.
Rob: That’s great, you could feasibly do that. You could rewrite the whole thing yourself.
Mike: No, I wouldn’t do that. I would find a different vendor where I can rip that out and replace it with something else, that’s what I would do. I would absolutely not going down that road.
Rob: But that is an option. What’s funny is you could replace it with a different one. You’re going to spend time reworking your code or you could just rewrite the whole component yourself. It’s ridiculous but it is an option. Those are your five or six options. When you look at them, some of them seem like the dumbest thing ever like shutting your business down or writing the component yourself; don’t do those. It’s obvious, those are dumb. But the other three, if we look at them, black and white mindset and try to think about them. Which of those gets you to full-time income? Which of those gets you to $10,000? Yeah, there’s a little bit of risk with the one I’m suggesting, but that turns it into a speed bump rather than a road block.
Mike: One of the challenges I run into with this is that I don’t really have a mastermind group anymore where I can bounce ideas off of people and they call me out on a weekly basis that says, “Hey, you’re not working on this,” or, “You said that you’re going to have this done. You’ve been working on this for three weeks. This should’ve been done a long time ago.” I don’t have that external forcing function anymore. I think that’s been a big challenge for me.
Rob: Yeah. You’ve talked about in the past. You’ve told me that you feel like you’re more extrinsically motivated, that having someone who’s keeping you accountable is the way you work best versus being intrinsically motivated. And that’s fine. There are successful entrepreneurs on both sides of that. This is not something that precludes you from being one. You lost your mastermind or it broke up how long ago?
Mike: A little over a year and then I started a new one but we’ve only met I think three times total.
Rob: In a year?
Mike: It was over the course of three months or so and then we haven’t had a call on five or six months, I think.
Rob: For all intents you’re not really part of a mastermind at this point. You ended a year ago. Now, didn’t your revenue peak around that time?
Mike: Yeah, it did.
Mike: I know.
Rob: A correlation?
Mike: Correlation, causation. That’s a valid point too. That’s an excuse.
Rob: Don’t say it. You’re going to say, “It’s hard to find a mastermind and it’s hard to be part of one.” I would say, “All right, Mike, you have choices. Shut your company down, number one. Number two, don’t be an entrepreneur anymore. It is a choice. Number three, email Ken of MastermindJam—mastermindjam.com—and try to hook with a mastermind. Four, keep doing what you’re doing. Don’t do a mastermind and expect your future results to be the same as they have been,” is probably what I would say.
Mike: Some of these things like the other thing that it could potentially be solved by us having a cofounder. I have talked to you about this before. I’m not opposed to having a cofounder or having somebody else who works in the business with me, but at the same time it’s a question of finding the right person and all that other stuff. But again, is that an excuse? Is that what I really want? The answer is I don’t know. Is that an excuse? Probably. Is it what I really want? I don’t know. I’ve gone out in that road before and I think things worked out fantastically with you, with Microconf, the podcast, and everything else, but my past experiences have not been all sunshine and rainbows.
Rob: That’s a tougher one because finding a cofounder is hard. You can’t rush that. That’s not an easy thing to do. I do think it could be a fit for you given that you would work better with someone pushing you on and you’re feeling accountable to that.
Mike: I totally agree with that. But most of the people that I know of, that I know well enough to say, “Yeah, I wouldn’t mind going into business with them at all,” most of them have their own things going on. It’s hard to find somebody who is in that same position because I’ve got Bluetick that is substantially far along at this point. One thing that I’ve run into when you have employees or contractors or whatever, is I feel like they’re not just motivated, but they’re way less critical of the boss’ performance or decisions and things like that because they’re like, “Oh, well. That person is the person in charge. I don’t want to challenge them as hard as I probably could or would if I truly believed in this other direction versus the one that they’ve chosen or decided to go in.”
Rob: Yeah, but that’s just a minor speed bump. I’ve worked with contractors and employees and I’ve had cofounders. It’s just something you get over. I think the deeper issue comes back to the two things that I said, number one, Bluetick is not differentiated. Number two, it’s because you’re not shipping enough. It sounds like you struggle with indecision quite a bit where you’ve ruminated on a question for a long time, for days or weeks, and sometimes just can’t break out of that to make the decision to move forward. So, you get stalled.
And then the motivation thing. You told me offline that you were bored, you weren’t motivated. At times you know what you should do, “I should go build this feature,” but you’re not motivated to do it. Is that right? Talk about that. Is it a health thing? I guess you don’t know. If you knew you would fix it, right? You don’t know if it’s lack of sleep. You don’t know if it’s low testosterone. You don’t know if you just don’t want to do the idea. Do you have any thoughts or even more background for people?
Mike: My doctor took me off of my testosterone and it wasn’t because it was too high, it was because one of my other blood tests came back, it’s too high. He was like, “This is way outside of the normal range so I’m going to take you off with testosterone for four weeks to see how that plays out.” I was about a week-and-a-half into it and I was like, “I have to take some of it right now.” The downsides or drawbacks of having it, having low testosterone is you get depressed, you have a hard time focusing, you can’t get things done, you can’t really think straight. That was happening to such a severe degree, I was like, “I have to take it today just to put myself at least a little bit back on track.”
I’m going to call him and try and see if we can cut this whole thing short because it is extremely detrimental to me right now but I don’t have any answers, I wish I did. There’s a lot of things where I’m just like, “This is boring to me.” Some of it has to do with the work that needs to get done. Again, is that an excuse? Is that just a reason that I’m using to justify not feeling bad about getting the work done? I get that, as an entrepreneur, not everything is always going to be fine. You’re not always going to enjoy everything.
There are some things that you like to do versus there are things that you need to do. If you can outsource those things that need to be done that you don’t like doing, great. I don’t feel like I’ve been in a position where I can outsource everything that I hate doing because there’s financial research and things like that.
Rob: You’ll never be able to do that. Even when HitTail and Drip were growing like crazy, I still came in and did a bunch of crap that I didn’t want to do. With TinySeed, I have more resources than I’ve ever had and there’s still crap that I’m dealing with that I don’t want to do. But (a) I tried to minimize it, and (b) I tried not to let it clog the top of my to do list. When it’s sitting in that Trello board I’m like, “Oh my gosh, I do not want to look at health care plans and setting up a 401(k) for us.” But it’s like, “I’m going to power through it, suck it up, and get it done. Then I’m going to come out the other side and reward myself by doing something super fun, make it some swag or something.” I don’t know. You can’t avoid that. You can’t avoid it entirely. You can minimize it.
We’re building businesses that we want to be a part of, that we want to run. We’re building it for our lifestyles. That’s great, but that doesn’t mean that 100% of the time, it’s like a trip to Disneyland. I know you know that. I’m being a little facetious, but that’s the thing I think you’ve struggled with a lot. There’s this indecision piece. You’ve expressed to me like, “I’m not motivated to do this thing.” Whatever it is, I know that’s what has to get done. I think you’ve got to figure that out because without that, you can’t move forward. You have to be motivated some days even through the struggles.
We have a mutual friend who runs a SaaS app, who has pretty major health issues. He struggles, he works four hours a day, and it’s tough for him to travel. There’s a lot of stuff that it’s just hard. It’s hard for him, but he runs a successful SaaS app, lives off, and has a few employees. He shows up everyday. In those four hours, I bet he’s pretty damn effective by the fact that his SaaS app still grows.
Mike: I haven’t found a system, I guess, that works for me in terms of preventing me from wasting time on the stuff that I don’t want to do or procrastinating to get those things done. I don’t want to stay here and say, “Oh, well. I just need to find the right system,” because I don’t think that’s the right way to go, either, or the answer to it. I do feel maybe I just need to experiment more and say, “Okay, try this for a week or try that for a week,” and be very deliberate about trying to get things done and shipping things, as you said, versus just showing up to work every day and a lot of motion without forward progress. I feel like I’m thrashing a lot. I don’t have an answer to that. Maybe the problem is that I’ve thought about what the answer to that is without actually doing anything to try and figure it out.
Rob: Yeah, not taking action. I think effectiveness is what you’re summarizing. Thrashing is the opposite of being effective. If this founder we’re talking about works four hours a day but gets a full day’s work done, he’s highly effective. Some people can work 10 hours. If they’re not effective, their business doesn’t move forward. We’ve talked about this in the past. The 80-hour-a-week startup people, I think, are probably not effective. That’s the reason they work 80 hours.
There’s a few exceptions but there’s a lot of younger folks. I used to work longer hours when I was younger too. It’s just not picking the right stuff to work on and then not focusing on that stuff, not wandering off to answer email, jump on Twitter, go to Reddit, really focusing. I think you can get a full day’s work done in 4–6 hours. Your full day’s work would have been 10 years ago, I believe, with the personal growth, experience, and stuff that a person can be more effective with less time.
There’s a couple things that I’ll throw out. One is that I feel like you should consider whether you want to keep doing this, to continue doing Bluetick, whether you want to continue being an entrepreneur. Here’s the thing. If you’re working in a contract job or if you were working a salary job, a lot of these issues go away because daily you would do a daily standup, or weekly, or whatever. You would have accountability. That external motivation would be there for you to ship stuff. That would make a lot of these go away. That’s a pretty nuclear option. In the interest of time, we probably shouldn’t go down that today. I do think it’s something for you to take a step back and just think about longer term.
Mike: Counterargument to that would be if I worked, did the right thing, and got Bluetick to a point where I was able to hire people to put on a team, that exact same result would come out of it.
Rob: Yeah, okay. That’s fine. That’s fine but you’ve got to get there. At the rate you’re going, you’re not going to get there.
Rob: I don’t disagree with you, Mike. This is Startups for the Rest of Us. The whole point is that we want to help people start businesses that give them personal freedom. The whole point of this podcast and everything we do is to feel free, to do what you want to do, and work on which you want to do. That would be my answer as well. It’s just, you have to figure out how to get there because you’re not making progress there now.
The second thing I would think about which is a less nuclear option, if we’re talking about options, it’s to go one step further than our mastermind and to find someone who would do a daily standup with you. Every morning, five minute phone call or five minute Slack. They keep you accountable. You subscribe to that. When you say, “These are the things I did yesterday. This is what I’m going to do today.” The next day, you come and you do the walk of shame if you didn’t get that done. You celebrate if you did and that extrinsic motivation is something that you think will help to do that.
What do you think about that is that, does it not matter? Because you’re so tired you can’t get anything done? Is the extrinsic motivation enough if someone was breathing down your neck? Would that be enough? Or do you think no? “I’m still too damn tired. I just have health issues and I shouldn’t do this.”
Mike: I would certainly try it. I would say, it’s pretty immature for me to say that it would or wouldn’t work. I suspect that it would. I seriously contemplated trying to find a way to get a one-on-one business coach or something like that, somebody who’s going to hold me accountable. You’re right. A five minute thing like that on a daily basis could be plenty. I don’t know. Without trying it, I can’t say for sure one way or the other. My inclination is to say, “Yes, that would work,” but it would also need to be somebody who is, I don’t want to say willing to yell at me because I don’t want to be inundated with thousands of emails saying, “Hey, I’ll yell at you.”
Rob: Sure because you don’t need yelling. You do need positive and negative encouragement and feedback.
Mike: I think that’s certainly worth exploring. I would say, it goes further than my thoughts about having a business coach who holds me accountable on a weekly basis because I think a daily basis would probably be better. That’s mainly because I feel like I could waste a lot of time during a whole week whereas from a day-to-day, I can’t. I don’t want to say the stakes are higher but the deadlines are sure. I’ve always found myself to be somebody who works extremely well with tight deadlines and time pressure.
Rob: Yeah, external motivation.
Mike: Yes. When I was doing consulting, the […] gets subcontracting through, they’ve held me in with a bunch of stuff. I stopped consulting from them probably a year-and-a-half or two years ago, but every single time I get an email from them it’s because something’s on fire. They want me to deal with it. I actually got to a point where from one customer to the next, every single one, everything was on fire and burning to the ground. They needed somebody to go in and fix it. I was their person because I was really good at it. I just got burned out with the travel. That was what the problem was. It wasn’t that I didn’t enjoy doing those things but I got burned out with the travel. The customers tended to be the same from one to the next. And the problem was repetitive. It got to a point where the problem was the same thing over and over. Then, I just got bored.
Rob: Yeah. Consulting is like a hamster wheel. You want to own something. You want an equity in something that has a longer lasting thing than just […] per hour.
Rob: Yeah, that desire.
Mike: Right. That was a big reason for me leaving and decided to do Bluetick instead because I wanted something that was going to need much more of that Rob’s flywheel as opposed to the hamster wheel.
Rob: Yeah. Obviously, we can’t solve stuff like these in a day. You and I talked about you taking some time to think about this, three weeks, four weeks where you think about both of what we’ve talked about today, some stuff we talked about offline, but really, do soul searching and figure out. I think there’s big questions here. It’s like, Mike, do you want to do this and do you want to do it bad enough that you’re willing to change? What you’re doing now isn’t working so you have to change it. Are you going to be willing and able to start looking at every problem as a speedbump rather than a roadblock?
Is this the right fit for you? Whether it’s this being entrepreneurship, Bluetick, it’s just those two. Does Bluetick have the potential? If you feel like you’re gaining your momentum and motivation to take a hard look and say, “How long will it take to get Bluetick to a point where it is differentiated?” My assessment is that, until you’re differentiated enough that you’re like, “Nope, we do this and no one else does,” or “We do this better than all these other tools.” Until you get to that point, you just don’t win many sales.
Mike: I totally agree with all that. I don’t even have to think too long about that one aspect of those. Do I still want to be an entrepreneur? For me, the answer is absolutely yes. The question for Bluetick is what does that look like moving forward? The reality is, the situation is I’ve got basically a seven month deadline at this point. I think you said there were some questions about how that shakes out with Google. I kind of know the answers to some extent. I still don’t have all the information, but I’ve gone past the last stage of Google’s verification with the exception of the security audit. That’s all that needs to be done. That’s the piece where I don’t know how much that’s going to cost. I don’t know what they have to go through or what other things I’m going to have to change. I’m still waiting to find out what that’s going to cost.
Then, I have to make a judgment called the end of it to say if it’s $15,000 and I’m going to make that $15,000 back in a reasonable time frame, not a big deal. Even if it was $75,000 or $100,000. If I were going to be able to make that back within three or four months, it’s not a big deal. If I’m in a revenue standpoint where it’s not going to happen in six months, eight months, ten months, then, no. I can’t justify even continuing with the product to that point. I don’t know what the price tag on it is right now. It’s a question of how far can I get in the next six to seven months to the point where I know how much revenue I’m going to be making three or four months down the road to be able to justify putting the cash out for that security audit.
Rob: You understand that while the security audit is one thing like we’ve talked about today, there are bigger issues. It’s shipping. Let’s say you pass the security audit and you pay for it. Bluetick is still not growing. Bluetick is still not differentiated right now. The reason again, going back, is you haven’t been motivated, or you’ve been bored with it, or there’s been health issues. There’s been all these things along the way. If that doesn’t change, it doesn’t matter what happens with the Google audit.
Rob: We talked about you taking some time to think about it and actually stepping back from the podcast here for about three or four weeks. Give you some clarity.
Rob: Some time alone. I know, give you a chance to maybe find clarity. These are hard decisions. This is retreat level kind of stuff where it’s a lot of thinking.
Mike: Yeah. The weird thing is these aren’t nothing we’ve really talked about. So far, things I haven’t thought about or considered over the past couple of years, it’ s just like I haven’t really taken the time to step back, objectively look at things, and take a hard look. I mean, if I do look at stuff and how things have gone, one constant that has been throughout the whole thing is me. Is it me? That’s a hard thing to say and the hard thing to admit to as well.
The question, can things change? Or will they change? Or do I want them to? I think that I want to. It’s just a question of how is that going to happen? How do I make sure that I don’t go through this process and come out of it and say, “Yeah, I’m motivated. I’m amped up. Let’s do this,” then put in time and effort for six months, then fall back into the same patterns again, I’ll say? That could happen. I don’t know but I need to step back.
Rob: That’s for sure. You know, Mike, I’ve always respected your technical chops, your intelligence, your writing, and you just have a lot of positive qualities. You’ve accomplished stuff in your life but you’ve definitely gotten in your own way. You’ve gotten in your own way more than I think you want to or should have. I think if you can start thinking about it, in terms of, how do I not do in the next six months what has happened in the past six months? We’ll see.
I’m going to be holding down the fort here for a few weeks. It’ll be good to hear from you. I’m sure people will be waiting with bated breath. We’ll have an episode, I don’t know, will it be 452 or 453? It’s the return of Mike. We get to hear from you, what you’ve been thinking about, and stuff.
Mike: Yeah, I don’t know. We’ll see what happens. I got to talk to my doctor and go back on a testosterone because it’s just, my God.
Rob: It’s kind of […].
Mike: It really is. You wouldn’t think that that does it. It was like, “Oh, that can’t possibly be that bad.”
Rob: I would totally think, any chemical in our body, when it gets that out a whack, it has these negative impacts that can be pretty brutal.
Rob: Well, thanks for delving into this today. I know this is not easy stuff to talk about. I appreciate your openness, honesty, and willing to delve into it. I’m sure the listeners do, too. This has over and over been voiced. This is like one of the favorite aspects of our show is when we do these things. We talk pretty open and raw about what’s going on.
Mike: Yup. I guess with that, why don’t you take us out then?
Rob: Yeah. If you have a question for us, call our voicemail number at 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. It’s used under Creative Commons. Subscribe to us on iTunes by searching for Startups and visit startupsfortherestofus.com for full transcript of each episode. Thanks for listening and I’ll see you next time.
Episode 434 | SaaS KPIs You Should Focus on From Day 1
In this episode of Startups For The Rest Of Us, Rob and Mike talk about what KPI’s to look at when launching, key metrics you should track, and what they should be.
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 SaaS KPIs that you should focus on from day one. This is Startups For The Rest Of Us episode 434.
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 Mike.
Rob: And I’m Rob.
Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week Rob?
Rob: Well, I got my tan on in Mexico. I mentioned that last episode. We got out of Minneapolis for about eight days and it was good. It was interesting that that my two boys got so much sun the first day. They got a little sunburn, but it wasn’t bad. They then the next two days had fevers and it was almost like they had sunstroke, because we have been out in the sun so little since whatever, October.
It was a trip. I was like, did they get vitamin D overload? What was the deal? But they both got sick. It was Mexico. Several of us had stomach issues, but the boys didn’t and they had this different reaction to things. They were all hot and they were tired with headaches. It was definitely like sunstroke attributes.
Mike: Interesting. I wonder if it’s just a byproduct of living in California first of all.
Rob: What do you mean living in California?
Mike: Well, because you live in California and then you moved to Minneapolis. Suddenly you’re not getting any sun and then you go back. It’s almost like dying of starvation or thirst, you suddenly get it, and then you get sick because of it.
Rob: Totally. The thing was, my boys tan really well. Before we went to Mexico, they looked grey. They looked like this really odd grey color, because again no sun exposure because it’s so cold. It’s super sunny here in Minneapolis, but it’s just so cold. You don’t go out without coverage. Your face is typically the only thing showing. If you’re going to be out for an extended time, you have gloves on, you have stuff over your arm. It was a fun trip overall and I’d recommend it.
We actually went to this smaller town called Sayulita. It’s about 45 minutes north of Port of Aorta. I know you mentioned you’ve never been to Mexico. For your first trip, maybe do go to Cancun or Port of Aorta. Those places are fine, we’ve gone there. Once you go there once, it’s super touristy, it’s packed with people and you’re not among the locals. You’re just a bunch of other vacationers. You’re hanging out with other tourists.
Whereas Sayulita is small and it’s 45 minutes north. It was a much better experience. It felt slightly more authentic and we still had access to what we needed in terms of food and such, but it did feel just like a better experience. Folks listening, if you haven’t checked it out, I recommend it. How about you, what’s going on?
Mike: I’m in the process of going through the scholarship applications that came in.
Rob: For MicroConf, right?
Mike: Yes, for MicroConf. I really think that if I were going to make any predictions right now, that this would probably be the single biggest mistake that I will make for the entire year. I forgot to include the email address field until basically like 2/3 or 3/4 of the way through it and I didn’t notice it until then.
Rob: You have a scholarship application like a Google form or Typekit, you send an email to the MicroConf list, you send people to come apply for scholarships, they give all this information, and you have no email address form?
Rob: That’s nuts. There’s no way to map since it’s third party. I was trying to get you the link back because when they click through the Drip email, there’s going to be their subscriber ID and the URL, but there’s no way to go back and try to get that matched up or anything.
Mike: No, not from a Google Form. The thing is, it’s not even that I actually forgot it, it’s that it disappeared because I copied the application form from last year. I don’t know what happened. I must’ve clicked something and accidentally deleted it or something, I don’t know. I didn’t notice until well into it and I was just like, “Oh my God.” I’m in the process right now of going through and trying to figure out how to reach each of these people. The nice thing is, because it’s an application, it asks for a lot of information.
Most of the ones that are missing, I have at least Twitter account information for it. I can send them a message and try and get in touch with them through that. Then other ones I’ve been able to map back to some of the different email lists that we have. The one really helpful piece of information is that I ask where they heard about it from and if they say email list, then I can go look at the email at list.
If they say that they heard from a certain person, I think there was only one, possibly two that I’m not sure how I’m going to be able to get that information. But I think for the most part, I’m going to be able to clear it out. It’s just going to take time and effort though. That’s the part that sucks.
Rob: That’s the thing. These are those fixable problems that are a ton of ground work to get done. It’s like, “I could have saved myself hours taking through this thing if I’d remembered to put the email address.” I have done this plus way worse. These are things that happen as you’re moving fast and doing a bunch of stuff. That’s brutal.
Mike: Oh well, I got to do what I got to do, though.
Rob: Yeah. My guess is you will never ever again forget to put an email address on a form like this.
Mike: Like I said, I don’t think I forgot. I think it’s accidentally deleted.
Rob: It deleted itself, yeah. From my end speaking of applications, the TinySeed application process ran for a month from mid-January to mid-February. I guess around four weeks. We got just under 900 applicants. It was a lot more than I thought. I was ambitious in hoping we’d get 400. I had heard through the GreatFind that a lot of more well-known accelerators get 500 to 700 depending on location. I’m sure Y Combinator gets more than that I’d imagine. It’s a big number and it’s what I’m very happy with.
It also creates what we call a good problem to have. The good problem is we have a lot of applicants. The bad problem is, I’ve been sifting through almost 900 applicants for the past two weeks. It’s just a lot of work. I’m not complaining obviously because this is what I would want to be doing, but it’s definitely going to be a process to get through all these. I already started having conversations with founders as I mentioned a few weeks ago. It’s going well.
Mike: Awesome. The only other thing on my side is that I’ve got an upcoming webinar that I’m going to be doing for hr.com which is kind of, I don’t know, you look at those 2-letter domain names and you’re like, “Wow,” it’s nice that I was able to finagle that. I’ll be doing a webinar for them on personalized email strategies to drive traffic, engage leads, close deals, and more. That will be on April 29th and I’ll link it up in the show notes in case anybody’s interested.
Obviously because it’s for them, their audience tends to be people who are reaching out to HR professionals in that particular space. They have a couple of different audiences, but one of them is the HR reps themselves, and then the other one is people and vendors who are trying to get in touch with HR people. This is basically aimed at those people who are trying to get in touch with the HR reps. It’s more of a general presentation that I’m putting together for them. It could very well be applicable to people who are listening.
Rob: We will link that up in the show notes.
Mike: I know I did the intro today, but what are we talking about?
Rob: Actually, we designed the entire outline around a listener question. I’ll play the voicemail in a second, but it’s about what are the key performance indicators or KPIs. By the way, I hate that term. I feel like it’s such an MBI, I hate it. It’s a shorthand that everyone understands. What are the numbers, the metrics that you should be tracking when launching and growing a SaaS app. Let’s dive into the voicemail here.
Adam: Hey Rob and Mike, I’m Adam Hawkins. Thanks for running the show, it’s been awesome. I’ve learned a lot from you over the past few episodes and I appreciate that both of you mention metrics and discuss these app businesses. One of you mentioned that you needed to have X thousand visitors on your landing page to pull your funnel in a previous episode. That really got me thinking of a fellow bootstrapper. Here’s my question, what are the KPIs and target values in launching in SaaS? I’m kind of thinking something along the lines of numbers that will keep me on track in launching my own SaaS. That’s all for me. Thanks guys and keep up the good work.
Rob: The first thing I want to say about this is, when we make statements like you need X thousand people to hit your landing page to validate or whatever. Often that’s a rule of thumb and it’s something to start from, but please don’t take that as gospel. I think in the past we’ve said you need 30 people, or you should talk to 30 people and have them say yes to your product, and consider that validated.
With Drip, I only did 10. It just depends. It’s all a spectrum. It’s like a risk tolerance. These numbers are not set in stone. None of this stuff is set in stone. With that said, there are rules of thumb. From doing this for 15 years, you start to see patterns and you know that a metric is out of whack if, let’s say I have a SaaS app that’s $50 Bucks a month, I ask for a credit card upfront, and my trial to pay is 10%. I know that is way too low and we have a major problem in our funnel.
That’s what we’re going to talk through today. These loose ranges when I see an app performing at 40% versus 60%, how we think about that, and how it indicates where you might have an issue in your funnel. It really helps you figure out what to focus on, because at any given time, you’re going to have one or more things that are just going sideways with your business. It’s just the nature of doing startups. You’re always that duck on the pond where above the water, you look like you’re just gracefully moving along, and under the water you’re just paddling like crazy to stay afloat. Your numbers are sideways and you got to figure out what do you focus on.
That’s really the point of this episode. It’s to try to give you some guidance so that you’re thinking about it as someone with a background. Even if this is your first time that you’re kind of taking the wisdom and the rules of thumb from us. Basically, folks who have seen these SaaS apps, seen a lot of numbers, know what a healthy SaaS business looks like, and know where to focus on to help improve them.
Mike: Yeah. As you said, these are guidelines and general patterns. It doesn’t necessarily mean that if you are in this range, then things are going great. I think one of the big drawbacks of using this information as gospel is the fact that you never really know whether or not you have room for improvement or how much will you have room for improvement. If you have this general range, let’s say it’s between 2% and 4% for any given number, and let’s say you’re smack in the middle at 3%, that seems reasonable.
There’s probably other areas in your business that you should be focusing on, but is it possible that that number could be 6% or 8% depending on your type of business or the vertical that you are in. The answer is absolutely yes, it could be that high, but you don’t really know unless you are directly comparing yourself against other businesses that are similar to yours.
Again, these are general guidelines. They are helpful in terms of determining whether or not you should continue to focus on that area. Maybe you should, but chances are good that if you’re in the general ballpark, I’ll say that there’s other things you should be going to look at before you come back and try to optimize and double down on whatever that particular thing is to improve it.
Rob: That’s the thing, if you’ve ever gotten a piece of mail from your city water quality control board, they’ll show you all the lead and this and that, and then they’ll show you the acceptable ranges, because without the acceptable ranges, you have no idea what the numbers mean. It’s like one part per million of lead. Does that mean anything to you? It doesn’t to me, so then you want to see the acceptable range, or if you get a blood test, Mike. I know you’ve never had any test on you.
Mike: Of course not.
Rob: I’m curious. You’ve talked about it on the show, that’s why I’m bringing it up. I get a blood test every few years or whatever. There’s all these numbers that mean nothing without that guideline on the right that this is the normal range. That’s really what this is trying to do. I don’t want to over couch this and say, “These numbers? We’re just going to ballpark them and it don’t really mean anything.” They do mean things, but there’s always the caveats of, if you’re selling a $19 a month SaaS—I will try to call those out as we go through because I’ve sold $19 a month SaaSes—and then if you have one that’s $500 a month, the numbers are going to be different. We’ll try to talk through those differences as we go.
Mike: We’ve talked about KPIs and various metrics in a few other episodes. The first one was episode 112 where we talked about the startup metrics for Pirates and that’s based on AAARR. Is that what it is? I forgot.
Rob: Yes, something like that. It’s either AARRR or AAARR, I forget which it is.
Mike: I think it’s AARRR. There’s another one, Episode 187 where there is a whole slide deck that we went through from Andrea’s Cleaner. That slide deck is around 150 pages or so. It’s really in-depth. There’s a lot of good information in there. It specifically talks about the fact that your KPIs are going to change over time and very early on, there are going to be data points that you’re looking at. You have to be really careful about how you interpret them because the numbers are probably going to be much smaller, and your product market fit isn’t quite right yet.
There’s a lot of caveats to those very early numbers. We will call them out as well, but that’s something really important to keep in mind when you’re trying to figure out whether or not you should optimize something more or move on to something else. The third episode is Episode 231 with Ruben Gamez where you and him at the very end of the episode started talking about some of these general ranges that we’ll rehash in this episode.
Rob: I’ll be interested to see how close the ranges are. We literally did it off the cuff in that episode, and I’m kind of getting into it off the cuff again today. I’m hoping that the ranges are pretty close. What I’d like to do is start at the top of the funnel. Going from unique visits to your site and just go all the way down the funnel. Visits-to-trial, trial-to-paid, turn, blah-blah-blah, and go down the line.
So, starting at the top of the funnel with unique visitors. This is an interesting one because I don’t think there is a KPI for this. You want the most unique visitors you can get that are targeted at your website in any given month. I have had software products that get literally 1500 unique visitors a month that sold upwards of $4000 or $5000 a month in software. Now, it was not SaaS, it was a $300 one time purchase. The traffic was targeted, it was in a pretty tight niche, and it obviously converted quite well.
Whereas most SaaS apps I know, you’re going to be priced between let’s say $20 and $100 a month for your starting tier if you’re doing self-service. You really want to start getting into that 5000-10,000 uniques a month to try to start scaling it up. The challenge here is, if we’re talking about day one and you’ve just launched, unique visitors doesn’t have much meaning yet. What you really want to do is you’re still trying to validate your product, you’re trying to find product market fit, driving more traffic, trying to split test, and look at these aggregate numbers isn’t helpful yet.
In the early days, you should probably couch all of these metrics with that. In the early days, your numbers are going to be so small. When you have 10-20 customers and one of them turns, that doesn’t really mean you have 5% or 10% churn rate. It does technically, but it’s meaningless because you don’t have enough numbers to accurately measure things. I think that is another thing. Early day KPIs are different than later day KPIs. Early day KPIs are really how many people am I talking to? Do I think we have product market fit? Is churn going down? These are marketing resonating.
There’s a lot more qualitative questions that I ask in the early days than in the later days. You’re looking at more quantitative, because you’re just past that point. It’s hard to say for everyone, but I feel like when you hit about somewhere between 5000-15,000 MRR, that’s where I start to shift into that. You probably have 100-200 customers. That’s where you can start having numbers that are more easily measurable and you can start seeing trends instead of seeing these very spiky results because the numbers are small.
Mike: I think one of the interesting things about the number of unique visitors is that, as you said, all those not edge cases but those different factors that play into it like price point, how long it’s been around, do you have product market fit, all that kind of stuff. One of the really challenging things when you’re that early on is that a link on Hacker News, for example, can drive traffic through the roof and it is untargeted traffic. It’s good to get it and it’s nice to see that there are more eyeballs coming to your site, but what it does is it really heavily skews your metrics, because those people aren’t necessarily there as interested people, they’re there because you got a PR bump and that really seriously starts skewing your metrics.
You really have to be careful when you’re looking at everything else just because if you’re only averaging let’s say 3000 views a month, and then suddenly you get an incoming link and you end up getting 5000 over the course of a couple days, that 5000 is going to overshadow your typical 3000. And because it’s untargeted, your visitors trial and your trial-to-paid, all those numbers completely gets out of whack because of that. It skews them. It makes it a little bit more challenging to figure out what is my actual visitor-to-trial rate. You have to look at that and say, “Well, how well targeted was that traffic? Do I apply a percentage to that?” Well yes, 5000 people, but maybe only 0.5% or 1% of them were actually targeted then you multiply out from there and figure out what your actual visitor trial rate would be.
Rob: Yeah. The nice part about all these metrics but specifically visitor trial is, the more visits you get and the more trials you get, just that the further along you get, it does standardize. I used to be able to look in Google analytics or whatever dashboard I was running and just instantly know if it was a good number. My range for this is for SaaS, I want to specifically say that. For info products or for onetime purchases, you can get dramatically higher numbers, but people signing up for SaaS apps with a credit card upfront, I want to be between 0.5% and 2%.
The difference there could be a lot of things. It can definitely be your messaging and your marketing. It can be the quality of your traffic. It can also be your price point and that’s a big one. If I had an app that was $10-$20 a month for the lowest pricing tier, I would want to be closer to that 1.5% and 2% number of unique visitors translating into trials with a credit card on file. If I’m selling something that’s $50-$100 a month as the lowest tier, I’m going to be looking between 0.5% and 1%, 1% would be a pretty nice number to get on that.
Something else to think about is this is for one funnel. That’s like the visitors and turning into trial. You can also have a longer funnel that visitors turning into email subscribers and then you know how many email subscribers, over time, turn into trials. You can look at that number. If you have a good converting landing page, let’s say you’re sending either ad traffic or SEO traffic, and you’re trying to squeeze for an email address, and your offering something of value to folks with download in exchange for that email, I want the range to be between about 15% and 25% of people entering their email address on the landing page. I’ve had upwards of between 40% and 50% for certain calls-to-action with the really targeted traffic, but that’s pretty exceptional. If I’m below 15% I’m a little concerned and if I’m below 10% then I’m doing something wrong. The traffics mismatch or the call-to-action isn’t very good. If you’re going to do that, it’s a longer funnel, it’s a longer journey, but you need to then look at your email numbers in aggregate and see how many of these are turning into trials over time.
That’s where you need a good system with good tracking like Drip or I believe ActiveCampaign could do this. I’m not sure that Mailchimp, I haven’t used it in so long, I’m not sure that it’s easy to do that with Mailchimp. If you are going to go that route, you’re going to want to dial in the analytics at least to the point where you can have a relatively good insight into how many new subscribers are converting into trials. One other thing, if you’re not asking for credit card upfront and your unique visitor-to-trial rate is 5%, I’d say 5%-15%, but 5% is actually too low. I think I’d want to be more in probably 10%-20% range is where I feel comfortable. This one I have done very little because I tend to ask for credit card upfront. I have done tests with it and such, but I’ve talked to a bunch founders who run credit card free trials and that does tend to be the range.
Number three, the next KPI is of course trial-to-paid conversion. If I’m asking for a credit card upfront, I want between 40% and 60%. If I’m at 39%, I know that I have a problem. If I’m at 58%, I know that I’m doing quite well. I mean that’s really towards the top range. There was a time when Drip bumped above 60% at different times, then you know you’re kind of killing it and your onboarding is doing really well. When I took over HitTail, I acquired that in 2011, it was credit card upfront and the trial-to-paid was 15%, and so you know that there’s a major problem in onboarding. That was one of the first things that I cleaned up.
That’s why these ranges are fairly important is that you know you’re so out of whack there that if you fix that, you’re going to be going to be in a better position. If you’re not asking for credit card upfront, trial-to-paid, I would want to that one between let’s say 5% and 15% is probably a relatively decent mark. I mean I would want to be between 8% and 15% myself, but you’re just kind of a lot lower when you’re not asking for credit card, that’s kind of the nature of the beast.
Mike: One of the things that I think is probably the most challenging with trying to find out or to track some of this information is that when you’re very early on, these numbers are very misleading when one person cancels. If you’ve got 10 customers or 20 customers, having one or two customers cancel is a huge deal. One or two people who come through the funnel that don’t convert, let’s say you’ve got four of them through and not one of them converts, that’s 0%. Even having a couple after that, it doesn’t really put the number back to really where it should.
You have to eyeball those things and try to capture as much information from people who are leaving or not following through with the trial to figure out what it is that drove them away. Why did they not actually decide to follow through and sign-up for the service or continue using it. Use that information to try and figure out what it is that you’re supposed to do because the numbers are not going to be enough, especially early on.
Now, that’s not to say you shouldn’t track those numbers, just that they’re going to be misleading early on. Over time, it will get better, but those first few that come through, first 100-200 that come through, is going to be hard. You have to talk to people to figure out what the reasons are for them to move in one direction or the other.
Rob: Exactly. The numbers aren’t going to tell you the whole story. Especially in the early days. That’s something you got to dig into. The fourth KPI we’re going to talk about is churn. I’ve seen people look at churn as a blanket number. It really obfuscates what’s going on underneath. If you go to Amazon and you see that the average rating for something is 2.5 stars, but there’s actually 101 stars and 105 stars, I guess that would actually average to 3%, but you get the idea. 100 0 stars and a and 100 5 stars in average is 2.5%.
If you just have the 2.5%, it looks like a crappy product, but as it turns out with five and zero, the zeros are probably either misunderstanding, or there’s something wrong, there’s more information under that data. Churn I feel is the same way. If you look at your churn across your entire customer base, you’re missing some information. What I’ve typically seen the most success with is to look at your first 60-day of churn, and then your post 60-day churn, and separate those numbers out.
Sometime it’s up to 90 days, but really, a lot of people do an extended trial where they might enter their credit card. When the trial expires, they pay one month. They never get set up. They never get onboard and then they churn, but really what they did is they were kind of like a trial that didn’t convert to paid. I started seeing these patterns, it was before HitTail, but when I got into HitTail and really dig into the numbers, it was a huge difference. Literally in the first 60 days, especially if you’re asking for credit card upfront, but it can happen both ways, you might see churn upwards and a per cohort of between 20% and 40%.
It can be a huge number of people that are canceling there and 40% I start to feel uncomfortable, 20% I actually don’t feel terrible about that for 60 days. Then post 60 days, you want to get your churn obviously as low as possible, but I feel most comfortable in let’s say for lower priced products that are not enterprise, not annual contracts, I think between 5% and 8%. If you’re at 9% or 10%, it’s pretty brutal, 8% is about the top in where I feel comfortable. Realistically, if you’re a big SaaS app, I think WP engine probably has negative churn at this point.
I remember Jason saying in the early days, they had 2% churn. I’ve had apps that have 2% to 3% churn in that post 60-day, post 90-day mark. That’s where you want to get to. The problem is, the lower your price point, the higher your churn tends to be. That’s why a lot of folks go up market, a lot of SaaS apps do. If you can, you want to get to net negative churn where you do churn out 2%, 3%, 4% but just the growth in your existing customer base of people upgrading actually wipes out the churn. It’s a crazy thing. I’ve seen it firsthand. It just catapults your growth. Those are my loose numbers that I keep in mind when I’m looking at churn rates.
When I see someone come through with a 12% monthly churn rate, I think that’s the first thing I would attack. If I see someone come through with a 3% churn rate, I think that’s amazing. I believe you have a product market fit depending on how many people you’re putting through your funnel. Let’s look at your other metrics to figure out where we should focus position not be on churn, if your number is that low.
Mike: One thing that we should probably drill into a little bit is the idea of that negative churn, because I think that some people might get confused about that. It’s not that you’re gaining more users than you have actually signed up. Although in some cases that may actually be true, because if somebody comes in and then they invite somebody else on their team, initially they sign up with one account and then they may fall into a different tier. That’s part of where that negative churn comes from because people are essentially upgrading to a higher tier paid accounts.
Whether they’re adding users, or going to a new pricing tier, each of those things can qualify. A question for you Rob, because I’m actually not sure about this, does it qualify if they upgrade from a monthly plan to an annual plan? I don’t think that it does.
Rob: No, it doesn’t. The annual plan should be divided by 12 and added to your MRR anyways. It’s not net revenue. It really is actual MRR that I’m looking at. I’m glad you brought this up because I should have couched this when I was talking about churn and the churn you should focus on is revenue churn, not user churn or customer churn. Revenue churn is when you look at, we started the month with $100,000 in MRR and we lost $10,000 in MRR, so that’s a 10% revenue churn.
First is we started the month with 1000 customers who are paying, 1000 credit cards on file, no matter how many users are within each account. We started with 1000 customers paying us and we ended the month with 900. That’s 10% user churn or customer churn. I’ve always looked at both. By far, the most important is revenue churn. I don’t think you could have negative customer churn, because you can’t add more customers than you signed up, but you can have a net negative revenue churn. That’s where you only lose a small amount of revenue from people canceling, but the rest of your customer base is either so large or they naturally move up tiers and pay you more for stuff.
Drip is a great example of this. As people’s lists grew, they naturally moved up in tiers automatically. There was just a natural movement towards paying more to your ESP. Those are the kinds of businesses that can have negative churn. Slack probably has a negative churn rate, because teams do tend to grow. Yeah, companies go out of business, there are layoffs now, but there are layoffs from time to time in your customer base.
In general, teams that sign up Slack and start paying, I’m guessing these are startups that are adding more and more people and Slack charges $6 or $8 a month per person. I would guess with the stickiness of Slack, they’re kind of gross churn is very low. I bet their net churn including expansion revenue is what it’s called, as people expand and hire tiers is quite substantial. That’s the holy grail of SaaS.
I know people say, recurring revenue is the holy grail of software, and that’s why SaaS is such a big thing. Net negative churn is the holy grail of SaaS if you want to get into it, because that just snowballs and it means that if you do nothing, your company grows. It’s crazy to even think about it when you actually look at charts, and you look at how the numbers work out, you look at graphs of it, once you hit net negative churn, you don’t need to do much. I shouldn’t say you don’t need to do much, but you need to do a lot less to grow a lot faster is what happens.
Mike: Is that where the passive income comes in?
Rob: Passive income, money wisely. Let’s run through the last few pretty quickly. The fifth thing is MRR and that’s just your monthly recurring revenue. As we said earlier, it can get tricky if you have annual plans, you’re supposed to technically divide by 12 that annual plan and then add it onto your MRR. Hopefully you have a software that can do that like Baremetrics or ProfitWell. MRR was the number that I tracked religiously. Every night I would get an email after billing ran and it would tell me what MRR was, what the daily billing was, and all that stuff.
It’s kind of a no brainer when you think all of us track it and it’s something that talks about the health of your business. The other one is MRR growth. I always looked at this as dollar rather than percentage. A lot of people talk percentages, but it’s like when you’re at $1000 MRR, or you’re at $100,000 MRR, the percentages obfuscate so much stuff. Truly, how many dollars did you add and you want to look at not just net add, but you want to look at how many did you lose to churn, how many did you add from new customers, and how much did you add from expansion revenue. Seeing those three different numbers and then the net. There’s four different numbers that you can get into and a lot of people who are really into their SaaS numbers know these numbers cold and know where they want to be with them.
The last one is ARPU, average revenue per user. I like to call this ARPC, which is average revenue per customer, because frankly when I’m charging people money, I think of them as customers, not users. Like Drip, one account might have 20 users in it, but to me that’s a single customer. It’s apples to apples, but it’s just a terminology thing. Average revenue per user, average revenue per customer.
Frankly, if your average revenue per user is $10 or $20 a month, you have a nice little business. You can grow that to something, but the odds of you growing that to a multimillion dollar business are very low. I’ve seen businesses with very low churn, good trial-to-paid, and average revenue per customer of $10 or $15 a month. I think that’s going to be a great 30K MRR business. That’s not a bad business to have, but you’re going to struggle to get past that 30K or 50K mark. If you want to build something into a 7-figure business, not across the board, not unequivocally but in general, you need that average revenue per customer to be upwards of that $40, $50, $60 and up price point.
You want to be in triple digits. You want to get there eventually. You don’t have to be there on day one, but aspiring to get into that $100 to $500 per month, per customer. That’s where you can scale, it’s so much easier to scale a business into that seven- and eight-figure range. Because you have the money to acquire customers, the payback is fairly quick. If most people are paying you $200 a month, you can spend quite a bit on ads and salespeople. Frankly, churn will be lower. It’s always counter intuitive to say this, but lower priced products, lower ARPCs tend to lead to higher churn.
Mike: Something we didn’t talk about when we were talking about the revenue churn between the first 60 days and then post 60 days was that, if you do any sort of a pricing change that can have a massive impact on what your revenue churn looks like. If you raise prices, let’s say by 50%, make things simple. If you raise prices by 100%, you double your prices. If you lose less than half your customers, then technically you’re coming out ahead because you’re making more money. In theory, your infrastructure costs have probably gone down. The obvious downside of that is, potentially losing customers after that first month or after you initially make that change, assuming you didn’t grandfather them. At least be a little cautious of or cognizant of, because that that can seriously change some of those numbers.
It’s not something you have to worry about, as you’re launching, but down the road when you are calculating these numbers and try to figure out how to grow the company, those are things that you should at least bear in mind when you’re trying to figure out if you’re running into financial issues and you need to be able to make more money. You can just do some calculations and say, “Well, if I raised by 10%, this is how much we could get, and how many of those customers are we going to lose the because of us raising those prices.”
The other thing that I was thinking about was that, all of this information sounds great to be looking at, but how do you actually go about tracking it? There’s a lot of different tools out there that you can use. Sunrise KPI for example is one. We can look this up in the show notes. CYFE is another one. Honestly, the simplest thing to do, instead of going in and trying to figure out a bunch of different tools and things to integrate, you can just use a spreadsheet. Whether it’s a Google doc or Excel spreadsheet, it doesn’t really matter. Throw your information in there, maybe update it. You can do it as much as once a day, but you could also do it once a week or once a month, and it really gives you a sense of where things are at and what you should be focusing on. If you’re not plugging this information in and at least looking at it, then you’re never going to do anything about it. That’s the big problem that most people run into is they just don’t even look at these things or they don’t update them and keep track of them.
Rob: Yeah, that makes sense. I mean, I’ll admit with pretty much all, I think without exception, all the SaaS apps I’ve ever run, I’ve built a little scrappy page and these are just simple queries. You should have all the stuff in your own database, I’m imagining. I always did and it’s a little bit of a pain. Churn can be a pain to calculate that can take some time, but I remember hacking together a dashboard with most of these numbers in a few hours, one evening.
I was listening to music and have the lava lamp on sipping Bourbon and I just hammered through these one at a time. I really don’t have a very impressive life, do I, Mike? It’s kind of sad that that would, but it was a fun night, I’ll admit. Because once I had that, I was looking at that thing every day. It was super cool. Then by the time we were launching Drip, I remember telling Derrick, “These are the numbers I know I need. Let’s figure them out,” and it did take him probably a day to get the initial version done.
We had to kill a day of developer productivity to do it, but it was really nice to (a) be in control of those, to (b) have a all in one place, and to have them displayed in exactly like the order that I wanted. I mean, we even have trailing 7-day trials, how much each day it had, have it trailing 30-day. Then we modified it and adjusted it over time. The other cool thing is that whole dashboard and admin area became a nice training ground for new developers. We’d bring in like a junior dev or whatever. You may not want them to push production code into your app right away, because it could break something for customer, but that becomes a nice playground to be like, “Hey, let’s add this number or let’s tweak this,” and it becomes this code base that can get screwed up. If the admin console crashes or has some weird thing that happens in it, it’s not the end of the world, because it’s just us using it. That was kind of also a bonus to having that all built out.
Mike: I’ve daily email sent to me from Bluetick just to see a lot of those different pieces of data.
Rob: It’s a good way to do it. I always had it as a shortcut on my browser but it’s same thing, and that’s your pulse. We actually called it, the page that displayed all this, we called it Pulse in Drip. I always thought that was a pretty fitting name, because it’s the pulse of the business.
Mike: Got it, cool.
Rob: Forty minutes on SaaS Metrics, KPIs. I think the next episode needs to just be all jokes. You and I need to just talk about movies and jokes.
Mike: I don’t know if that’s going to be a very compelling episode.
Rob: That would be even worse than this one. All right. Let’s call it a wrap. I guess I’m the wrap guy today.
Mike: Yes, you are.
Rob: This whole episode was outlined based on a single listener question. If you have a question for us, you can voice mail number at 888-801-9690 or email us at firstname.lastname@example.org. 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 409 | Defining Product/Market Fit, Using Inexpensive Developers, When to Quit, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include defining product market fit, using cheap developers, when to quit, and more.
Items mentioned in this episode:
- The Quiet Light Podcast w/ Rob Walling
- Closer Sharing
- Sean Ellis: 40% “very disappointed”
Rob: In this episode of Startups For The Rest Of Us, Mike and I discuss the definition of product market fit using inexpensive developers, when to quit, and more listener questions. This is Startups For The Rest Of Us episode 409.
Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. Where this week, sir?
Mike: Do you hear that?
Rob: The silence behind you?
Mike: Yes. The kids went back to school. Oh my god, it’s so awesome.
Rob: You’re right. It’s nice that they’re not in the house except for […] of the day or eight hours of the day with buzz time.
Mike: Yes, yes. It is. There are certain cartoons that they watch that could not end soon enough because they’ve watched the same episodes over and over. I’m just like, “Oh, please. Let it stop.”
Rob: Totally. Our kids go back next week. Although by the time that this airs, they’ll have gone back, but as of the time we’re recording, they’re not back in school yet. I’m definitely looking forward to that.
Mike: Yup. What’s up with you?
Rob: Well, I’ve been listening to a few books. As always, I kind of have my audio queue full at all times for when I get through all the podcasts episodes for the week. One I listen to is called Brotopia. It’s about kind of the Silicon Valley boys club and I enjoyed it. It’s by Emily Chang. It really brings a lot of stuff to light. I’m very glad she wrote it. I wasn’t surprised by a lot of it, I was surprised by parts of it in a bad way, just about stuff women have had to deal with in Silicon Valley.
There was a small portion that I felt like, I mean, literary 5-10% of it where I was like, “Okay, I feel like you’re taking this a little too far.” Or, “This is a little over the top.” Or, “This particular argument or example just feels like a little bit sensationalist,” but all that to say, solid 80-90% of it, it was like, “Oh my gosh, yeah.” Things are beginning to change but it’s not nearly enough. I appreciated that book. I think it’s something interesting to read or listen to if that kind of stuff interests you–and it should. Diversity inclusion is something that everyone is thinking about these days or should be.
Another book that I listened to that I didn’t think I would like actually. But I’m a huge fan of Paul Simons—Simon and Garfunkel in particular. There’s a new biography called, Paul Simons: The Life. I figured that anything before Simon and Garfunkel, like his growing up and anything after Simon and Garfunkel would not be that interesting to me. But it turns out it was well-written, it was fascinating, the story, and just the way he reinvents himself every album. […] is painful process of being a maker in what he does. I loved just hearing about creators and how much—it’s the struggle. It’s the struggle of creating things and how hard that is. Anyway, it’s highly recommended if you’re at all into Paul Simon or want to meet and like the artist’s journey, kind of biographies.
The last one is just a fun diversion. I buy a lot of books thinking like, “I’m going to go out on a limb here. It’s not typically what I love.” But it’s by David Spade and it’s called, A Polaroid Guy in a Snapchat World. I’m not a David Spade fan, in particular. The only movies that I ever saw him in were like Tommy Boy. I think he was in two Chris Farley movies. David Spade was on Saturday Night Live in early ‘90s, I believe. I have not followed him, I have no connection to him, but man, this book was funny. He just turned 50 years old and he just talks about kind of being in 5 television shows, and 24 movies. He’s a famous person. He just talks about life in LA, and Instagram, growing up, and other things. It’s funny. I enjoyed that. I feel like at first, it kind of set off in a beaten path. It was something that I could listen to that would take my mind off of work, which is something you’ve talked about a lot, how you read fiction to give your mind a rest from it.
Mike: Yeah, very cool. I haven’t read any of those few books. But I’ve run across Brotopia before, at least I’ve seen mentions of it in a couple of places. It’s interesting but as you said, I wouldn’t expect a lot of the things that are talked about in that to be necessarily surprising because there’s a lot of stuff that’s come out of the Silicon Valley culture that is just unacceptable, to be perfectly honest about it.
Rob: Yeah, it’s pretty over the top.
Mike: What are we talking about this week?
Rob: This week we are answering some listener questions. We have one question that we’ll kick it off with. It’s about using inexpensive developers. An anonymous listener wrote in, he said, “I discovered some of your videos on YouTube and the principles that you teach specifically the idea of an MVP have turned my thinking upside-down and got me really stoked. I’m a lead developer for a government contractor and I have been for 12 years. I believe that good software cannot be pounded out by cheap labor. I’ve seen too many programmers not willing or able to separate concerns like DRY Code–Do Not Repeat Yourself Code, and otherwise make unmaintainable convoluted messes. On the other hand, I need help for my on-the-side startup and cannot pay anywhere near the $100,000 a year for good developer in the States. I’m considering trying cheap overseas labor and I will attempt to review a code and set a standard to keep the code base at an acceptable level of quality. I have a couple of questions.”
This is good stuff because we often, Mike, we often get the questions of, “I’m non-technical. How do I find somebody else? How do I validate?” But this person is technical and so this is a boat you and I have both been in. It’s interesting, right? Because back in, between 2005-2010, I was very much in this boat. I knew you have had folks working on both Audit Shark and Bluetick.
He has three questions. The first one is, “Have you tried this and do you have lessons learned?” Second question is, “I’ve heard you say don’t worry about scaling it until you prove your market. Would you take that as far as hiring cheap developers to write unmaintainable code for your first iteration of the product, assuming the code actually works, of course. Building, kind of a crappy, and repeat, and then rewriting it later.” The third question is, “How have you approached hiring developers?”
We may not be able to in-depth answer all of these. We have talked about hiring developers in the past. I actually talked about it on the Quiet Light podcast, in specific where I went to 5 or 10 minutes of just that topic. Maybe let’s send people over there or they can search the back catalog because we have transcripts of every episode. If you go to startupsfortherestofus.com, type in hiring, you can grab some old episodes from iTunes and you can listen to that. Maybe we just tackle the first two in this episode.
The first one, have we tried what he’s suggesting, kind of hiring cheaper than $100,000 a year labor, and what are our lessons learned from that.
Mike: Yes, I have. Lessons learned is that your expectations for them should be lower than if you were paying more. You can find developers as cheap as $5 or $10 an hour, but you’re going to get what you pay for. I found that when I went above $20 an hour, I stared to get better developers. You’re able to get a wider variety of in-depth experience as well. If you go to the lower levels, you’ll just find somebody who says, “Oh, I can do front code and I could do backend code,” but they can neither one of them very good or they’re really good at one and they’re just terrible at the other. They can do it, they just are not good. You’ll find that the code is completely unmaintainable, and it’s very difficult to work with even if you lay out like, “Here’s the entire process of exactly how to do everything.” It still is just probably not going to work out very well.
That said, leading into number two, not scaling until you prove the market which you take that as far as hiring cheap developers to write unmaintainable code for the first iteration of your product. That’s a harder question to answer because it depends on how long it takes them to get there. The mistakes that they make are going to bite you and there’s two different ways. One is, whatever rewrite you have to go through, and the second is the goodwill that you’re earning with your customers. Because if you’re going through and you’re continually breaking things that used to work, they’re going to get angry with you. It’s just going to make your life more difficult in terms of trying to build the business and build revenue because they’re going to leave, they’re going to churn out because like, “Oh, this product, it breaks every other minute or every other day whenever something new goes in. It’s just a complete mess.” It’s going to be hard to go that route.
I would definitely, if you can afford it, hire slightly better developers, pay more than you probably think that you can potentially afford, or at least you thought that you can afford because it is going to be worth it. You’re not going to find that you’re going to get a $15 or $20 an hour developer. You can get two of them and they will be just as effective as a single developer that’s at $40 or $50 an hour. You’re better off going to better developer route even though you’re probably going to get less code because of the fact that they’re going to do a better job at it.
Now, obviously, there’s wide range of skills between people. Some people may charge $40, some people may charge $80 and they could potentially be similar in skillset not likely, because people tend to know what their value is but definitely, at the lower levels, everything’s like a total crap shoot. Once you get into the middle of $40, $60, $80 an hour, it changes quite a bit. There’s a, I’ll say, an order of magnitude. Difference in capabilities in somebody who’s below $20 versus above $30 or $40.
Rob: Yeah. His statement of, “I really believe that good software cannot be pounded by cheap labor.” It’s like, yeah, don’t be too dogmatic about that because cheap is relative, right? I was charging $125 an hour as a contractor. People would go to hire me and then say, “Well, I can hire someone for $50 and they’re cheap.” Is $50 an hour cheap or is $5 an hour cheap? Keep in mind that this is not absolute. I like your point about—and I’ve found the same thing—$5, $10 an hour, it’s going to be a mess. Know that going in if you’re going to build something like that with $5 or $10 amount.
I have found that decent developers in the $15-$25 an hour range much like you were saying. The interesting part is they maybe good developers but they tend to have something else that leads them to only charge that much. They might have kind of a chaotic personal life, or they might not be able to work as many hours as you need them to, or they might be just a little more sporadic on the hours than you want them too, or they might not be detailed on other things. You can find a good developer who’s cheap. There’s probably something else they’re not super reliable or something like that. That’s a thing to keep in mind is, it’s all trade-offs.
I can think of 20 reasons why any startup that I’m going to start is going to fail. Even back in 2005-2010, when I was much more in the same boat as the original question that asker here, yeah, I was taking risks. I hired a bunch of people that were in the $15 range. Some of them were really good, and some of them were terrible, and I just had to vet them. I found PHP developers, I found ColdFusion developers, I found Classic ASP developer because I had a bunch of different code bases, and I didn’t have the bandwidth to do this. Can this work? Yes, it can, but it’s not going to work the first time. The best developer for $20 an hour is not going to magically drop into your lap. You’re gonna have to look, and you’re going to have to vet, and you’re going to have to put in the work.
I’d say, don’t be too dogmatic about, “Oh, someone need to be making about $100k a year in order to be a good developer.” That’s not true especially not true if you go around the world. But even in the US, you can find good side labor with people who are paying less than $100k a year especially if you hire a junior or mid-level and are able to train them up. That’s a whole other story but we did that with Drip. We took two developers right out of code school so they literally had, I don’t know, six weeks to two months of coding experience. They have done a little on the side. Could they write great code from the start? No. But we had a bunch of safeguards in place. Derek did a lot of code reviews and he kept a close eye on the code base and the code base grew—it’s very large now, and it’s still a very solid code base with a lot of tests covered. Yes, this is possible.
Second question is, “Would you take it so far as hiring to develop unmaintainable code for your first iteration of a product?” My answer is probably not. Personally, I wouldn’t do that. I care too much about not having to rewrite the product because once you start getting momentum, and you start getting a few K in MRR, the last thing I want to do is go back and spend six months rewriting the thing. I’ve seen companies do it. It is agonizing. It kills the founders, not literally, but it is so painful to do.
If I’m going to do it from the start, I would just tackle a smaller problem and I would try to tackle part of the MVP without software at all. You’ve heard us talk about this. Use excel spreadsheets, use emails, there’s a bunch of other interfaces, use cheap virtual assistants to do the grunt work. There are ways to do this without building software. As developers, we think software is the answer to everything. In most cases, it is not. There are some when you need it to be.
If you’re building the next Google, yes, you need software. But I’d say in 80% of the cases where someone says, “I’m going to build my MVP,” and they assume that means software. They’re actually incorrect. You can do a lot of things. You could sell a lot of people on idea, or on mockups, or on the excel, email version of something without ever having to write a line of code. That’s the thinking I’d be doing at this point.
Mike: Yeah, I was going to mention that as an add-on for his second question was that, the first iteration of product doesn’t necessarily need to be software. How far are you down the road of the validation process? I think that once your past validating it and you decided to pull the trigger on it, do it the right way. Hire the developers that you need as opposed to the developers that you can just afford. You need to get good developers in there doing it.
Rob: I’ll even say, I’ve hacked things together myself. I think of the, what is now Founder Café, which is our online community for bootstrap software founders, go to foundercafe.com to learn more about that. But the original version of that, it had a different name altogether, called Micropreneur Academy, I was a software developer. I could’ve built online learning platform. There weren’t very many that were any good at that point. Moodle was in its early days, 2008, 2009. I hacked it together. I hacked it together with WordPress, and plugins, and theme, and that was really it, and I hacked some PHP. It wasn’t great. In the end, we had some technical dab but it was years later, it had already been built up and do a pretty nice business at that point. I’m not saying build a SaaS app that way, but there are workarounds you can look at to make that happen. Thanks for the question, Anonymous. I hope that’s helpful.
Our next question comes from email@example.com. He recorded an audio question so he jumped to the front of the line. It’s a long question but he gives a lot of background, and I appreciate it because oftentimes, people will send short questions, and then we have a lot of questions in our mind about, “Well, they didn’t give this detail or that.” It’s a couple of minutes here, but hang out, and then Mike and I will weigh in.
“Hey guys. My name is Dan Webb from Closer Sharing. Before I get to my question, I just want to say thank you to both of you. Thank you for all you do. I’ve learned a bunch from you guys. I’ve been listening for a few years now. When I first started listening, I tore back through the archives and learned a bunch and have been listening ever since. Thank you, guys, for sticking with it and teaching a lot of people a lot of stuff. Thanks.
Before I get to my question, let me give you a little bit of background. I have a startup. It’s called Closer Sharing. It’s a sermon podcasting platform. It’s a podcasting platform specifically designed for churches, allows the volunteers to quickly and easily use our recorder to record, and tag, and post the sermon each week, and list it on their website, and just takes the pain out of it, of hosting, and getting on their website and all that. We officially launched the product in January of 2017—a little bit over a year and a half ago. I have tried to grow it.
Right now, I currently have seven customers. We have an MRR of $200 a month. We really bootstrapped the thing building it. We only have an outflow of $175 a month who we are in the black. Out of those seven customers, all are original, I have had no churn whatsoever, so everybody that’s using it really likes it. Some have been on it the full year and a half. The latest sign-up was a couple of months ago.
There is no churn. I think it is a good product for the people who get on it. The trick is getting people on it. I have tried cold emailing. I’ve tried Facebook Ads, I have tried conferences. I tend to walk away from each one with one customer. I went to three of them. It really became obvious to me, one of the mistakes I was making a couple of podcast ago when you were talking about SaaS marketing, and I have not been trying to really connect with people and teach them anything. I’ve been just—as I’ve heard some people say—ask him to marry me on the first date sort of thing. I have a series of blog posts in my head that I feel like I should write and get out on my blog, and start sending people to them, and getting people to know me, but I haven’t done that yet. Probably my next project.
We’re well in the year and a half in, I was listening to your last podcast about funding, and some of that made me think as I’ve been thinking maybe I should just say, “Hey, it’s been a year and a half. I’ve only got seven customers. Maybe I should kill it and shift to something else. But then again, I have seven customers and I like them and I like to continue to provide the service for them. But I don’t want to be that guy that’s just clinging to my startup just because I’ve built it. I would like to know if it’s a viable product. I do have a whole list of futures that could make this platform really great, but I don’t want to keep building on it if it’s not a viable product.
My question is, should I keep spending my nights and weekends on this thing—I have a full-time job—and continue to grow really slowly? Should I possibly look for some sort of funding, so I could spend more time on it and possibly grow it quicker? Should I just kill and walk away and work on another product and try to develop it into a business? I’d loved to hear you guys’ thoughts on these things. I appreciate all you do. Thanks, guys.”
Rob: Tough question, huh, Mike? What do you think?
Mike: I think that’s a really tough question. I do hear a couple of things in there in terms of working on the weekends and wanting to build features. I think that that’s very natural for any developer to want to do because that’s comfortable, but at the same time, I think I would go back and I would start looking at metrics in terms of how many people you’re getting in front of, and how many trials sign-ups you’re getting, how many actual sign-ups you’re getting, I don’t know if there’s a free trial or anything like that, but those are the types of things that I would probably look at first, and see if there are obvious places where—like your sales funnel is just simply not working.
If you’re not getting 1000 or 2000 uniques a month, then that’s probably the place to start and try and figure out, “How do I get more traffic?” Because there’s this whole funnel that has to be in place in order for you to be able to build a business. That’s longer-term stuff. I want to make sure that I emphasize that there’s a difference between that type of stuff and then shorter-term stuff that you can do which you’d mentioned that you’ve done some Facebook ads and some cold emails and things like that. But I don’t know if you really have much on the website in terms of what you’re offering to people. I think the blog post sounds like a good idea in terms of education but I’m not seeing email newsletter sign-up list or anything like that on the website.
It’s more of a, “Come buy this product.” And there’s really not much in terms of education about how the churches that would invest in this type of products will deliver better sermons or would engage more with their church members. I think that’s what you need to key in on this because that’s what’s going to be important to them. The professional sound, they’re not going to care nearly as much about that as you are. You have to ask yourself, “What is it that’s actually important to them? How can they connect better with their members? How could thy reach more of them? How can they be more convenient to them in a digital age where people don’t necessarily need to show up at a certain time to see a movie, they can just stream it On Demand.”
That’s what you’re trying to cater to. That’s one of the problems that they’re probably having. Offer advice and solutions and different techniques and things like that in the form of educational material, and then try and build up that early part of the sales funnel. I would absolutely try and contact them directly as opposed to just sending emails because those are very easy to ignore. Pick up the phone, I mean, it’s probably not that difficult to reach them. I would imagine that most of their phone numbers are available.
If you’ve got people that you’re cold emailing, you’d probably have a way to find out who they are, and get a phone number for them, and call them and ask them. Talk to them and say, “What are your problems around this and around building a community?” because it really seems to me that’s what your product is trying to do. How do you engage with them and getting the information directly out of their mouths is going to be very helpful? I wouldn’t just call 5 or 10. I would call 50 or 100.
Put a line in the sand at some point in the future like you’d ask about whether or not you’d kill it. “What is your line in the sand? How much more effort do you put into this?” and really put the pedal down to see what is going to work. “How much effort can you justify putting into it?” and then once you’ve hit that, “Have you hit whatever your goals are or do you see a light at the end of the tunnel?” in either of those cases, you can keep going. But if you get there and there’s nothing else you can try, or you can’t think of anything else, I would kill it at that point.
Rob: I feel like this is such a tough market because some churches don’t tend to adopt. Some churches adopt technology but a lot of them do not. The older churches with aging congregations are just unlikely to need podcasting. You’re dealing with such a small subset of the entire market. If you think about, in the world, the number of people who, period who listen to podcasts is very small. My mom and dad don’t know how to do that. If you just break that down into a subset, and do a subset of like, “Now it’s churches, and now it’s churches who have people maybe under age 40, or age 50 who also know how to use podcasts.” Those are the only ones that have any type of need for this service. It’s a very small market and it’s a market where obviously, in conversations, I’m sure that he’s learned that they are just not that interested in adopting it. That’s the first problem.
The second issue, Dan, is you have a top of funnel problem, it sounds like. If you had 1000 or 10,000 unique visitors to your website each month, you think you would convert them? I don’t know. But generating visitors is going to be really hard to do. If you’ve been doing for two years and only have seven customers, that’s a bad sign. That’s a sign that something’s not resonating here. I think a big question I would ask myself is, “Are you tired of working on this? Are you done yet? Are you still excited to invest time?” not even, “Do you still believe it can work but are you excited to get up and think about this problem and try do to it?” I would stop building features altogether. You shouldn’t be coding anything which doesn’t sound like you are.
Your biggest problem is, it sounds like might be driving traffic, or maybe driving traffic hasn’t worked at all and it’s only been in-person conversations, in which case ask yourself, “Is a $29 a month product worth doing high-tech sales for?” because for me, it’s not. It’s going to grow very slowly. You need $100-$200 a month minimum, to make that kind of approach work. I really don’t think funding will fix this.
This is not a problem of, “I need money to scale or I need to put in more time to get to a point where this product is worthwhile.” It seems that you have a worthwhile product already. You’ve a lot of cool features. More time to market? What would you do? It sounds like you have tried a bunch of stuff. I mean, you haven’t tried everything, maybe you didn’t try enough of it, didn’t have the budget, but I’m cautiously skeptical that if you have $100,000 in your bank account tomorrow, and you could go full-time on this for, let’s just say, nine months and had some budget for stuff, I don’t see this taking off like a rocket ship based on how you’ve described.
I think my biggest piece of advice, given what you’ve said and looking at the website, it seems like a pretty cool tool in all honesty. You have features like automatic intros and outros, professional sound without the work, automatic feeds, is there another vertical that could use this? Should it be horizontal? Should it go across all verticals, basically? Should you not limit it to churches, is what I’m saying.
Right now, you’re marketing to churches, is that too limiting, and is there either another vertical that would have so much more uptake on this or just open it to everyone, and then poof, you become the ‘how to start a podcast superfast’ service. Maybe you make it a little cheaper but sign-up for six months or a year at a time and you pay upfront. I don’t know if that’s the direction but that’s where I’d be looking. Are there already services that do that? Because at that point, if you could get into that space, now you have affiliate potential because you have people who teach other people how to podcast. Would they potentially refer you for an affiliate commission? That’s a bigger space is people trying to start their own podcast. Could you go after businesses or startups or whatever?
Again, this is something I would either try to research, do some customer development, put some digging into that because I feel like that’s a space where there are more likely going to be folks who will actually adopt this, and consider jumping on this train because it seems that you’ve built a decent piece of software–at least from the marketing side. It looks pretty interesting and has some features I haven’t seen elsewhere, but I don’t the competitive landscape. That’s probably where I would look at or shut it down. That’s the other option that I see.
I always hate to make a recommendation like that because I feel like the founder knows better than anyone else. They often need to see […] that’s where having a mastermind would help, right, of people who’ve been along in the journey. But to hear a formative voice and then make a recommendation that, you should check your product down, it’s tough. It’s tough for me to say that but, I think that’s a more viable option than trying to scale this up in the church space or raising the funding.
Last question of the day came from Twitter. It came from @chelso and he said, “Regarding episode 406. What is your definition of product market fit?” and then I started tying and then thought, there’s always so much nuance to a question like this, and Twitter is not the place to do this. This is either a blog post or it’s a conversation like this. I think product market fit is not a binary thing. I definitely think it’s a continuum and I think you kind of ease into it.
There is a nice measure that Sean Ellis created. It’s this survey you can send out that says, “How would you feel if you could no longer use this product?” insert product name here. The four options are; very disappointed, somewhat disappointed, not disappointed–it isn’t really that useful, or NA–I don’t really use the product, or I no longer use the product. If you get more than 40% who say they would be very disappointed, that is how Sean Ellis has defined product market fit. I think that would be the most common definition. I have run this exact survey on some of my products.
I know Hiten Shah has run this exact survey on, not only his products, but on a bunch of other products. He’ll run it on Google Analytics. He’ll just ask a bunch of people, and I don’t know if he uses a mechanical trick or how he does that, but Google Analytics definitely has product market fit, at least according to his slide deck and some talking he’s done. We will link to SlideShare, this Hiten Shah presentation in the show notes so that you can take a look at the work that he did.
I’ll leave it there, Mike, so you can weigh in. I have additional thoughts and kind of my own personal thoughts of when I saw Drip–what it looked and felt like before product market fit as we were getting there, and then once we had it, from my perspective. I do want to weigh in, but I don’t want to sit here and monologue and not let you weigh in.
Mike: True. This is probably not going be much different from other people on what they would comment but you’ll know it when you see it. I know that’s kind of a hand-wavy type of thing but there are some people who will look at metrics–so Sean Ellis has that product market fit survey. If you’re more than, I think he said that 40% are, I forgot what the exact percentage was, but certain percentage say that they are either somewhat disappointed or very disappointed that they would go away.
Rob: 40% said they would be very disappointed if it went away. 40% or more then, by his definition, you have product market fit.
Mike: Right. Like you said, that’s a very, I’ll say, exact in definition. I won’t necessarily say that that’s the only definition. It’s kind of my view of it. I like the way Rob phrases like, “There’s a continuum of it.” That’s why I say you’ll know it when you see it because if you’re involved in the startup from beginning to end or wherever you’re trying to figure out like, have you gotten to product market fit, you’ll know it when you see it because things will start to tick up and it will be obvious that you’re on the right track. Because it’s a continuum, you’re never going to be like, “We have perfect product market fit.”
You think things can always improve, they can always get better, and the market’s always changing, your product’s always changing, your marketing messages are going to be always changing–these things that interact with one another that you’ll never have this perfect product market fit. Even if you did, it’s very likely something that something is going to change and throw it all out of whack in 18 seconds.
Really, what you have to do is, if you don’t have the data, if you haven’t run a survey like this, you kind of have to go off of a gut feeling. My general view on it is that if you take the product and you put it in front of people who are in what you believe to be the correct target market, and they actually are, do you win much more than you lose? Are those people going to sign-up and say, “Yes, I would like this,” Or, “No, we’re not just interested.” Because that will tell you one of two things, either one, you’re pointing at the wrong market or your product is not good enough and it’s just not doing what people need it to do.
The second piece, which I didn’t mention yet, is that those people will have to actually stick around. You can explain to them, “Hey, this product will do X, Y, and Z for you. It’ll make all these problems go away.” But if you don’t also deliver on it, they’re going to churn out. You have to figure out ways to make them stick around. Those are two different competing things and sometimes, your things should make them stick around or going to be more features–sometimes it’s educational, or onboarding, or something like that. That’s a slightly different problem than product market fit. Somebody may believe that they need a particular solution, and they’ll pay for it, but then they don’t use it.
Think of any weight loss program on the planet. People buy into that stuff and then they don’t use it. Why don’t they use it? Is it a product market fit problem or is it a customer retention problem? That’s a hard thing to figure out because if they churn out, if they stop paying for it, if they stop using it, then is it because other things got in the way or the product doesn’t actually do what they needed it to do? There’s an attribution problem of, “Why did they churn out?” If it’s because it wasn’t actually a good product market fit and they bought into the messaging, but it didn’t solve their problem, then you don’t have product market fit. If they churned out because they just don’t have the chops or time or anything like that to actually do it, then that’s a slightly different problem–that’s a retention problem not necessarily a product market fit problem.
Rob: This is why it’s a good conversation to have. I won’t talk about weight loss stuff because I don’t even know if product market fit applies to that in particular. I mean, it does, but I don’t think about it in terms on that one. I think of a SaaS app, a retention is a product market fit problem, in my opinion. That if someone’s not getting on-boarded, not using it, then the need isn’t deep enough, and you haven’t found that fit with the market. The question that I ask, the way I frame it in my head is, “Have you built something people or businesses need?” That’s the question that I’ve asked.
I think Paul Graham says, “Have you built something people want?” I think it’s a great way to phrase it but have you built something that people or businesses need? Let’s stick to businesses because we talk a lot about B2B SaaS here. If you built something people desperately need, and they start using it, can you still fail, or can you still grow slowly? Yes, I believe you can even with product market fit because if the market’s too small, and you tap out, that’s one way.
If your market’s only $10,000 a month then you can own the whole market and really just tap out very quickly. Or if your market is huge but you can’t reach them in a scalable fashion, that’s a totally different problem than product market fit. I think there’s different problem than product market fit. I think there’s being able to build something that people need, and businesses need, and then there’s the ability to reach them in a scalable way and get them onboarded in a way that doesn’t kind of break the bank.
The three questions I think about, in order. The first one you have to ask—this is before you’ve built anything— “Is a problem you’re choosing to solve worth solving? i.e., is it much of a pain point for people?” then you’re going to start building it or you’re going to start validating it. Customer development even before you build it. You need find out, “Are people willing to pay for a solution to this problem?” Then you propose a solution and that’s where you hit that very first milestone is problem solution fit. You’ve proposed a solution to a problem. Does anyone care? Is it worth building at all? Are people willing to pay for that? And then product market fit is almost this, it’s kind of a twisted question or it’s a weird way to think about it, but it’s like, “Have you solved that problem well? Have you solved better than the alternatives? Is the problem worth solving? Are people willing to pay for it?”
You can build a good product but if you can’t reach the people and get them to sign-up, you’re going to really have a problem. I almost feel like problem solution fit is one, product market fit is the next, and then there’s this one, market marketing fit. I just made that up today because I was thinking, “Can you reach your market?” is almost the question there.
I remember when Drip started to scale up, at first it was like, people were churning, churn was high, trial to conversion rates were low and then they just flipped. Trial to conversion went up, churn started plummeting, and we started growing very quickly even with fewer trials that we’ve had in previous months. That’s when I knew, we are a product market fit, or at least I thought, and sure enough I did that survey, the very disappointed thing. I remember thinking it was going be really high because everyone was like, “Well, Drip is so great. Everyone’s switching.” and blah blah blah. We got like 43%, 46%, somewhere in there. I remember being disappointed by that because I thought, “Oh, man. I thought more people would be very disappointed.” but as it turns out, it’s really hard to get above 40%. That’s why Sean Ellis sets the bar where it is.
Mike: I think one of the things that you explained probably better than I did because I didn’t actually put a label on it was that, when I said, if you put the product in front of people who are in your target market, basically, that’s bypassing the problem of the product market fit piece of it and trying to ascertain whether or not you have a problem solution fit. Because by doing that, you’re making an assumption that you already have product market fit and you’re able to get the right people there.
If you don’t have that, if you get what you think are the right people, and you put it front of them and they don’t buy, then you probably do not have that product market fit. It’s just kind of a little subtle thing that I, I guess I talked about there, but I didn’t really explain like that. Applied to the previous piece and you’re just trying to avoid the whole marketing side of things. You just say, “Are we actually solving the right problem for the people that you think need that?”
Anyway, I think that will about wrap us up. Chelso, I hope that was extremely helpful for you. If you have question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at firstname.lastname@example.org. Our theme music is 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 374 | Text vs Video, Finding a Mastermind, Joint Ventures, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include videos vs text, finding mastermind groups, and trials versus demos.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about the benefits of using text versus video, how to find a mastermind group, how to start running joint ventures, and more listener questions. This is Startups For The Rest Of Us Episode 374.
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 experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: Not much. Just the end of the year has come and gone. It’s the first week of the new year, I’ve been spending a lot of time lately working on a website redesign for Bluetick, which is about halfway done. Nothing’s live yet but I’ve been working through website design itself, email copy for the automation emails that are being sent out, and then also the website copy. Coming along pretty well. The next week or so is gonna be involved with finalizing and all that stuff, and then implementing it on the website. Once that’s all done, I’ll start doing a much bigger marketing push, I think.
Rob: That’s cool. You’re gearing up for this because you’re live and you’re trying to drive more traffic and want more of it to convert, is that why you’re focusing on this site right now?
Mike: Yes. The main focus on the site right now is because if you come to the site and you’ve never seen the product before, what I’ve heard from people is that it does not give them a good feeling of trust like, “Oh, this is a legit company,” which I totally get. If you go to the site, there’s not a whole lot there, and there’s not detail. It doesn’t even really, I guess, give you the inclination that you should reach out and contact the company or sign up for a trial account or something like that just because you go to a competitor’s website and there’s tons of information there, there’s articles, testimonials, and things like that. It just looks a lot more professional versus the Bluetick website, which to-date, I’ve relied more on word-of-mouth, and people coming in through after hearing me on a podcast or something like that. It’s just not conducive to more of a hands-off sales funnel, I’ll say.
Rob: Right, that makes sense. Yeah. It does feel, when I come to this site, bluetick.io for listeners out there who haven’t been there, it feels like a WordPress theme or like a bootstrap, kind of a basic template. As you said, I think you have good content here but it’s like you said, you don’t have the articles, and the blog, and all this other stuff that other companies that have been around longer might have, so it does seem like just a smaller operation.
Mike: Yeah. Also, it’s not real specific about exactly what it does or how it works for them. It doesn’t answer really any objections. It doesn’t really tell a story or craft one that would have resonate with whoever’s reading it. There’s a lot of things that need to go on to the site right now that are just not there. I’ve known for a long time that that stuff needs to go there, I just haven’t sat down and focused on that stuff because I really haven’t had time yet.
Rob: Well, yeah. It’s a matter of priority. It’s like you’re trying to get the code read, and then you’re trying to get the bugs fixed in, and you’re trying to scale, and then you try to get people onboarded, you gotta email the list, you gotta write this email. At a certain point, this is where I still struggle quite a bit with unsolicited advice. People used to email and be like, “Hey, the Drip website. It would be so much better if you did this.” It’s like, “I know. I know, of all people, I think about this all the time, like 20-hours a day. Yes, even when I’m sleeping.” Your unsolicited advice is actually not helpful. It makes you feel like you’re smart but people would send screenshots and say, “You should change this. Have you thought about organizing?” I said, “Yes. We have. We thought about that and either we didn’t do it very deliberately, we had a good reason for not doing it that you don’t understand because you don’t work in the business 50-hours a week. Or we have thought of it, we just haven’t had time. We haven’t prioritized it yet, and there are more important things.” That’s where I could understand where the marketing side has maybe fallen to the second or third place on your list.
Mike: It wasn’t even second or third. It was like eighth, or tenth, or something like that. My list of things to do is 10 miles long. It’s not even a mile long, it’s 10-miles long at this point. It’s just going back through and trying to figure out, “Okay. What should I really be working on next?” At this point, it’s the website. Once that stuff’s in place and once more of the marketing emails are in place and do a better job of explaining what the product does, and kind of move people through that educational side of things then I think they’d be in a much better position. How about you?
Rob: Last week, as I mentioned, I was in Florida, which was great. It was nice to get away. There was a big, obviously the polar vortex came through in Minneapolis. There were days where the highs were in the negatives, like -3, -4, and it feels like it was -25 or -30 at one point. It’s a pretty nice time to be in Florida, but I made it back, and kind of getting started again at the new year here. Not much to report on the work front just because ships and features in late December, and we’re gearing up for some new stuff now.
One thing that I just want to throw out unrelated to Startups, except for that it is a startup, is the thing that I’ve discovered in the past like 10 days that has just been life changing, it’s Instacart, do you have it where you live?
Mike: I don’t know. I’ve never used it. I’ve heard of it probably at one point.
Rob: I hadn’t either. Yeah. I don’t particularly like grocery shopping. It always takes time and especially I have to try to do with two or three kids tagging along. The fact that we live in a major city now, in Minneapolis, but really enjoyed like having Bite Squad around where I can order food and it’s delivered. But Instacart, it’s a grocery shopping app, and it’s just well-implemented, super easy to use, 1-2 hour delivery windows depending on the time of day and how busy it is. I can do my entire, what would normally be let’s say, a 75-90 minute drive, and in the snow, it’s like super cold, you don’t want to get out of your car because it’s four degrees and you’re lugging a kid with you, and I can do it from my computer in 10 minutes. It’s just freaking game changing. I’m pretty stoked on it now. I’ve only had maybe two or three deliveries so far. I’m having a tough time seeing going back to doing it the old way. It’s not expensive either. We usually did this subscription where it’s $150 for the entire year, and then, you just get unlimited. You don’t pay any delivery fees.
Mike: Got it. Okay.
Rob: Yeah, it’s a trip. If it comes to a place near you, and I don’t just look at it as a convenience, it’s a time thing. To save that time once, maybe twice a week. We eat a lot of fresh foods. I can’t just shop two weeks out. When I was in college, and I bought all macaroni and cheese, and ramen, we could shop for like three months at a time, and it wouldn’t go bad. The fresh stuff, I literally line up at the grocery store at least once a week, and sometimes twice. I just sent an order through for all fresh fruit, and berries, and bananas, and all that stuff. It’ll be here in the next 120 minutes.
Mike: Oh, really. It’s like you order and then it’s there in like two hours.
Rob: Yeah. You can select a time window, you could select the one-hour time window later in the evening or tomorrow, or whatever, or sometimes, depending on how busy it is, and of course middle of the day on what is it, Thursday, it’ll literally be here within two hours when I click Buy Now.
Mike: That’s interesting. We’ve talked about this a little bit, I think. But I used to work at Wegmans Food Markets. We implemented a system like this back in 2000.
Rob: Yup, you had talked about it.
Mike: Yeah. The difference though was that you would drive to the store and pick it up. You put everything in your cart, you shop, and then you specify like, “Oh, I’m gonna come pick it up at such and such time.” You have these like 10 or 15-minute time slots. You can just pick one and you just show up and they’d have everything ready for you. You just show up at the designated time. They’d ask your name, and that was the end of it. They’d load up your car, you don’t even have to get out of your car.
Mike: It’s a little different though. This is also different than, what was it, Webvan.
Rob: Webvan and Peapod. Where it just tanked horrendously.
Mike: Peapod is newer. It was Webvan that ran out of business back in the day.
Rob: But Peapod did then too. I think someone bought the brand. They revitalized it because both of them raised a lot of money around ‘99-2000. But they were trying to warehouse everyday. They were trying to be like Amazon, or like a big grocery store distributor, whereas Instacart is more like Uber where they don’t own anything, yet drivers go shopping, and put the stuff in a cart, and bring it by. They just knock on the door, hand me a few bags, and it’s like, “thank you.”
Mike: It’s much more like a localized services business. More like running errands for you, although the errand is very specific.
Mike: Productized service.
Rob: I know. That’s what it is. So far, one of the concerns obviously would be like, “Well, are they gonna pick good produce? Are they gonna pick good if you order salmon? Are they gonna pick the crappy salmon?” So far, I haven’t had any issues. You can tell that they have some type of onboarding, they teach people to get the good stuff. I’m sure if you rate them poorly, like, “Yeah, the fruit was bad,” then there’ll be some issues there. I think that’s another difference is back in the day, I don’t know how much recourse you would have had with someone sending you bad fruit.
Mike: Yeah. That would have been a little difficult. The way Wegmans said it was like, they would actually have the butcher over at the butcher shop like pick up the meats and stuff for you. You knew that the people who were doing it were pretty experienced with what they did.
Rob: Right. Cool. Let’s transition into the episode here. We have several listener questions we’re gonna talk about today, and of course, per usual, our voicemails go to the top of the stack, so let’s kick off our first question. It’s about being pre-product market fit.
Harold: Hi. My name is Harold and I’m a co-founder of StackTome, a SaaS product for ecommerce retention advertisement. There are three product-market fit I’m looking for ways to get warm lead customers. I have couple of questions. When it comes to driving traffic to the site, I was wondering if you have seen educational videos instead of text content among sites like YouTube being successful. I find it more [00:10:03] traffic coming from search, mostly through content, while some content I find useful, I can’t find alternative quick videos explaining the marketing concepts. Also, what would you recommend for getting into mastermind groups [00:10:20] marketers that would be post product-market fit [00:10:24] Thanks for your always honest feedback and sharing your knowledge, I’m always learning something new each time I listen. Cheers.
Mike: I guess, to recap, and Rob, correct me if I’m wrong in my understanding to this, but the two questions that he had were essentially how should you approach developing content for the website to drive traffic? Should you focus on video, or should you focus on text, in order to gain more attention when you’re in pre-product market fit? The second one is, how do you find people to join a mastermind group with, is that right?
Rob: Yup, that’s right. To be clear about the video versus text, he wasn’t asking about conversion, he was asking about trying to drive traffic, will it rank, I think it’s will it rank better in search engines, basically.
Mike: Yeah. My understanding is that Google is still ranking video higher than text. But one thing you have to be a little bit careful of is to make sure that you’re providing some sort of transcript for it. That helps Google index the videos because otherwise, it has no way to know what is the actual content of the video, what are they saying. There are ways to provide that information to Google’s crawlers so that it will show up. The searches, that’s one thing I would definitely do.
The other thing that does come to mind though is that if you’re pre-product market fit, I would actually do outbound stuff. I would try to find and identify people who you think would be good customers and go after them, as opposed to trying to attract them and get them to come to you. Because really, that’s the situation that you want to, I guess, double down on once you know who your ideal customer is. But if you’re not at that point yet, you have to choose from outreach, otherwise you’re kind of throwing spaghetti at the wall and seeing what sticks.
Rob: Yeah. That’d be my sentiment as well. I think you can mess around with the video versus the text thing. I have heard success stories of video working better because it’s not something that everyone does. But you have to get into video, there’s like video site maps, as you said, you want transcripts. May just be better, I don’t even know if you wanna host it on your site at that point, you may just want to have it on YouTube, because YouTube videos rank really well in Google, obviously because Google prefers them over other things.
There’s a whole specialty of learning video SEO and how to rank using video. I would agree with you Mike, I just don’t think that’s necessarily worth diving down that rabbit hole, yet. Because I bet you could kill a month just learning about it and probably two to three months experimenting with it. I think there are more valuable things that you could be doing right now, even outbound stuff like you were saying. I could see running paid acquisition if you have any budget at all because you want instant feedback. You want instant customers or not. Customers or rejections, as they say.
Whereas this video SEO stuff, you’re building for the 3, 6, 9, 12-month timeframe. You wanna get to revenue faster than that. You wanna get to product-market fit faster than that. I would be scratching and clawing at anyone using a app. I just think of SEO and these types of strategies there is it’s just a longer term play. The bad thing to do, but if you limit it on time and budget, which I’m guessing you are, I wouldn’t be focusing on this.
Mike: Yeah. At most, what you just said is about the iteration cycle and being able to adjust quickly versus taking that long term approach which is valid later on. But, right now, it sounds like that’s not the way to go.
Rob: Yup. Then for his second question, it was how to find a mastermind group, and our very own Ken Wallace with mastermindjam.com is kind of our go to recommendation for folks looking to get matched up with fellow masterminders, both in the SaaS space, there are ecommerce entrepreneurs, there’s info marketers, there’s all kinds of stuff. Go to the site, you submit your name and your time zone, and a bit about yourself. I’m sure you categorize yourself in some way like SaaS or info, whatever. Then you get matched up. Ken has written an algorithm, and he also does a lot of manual stuff with it as well. There’s a small fee to getting matched up, but in my opinion, well worth the effort. There’s been a lot of successful groups that have formed out of using Ken’s service.
Mike: What’s next?
Rob: Next question is our second and final voicemail of the episode and then we’ll get to some emails that came in. This one is a question about the moral imperative of business.
Daniel: Hi Mike and Rob. This is Daniel calling in from Charleston, Oregon. Love your podcast, thanks for all the time that you put into it. Keep it up. Definitely in the want-epreneur category, tried a couple of products to myself, haven’t really seen success for me. The challenge is the golden handcuffs consulting business is too good to really make the dive deep in the product. But the question I have for you guys today is around the moral obligation of business and just to be hearing your perspective on income equality, social equality, and kind of the bootstrap startup vision is build a business and sent it to a hyper-competitive space that eventually throws off a bunch of cash. What do you feel is your moral obligation to reinvest that cash back in the community, people around you, your local geographic vicinity, and help address the growing problem of income equality. Thanks so much, bye.
Mike: I think for this question, when you’re talking about bootstrap startup, there’s actually two answers to this question, not just one. There’s an answer that is applicable before you get to the point where your business is making a fair amount of money and throwing off access capital.
There’s the second answer which is after that point. The first one is, I would say, before you get to the point where the business is throwing off that extra money that you can deploy as you see fit to do whatever, above and beyond to paying all the business expenses and paying yourself a reasonable salary and potentially giving you extra money to be able to put away the additional profit from the business at that point.
You don’t have any of that. Before you get to the point where that has happened, you’re not in a position to really do anything. I don’t feel it’s fair to put yourself in a mental state of mind where you feel obligated to do things for other people. Your real focus should be getting the business to that point and until you do, there’s really not a lot else you can do.
I think that if you tried to put other people before you, you’re just gonna run into a problem where everyone is always going to be coming before you. You’re never gonna pay yourself. There’s entire books that are written about this. I think there’s one called Pay Yourself First or something along those lines. That’s the phrase that goes with it. But until you’re there, it is not really justifiable in my opinion to attempt to do those things.
There’s a difference between spending a little bit of time helping people here and there but to make that your main focus is definitely not a route you should go down. Once you’re after that point, then the situation I think changes pretty dramatically. I wouldn’t say that there’s a moral imperative but depending on your own personal judgements and your own personal beliefs, I do feel like it is worthwhile going down that route. There’s actually a lot of benefits for you to, I don’t wanna say share the wealth or anything, but help other people because at one point, you were there where they’re at.
We could probably talk, at great length, about this but that’s the type of people you run into at MicroConf as well. I think that Rob, you probably agree with me on most of that stuff in terms of being able to help other people and the additional benefits that you get from it. It’s not really just about the money at a certain point, as long as your business is providing for you, then you can kind of do whatever you want with the money afterwards especially if you are already putting money aside to save. It feels great to be able to help other people who are further behind you because you were there at one point as well.
Rob: Yeah. I think part of this is a somewhat personal choice and I think part of it is how you view being part of a society in general or a community, maybe a better way to say it. I like the way you framed it, Mike. You can help people without going and volunteering at the local soup kitchen or without volunteering to train people how to learn computers in your local area.
You can help people by educating them on how to start startups. You can start a podcast and give content away for free that helps build this community of bootstrap founders. It helps raise kind of all of our standards of living, all of our quality of life, and it helps create jobs, and all that stuff. This doesn’t really have to come in the form that I think a lot of people think about.
My personal belief, I have always been as generous as I possibly can with my money and with my time. Since I was in college, I’ve given money to charities even when I didn’t have much money. As I started making more money, I still give quite a bit of money away each year. I have always spent a lot of my time helping whether it’s having lunch with an entrepreneur, whether it’s you and I doing the podcast for free for years, whether it’s blogging and giving away knowledge.
Yes, there are outlets, obviously, I wrote a book and I sold that for $20 a copy. You and I do host a conference but the amount of time that we have essentially given to this community far, far, far outweighs the monetary, the per hour cost or whatever that we would make, the wage we would make given all the time we’ve given away, it would not be a wise business decision to do that.
We have done some of it because it’s fun for us and some of it because, I think, you’d agree with me, I truly do enjoy giving back and helping people in the emails that we both get where it’s like, “Boy. There’s something you did,” whether it’s FounderCafe or MicroConf or the podcast, “it has changed my life and here’s how.” I receive dozens of those emails and those have a lot of impact on me. It’s a lot of mental impact. All that to say, I don’t know that I would preach that everyone has to adopt this point of view, but my point of view is that I always wanna be able to give back.
I have invested in a company in Fresno called Bitwise Industries, that is a for-profit but it’s educated thousands of folks in the local Fresno community which has a real wealth disparity. There’s a big digital divide there. They’ve educated thousands of people on how to program and how to use computers. I hired Derek out of Fresno although there wasn’t a digital divide with him. But then we hired three more people, created a bunch of tech jobs. Bitwise itself, I don’t even know how many people it is now. 50, 60 people.
There’s good to be had in a way that everyone wins. I think that’s how I think about it. I so much enjoy more funding a company like Bitwise or doing what we do with MicroConf and FounderCafe and this podcast because I feel like it’s win-win. We’re not just taking money that we earn as entrepreneurs and giving it to somebody. We’re actually starting a sustainable business. That’s what we’ve always wanted to make sure that MicroConf was sustainable, it’s why we brought Xander on so that we could do it year after year. It’s why we’ve really streamlined the podcast production because we wanna be able to continue doing it even when we have other things going on.
I think turning it in, again, I think like an entrepreneur. It’s like a person who turns systems into profit in essence. I want some of that profit to give back to whatever community is, whether it’s the bootstrap startup community, whether it’s the community I live in, but it needs to be a win for me as well in a small way. It doesn’t mean,”Oh, we need to get rich off it.” But I do think that making it into something sustainable, that’s how I’ve always thought about it.
I really like what you said about the kind of the pre-sustainable business. Because when I was scratching and clawing, I was freaked out about money, I was just trying to get whatever it was, Hittail revamped or the real tough financial year I had with Drip. I couldn’t even think about any type of moral imperative of helping other people because I was trying to take care of me and my family.
But once I get past that point, then yes, my mind is freed up. I absolutely give very generously to a lot of things, whether it’s charities or the sustainable businesses that hopefully are kind of doing some good in the world. Thanks for the question, Daniel. I hope that was helpful to hear our thoughts on it.
Our next question is from Stefan Debois from surveyanyplace.com. He says, “Hey Mike and Rob, I listen to your podcast for several years now, not since the beginning, but close to it. I really love it because it has so much actionable stuff. On one of the latest episodes, you guys talked about content marketing at the end of the episode, and I remember Rob saying he would not advice for startups to make it their number one tactic, for example, creating a blog and publishing content. But he would recommend doing something else like joint venturing with players in your field that already have an audience. I assume he’s referring to guest blogging, joint webinars, etcetera.” I’m gonna step out real quick. Two of those, guest blogging and joint webinars, correct. As well as integration marketing which I’ve talked about in the past which is where you integrate and then you both co-promote. Alright, back to his email. “It would be great to dig a bit deeper into this topic such as how exactly would you recommend doing this. If you had to start Drip or another SaaS company right now, how would you apply this given all your learnings? Thanks for your help. Keep up the great work. Stefan.”
Mike: I think one key point to keep in mind is that, as part of his question, he said, “If you had to start Drip or another Saas company right now, how would you apply this given all your learnings?” There is a point at which doing this kind of stuff is too early. You’re not far enough along where it makes sense to go down that road mainly because it’s not gonna make sense for whoever it is that you approach to do a joint webinar or guest blogs.
With guest blogging, you can certainly write articles and as long as they are relevant to the audience of the person that you are guest blogging on their site, and they are receptive to that kind of thing, then sure. You can totally do that. But when it comes to something like a joint webinar, you really can’t do that unless you have something that is tangible and benefit that is going to be given to that person’s audience, whoever it happens to be.
The other thing is what are you offering the owner of that audience? What are they getting out of it? Is it really just educating their people? Are you promoting your products or is it just an educational thing where you’re explaining how to do something or about a particular topic or a technique or something along those lines.
But again, none of this stuff you can do until after you’re at a point where you have a product that is functional and you have people who are onboarded and paying and you kind of know what your ideal audience looks like. Because otherwise, you’re approaching people that their audience may not necessarily overlap with yours.
Those are the things that I will keep in mind when trying to go down this road. Until you’re at that point, none of that stuff applies, you’re just not going to go anywhere.
Rob: Right. The thing to keep in mind is this is where it’s nice to have a nice little email list because if you are gonna do, I’m gonna say mostly stick to joint webinars and integration marketing. If you’re gonna do that and if you have a list of 10,000, 20,000, 30,000 people, for the most part, you’re gonna be able to say, “Look, let’s do a joint webinar. You email your list. I email mine.” Or you do vice-versa where you give a webinar to their audience and they give it to you. You can just trade straight across. You don’t have to mess with affiliate commissions. Just get the benefit of the traffic and so did they.
The same with integration marketing. The bigger the list you have, the better off you are in getting people interested in doing some type of joint promotion with you. If you have 300 people on an email list, it is much, much less likely that someone’s gonna wanna do a joint promotion with you.
With that said, in the early days before you can build up that list, you’re going to want to use affiliate commissions. If you do approach someone to do a joint webinar or to do integration marketing, you can say, “Look, we pay 20%, 30% of affiliate commission and here’s the link.” That’s how you’re gonna get them interested. Because then at that point, they can at least count on some type of revenue stream.
The way I did it back with HitTail, which is 2013-2013, is I looked around in the space and I looked at complimentary products, and so HitTail was a long tail SEO keyword tool. I looked at rank trackers and other keyword tools that didn’t use the same approach that we did. I, at the time, just cold emailed a bunch of them. I remember I made this list of seven or eight SaaS apps that weren’t these big behemoths, I didn’t email SEOMoz or anything.
Once that appeared to be more startupy or bootstrapped or whatever and all of them wrote back and said they wanted to do it. I was overwhelmed by that. I expected to get one out of that. I wasn’t able to do JVs with all of them. I think we were even just doing JV mailings. We were just gonna email each other’s list and kind of recommend a tool. I, of course, tried out any tool recommended, and then they did the same thing. Our lists were about the same size. We did no affiliate commissions at the time.
I’m not saying that’s gonna work in every niche but that’s something that I did. Then with Drip, when we started doing JV webinars, it was much more about relationships. That was in my wheelhouse. I just emailed people who I knew in the MicroConf space, in kind of our community. We did joint webinar I’m pretty sure with Brennan Dunn. I know we did one with Rubin for Bid Sketch. There were several others. But that was a lot easier. It depends on if you have a network in the space or if you’re going cold. But I’ve made either one work. It is something that you can do.
In terms of integrations, we start to build the integration and then create a nice landing page for it and then you email the company and you say, “Hey, can we do co-promotion?” With that, it really is gonna depend on the size. Because Basecamp and Stripe are not gonna co-promote with you. You’ll get lucky to even get listed in their directory at this point. But if you get someone who, it doesn’t have to be a tiny little company, if you get ahold of someone in marketing at even a decent sized startup, they will at least have the question of, “Well, how big is your list?” If you say, “I have 20,000 or 30,000 people on an email list.” It can raise an eyebrow. It can get you a mention. Maybe it’s just a single mention in an email newsletter they send out but they may have 100,000 subscribers. It can get some traffic toward you. That’s how I would think about doing it these days.
Mike: As a general rule, when you’re trying to find people to do these sorts of co-marketing efforts with, try not to go after somebody who has a list that’s more than twice your size or less than half yours. If you stick within that range, whatever that size happens to be, you’re probably gonna have much better results.
Because if somebody is much larger than you, they’re not going to want to do a joint marketing campaign with you unless you know who they are and you have developed a relationship with them. If they’re less than half your size then it’s probably not going to do a lot for you. That’s the thing that I would keep in mind as well when you’re trying to find people.
Rob: That’s a good point. Our last question for today is from Rusty Shackleford and he says, “Can you give me some insights on when to provide a trial versus a demo for apps that rely heavily on user-provided data? I’m developing a medical records SaaS. I’m keenly aware that it’s a waste of time for a prospective client to do a trial of my product when they would need to enter so much of their own data. Most likely, in addition to entering that data into whatever product they’re currently using. Would you suggest providing demos where I lead them through examples versus a trial of my product?”
Mike: I think of this particular case, if you’re dealing medical records and you have the objection or hurdle that somebody needs to overcome to start using your app is that they need to provide the data, I would lean much more heavily on the demos than on trials. I’d push them directly towards a demo whether that’s signing-up directly on the website or getting them onto an email list and then sending them to a sign-up form where they can sign-up for a demo, maybe ask them for information through a survey or something along those lines. Push them through that way. I would not go to trial route.
If you go with the demo route, what you can do is then you can directly address that particular problem during the demo itself and say, “Hey, we understand that in order to get you set-up, this is what you need to do. The next step after this is to decide if you wanna move forward with the product or not, and move to a trial. If so, send us this data and we’ll put it in for you.” Essentially, you’re doing onboarding for them and you eliminate that objection upfront.
You can try pushing that off to them which is really what you’re doing if you send them to a trial without you interacting with them which is going to raise that as an objection and they’re gonna say, “Well, I don’t really wanna do this,” versus if they have other things going on, they’re just not gonna do it is really what the bottomline is. Especially if they have to change whatever their current processes are versus if you talk to them, you have that conversation, get them to buy into the concept and what they can get out of the product after they start using it.
If they buy into that story, they send you that data, you take care of that leg work for them and once that data is in place inside of their app, then it’s ready for them to use. They don’t have to do all of that extra work. It just makes it easier for them to overcome that hurdle. If you don’t have a good import mechanism or good ways to just pipe the data out of other apps, it’s gonna make it really challenging to get people to go from a trial to a paid conversion. Because they’re just not gonna do the work is really the bottomline.
Rob: Yep. In general, I lean towards demos over trials. The problem is it doesn’t scale very well. As you scale up, that’s why you resort to having a trial. But relying on the customer themselves to orient and find their way around inside your app enough to understand the value, whereas you can explain that value in 10-15 minute demo, I bet in the first 5 minutes of your demo you can give more value than someone poking around inside your trial. Aside from the fact that your app sounds not complex, but there’s a lot of kind of onboarding necessary, a lot of work on their part, there’s no way I would consider letting people in for a free trial.
Mike: For some of the medical records, there’s subtle questions that people are gonna have which revolve around trust issues which you’re not gonna be able to really overcome very well with a free trial.
Rob: Right. Then they’re gonna have this account with no data in it. It’s gonna look terrible and you’re gonna have an account full of data that you can demo them. You’re gonna show exactly the value that they’ll receive. In your instance in particular, I’d definitely do demos. In general, when you’re bootstrapping and starting up, all during customer development, I recommend doing demos because you’d get so much more information from them.
If you’re still pre-product market fit, I recommend doing demos because you’re gonna find out why people do or don’t sign-up. They’re going to be more likely to get in touch with you if they decided to cancel or not get onboarded because you already have a relationship with them.
Post-product market fit if you can still do it, I know at certain points it makes sense to go with self-service trial sign-up but the dirty little secret is as much as I don’t like demos, I’d prefer to get in and dig around with an app and try it out, most people want a demo. They would much prefer someone to walk them through an app rather than try to poke around and do it themselves.
We had done a few experiments where we had just trials versus funneling people into demos and we converted the demos into paid accounts. It was like 2X, 2X the rate of just letting people get onboarded themselves even with all the help that we’re giving them via email and apps. You’re gonna convert more. People are gonna get more value out of it.
In general, I think it’s just a better way to go. There are obviously exceptions to this. There are tools like, let’s say, even like HitTail, it was a high-volume, high-return tool. It was an SEO keyword tool and people would come in, try it out here and there, and it was super easy, and at the end, it was a one-click set up. You literally just walk into something and it would pull keywords out.
A demo would be interesting but only for high-value account because some of those accounts are paying $10 a month and at that point, it just doesn’t make sense to do demo. There are exceptions to this but as a rule, I would go demo as the default and then figure out, “Well, is this one of those exceptions where I should really just have a self-service trial available,” or you have both options. That’s what Drip has today. You can still sign-up for trial if you still wanna poke around but there’s a big push of course to get people into demos because of all the reasons that I’ve stated here.
Mike: I think that about wraps us up for today. If you have a question, you can call it in 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. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.
Episode 348 | Finding Product/Market Fit, Organizing Notes for Maximum Effect, Growing from $100k to $1M, and More Listener Questions
In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions. The topics include finding product/market fit, organizing notes for maximum effect, and growing from $100k to $1M.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about finding product market fit, organizing notes for maximum effect, growing from $100,000 of ARR to $1 million and more listener questions. This is Startups for the Rest of Us episode 348.
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, Mike?
Mike: As I said on the last episode, I kind of finished up almost the tech stuff that I’ve been working on and started switching over to working on the website marketing stuff and currently targeting a public launch date of August 1st. I’m kind of greasing the wheels of the marketing pipeline at the moment and doing everything that can possibly be done in the amount of time that I have.
Rob: Very nice. It’s about three and a half weeks from now.
Mike: Yeah, above three and a half weeks from when this episode goes live.
Rob: From whenever we record.
Mike: Yeah, whatever. Something along those lines.
Rob: It’s a few weeks. You must feel pretty good about it then. You must be pretty close to getting things out the door.
Mike: I do. There’s still a few things that need to be taken care of between now and then so I’ve realized that as I’m putting together the website itself to do some price turning, that there are certain things that need to be in place that are not there yet just so that I can charge different amounts based on different things. Maybe they’ll be there. Maybe they won’t when it goes live but if I need to toggle stuff on the backend, or do certain things, or just give people stuff that they normally shouldn’t have access to for the time being, then that’s probably not a big deal. I’m just finding those little edge cases here and there and reworking some things as necessary to make that happen.
One thing that I’ve realized over the past couple of weeks is that I added a customer, I think a week or two ago, and they had this massive mailbox that went back for years and years and had like almost 750,000 emails in their mailbox. The system generally held up pretty well. I’m pretty pleased with how that stuff is going right now.
Rob: That’s exciting. It’s nice to have some confidence going into a launch like this. You didn’t just up and build a product and have no one use it, not know if they get value, not know all the bugs that you have because you inevitably will until people use it. No app survives first contact with the real customer without having bugs.
You’ve taken this slow launch approach of trickling people in, getting your 20, 25 early customers in. That is obviously a more conservative way of doing it than the Silicon Valley pay $500,000 for some massive launch party. I realized that’s a strong argument. A lot of people don’t do that.
But even if you have a lot of funding, you want to move really fast that you staff up, and you build quickly, and then you just do this big splash launch. You’re like, “Alright, product hunt, man. Product hunt’s going to do it.” But then, if you product hunt and you haven’t already had 20, 30, 40 people touch this app, you just don’t know what’s going to happen.
As engineers, we know all the pitfalls and ways things can go wrong. While this is a slower, more calculated and more conservative way of doing it, this is obviously the approach that we espouse on the show. It’s that more careful, calculated, repeatable way to do it. It’s how I’ve launched a bunch of apps and how you’re launching Bluetick here.
Mike: I think the interesting thing is I’m looking at the app now and I see places where clearly things will start to break or slow down just because of performance and depending on what it is, sometimes, I just look at it and say, “I’m going to let this go.” Versus other times where like, and this mainly has to do with data sorting, paging, and making sure that you’re not returning too many things on the browser.
Those are few places where I’ve looked at and just said, “It can handle it. It’s not great. It’s not awesome user experience, but it works, so for the time being, I can just push it off and I’ll fix it later especially if customers start to run into it or it becomes a big deal. But it works, it’s not going to fall over. I’m not going to stop everything and put it on hold for another month or two to fix those things. I may as well just push it out there.”
Rob: You’re always going to have some part of your app that feels that way. There’s always a page or two that you’re embarrassed about, that you’re concerned it’s going to break, that’s too slow for large accounts. That will never stop.
Mike: I have a single-page application.
Rob: Oh Mike. Listeners can’t see me putting my head into my palm. For me, I’m actually working from Chicago this week. I’m with my son. We’re at his cello camp. We used to go to Oregon for this but now that we live in Minneapolis, it makes sense to come to Chicago. To be honest, it brings back memories, I was at the Oregon cello camp last year. I was signing life changing Drip acquisition documents on my iPhone with my finger from inside the halls of a music building on a small college campus that no one’s ever heard of in Central Oregon. It was just this.
I remember feeling overwhelmed and I couldn’t think straight. We’ve been talking about this for a year and doing negotiations for six months and then I keep thinking to myself shouldn’t I be calm, cool, and collected like at my home office with my laptop but no, I was running in and out. I dropped the kid off at cello, a lesson or a group thing, and then I ran outside and then I read on my phone, oh my gosh, this piece fell through. I’d get a thing to sign to override this and to sign over. It was exhilarating. It was also super stressful. But being here reminds me of that because it is the one year anniversary of the Drip acquisition just a couple of days ago.
Mike: Today, now you can sit there without the dirty looks from the other parents.
Rob: I know. That’s right. It’s Suzuki method of teaching cello and strings and so the parents were supposed to heavily participate and I actually had to talk to a couple of the teachers and I said, “Look, I have something going on right now. I’m in the process. My company’s being acquired. I need you to cut me some slack for a couple of days here.” That was fun.
Let’s kick off today’s episode with a voicemail question. Note to the listeners. If you want to get your question to the top of the stack, send a voicemail because we don’t get very many of them and it’s always cool to hear people’s actual voice. It’s just a better experience for everyone. It feels like The Collin Show. With that said, someone sent us a voicemail with a question for you, Mike, about Bluetick.
Andrew: Hi Mike and Rob, this is Andrew calling from Australia. Mike, I’ve got a question for you in relation to Bluetick. You talk a lot about product market fit. Have you found with Bluetick that you’ve had a general type of customer or have you found already that Bluetick has started to be suited for either a particular industry vertical, a particular customer type in terms of size of the company, or to some other characteristic in terms of the groupings of your customers? Love the show and hope to hear you guys answer this question on air. Thanks. Bye.
Mike: From the customers that I’m working with right now, they fall into a certain set of categories. I’m not saying that these categories of people, the customer profile that I currently have for the people that I’m working with right now is the long term ultimate customer base, I guess, of Bluetick. It’s just what I found so far and what seems to be successful.
They fall into a couple of different buckets. The first one is startup founders who are trying to validate an idea and most of them are trying to do cold outreach and get in front of customers or try and reach out to people that they think would be a good fit for their software. They plug people into Bluetick and it does essentially cold outbound outreach for those people and try to get those conversations started. That’s one group.
A second group is podcasters, to be honest. People who are running podcasts and are trying to get sponsorships for their podcast are using Bluetick to do that outreach to people they think would be a good fit and then start those conversations and then enter into the individual emails back and forth to try and get them to buy into a sponsorship for those podcasts.
A third category is small businesses who have an inbound lead funnel. Most of these are services based businesses where somebody will fill out a form on their website and the customer is approaching them and then they need to fill that request and probably ask for more information or try and get them to the next step. But what they’re finding is that a lot of people will fill out a form on their website or request information and then go dark or go silent.
What Bluetick does at that point is that because it’s a warm contact, it will help bring them back to the table. Very similar to Rob, you guys in Drip have this feature where you can send out a broadcast email and then several days later you can reschedule that same email to go out with a different headline if the person doesn’t open it. Bluetick, because of the way that it works, after the first attempt, if it doesn’t receive a response from the person, it will try again and again and again.
Those additional steps in the email sequence tend to aggregate together and give you a much higher response rate than if you just sent out one email, waited and if they didn’t respond, then you kind of walked away from the conversation. That’s the profile that I’m currently finding success with and people are comparing other products to Bluetick. There’s a lot of different cold outbound tools out there or tools that will remind you, “Hey, you sent an email to this person and they didn’t respond.” But Bluetick aggregates those things together, not just their features, but also the fact that it’s got a mini CRM built into it and helps you give a bigger picture of the whole thing.
That’s where I’m at right now. I don’t know if that completely answers the question but there’s a few different buckets that they fall into and I haven’t found one specifically that is better or substantially worse than the other.
Rob: Yeah, that’s cool. I go back and forth on this. As an entrepreneur, early on in your entrepreneurial journey, it’s like I stuck to apps that really had a tight vertical niche and I feel like that is a good way to keep things simple, you know where to find them. I like that approach. However, there are tools that in order to grow to a reasonable size, they’re in such a competitive space that I guess it could be argued that you could say that Bluetick is advanced follow up in sales for podcasters. You could start out that way and then expand. Land and expand is what it’s called and then go horizontal.
I think it’s too early to decide that right now. Podcasters may be too small of a niche, although it is growing.
Mike: It’s interesting that you say that that’s a small niche. I agree with you that it is but they talk to each other a lot. I get a lot of referral in that. I think that’s partly why I’m getting traction there. It’s because they talk to each other and they’re saying, “How do I solve this problem of getting sponsors for my podcast?” And then they say, “Hey, use this tool. It’s really helpful.”
Rob: That’s the thing. I say it’s a small niche but small is in quotes. If you would’ve build this to let’s say it tops out $30,000, $40,000, $50,000 a month, which I think there are enough podcasters to do that for sure. That’s small compared to a multimillion dollar app or some Silicon Valley exit. But that’s a heck of a lifestyle business if you want to keep it that way.
If you own the niche and you’re the name in doing and then you add things in that that really help podcasters find sponsorships, and then you could even branch out into, well, conferences need sponsorships. That’s the whole reason you built Bluetick, originally, was to help with getting sponsorships from MicroConf.
There are other things you could easily translate into so we’re definitely getting, I’m getting ahead of you on this or ahead of ourselves and I don’t think we need to make this decision or the distinction yet but I do think it’s an interesting conversation that you probably have or should have going in the back of your mind of do I need to go vertical because there’s so much competition. Because you have to be different somehow. You don’t just want to be one of many apps that’s doing the same thing.
You either want to go vertical with it and build the best one for that group of people or you want to have a feature or two that really make you stand out where they say, “Well how are you different with the five other apps that do this?” And you can say, “Well, it’s this and that and this is the approach we take. It’s the light way to CRM.” Or whatever it is that you’ve built in that’s different, that you at least have a talking point and aren’t just a commodity.
Thank you for the question. I like that one. I appreciate it. Our next question is from Aaron Cordova. He’s asking about notebook organization. He says, “How do you organize your notes? I’ve recently started note taking with an iPad Pro and a pencil. Do you have a page per day? Do you organize by topics?”
I used to use my notebooks both for longer term notes and thinking and things I was thinking through and I use it for to-dos. I tried so many to-do apps over the years and I finally switched to Trello. I can’t go back now because Trello keeps it on the cloud, have a record that never goes away. I can never lose it. I can access it from all my devices. I really like to-dos being in an app somewhere and Trello is finally the one that broke me with that.
Now, my notes are really just in a black, a Moleskine notebook and I do not do a page a day because I don’t write in my notebook everyday. I still use Evernote for some work things. I use Trello for to-do lists and I use my notebook when I am on an airplane, when I’m deep thinking, when I’m trying to hash through a problem because paper and pen is just I think so much better with that than sitting in front of a computer because there’s no distraction.
If I were to flip through my notebook, I definitely date my pages and I put a topic at the top. If I’m going to be thinking through one problem, or taking action notes from a book that I’m listening to, or trying to think of what else I’ve written on my notebook recently, I tend to put things in there I want to say for a long time. If I know that it’s just super scratch brainstorm-y stuff or it’s, I don’t even know, like a grocery list or something that I know I’m not going to care about in a month, then I don’t put it in my notebook. My notebooks, I keep them pretty much forever. I have notebooks going back ten years and I do flip through them and I have some fascinating insights that when I look back and think, “Man, your view of the world was so different back then.” Or maybe the world was genuinely so different. Just the founder community and the entrepreneurial community and my aspirations for it.
All that to say, I don’t organize by topics because I just flip to the next page, I put a date, and then I flip through. This means that I don’t particularly have a great organizational system. When I remember, “Oh, I remember Derek and I talked about this and I noted that down.” I have to think in my head. I bet that was about six months ago. And then I do, I flip through the notebook and I find the page.
While it’s not the most efficient way to get there, what I really like about it is the serendipity. Typically, when I’m flipping through that notebook, I’m reviewing like six, eight months worth of thoughts that I have forgotten about. Actually, the act of looking through them often will remind me of like, “Oh yeah, there was this feature we were totally going to build.” Or “Oh yeah, we never implemented that one thing.” Or “I never got back to that person.” It’s like all this stuff that isn’t urgent and doesn’t keep coming back on the radar, but it was a really good idea four, five months ago.
For me, my notebook is more of a time capsule. It’s for deep thinking and thought process. That was actually why I don’t like Evernote for it, because Evernote, I know it’s great if you want to search or any of these note taking apps. Great, if you want to search and you know what you’re looking for, but if you just want to kick back with a cold beer in one hand and a notebook on the other and you just want to flip through and read things almost like a dead tree or paperback book, that’s the experience that I relish and that’s what I love about my notebooks.
That was more information you probably ever want to hear about it and maybe a unique use case. I’m curious to hear what your take is on this.
Mike: I’ve tried Evernote and Trello. I still have my Evernote account. I just don’t ever use it and there’s things in there that I don’t go back and find or look at. The problem I found with both Evernote and Trello is that if I’m using it for any sort of to-do list or task management or anything like that, I end up with so many things in there that it just really falls apart. It’s too general purpose.
What I tend to do is it’s broken down based on what it is that I’m doing. Usually, what I’ll do is I’ll either start with index cards for a set of daily tasks that I need to do and get through and I can just mark them off as I’m getting through them. Occasionally, what will happen is that something will stay on an index card for too long and it will end up on the next day’s index card or the next week’s. If things end up there for too long, what I do is I essentially end up promoting it to some other place.
Sometimes, I’ll have a notebook where I will write down short term notes about something I’m working on, whether it’s really complicated or has a lot of things that I need to keep track of and I’ll write them down on paper. But at some point, like you’ve marked off a bunch of stuff and then you end up with 5 to 10 pages worth of stuff but half the pages are all crossed off, it doesn’t really make sense anymore and you can’t move them around.
At that point, I start moving things over into tools. For anything that is a bug or feature related, it tends to end up in FogBugz. Most of my general purpose tasks, or if it’s a marketing task, or related to a specific project, it usually ends up in my teamwork account. If it’s some sort of a thing that needs to go on a shared list that I use for home stuff, I use something called AnyList. I have a paid account that I share with my wife because it’s a family account so we’ll put our grocery list and things like that on it. It works really, really well for that.
Outside of that, I will also use Google Docs for taking long form notes about a particular problem that I’m working on where I don’t want to write it down if it’s not just a really quick thing or if I need to think about a lot of stuff, I’ll put it in Google Docs.
And then for mental brain dumps at the end of each day or at the end of each week, I have a journaling app that I have a subscription to called Penzu. That system works really well for me because each of those tools tend to be focused on a particular type of problem that it’s solving and it has the tools and the features and all the things that go with it that allow me to keep things organized within that context. Once I start crossing the borders between different context, the tools tend to fall apart. You can use FogBugz for marketing tasks but you don’t really necessarily want to be paying for a FogBugz account to give some contractor or somebody who is not going to touch any of your development stuff. Giving them a FogBugz account is kind of pointless so it’s easier to put that stuff in the teamwork.
I have a tendency to feel like this type of problem, it’s going to be different for everybody. That’s why there’s so many different to-do list apps and note taking apps because everybody works differently and you ultimately settle on something that works for you. The other 99 apps that you tried didn’t ultimately work out. I feel like this is a very context sensitive problem in terms of the type of person you are.
Rob: Yup. And the process you use and how you want to handle it. I agree. Thanks for the question, Aaron. I hope that was helpful. Our next couple of questions are from John. He says, “Hi Mike and Rob. I’ve been listening to your podcast for about a year and I get bummed when Stitcher doesn’t have your podcast ready to listen to every Tuesday before I ride to work. I have a couple of questions. First is what are your thoughts on pay what you want pricing? I’ve created a software called Breakneck Install which is a downloadable application that helps developers quickly create an installer for their application.
There are giants in the market and my product can’t compete with them. I don’t feel like I could charge near what they do which is more than $500 per license. I thought of trying to pay what you want model. One of the benefits I see is not having to worry about licensing issues such as maintaining and creating backend infrastructure to deal with licensing. My fear is that I try this and then decide to go a traditional pricing model which may make future customers unhappy. Do you have any thoughts on this?”
Mike: I think for a product like this where you’re trying to build an installer, it almost feels to me like what you’re going to run into is the market is going to be split between these people who are just starting out and they’re trying to build a product but they don’t have any money so you’re not going to get them to donate money to your cause.
It’s not going to be a viable source of income. If it’s something that you want to do because you have the money laying around and you want to put your effort into something like this, then that’s fine but I wouldn’t look at pay what you want pricing for something like that to really be able to make a dent in your bottom line and be able to let you go full time on it. I just don’t think that it’s going to happen.
There are also a lot of open source alternatives out there that would make something like this difficult. You’re absolutely right when it comes to installers, most of them tend to be very expensive and what you’ll find is that the people who don’t have the money will go for the free open source versions. And even if you give them a paid option that is a pay whatever you want, it seems to me like you’re probably not going to get very much money from that. They’re not necessarily going to be willing to pay software maintenance and things like that.
You’re going to spend a lot more time fixing bugs and addressing individual issues than you are trying to build the product where if you were just selling it to smaller businesses that had revenue and the capabilities to pay $500 to $1,000 per license, you’d be able to make a business out of it.
Rob: I have mixed feelings about this. I’ve never done it so I can’t speak from experience. I can only speak from the experience of entrepreneurs who I’ve seen done it and who I’ve talked to. It can work but you need a really large install base. You need a lot of people downloading so you can’t just say I have a few hundred downloads a month and expect that you’re going to be able to do pay as you go and make any kind of money from it.
The problem is that if you do pay as you go and someone pays you $10, how much support do you now owe them? If they start asking for feature requests, if there are bugs that they discovered, if they’re demanding, if stuff goes sideways, it becomes a challenge. I can see a lot of problems with this and my gut is that it’s not going to work unless you are getting, I don’t know what the number is, but it’s thousands and thousands of downloads per month, because a bunch of people are going to pay you nothing, and then a few are going to pay you a small amount.
When podcasters try this, when other small, downloadable WordPress plugins or whatever try it, they don’t tend to get a lot of money. I don’t know that I agree with your fear that if you were to have pay as you go for now, that you can’t undo that later without making future customers unhappy. I think what I would say is I’d rather call it a beta, or an early access, or put some moniker on it and I would say, “It’s pay as you go while it’s an early access.” Even if you already released it and it’s not an early access anymore, that’s what I would do so that if you decide that you don’t want to go pay as you go anymore, that it just doesn’t work out financially, you can always undo that and it’s a pretty easy thing.
I’ve seen apps go from free to paid before. If you grandfather people who already have it, I don’t really know what complaint future potential customers could have other than, “Oh, I should’ve downloaded it last month instead of waiting till now.” There’s a time where I tripled the pricing of DotNetInvoice from $100 to $300, and a couple of people emailed me and said, “Hey, I was in the process of thinking about buying it. Can I still get it for $95, or $98, or whatever it was?” I gave it to them. It was like two or three people.
One I later regretted, he actually turned out to be the worst customer, the first toxic customers that we had but that’s beside the point. I don’t know. It’s easy enough to try. I see your point. I think if you have something that can’t compete in the marketplace like going freemium or pay as you go is often not the right answer. The right answer is make something that can compete in the market place. Have a differentiator or just set a cheaper price.
If this thing really does do a good chunk of what developers need, they can only get it for $500 elsewhere, then what about charging $99 or $199. You don’t necessarily want to be the low price leader but is there a space in the market. You think about Infusionsoft, Eloqua, all these really expensive marketing automations and Drip came in at the beginning, a lighter weight product that was easier to use and less expensive. I do think that there’s an angle that could be added there as well.
Mike: I think the lower price point is definitely an angle that you can go at because there are certainly ways that you could charge a couple of hundred dollars for an installer. I do like your idea about letting people know, “Hey, this is pay as you go for the time being.” And then make it a point that it is something that you can undo later and move to some other one. Just be upfront and clear to people like, “Hey, this is the pricing for now and it’s going to change. We just don’t know what it is yet.”
Rob: Our next question is about growing from $100,000 of ARR to $1 million. This is from Pawel Brzeminski. He says, “Hi Rob and Mike. I’ve been listening to the podcast for years. I really respect what you’ve done and that you’re sharing all this knowledge with the rest of us. I found your podcast immensely helpful in launching my own SaaS app, which is called Snap Projections. How do you think about growing a self fronted SaaS past $100,000 ARR? So that’s about $8,000 or $9,000 a month. What do you specifically pay attention to in terms of marketing, sales, operations, hiring? Any specific tips on growing in a vertical niche versus horizontal? What would you do differently right now?” It says more of a question for Rob but it would be interesting Mike’s take as well. “Anything specific to watch out for?” His background on them is that they have two people on board, more than 120 clients/customers, relatively low churn, and they’re operating in a niche of financial services applicable to Canada only.
Mike: I’ll be honest. I don’t know how qualified I am to actually answer this question so Rob, why don’t you throw some things out there and maybe there’s something I can think of, I’ll just piggyback on it.
Rob: For sure. It’s a really broad question but I appreciate it. It’s almost like what are the things to watch out for because they’ve already had a decent amount of success obviously to get to even that $8,000, $9,000, or $10,000 mark. It’s like what’s the difference to get to seven figures or what has to change between then and now?
What my experience with this is that it’s going to depend on how big the market is that you are in. I’d bring up Drip because that’s the most recent thing I’ve done. We were in a position where we were in such a large space that we didn’t have to change anything in terms of our market. We didn’t have to go from vertical to horizontal or do any of that because there were enough people who wanted it that we needed to do it. We needed to execute on marketing and hiring in essence. Keeping developers going to build features but really, the product, once we had product-market fit, has always been really solid.
I think that’s the first question to ask. If you really are in a niche of financial services in Canada only, it’s like is the market even big enough to get you to a million or are you going to have to either go into another vertical or go more horizontal and serve a lot of vertical niches or just not even be vertical at all. That’s one thing to think about.
I think you can definitely get to seven figures with a very small number of employees or contractors, somewhere between 5 and 10. I think one thing to watch out for is hiring too quickly or trying to hire ahead of revenue because you want to get there faster. It’s a lesson that I learned. It doesn’t necessarily, especially hiring developers, it doesn’t necessarily make that revenue move faster. If you’re already at that $10,000 point, I always would try to look at what is my bottleneck? Why are we not growing faster? Is it because our product needs more features or is it because we’re not marketing or selling enough?
My next hire would be either a developer, or it would be a marketer, or a salesperson, or we’d start doing demos, or whatever. When we were in that $10,000 to $20,000 MRR range, maybe we just hit $25,000, that was when I realized that not having someone who could talk to people on the phone and essentially do customer success/sales, that was a limiting factor for us and that’s when we brought Anna on. That was a game changer for us. That was a bottleneck for us in that $20,000 to $30,000 range.
You may be there but then again, you may be that salesperson and that’s not a limiting factor and it’s more of your market’s too small and your development team is moving too slow or whatever and they need more help. That’s the thing I think that you need to think about at every point is whether you’re at $10,000 or you’re at $50,000, what is your limiting factor? What’s going to double your growth next month or add 50% of your growth to next month because you want growth. The bigger you get, you have to accelerate growth.
When you’re at $10,000, growing at $1,000 a month is actually a victory. At the time you get $20,000, $30,000, you want to start growing at $5,000 a month so you need to think differently about how am I going to 5x growth between those two points. That often means you’re either growing wider, building features faster or dumping more money in the marketing or getting into paid ads, finding a new channel, because that can be a big piece of it. You may just need more people on the top of the funnel. That may be a thing or you may need to close more people that are in the funnel.
That’s why I use all those rules of thumb that we’ve talked about in the past. If you’re already converting 40% to 60% of your trials to paid and you’re asking for credit card up front, then that’s fine. I would push that aside for now and I wouldn’t try to improve my on boarding and I would say, “How can we just get more people to the top of this funnel?” But if your churn is 10% per month, well then, “How are we going to cut churn by making a product better and by retaining more people?”
It’s looking at each of these things and just bouncing from one to the next and you improve one and then you put more people in top of the funnel and you realize, “Oh, now this other thing is broken.” And you just hop from thing to thing. That’s kind of a brain dump of how I thought about it but I hope that gives us some things to chew on.
Mike: I like everything that you just said there. It boils down to recognizing where the bottlenecks are going to be. One thing that comes to mind is you mentioned something about limiting yourself to just Canada for example, because that’s where the company is based right now and those are the people that they’re targeting. But does the customer profile need to change? Are you targeting one type of customer and you need to move to a different type of customer?
Let’s say small financial planning companies versus individual financial planners. Does your customer profile need to change in order to be able to get more revenue per customer in a way that’s going to help the business grow or are you going to max out? Again, that’s just a limiting factor. Not necessarily through geographical border but the customer base that you currently have and that you’re going after.
That all boils down to the same thing. Is there that limiting factor that you’re going to need to overcome? Whether it’s that or whether as you said, the bottlenecks in the marketing funnel, customer acquisition, all that stuff. It’s finding those bottlenecks.
Every lawyer, even my lawyer has done this before. He will look at legal agreements and he will take things from different legal agreements that he’s seen based on how they’ve been used in the past. If one of his customers got screwed over by a particular piece of legal jargon, he will sometimes take that and put it into his legal agreements to make sure that his customers and clients don’t get the short end of the stick when it comes to interpreting the documents that he’s put together.
Based on how experienced your attorney is, they’re going to have a wider wealth of knowledge, the longer they’ve been in business and the more agreements that they’ve seen and they’re going to be able to use those to craft the one for you. Maybe you get two or three different lawyers from different firms involved, it seems like it would be overkill but it’s always an option. I’m sure that larger businesses tend to have legal teams so that they can get that kind of experience and breadth and put together something that covers them from every possible angle.
That’s the way to ultimately get rid of it all. It costs a lot of money and it’s again, for me and my experiences, not something that I spend a lot of time or money thinking about in the early days of an app because there is less exposure at the time but you have to evaluate it for yourself.
Mike: An interesting hack for this to find out how much exposure you have is to go to an insurance company and ask them for a quote for liability insurance and find out how much that quote is and then use that to decide whether or not you need to go out and get something crafted from an attorney to help cover you. That seems to me like a pretty good way to get an independent gauge of how risky what you’re doing is.
For example, back when I was doing enterprise level consulting, we would be given admin access at the domain level on somebody’s network and some of these companies were like Johnson & Johnson, Pfizer, NASDAQ, those types of companies. Our insurance rates were outrageous. They were like $500 to $1,000 a month for insurance. It was only two or three of us. That was absurd but my wife’s got insurance for her business and it’s only, I forget, like $100 a month or something like that. It’s ridiculously low.
Depending on what you’re doing and how much risk and exposure you have, the insurance company will charge you more. Just getting a price quote from them would be a good way get an independent verification of how much risk there is without you having to sit down and do a ton of work on it. You’re going to have to provide them with paperwork and documentation and they’ll have an auditor review it but you could use that to help out.
Rob: Yup and if you’re going to do that and get a quote, I would recommend a company that I worked with before. They just made the process really easy. It’s foundershield.com. They themselves are a startup. It’s kind of just an insurance broker but they operate, like, I’m guessing they have some funding because they operate like you would want a startup to operate rather than some stodgy old business insurance company.
Mike: Matt, hope that helps. I think that’s probably the place to wrap it up for the day.
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Episode 347 | How to Recover From Coding for Months Without Talking to Customers
In this episode of Startups For The Rest Of Us, Rob and Mike talk about how to recover from coding for months without talking to customers. Based on some questions a listener sent in, the guys give advice to the classic problem of spending all your time developing and not enough time talking with customers.
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 how to recover from coding for months without talking to customers. This is Startups For the Rest of Us episode 347.
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 Mike.
Rob: And I’m Rob.
Mike: 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: Well, I am back from Sweden. I had a great time attending and speaking at Brennan Dunn’s Double Your Freelancing Conference in Europe. He said it was going to be the last DYF conference he throws and then he’s going to only do small retreats after this so it was cool to meet up with him and his crew.
And then I spent a couple of days with Sherry in Stockholm. We had left the kids at home and we had a great time seeing the sights, painting the town red, and I got a good amount of work done. It’s crazy when you’re in a new environment. I was basically taking the days off, “vacation days,” but there was still stuff going on back here, back in the office so a couple of hours a day, 90 minutes or so, I could just hammer out a ton of email and Slack replies.
I had some really good ideas because I had the headspace to think about stuff so I noted them down and I’m starting to put those in the queue right now. It was actually a productive, I wouldn’t even say it goes far as to say as it was a workation, it was more like a light vacation with a bit of work sprinkled in. That’s, to be honest, my ideal thing because I think when I don’t work for like a week, I feel disconnected and I get bored just travelling and being in places without having something to occupy my mind.
Mike: I’d imagine that’s a lot like retirement as well. I’m not one who just likes to take extended vacations just for exactly that reason. I find myself getting bored.
Rob: Yup. I think that’s where having hobbies, like I do investing, which is fun, but I can only do so much of that in a day and think about it for so long before I need to do the next thing. After the conference was done, we would go see one sight and then we’d go to lunch and then Sherry and I would come back in the afternoon which is when this time zone was waking up and Sherry had a few calls and she was still doing quite a bit of consulting and stuff. It was good. It was a nice mix. I really enjoy that stuff.
I also enjoy getting away for retreats. Like we’ve talked about in the past, taking a full two, three days but seven complete days for me without thinking at all about the things I’m most passionate about, which is a lot of what I work on, is always a hard stretch.
Mike: Cool. On my end, I finally got the two step sign up process for Bluetick all squared away. There’s definitely edge cases in there that I just said, “Look, I’ll deal with this later.” Instead of making the whole thing bulletproof, I made it basically just work. I know that there’s going to be cases where something is going to come up and somebody goes to sign up and it’s going to break. I’m just going to have to figure it out at that point because I don’t really have the time to try and capture every single edge case.
Right now, it’s just going to show some generic messages if it goes sideways and certain ways that I just don’t know about because I don’t know all the different ways that Stripe for example, could say, “Hey, this card isn’t going to work.” I got that all squared away and finally got started working on the marketing and sales websites. I got the price and page all set and I’m working on the tour. I got to create a couple of videos to add in there, probably put one on the home page then work on flushing all the rest of the tour and figuring out whether I want to do just one page for the tour or I want to divide it up into several of them based on what different situations people are in.
I’ve got a bunch of different notes that I’ve aggregated from various customer discussions that I’ve had and different things that they’ve either keyed on or asked about during demos and putting those into specific places in the tour and try to essentially walk somebody through the decision making process for it.
Rob: Good for you, man. That’s exciting. I know it took a lot longer than you wanted to but it’s got to feel good to have that behind you and be able to pull the next thing off the list.
Mike: It is. The thing I don’t like about doing the stuff on the tour side of things is that it’s a completely blank slate and I’m not a designer. I’m sitting there, going through and trying to figure out how should the page be laid out and what should I say in certain areas and how should one thing lead into another. For whatever reason, it’s really hard for me to do that. I can conceptualize what I need to say but doing the layout for it, that’s the part I’m having a hard time.
Rob: Yeah, that is hard. I haven’t done that in years. When I used to do it, I wasn’t very good at it. It’s such detailed work. It’s tough. That’s what you got to do when you’re scrapping being bootstrapped and you’re counting the days until you can hire someone else. Get a contractor, even if it’s a contractor, get somebody because they’re so much faster at it and the end product will look better too.
Mike: Plus it’s all in WordPress. There’s only so much that I can do in WordPress. I’m just going to make do with what I’ve got and then after that, just look for a designer at some point down the road, when I actually have the funds for it.
Rob: For me, my other point of update is we’ve had some recent questions on the podcast about books, or resources to learn how to build a SaaS app and someone had pointed out the PHP spark framework, which I think is pretty cool.
There’s another one in the works now. It’s Marcus Wein. He’s in Austria and he’s working on a SaaS guide book for Ruby on Rails. I actually met him at Brennan’s conference. We talked about stuff and then he cooked up this idea and put up a landing page while we were there. I thought that was cool. He’s getting to work on that book and the URL for that is saasrailsbook.com.
If you’re interested in the fundamentals of how to build a SaaS app and are willing to either learn Rails to do it or you already know Rails and you want to just learn how a guy who’s built dozens and dozens of them would architect it and then all the things that he would think about, go ahead to saasrailsbook.com.
What are we chatting about today?
Mike: Today, we’re going to be diving into a problem that a listener had sent in to us. His name is Zac and he has a product called neverlate.io. He started working on it. He spent about three months working on it and has a basic MVP all set up but he fully admits that he made this classic mistake where he spent several months in his basement working on it and has come out of it and now he’s ready to try and find customers but he has no customers to go to or to show it to because he spent all that time working on the product itself rather than doing any customer development.
He’s tried a couple of different things to generate some traffic. He’s tried some AdWords. He’s talked to a few different people but really, he’s at ground zero at this point and he’s wondering, “What do I do here? What do I do to try and move this forward and make it work?”
Rob: The URL again is neverlate.io. It is an appointment reminder service. Right now, it is very horizontal. It doesn’t say appointment reminders for XYZ niche. It’s just a broad appointment calendar plus it can send automated text messages. I guess that’s it. It doesn’t look like it makes phone calls either. Anyways, I’m just looking at the home page. Obviously, I haven’t used the app, just trying to give the listener an idea of the business. It starts at $29 a month for up to 200 appointments a month and it has a $50, an $80, and a $500 tier.
Mike: This reminds me a lot of Patrick McKenzie’s appointment reminder app. Maybe, that’s where the idea came from. But to give a little bit more details on this, I’ve gone back and forth with him just to ask a couple more detailed questions. When he came back, he basically told me the product is functional but he doesn’t have a customer list. He doesn’t have a channel where he can start to do customer development. As you said, the bottom price point is $29 a month.
In terms of his target market, he’s a little bit unclear on where to go with that. He knows certain ones that he’s probably going to skip so he’s inclined to skip massage therapists, for example, because he doesn’t think that they’re going to be willing to pay more than like $10 a month. And then in terms of sign ups, he’s gotten some from AdWords. He spent about $50 or so in AdWords and he is getting people to sign up for trials but it’s not a lot and obviously AdWords can get very expensive.
In terms of lifetime value, he really doesn’t know yet. He’s thinking maybe a year or so of service so around $350 for lifetime value of a customer. His base question is really just what do I do at this point? Should I spend more money on AdWords? Should I do something else? What are my options and what are your recommendations about where to go with this?
Rob: We have an outline here but to kick us off, you’re in a real tough place because you basically have no customers, no list, and you have a me too product. There’s nothing that differentiates this product that I can see from, I won’t say a slew of others but I bet if I search, I can find a half dozen apps that do exactly what this does. Definitely back against the wall at the present.
Mike: I think that’s probably a situation that a handful of listeners have found themselves in over the years, probably more than a small handful, where you’ve built something and you get to a point where like, “Okay, yeah, I’m ready to take this to people and show it to them because I’m no longer embarrassed about what it is or what it looks like.” But you haven’t gotten far enough down the customer development road to figure out who it is you’re going to talk to.
I think in this case, your first priority is to prove, one way or another, whether or not this idea is going to be viable for you to execute on. I’ll put “prove” in air quotes because you’re really never going to be 100% sure that it’s going to work but you can get an idea of it. You can start looking down the road and you start doing that customer development and try and figure out does this look like it has legs or am I just wasting my time and money to try and to get this to work?
Along that lines, I think the first thing to do is really set a time line. For something like this, it seems like a six months time line is probably an appropriate timeline to set for this. Especially if you’re working on the side, if you are working on it full time, probably less since you have a fully functional MVP, take that time line, set it aside, and say, “Okay, I’m going to do X things during this time.” And set goals for that entire time line.
The first goal that I was thinking you would set up for six months, months one and two should really just be focused on trying to get a certain number of customer discussions, whether that’s five per month of five per week. Really, you can set your own pace and schedule at that. But you’re trying to figure out can I reach these people? How do I reach them? Once you start having those discussions with them, you learn more about who they are, what they do, how much time they spend in different areas, especially trying to solve this particular problem, whether it’s something that they’re willing to pay for.
Once you have that information, you ask yourself, how much are they willing to pay? Obviously, you ask them as well. But you want to find out, are they willing to pay for it, how much, and listen to the language that they’re using. Really, these first two months are just spent doing these customer discussions. Yes, if you can get them to a trial or on to a paid account, that’s great, but that’s not your goal here. Your focus should be getting a certain number of customer discussions because that’s going to give you an idea of how easy or difficult it is to continue doing that down the road.
Rob: Right. If you can’t get into these customer discussions, which are really about learning, as you’ve just said, rather than trying to build revenue, if you can’t find anyone who’s willing to talk to you, that’s a very, very bad sign. It’s a sign that you’ve built something that people just don’t care about, don’t need, don’t want, which is going to be something you could very well run into with any product that you launch. At that point, you have to decide am I willing to essentially continue to add things to this that actually make it unique so that I’m the only app that does this in this way, or to pick a niche and niche down.
Like you said, you don’t want to do massage therapist and I don’t blame you. Is there a group? Is it medical or dental because they have HIPPA so they’re really expensive and so they’re the $500 a month and up and you offer only HIPPA compliant so it’s important reminder for medical and dentist office. There’s probably some others in that. This is where you have to do this research. This is not the time to run Facebook ads to a landing page and see who converts and play it that way. This is an app where appointments are brick and mortar type of things. I can’t think of an online audience like designers, or photographers, or developers, or entrepreneurs, there’s certain audiences that are just online a lot.
Appointment reminder, if you can figure out a way to target an online audience, great, but if not, then you have to go through these much more manual steps. I don’t really see an angle here where you’re just going to rent some Facebook ads and convert people to trial and split test your way out of this. For the whole six months, you’re going to be learning that these first two months are going to be critical. They’re going to, like Mike said, tell you whether or not you should continue.
Mike: Along with that, in these first two months, you’re trying to figure out who that target audience is. I think early on, Zac had said he was probably going to skip massage therapists. Maybe there’s some data he already has to indicate that they’re not willing to pay for that. That’s fine. But are there other professions or other verticals that you can target and try to have those discussions with them and see if that’s going to work, see if that’s an initial traction channel that you can start to establish.
If it is, great. You can move on to the next steps in months three, and four, and five, and six that we’re going to lay out. Your focus at this point is trying to figure out who those people are and if you can establish a recurring channel of them to have those discussions with. If you can’t, then maybe it’s time to pivot to a different channel, a different vertical, or can the whole thing.
I probably wouldn’t can it after trying to find one vertical. If you go to massage therapists and they say, “No, we’re just not interested.” Okay, great. Go to dentists and then maybe pivot over to a solo practitioner doctor’s offices, for example, or plastic surgeons, or something along those lines. Each of those could be a one to two month effort but you’re trying to figure out is there a place where you can get customers on a recurring basis, at least in the early days?
If you go through several of those iterations and you still can’t find them, then that’s the point where you need to re evaluate your position and decide whether or not to just cut your losses and move on.
Rob: For months three and four, assuming that months one and two are successful and you figure out a niche or a group that you’re going to target, months three and four, your KPI is the number of paying customers after you’ve had a direct discussion. This is very, very much not scalable but what you’re trying to do is to learn objections. You’re trying to overcome them via discussions. You’re trying to close deals. It’s still learning but you’re trying to start making the rubber meet the road and actually get some revenue.
What you might find is that you get through three and four and you can’t get enough paying customers to make it worth your while and you have to go back and repeat months one and two and find a new group to target.
Mike: The whole point of this particular piece of it, I don’t know if some paying customers is like the sole thing that you should focus on. Getting them into the app and getting them active and using the app, that’s probably a much more important first step. Obviously, you want to keep them as paying customers and get them to convert from any sort of free trial that you put them in into a paying customer. But even if they don’t, you’re still going to learn from that. The focus is really finding a certain number of people that you can put into it.
Again, you can set those numbers yourself. You can base it on how many conversations you’re actually having because obviously, if you only have 5 conversations a week, you’re not going to get 10 customers a week. That’s simply not going to happen. From that, you can back that off and put people into the app and learn those objections. You can overcome them by talking to them. A lot of times, people will have a question that if they’re on your website and they have a question in their mind, it draws doubts for them. They will not sign up because of that.
When you ask them, “Hey, would you like to sign up for an account right now?” They’ll say yes or no. If they say no, you can ask, “Well, why not? What’s stopping you? What is it that’s holding you back here?” Those are the things that you want to write down. Every single question that somebody asks, you want to write that question down. That way, you can go back to that and over time, you’ll get a base of let’s say 20, 30, 50 people you’ve talked to. Start aggregating the number of questions that they ask and which questions they ask. You can identify which of the questions were most prevalent, which ones the most people had and use that in your marketing copy once you get to months five and six, which is where you are trying to land the paying customers or on board people without having those direct discussions.
Rob: That’s month five and six. It’s moving out of the I’m talking to everyone, I’m doing demos for everyone, and I might able to start getting people to overcome their objections and sign up for a trial just purely based on a marketing website.
Take these timelines with a grain of salt here. We heard from Jordan Gal last week and he was giving demos for six months, eight months. It wasn’t just the two months we have here or I guess we have four months. One and two, finding the audience and three to four is overcoming objections, and five and six is moving towards the more automated way. Their journey took longer. They have a more complex product, probably harder to explain, harder to demo. Appointment reminders tend to be fairly, I think it’s pretty easily understood by the prospect so perhaps you’d have an easier time or perhaps you’ll have a tougher time getting to five and six because again, your product isn’t differentiated from others that they could find with a Google search.
That’s the idea here. This third step, this third piece is trying to move towards having more automated things in flow and maybe you don’t remove demos altogether, maybe you figure out you have people self select that if they’re in the lower pricing tiers, then they sign right up and if they’re going to pay you three figures a month, it’s probably worth having a conversation with that person. You have a contact that’s linked. Even if you show your pricing, you still have some type of thing, how many appointments per month and immediately, you get a paying customer and have an idea that it’s worth reaching out to them with a calendar link, trying to set up a conversation.
Mike: With each of these sets of two months, months one and two is really about trying to get a certain number of customer discussions going and then month three and four are putting people into the app through those direct discussions and then five and six is getting those customers onboarded without having those direct sales discussions. That’s really just a logical progression. As Rob pointed out, your timeline may vary quite a lot. It could be closer to a year or it could be closer to two months. It depends on how complicated your app is, how far along it is, how many people you’re able to have those conversations with early on, how quickly you get traction, and it also depends a lot on what your schedule is.
If you’re working on it full time, you’re going to be able to move faster. If you’re working on it on nights and weekends, you’re probably not going to be able to schedule 25 calls during the week. It’s just not going to happen because you have a full time job and you’ve got other responsibilities. During the work week, it’s going to be very difficult for you.
But all of this is really just establishing this logical progression so that you can determine whether or not this idea that you have or the product and the MVP that you put together is going to go anywhere so that you’re not wasting too much time trying to make something work that’s simply not going to for you.
I think that’s another key distinction that we’ve made on this podcast before, which is that even though something could be a great idea and it is reasonably well executed, it may not be the right idea for you. If it’s not something you’re passionate about or you don’t want to do or you’re just not interested in it, you’re not going to do it as well as if it was something that you were extremely interested in and extremely motivated to do. You’re going to push things off and not be as motivated to move people forward in the sales funnel and do the website, coding, and everything else.
It’s going to be harder for you. Maybe it’s just not the right fit. Maybe some other product would be a better fit. Again, these are all things that you need to evaluate as you’re going through this process.
Rob: We call that in the biz, product founder fit. As you said, is the product a good fit for you, for your personality, for what you want to do for the customers you want to work with, for the features you want to build. It’s a bit of an amorphous concept and it’s hard to know upfront but what’s nice is that Zac said, right off the bat, “I don’t think I want to work with massage therapists.” That’s like, alright, good. It’s a good thing to know that. Don’t go after that market because you’re probably going to find out that you’re not, even if you found success, you’re not going to enjoy it. You’re not going to stick with it for the long term.
Mike: I think that’s an interesting side conversation. Even if that would work, do you want to do it? I think in some cases, the answer to that is probably not. There’s certainly groups of people that I would probably not want to work with or probably would not enjoy and everybody has their own either biases or people that they know in certain industries, they’re like, “I just don’t want to deal with any of that stuff.”
Again, it may work out. It’s just like marketing tactics. There may be some things that you’re really comfortable doing and the next person may not be comfortable with that at all.
Rob: Yeah, there was an app I almost acquired. I’m trying to think. It may have been after HitTail, or I still owned it but it had grown to where I thought it was going to grow and I was looking at other avenues before Drip. I looked at acquiring a bunch of different apps. One of them was going to put me marketing to and having a customer base of designers UX and usability folks. I had no reach into that market. Obviously, I have an understanding of what they do but I am not in that target market.
It was Ruben Gamez from Bidsketch who asked me, “You’re doing a market pivot by going from an SEO tool, which is at least marketing technology, into something that goes after a completely different audience, is that something that you want to do for the next three, four, five years?” Frankly, I have no qualms with working with designers and UX people, I think it would have been an interesting adventure but it would’ve been a huge learning experience for me.
I thought, “If I do this, I’m going to have an uphill battle to learn a whole new space and to learn what are all the sites where people hang out? Where are the blogs? I already know this from MarTech. That is one of the reasons that I wound up doing Drip. Because it’s not the same as an SEO keyword tool but it is another marketing SaaS and I already knew so much about the space because of my heavy involvement in evaluation of tools from my own personal use. It was just a different thing.
I think I still would’ve been successful. It probably would’ve taken longer had I done that. I would educate myself about a market, make myself a name in that market, which I really, really don’t have. And so, it’s just something to think about as you go through your ideas.
Mike: I think one of the last questions that Zac came up with was should I spend more money on AdWords or should I just abandon that and go do something else? I think, Rob, you’re probably in agreement with me on this one. But AdWords is probably not the way you want to go, especially if you don’t have a lot of money to throw into this because you’re going to spend money trying to learn. It’s not that spending money to learn is a bad thing but you’re going to probably spend much more money than you would if you had some customer discussions first and you waited until month three or four to start pumping up the sales funnel a little bit.
After you’ve gotten some of the terminology a little bit, you’ve narrowed down the market a little bit, if you’re just throwing money out there to try and figure out where the market is, it’s going to be very expensive to do that.
Rob: Yeah. The tough part is since the audience is brick and mortar, it’s going to be expensive and hard to find them. There are tools where everybody’s online and they’re always signing up for new things. You can do the curiosity play and get them to sign up and you have a low price point and you could test an idea with ads landing pages in more broader scope stuff if you had the money to do it. I don’t see an avenue to do that here. Just by nature of the potential audiences that we can come up with, I think you’re right.
I’m in agreement that AdWords is probably not where you’re going to get a bunch of learning at this point. Maybe you could run AdWords just enough to get that trickle of calls that you want. And again, it’s going to be expensive to get that trickle going. But if you have no other avenues, yeah, maybe AdWords or Facebook ads, or some type of paid acquisition, but if you can pay $10, $20 to find someone to get on the phone with you, who has some inbound interest, that’s interesting but you know you could just as easily do some cold outbound email or cold phone calls and perhaps get the same result with less money but more time.
Mike: That’s really what this is all about. It’s striking that balance between how much money you have available and how much time you have available. If you have more time than money, don’t do paid ads. Have those customer discussions, learn who it is that you need to target. If you have a lot more money than time, spend on AdWords and learn who but it’s going to be dramatically more expensive without having those customer discussions to guide you.
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