In this episode of Startups For The Rest Of Us, Rob checks in with Mike Taber about his progress with Bluetick. They talk about new growth, where that growth is coming from, theories on why customers are choosing Bluetick over competitors, and more.
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Before we dive into that, I want to give you two things. Number one is invitations for Microconf Connect, which is our online community. The first invitations have been sent out. If you haven’t checked out microconfconnect.com and you are interested in being in a community of, well, there’s more than 1100 applicants at this point, so depending on how many actually come through and sign up, let’s say it’s going to be many hundreds, if not close to a thousand, of indie-funded and self-funded startup founders from around the world. If you’re interested in that, head to microconfconnect.com.
Number two, if you haven’t shared this podcast with someone that you think could get value out of it, it would mean a ton to me. If you feel like you’ve gotten value out of episodes over the past three months you’ve been listening, three years you’ve been listening, the biggest thing that I look at when I look at the success of the podcast, there’s a couple of things.
One, I look at the feedback from listeners and the comments that we receive and the growth of the subscriber base. Really been focusing on that over the past 6–9 months to try to get the message out to more people. The message that we can be ambitious, and we can build life-changing businesses without sacrificing our life or health or family or our relationships in order to do that.
We’d really appreciate it even if that’s just a tweet that says, “Startups for the Rest of Us is a podcast that I enjoy,” or if you do a one-on-one email or text to someone, I would really appreciate it. With that, let’s dive in to my conversation with Mike Taber.
Mike, it’s been a while. How are you doing?
Mike: I’m doing good. How are you doing?
Rob: I’m doing okay. It’s been six weeks to the day since our last conversation. Actually, we ran a Twitter poll a few weeks back because I got a couple of comments on the last episode. Let’s say I got 10 or 12 comments through Twitter, email. and posted to the website. One of them said, “Oh, it’s uncomfortable when you and Mike talk because I feel like you’re putting a lot of pressure on him.” Then someone said, “You should be easier. You should go easier on Mike.” I thought, “Wow. I don’t feel like I’m being hard on you.” Do you feel that way?
Mike: I don’t think so. The questions that you’re asking are pretty valid questions. I feel like it’s easier to answer them. I’ve commented on this before, it feels easier for me to answer them now because there’s more time in between each episode when we talk. It’s like I have more time to work on stuff and I’m not distracted by other things that are going on. I don’t really think so. I don’t know. Maybe I would have felt differently right after an episode is recorded. You can ask me again right after this episode if they were tough questions.
Rob: Totally. That’s the thing that people should know is like you and I were very deliberate, in advance, offline, before we started this whole series of following your story. That I said, “Look, I’m going to ask you questions that I think are helpful to the audience. I want to ask you questions that I think are helpful to hopefully keep you motivated and accountable. Is that okay?” I got your permission to bust your chops a little bit. I’ve never felt like I’m over-the-top, up in your face, sell, sell, sell, buy, buy, buy. I’m not being outrageous. I’m genuinely just asking. I know I am asking some tough questions, but I don’t know.
Anyway, after that, I ran a Twitter poll and I got 114 responses. The results were 8% thought I should go easier on you, 31% said I could push you harder, which I was surprised by, and 61% said they felt like I’m striking a good balance. Overall, 31% Mike, a third of the people want me to bust your chops more. It’s funny.
Mike: It’s all right. If you want to bust my chops a little bit more to appease that 31%, I’m fine with it.
Rob: I don’t. This is very natural. The thing is these conversations, at least from my perspective, are not forced at all. I’m not doing anything that doesn’t feel very natural in the conversation. I’m genuinely just curious about what’s there. When I ask, “Why didn’t you do that?” I’m genuinely curious why you didn’t do something. Anyway, let’s start talking about stuff because I did go back and listen to the last few episodes. It’s been a while. It’s been six weeks since the last one and three months since the one before that. I almost forget the story sometimes of exactly what was happening.
Our last episode was actually really positive. You were upbeat and things seemed to be working well. You had grown the revenue of 50% in two months. You’re still early-stage so folks know—percentages can be deceiving. That’s where we last left you. I’m curious to hear about your high point over the past six weeks. What was your biggest win or the moment where you felt the best? Then conversely, the biggest setback or where you were feeling the worst.
Mike: I think that in terms of the biggest win is I had a customer, and I know that this is on your outline already, so I’m going to totally blow it out of the water. Your question was about the big customer that I had to sign on a couple of months ago for $500 a month and are they still around. The answer is yes, they are still around, but they also asked to upgrade to an annual plan. That just came through yesterday so that’s all set. I’d say that’s probably the biggest one.
In terms of a low point, I can’t really point to anything specific where it’s like, “Oh, I wish this had gone very, very differently.” I’ve got a bunch of things that are up in the air right now. I’m optimistic that some of them will come through and then there are other things where I have to play things by ear for a little while to see how it goes. I don’t know how they’re going to play out yet.
Rob: Congratulations on that; that’s big to get. For them to request to go annual implies that they’re using the tool, they’re enjoying the tool, and they want to use it for the coming foreseeable future. The challenge that I always see with, especially early-stage products, that are really finding their footing is that you can get a big customer, but they’ll stick around for two weeks or a month or two. Then they realize, “Well, this just doesn’t fit what we need.” That is why I kept circling back on that topic is like, “Hey, you have this customer paying you a chunk of money. Are they still around?” That’s great. That’s really a good sign in my opinion. Congratulations on that.
Mike: Another thing that I would say that is, I wouldn’t say there was a particular point where it was a high point as well, but you have mentioned that I had grown revenue by about 50% over the course of two months. Then over the most recent two months, I’ve grown it by roughly another 50%. Basically, double where I was about four months ago. Maybe it’s 4½ months, maybe close to 5, but it’s still pretty close to that. It depends more on how things shake out through this month, which it’s still very early on in the month, but from the looks of it, I would expect that I will eclipse that point.
Rob: Is a big part of this your warm/cold email campaign? Because the last time we spoke, your report was it was working very well, you were getting upwards of 50% response rates, you had so many learnings that you actually had to back off of it so you could get other work done, you were saying some calls were running 1½-2, you had a bunch of notes, and that some were turning into customers. Is that a big part of this? Because to double in four months even at early stages is still traction. That shows that something has happened that wasn’t happening in the prior 18 months frankly.
Mike: Yeah. I look back at the outreach campaign that I was doing. It’s interesting because only one of those conversations has turned into an actual customer. There are maybe three others that are still prospects. One of them is in a trial but I have to implement some additional things before he’ll actually start paying for it. The trial itself right now is like I’ve extended his trial because literally, certain things don’t work for him. I’m trying to go through. I basically just have to implement a couple of extra features before he can start using it. At that point, I’ll restart his trial more or less.
I don’t see any direct correlation between the conversations that I’m having and the revenue, which is weird. Because I look back at it now and I just went through and counted. I’ve had over 30 calls with people in the past 5-6 weeks. Those are just the ones from my outreach campaign, but only one of those turned into a customer.
Rob: That’s crazy. Where’s the growth coming from?
Mike: I’m still working on it.
Rob: Oh, no. You don’t know.
Mike: It’s from a variety of sources. Some of its recommendations are from other people. I onboarded somebody over the past two weeks. They’re a real estate attorney in New York City, and they heard about it from a Facebook group. Somebody else had recommended to him. I’m like, “Well, who was it and what organization was it?” They said it was from the EO group which I think is Entrepreneurs’ Organization or something like that. You have to have a business that’s doing a million dollars in revenue in order to even be eligible to join, and they have to verify it.
Somebody in there said, “Hey, you should check out Bluetick.” I don’t know who that person was, but I don’t necessarily care either. The person signed on and I helped him get everything set up through Zapier. They asked me already about upgrading to an annual plan. I said, “Well, we could do that now but why don’t you wait a month or two and see how things go and then if everything is working well we’ll upgrade you.” It’s very casual and conversational about that.
I think that that’s a good opportunity to try and potentially get either additional recommendations or more revenue what have you. I’m sure these people know other people. I definitely think there are opportunities there that are coming about just from having these conversations.
Rob: Right. That’s the idea is if they do end up being happy, and they sign up for annual, right after they pay for annual, a great ask is, “I know you heard about me through an EO group, would you mind posting back to that group and saying, ‘Hey, I’ve just signed up. It’s been a really good experience.’” At this stage, it’s doing things that don’t scale. At this stage, all of this just helps get you to where you want to go.
Rob: I’m curious then. Customers are signing up and you obviously have some growth going on, something that I’ve asked you multiple times is why Bluetick? Why did they sign up with Bluetick and not go to one of your probably dozens of competitors, I’m guessing? Last time you had said you had some theories but you hadn’t really figured that out yet.
We tossed around some things like Bluetick checks the mailbox every 10 minutes whereas a lot of your competitors check it every four hours so your data is more up-to-date. You’re more thorough in terms of seeing I think it was like trash and spam and some other folders. Is that it or has there something else that you’ve figured out why these folks come, sign up, and convert to annual with you and not one of your competitors? That key differentiator.
Mike: I don’t think there’s a specific key differentiator in the products, but the recommendations certainly help. As part of those 30-plus calls that I have gone through, one person said, “Hey, I have this customer over here, these couple of customers, and I think that you should go talk to them. For this one, feel free to use my name and say that I said that you should reach out to them.”
I reached out, talked to them. I don’t think that this came up in our last call because it was since then, but I basically had a conversation with them. They said, “Yeah. Actually, your software sounds like it would be really helpful for us. Send me a proposal,” which you wouldn’t think most of the time you’d need to send a proposal to somebody. It’s over $1000 a month for this particular customer. They said, “Send me the proposal.” I sent them a proposal and then without even me asking or following up on the proposal, they didn’t have any questions at all. “This is great. This looks good. I’m going to introduce you to our technical team. Let’s set up a call with them.”
Did that, went through the technical call. At the end of the call, I said, “Are there any objections or questions you have or any problems you see in switching from what you’re using now into this?” They said, “No.” Now I’m at the point where they said, “Okay. Next week’s bad for us, but touch base with us the following week. We’ll see how things shake out from there.” I’m optimistic that that will come in. That’s over $1000 a month in MRR from just that one customer, but I definitely know there are certain things that they’re going to need. The point I’m going after though is the reason that that person took the call was that they got a recommendation from this other person they knew and trusted.
Rob: That makes sense. Your title tag on your website, bluetick.io, is, “Cold and Warm Email Follow-up Software.” Then the headline is, “Personal outreach at scale for all of your follow-up emails.” There’s cold and there’s warm and you’ve tended to be in the warm area of getting things you need from other people. If an accountant needs a tax return, he can put it in here. I’m just giving an example. I guess you don’t have any accountants.
Mike: I do, actually.
Rob: Oh, you do? Okay. Or a conference organizer needs to bother sponsors until they pay, you put them in Bluetick and they would do that. Which of these new sign-ups over the past four months are they using? Are they doing it more for the cold or more for the warm?
Mike: Most of them are warm, to be honest. As I’m thinking about it, most of them are warm. They’ve done business in some way shape or form but it’s not a tight relationship, it’s very loose. Maybe there was a transaction of some kind. Maybe there was a trial that was downloaded. Maybe there was an introduction or something along those lines. There was at least some touch-point and then they go in to use Bluetick to help move them to the next step and strengthen the relationship.
Rob: It’s less about sales. It’s part of the sales process but it’s not usually the first step in the sales process. There’s at least some relationship then it’s how do we keep moving it down, which is what you wanted to do. Remember, we talked about it a year ago. You said, “I feel like a lot of the cold outreach is spammy. I have a struggle with how some of these folks are doing it.” This feels better to you?
Mike: Yeah. What’s interesting, though, is that those that I’ve had come on so far, those tend to be like they want to do the warm outreach, but then the demo for the customer who the price quote I gave them (I think) was $1200 a month. They’re going to have upwards of 20–30 mailboxes and their growth anticipation is going to get up to between 50 and 60 by the end of the year. What they do is they do lead gen for other companies. They basically work with marketing agencies who are trying to do market analysis and market research, and they get people on the phone to talk to those companies.
I’ve actually started going down the road of looking out there to see what marketing agencies that are out there that are currently doing lead gen and see if I can get conversations going with them to ask how they’re doing that now. My suspicion is most of them are running a bunch of different campaigns in parallel.
They probably have anywhere between 20 and 50 or 100 mailboxes, which I would basically be charging them for each one of those, but let’s say that it’s 50 mailboxes at my current price in which I’d probably cut them a bulk discount at some point. I don’t know what that would look like. Let’s say it’s just raw numbers alone right now, fifty mailboxes at $50 a month is $2500 a month. That’s huge.
One of those customers could substantially start moving the needle for Bluetick, especially if they go and sign up for an annual plan. Not that I think that they would do that on day one, but fast forward a month or two if it’s working better for them than their current solution then it would make sense for them to go to an annual plan to get a little bit more of a discount.
I do think that there are opportunities there are for Bluetick to go in and do some competitive displacements for people who are using things like SalesLoft, Outreach, or Reply because it does have that more in-depth hooks into the mailbox and it can do more in-depth checks to make sure that it’s identically identifying, was this a reply? Was that a reply? Did I get a reply from a different email address or was it forwarded? All those kinds of things. I just have the capability to do a more in-depth analysis that I don’t think that those other products have nor do I think that they care about. Their pricing has started going through the roof like they’re really going upmarket in terms of the pricing.
Rob: Which leaves a nice opportunity for you because even having these several hundred dollars a month/low four-figure per month clients is such a different business than a $40 or $50 a month app. You need so many fewer clients. Bravo to that. High ARPU (Average Revenue Per Customer) is just one of the Holy Grails. That’s awesome.
Mike: I’m working those angles to try and see how that works out. I just don’t know how it’s going to play out yet.
Rob: You never do. It’s pipeline stuff. Listeners should realize you’re not saying, “I’m counting on all of these deals to close.” You’ve done sales enough to realize that only a certain percentage of your pipeline closes. But the fact that you’re even sitting at the table with someone who could feasibly pay you $1000, $2000 a month is so far removed from where you were a year ago or 18 months ago.
That’s the part I’m excited about because you don’t need all of these to pan out. You just need a certain percentage. You’re growing, you’re off to the races, and you’re profitable, supporting yourself. You get to the point where you can hire someone to handle your audits and rewrite that sealed .NET component.
Mike: What’s motivating about it is that I feel like I’m winning a disproportionately large number of them, too.
Rob: Why is that?
Mike: Honestly, I think it’s me. It’s the conversations that I have with people. Even in the demo that I did with the customer that I did a custom proposal for, when I was talking to them they were asking questions about the software and how it worked. They had some very specific requirements as well, which I was shocked by because most people are like, “Oh, I just want to be able to detect replies and be able to send out emails and make sure that those are going out to people who didn’t reply.”
One of the specific requirements they had was they’re like, “This has to be able to send an email out as a reply to a previous email and it has to include the contents of the other one.” I said, “Yes. It can do that. This is exactly how it looks.” and I showed them an example. They’re like, “That’s perfect. That’s exactly what we need.”
It’s just being able to have that discussion and then also explain this is how it was built and this is why it was built this way. Fascinated is not the right word for it, but they really liked hearing that the person on the phone giving them the demo was the person they would also talk to for support if they needed help, or the person who built it. If there’s something wrong and it doesn’t work, they can talk to me and I can get it fixed for them. Whereas with the current vendor they have, it’s got to go through three layers of support, there was a project manager and put out a roadmap. You don’t have to do that with me. You’re going to talk to me. I can get things done.
Rob: That’s the thing when you’re small and you’re competing with venture-backed startups or even just larger companies, founders will often say, “Well, I’m outgunned.” How can I possibly compete with them? You can. You just have to use your advantages.
Mike: Didn’t you call this—I think it was in Microconf Europe—the founder advantage?
Rob: Maybe I did. Thank you for reminding. I’ll have to go back.
Mike: I think that was you.
Rob: I don’t recall but we should find out. Anyway, in Judo, you’re supposed to—even if you have a larger opponent—use their force against them. Let’s say they swing at you or whatever, it’s more about dodging and pulling them in the direction that they swung to flip them over or whatever.
I’ve only done Judo a couple of times, so it’s not something I’m an expert at, but when you are a small company you are super agile. You can get stuff done super-fast. They can talk directly to the founder. These are the advantages that you can just use against larger companies over and over and over. There are others as well. All that to say, that’s cool to be able to do that. Obviously, it doesn’t last forever, but while you have it, this should absolutely be something that you’re taking advantage of.
Mike: I totally am for the time being.
Rob: Cool. Curious, some of these other questions I’m not even sure are worth going into since things are working. You’re doing demos, you’re talking to customers, you’re selling, and they’re writing you checks. It’s like, “Should you even be bothering with these other things?” I come back to the podcast tour where (I guess) you put it into Bluetick. You were doing cold outreach to try to get on podcasts. Scaled it back a bit because you got busy with calls. Then you ramped it up again. Curious for an update on that.
Mike: I had scaled it down and I’d planned on ramping it up again, but I started sending out a couple of emails and I haven’t gone back to start sending out more of them. I was basically doing it individually. It’s like approving them one at a time. I got busy with all the phone calls and everything. I haven’t gone back to that.
I basically have stopped learning things from the conversations that I’ve been having with the people I was reaching out to. I’m going to put some of that stuff on autopilot and try to involve myself a little bit less. Instead of pitching it as, “Hey, I’d like to get on a phone and talk to you because I’d like to learn,” now I’m going to present it as, “These are the things that I’ve learned. Are there ways that you can help me or other people that you could refer to this particular product because I think I have a better story or position around that?”
I’m going to do that instead. Now that my learning process there I think it is a little bit more complete. I’m going to go back and start doing the podcast outreach again. I just haven’t done it yet.
Rob: Yeah. You’re trying to balance four things. Development of features is one thing; sales and learning, which is what a lot of LinkedIn and that warm outreach; and then marketing. You haven’t been doing much marketing because sales and learning are taking so much at the time. It sounds like you’ve learned. I think what you’re saying to summarize is you’ve learned about as much as you need for now and you can really dial that down and then switch some focus to marketing to then generate leads for you to continue with sales, right?
Mike: Yeah. I don’t want to not correct you, but to narrow it down exactly on the learning side of it. The reason I’m backing off on that is because I’m starting to hear the same things over and over. It’s not that I don’t think that I have anything left to learn because I certainly think there’s lots more, but the people that I’m talking to it’s getting repetitive now. I’m hearing the same things over and over. Going through the rest of the list of people that I was reaching out to, I don’t think that that’s going to be fruitful in terms of learning stuff. I do still think that there’s a lot of value in continuing to reach out to those people and seeing if there are people that they could introduce me to or put the product in front of.
Rob: Right. You’re switching from learning to sales. In essence, you’re switching that campaign, which is exactly what I think you should be doing based on what you’re saying. It’s funny for these episodes that we do every month or two, it’s typically been a roller coaster; one where you’re up and one where you’re down. We now have two back-to-back where you’re up. You got it, so it’s going to get boring for people after a while, Mike. If your #winning every episode, people will stop listening. Next episode, bring some low points.
Mike: I’ll say I got a hangnail.
Mike: They’re terrible.
Rob: I’m joking, obviously.
Mike: I can barely type with my finger. Do you want to see that finger, Rob?
Rob: Not really. Good thing this is an audio podcast. I’m happy for you and I’m happy the way things are going. Again, it’s like we’ve talked about this sealed .NET component for so long. The last episode I finally said, “You know what, if sales are working I wouldn’t replace it right now unless it’s causing you the inability to close sales,” because right now, number one is getting revenue up. It was my thinking at the time. We were both agreeing on it. You were saying, “Yeah. I know I need to replace it at some point.” Given where you’ve been, have you ever given it a thought over the past six weeks?
Mike: I have. It’s more, I would say, over the past 1½–2 weeks where I’ve started to look at that a lot more. The main reason for looking at that is that I mentioned it earlier but I didn’t go into the details of a customer where I basically extended their trial because certain things weren’t working for them. To drill into that is they have an exchange server.
Rob: That’s their first mistake?
Rob: Oh, snap. No, I’m just kidding. Send hate mail to mike@mike—
Mike: I didn’t say it. It wasn’t me.
Rob: I know.
Mike: Anyway, the issue is that yes you can enable IMAP on an exchange server, but the default is to not have it enabled. There are tons of sales organizations out there where they have exchange server. Unless you have a device that directly goes into the exchange server to use these exchange web services, basically, it doesn’t work. And Bluetick relies on that IMAP component.
What I’ve been doing is this person tried to sign up. They went in, try to add a mailbox, it didn’t work. I went through all these things trying to figure out how to make it work. The only way to do it is through exchange web services, which I have a component that can do that, the one that I have now can do it, but it’s got to be rewritten. The underlying storage system has got to be changed in order to help support that.
I knew that all that stuff needs to be done anyway in order to basically replace how that sealed .NET component is currently used. It was never a priority before because stuff works, but now it’s at a point where I have to replace this. I have to rewrite some of that code otherwise I can’t get this customer onboarded.
Now it’s a barrier to revenue. I can justify it now especially since, I think he said there’s 70 sales reps in the organization and if I can get it working for him, its land and expand because he’s more than willing to introduce me to these two managers of all the sales reps, but I have to get it working for him first.
Now, I’m in a position where I have to do this now. Technically, I don’t have to. I can say, “Screw it. I’m just going to go find other customers.” But the combination of this particular person needing that and this customer where there’s $1200 of MRR is initially on the table, where I know that their mailboxes are going to be coming from their customers.
My suspicion is at least some of those customers are going to be using an exchange server. It did come up in the call when they asked, “Can you integrate with an exchange server?” and I said, “Yes,” thinking that I can do it through IMAP. Then, I onboarded this other customer and realized that’s not going to work if you have to go through the IT department and the IT department has to justify why they’re going to turn that capability on for a particular mailbox. Now I’m like, “I have to fix that at this point.” That’s why I’m looking at it now.
I’ve spent the last week or so looking at redesigning it, doing a bunch of different prototyping and testing and figuring out how it’s going to work. I’m pretty close to being able to move forward with it. I just haven’t written any production code to screw with it.
Rob: Good for you. That’s cool. That’s actually good news because that’s exactly the time that you should be doing it. It’s when it impacts revenue. You’d mentioned last time you can flip in the database to do it for one mailbox at a time, which also is a nice luxury to maybe not have to deal with all of the data migration that will take a week or more all at once. That’s cool.
Something else that we talked about a few times is that Enneagram test, it’s a personality test. The reason that we started talking about it was we’re talking about you know what motivates you deep down as a human being and also what are your blind spots? We all have these blind spots in our personalities that perhaps behaviors that aren’t helpful to us getting stuff done. I’m a fan of these personality tests because they just help (in most cases), give me insight about who I am, what my blind spots are, what motivates me, all that kind of stuff.
When we were last talking, you had taken the Enneagram but you said you hadn’t really dug into it to suss out actionable bits of things that you should think about on a day-to-day basis. It’s fun to read through the whole doc, but if you’re not going to then somehow implement that in your life then it is all just a waste of time. I’m curious if you had time to go through and highlight and maybe a couple of key takeaways you might be able to take action on or at least be aware of in your day-to-day.
Mike: Yeah, I did. I started going through, and I was going to highlight a bunch of stuff. Then, I said, “I’ll just underline it instead,” which is close enough. It’s one of those things where the different personality types that it has for me printed out it, comes out (I think) 16 or 18 pages; it’s about six pages for each one.
There is a lot of stuff underlined. Some of it is just notes for me, but there’s also stuff in here where I like the fact that they put together things and they say, “These are ways that you can make things work better.” Some of them are things I’m already doing. For example, one of them was like, “Oh, if you’re this particular personality type then it can very much help you to either get in a room with other people and just talk about these types of issues or do journaling and write that stuff down.”
It was interesting that I discovered the journaling aspect on my own because I’ve been doing that for a couple of years. I do find it extremely helpful because I can sit there and basically do a brain dump at the end of the day. I’ve found that by doing that, it helps me clear my thoughts and helps me sleep at night. Then, there are a few other things that I went through. I still have to go back through it again just because there’s so much here. I definitely think there’s a lot more in here that I could probably pull out. A few, I wouldn’t call them productivity hacks but life hacks, so to speak, is like, “Oh, do this, and this other piece of your life will be made easier.” If that makes sense.
Rob: It does.
Mike: Some of it is just managing negative emotions. Some of it is being able to express feelings about certain things or be more assertive about what you want or what you need. Generally, I’m a low-key person, low-maintenance, but it doesn’t mean that I don’t have needs that somehow need to be met. I just don’t really talk about it. I’m much better at advocating for other people than I am for myself.
Rob: Yeah. That’s something good to know about yourself, right?
Mike: Yeah. I intuitively know that but seeing it written down on papers is like, “Hey, this is a part of your personality profile. Here are some ways to deal with that.” Some of it is you read through some of this text that’s in here and some of it is just coaching. It says, “Hey, you may believe this, but has anything ever really gone that badly? The answer is probably not.” It’s just a good reminder.
Rob: Indeed. How about your sleep? How’s it been in general?
Mike: Generally, pretty good. The past week or so has been pretty stressful. It’s funny because in the Enneagram there are specific sections in there that call out and say, “When you are under stress, if this is your personality profile then you switch over to this other thing. These are the types of behaviors you exhibit.” For the most part, they’re pretty dead-on. It’s nice to go through and read those and see that those things can impact my stress levels, which then turn around and impact my sleep. Last week or so has been pretty stressful, but I think there’s definitely some strategy and takeaways in there that I can leverage to help clear that up.
Rob: And that’s something that was game-changing for me (it’s gone up and down but let’s say) about 8 or 10 years ago. I realized that I would just wake up in the morning or I would just be walking around and I would feel this enormous amount of stress. I would just feel it, live it, and let it consume me.
Over time, I learned through stuff like this, this self-awareness and these tests, why do I feel that way? I think there’s a biological component. When I look at my family history on both sides there’s all these anxiety disorders and all this stuff we don’t need to go into here. I’m naturally prone to just have constant mid-level, I won’t say high-grade anxiety because I don’t have panic attacks, but I do have low- to mid-level stress all the time.
What I learned to do was I would say, “Why am I feeling that way? Literally, why am I feeling that way?” I would say, “Well, it’s because someone said this,” or, “It’s because I’m worried about this revenue thing,” whatever. But then, I could actually look at it and say, “Well, how likely is that to happen and how bad would it be if that happened?”
Then, I can just try to left-brain myself out of it. It works for me to really look at it and say, “Look, there’s no new information. You can’t fix this. It actually isn’t going to be that big of a deal if it happens. If it is, there’s contingency A, B, and C that I could use to get around it. So put it to bed for now and if it comes back up then deal with it.” You know what, 90% of the time none of them come back up. It’s just wasted. It’s just wasted worry. It doesn’t help anybody to worry about it.
I’m not saying you or anyone else should do that, but it works for me. The only way that I came across these types of coping mechanisms is, (1) is being married to Sherry, (2) listening to the Zen Founder podcast, and (3) learning this about myself to know, “Wow. This isn’t normal and other people don’t feel this way all the time.”
All right. As we’re wrapping up, I’m curious what, between now and our next chat, what are you most looking forward to?
Mike: I’m going to be diving back into the technical side of things to rewrite that email synchronization mechanism and get it working so that the exchange server can just be connected without having to worry about IMAP or enabling certain things. It should just work at that point. I’m hoping that by the time the next time we get on a call, that stuff will be taken care of and at least started onboarding this customer that I quoted the $1200 to.
Those are the things that I’m looking at the most, and then trying to go through and see if I can have some more conversations with other marketing agencies that do lead gen or do market analysis and outreach; because they’re doing it at scale with small numbers of people, and it’s not as if they’ve got 80 people that need to be trained to use Bluetick. It’s a handful of people that are using it on behalf of a much larger group of people. I do think that that could potentially be an area of growth, but I don’t know yet. I want to explore that quite a bit more.
Rob: Sounds good. As always, thanks for coming on the show again, having a conversation. I always enjoy chatting with you and the listeners benefit from it as well.
Mike: Awesome. Thanks for having me back and I will definitely keep you guys posted.
Rob: Awesome. Talk to you soon.
Mike: All right. Bye.
Outro: I always enjoy my conversations with Mike and it’s good to hear him you know feeling well and feeling motivated. If you’ve been a listener for any length of time, you know that he’s definitely had some entrepreneurial ups and downs. To get to two positive updates in a row, I’m thankful for that.
If you have a question for me, for a guest, or for Mike, you should either email us email@example.com. You can attach an audio file to that; it will go straight to the top of the Q&A stack. Or you can leave us a voicemail at (888) 801-9690. Of course, you can just write a text or email to that address.
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In this episode of Startups For The Rest Of Us, Rob and Mike define revenue expansion, talk about how it differs from revenue growth, why it’s important, and ways to increase it.
Items mentioned in this episode:
- Baremetric Article
- Price Intelligently Article
- Geckoboard.com article
Mike: In this episode of Startups For The Rest Of Us, Rob and I are gonna be talking about revenue expansion opportunities. This is Startups For The Rest Of Us episode 365.
Welcome to Startups For The Rest Of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching and growing software products, whether you built your first product or you’re just thinking about it. I’m Mike.
Rob: I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. For this week, Rob, tell me the two most recent non mainstream board games you’ve played.
Rob: I played The Legend of Drizzt board game which is this $65 behemoth massive thing with these figures in it. It’s set in the D&D world. Drizzt is a character who’s been in a bunch of books, fantasy books by R.A Salvatore. It is pretty cool. It’s a simplified version of D&D in essence, you don’t have all the rules and the mechanics but it’s a lot quicker because you can play around in an hour.
I back a lot of games on Kickstarter so I could probably name five that are super not mainstream. There’s one called Mint Mint Tin Apocalypse. It was $2 or $3. It is literally a mint tin and then a couple wooden meeples and then some six sided dice. It’s cool because it takes 10 to 15 minutes to play and it takes 5 or 10 minutes to learn. It’s a long term, you’re gonna play all the time. When I know we just have a few minutes, you sit down and you can just hammer it out. It’s fun and it’s super cheap.
Mike: Aside from the board games, what else is new?
Rob: From the time this podcast airs, I will be wheels up to MicroConf Europe two days later. I’m excited to get to Lisbon. We’re gonna have folks speaking like Peldi Guilizzoni from Balsamiq, Andrus Purde who is the former head of marketing for Pipedrive, now has his own company called Outfunnel, we have Craig Hewitt from Podcast Motor, Mike Taber from Bluetick, Mojca Mars, a Facebook ad expert. We have several other speakers. I’m excited to get there and see some folks that we maybe haven’t seen for years as well as meet the new attendees who are coming for the first time.
Mike: On my end, when this podcast comes out, there will be an announcement for the tickets that will be available. I will be speaking at FemtoConf over in Germany in the spring. I believe it is the first week of March, it’s March 2nd to 4th. It’s over the weekend, it’s Friday, Saturday and Sunday. The tickets are actually going live the day that this episode goes out. If you head over to femtoconf.com, I’m told that they should be available, if they’re not it’s not my fault.
Rob: Aside from the fact that we like Christoph and Benedikt, I really like that they have the Drift right on their homepage, femtoconf.com, ladies and gentlemen. What are we talking about today?
Mike: For today’s episode, we are going to be talking about revenue expansion opportunities. I’ve been thinking about this a little bit just because it’s been on my radar for Bluetick to look at different ways that I can either rework the pricing or find other things to expand the revenue opportunities for Bluetick. I started looking into some of the different ways that that could be done but it also gave me the idea for this particular episode. We’re gonna be talking about revenue expansion.
Revenue expansion is different from revenue growth which typically comes from new customers. Expansion revenue is any revenue that is generated in excess of whatever the initial purchase price that the customer agreed to pay. If they signed up for $30 and they’re paying $30 a month, that’s great, that’s considered a new customer. It becomes expansion revenue if they move from a $30 plan to a $50 plan or to a $100 plan or if they add more users or purchase other services or other products that you have.
There’s a bunch of different ways that those types of things factor into it. The bottom line is when you’re defining expansion revenue, it’s really additional revenue that comes from your existing customer base that you would not have gotten otherwise.
Rob: The holy grail of running a SaaS app is having enough expansion revenue that you have net negative churn. I talked about this a few episodes ago. In essence, you always think of churn as lost revenue because of people cancelling. You can get to the point where if people are naturally upgrading to higher tiers as they use your product.
A good example of this is being ESP where as you add more subscribers, you naturally bump up every few months if you’re having any kind of success, you start paying more, that can be more, that amount can be more than the amount of revenue you’re losing because of people cancelling. When you see that effect, it’s called net negative churn. I’ll say it’s rare, it’s becoming more popular, strong word.
I’m seeing and hearing about it more as people catch onto how incredible it can be as a flywheel for growth because having low churn means you can grow at a certain pace. Net negative is super charge, it’s a completely different trajectory. If you’re lucky enough or smart enough, or both, to stumble into a business where people automatically have expansion revenue like ESP, I think web hosting if you do it based on maybe traffic or the number of sites.
I’m trying to think of other areas, Wistia for me. We had a small plan and we just keep adding videos and we’ve gone up. It’s not super often, maybe once or twice a year, we wind up going up. Mixpanel and Kissmetrics, they go based on number of events. As your website ramps up, you naturally go up the scale. I guess Help Scout or any types of support software where it’s a per seat, that’s a big one.
Per seat expansion is a big one because as a company has more success with their product, they are likely to either bring more people in because it’s working. What if they already have employees, they’ll add more seats or they’re likely, if they’re a startup, we went from 2 employees to 8 in the span of about 18 months. We just needed to add more people to all of our systems.
There are opportunities for some natural ways to get expansion revenue and to try to get to that Holy Grail as I’ve said, net negative churn. I hope I didn’t steal your thunder, I was going off the top of my head. Did I totally decimate this outline with that diatribe?
Mike: No, just the first little piece of it. We’ll link up in the show notes a couple of different blog articles specifically about how new recurring revenue is different from expansion revenue which is different from churn revenue and how those can combine to create that negative churn effect. Those blog articles, some of them are from parametric or Price Intelligently and then there’s also another one from geckoboard.com.
You already talked a little bit about why it’s important because it relates to negative churn. The bottom line here with going after revenue expansion is that it helps to offset your existing churn because, as Rob just said, when you’re losing people just on a regular basis, you’re going to lose people on a monthly basis or quarterly basis, whatever it is, that your billing cycle tends to be on. That helps to offset that.
It’s easier to get more money from your existing customers because presumably you’re keeping them happy, than it is to acquire new customers, it’s typically a lot more expensive to acquire those new customers. We talked about these acronyms like CAC which is cost to acquire a customer, that number tends to be substantially higher for a new customer than it is to get expansion revenue from existing customer where you’re doing some cross sell or upsell or you’re asking them to opt into this other thing.
It’s a lot easier to do those things because you already built that trust. When they’ve never purchased anything from you before, they’re much more reluctant to take that first step because they’re pretty sure that it’s going to take up time. It’s not that it’s not valuable to them but they’ve got other things that they’re doing in addition to paying attention to your product and other things that it can do for them. There’s only so many hours in a day for them to focus on the things that they need to do. That adds one more thing to their plate.
Let’s dive into some of the different ways that you can increase revenue. The first one, Rob alluded to this where some of the examples he came out were Mixpanel or Kissmetrics or hosting providers where as the customer becomes more successful, they use more of your services and by virtue of that, they start paying you more because they’re using more of the resources that you offer. This is essentially increasing their consumption.
There’s another way to look at it, which is to decrease the friction that it requires to use whatever that is as well. Some examples that come to mind are Apple’s iPod or the Fire TV from Amazon. Those things make it a lot easier to download music or to purchase movies or rent movies. Those devices make it a lot easier for you to consume them and to consume them at a faster pace. Those are some examples of that.
If you go over into the physical products world, this occurred to me a while ago, I’m sure somebody has talked about it at some point, if you remember going to McDonalds back in the 90s for example, the straws were insanely small. If you ever went and got a milkshake, it took you forever to drink the milkshake because the straw was so small. You go to McDonalds now, the straws tend to be substantially larger. They’re probably six to eight times the size that they used to be and put through a lot more liquid in there and drink it faster.
That leads you to increasing the rate of consumption, it also leads to larger portion sizes as well. As a consumer, you have to be careful but as a producer of whether it’s content or digital assets or something along those lines, if you can increase the rate that somebody is using your product or services by decreasing the amount of friction, that’s almost the same thing as being able to deliver more.
Rob: Another example that McDonalds was I think a pioneer of, we’ll talk a little bit later but that is cross-sells. When you’d order a burger, what was the famous saying, “Do you want fries with that?” We’re trying to encourage you to do that, and then they had meals. I remember, I’m old enough to remember, when you go to McDonalds and there were no meals. You order a hamburger and then you order french-fries and then you order a drink if you want that.
They started packaging the meals to do exactly this, increase consumption of overall amount of food. You could also call it a cross-sell. This of course can backfire on you, it’s very unlikely to happen to one of us running this small business. Remember that movie Super Size Me, it was a look at how bad McDonalds’ food was. That was the name of it, it was a take on.
You used to pull up to McDonalds and you’d ask for the meal deal, big mac meal deal and they’d say, “Do you wanna supersize that for $0.99?” You’ll get an extra-large drink and an extra-large fries or something like that. That was another way to increase consumption, it was an upsell in essence. A lot of people did that. There were complaints of you’re encouraging people to eat bad food and blah, blah, blah, the politics of it or I guess the morality or ethics of doing that aside, odds are you’re not selling unhealthy food to folks.
You are probably doing something like selling software, selling info products or ebooks. If people use or consume more of them, you can encourage them to do so, then that’s gonna help you increase your bottom line.
Mike: The next one is the very issue on that which is increasing the number of seats that people are using. Not every product is going to have a pricing model that’s going to be able to support this but there are certain cases where a per user model makes a lot of sense. There are ways to incorporate other people unto the team in an environment where there’s your customer or consulting companies that they use, whether they have contractors. Those people may need user accounts.
You do have to be a little careful with this because, as I said, the type of product that you have, you can easily end up in situations where people are just sharing an account and you’re trying to sell a single account for $50 and two accounts for $100 or maybe a slightly reduced price of $90. They won’t go for it because they’ll just decide, “We don’t need that, we’ll just share the account between these people. It’s not that big a deal.”
Just be aware that sometimes it’s an option, sometimes it’s not but there are opportunities to put people into a software package and other ways, other roles inside of it or other responsibilities which give them maybe different options or different features.
Rob: There is actually a really good rule for this on how to decide if your product should be seat based. This is hard and fast, I know lot of time we say, “This is a guideline.” I actually believe that you should not break this one either way. If someone logs into your software with their login, do they see something different than if they login as someone else? A good example of that is Mailchimp or Drip and ESP.
If you and I share an account and we both login with our own logins, we see the same thing, there really isn’t anything different. The only difference is if I were to login as you and do an export, you’ll get notified, you know any exports done but the minimal stuff. If I login to a CRM system or into Bluetick as me versus you, it’s a completely different inbox, completely different list of customers, completely different list of tasks.
The CRM always charges by seat because that’s their upsell and that is the differentiator. It is a minority of products that can charge by seat. Just ask yourself the question, “Does someone/should someone see something different if they login as a different person?” Trello is another example. If I look at my Trello account versus yours, they’re totally different. If we had a business account with seats, you should absolutely charge by seat.
I do see people make the mistake, you mentioned this, of trying to charge by seat when they don’t have the differentiator and then you just get one seat and then save it with everybody because there’s no difference, it doesn’t make sense. It feels to people like you’re being disingenuous if you did do that. I can’t imagine an ESP charging by seat.
There are some marketing automation platforms that charge by seat because they have CRM built into them. Infusionsoft, ActiveCampaign are examples of that. they do have per seat pricing. I’m almost positive if it did not have that CRM view, they would not do per seat stuff.
Mike: The next option for increasing your revenue is to have different upsells. These could either be a higher tier of an existing product or it could be add-ons, it could be additional integrations to give people access to, it could be plugins. There’s a variety of different options that you could give somebody that provide additional functionality on the base level package that you could use as an upsell opportunity.
If you’re using these, you can either have bundle deals on your website where you’ll just say, “Here’s a package deal. It’s $100 for these X things.” Or you can say, “Ala carte, you can get each of these if you want, each of these five but it’s gonna cost you $30 per piece if you’ll buy them individually. Buy them as a bundle, you can get them for $100.” That bundling is also an option for an upsell.
It doesn’t seem like it is but when you start looking at who the types of people are that are buying those things, chances are good that they’re not gonna use all five of them in that particular example. They’re gonna use maybe three or four but the package deal is appealing to them because they have in their head that, “I might use these things down the road.” Even if they don’t use them now, they may have an intent to use them later.
Whether they do or not is immaterial but you can get them to purchase that package deal whether or not they’re gonna use it especially if you position it as a good deal for them.
Rob: This is very different, there’s upsells. It’s different between info products and software. Upsells are very natural and tend to make a lot of sense with information. If someone’s gonna buy a book from you then you upsell them to the videos or you upsell them to a 30-minute console or some interviews you did, that’s pretty natural.
Software can be more of a challenge, it can take more effort. You can always upsell training, really hardcore training. You don’t just want documentation to be upsold, you want that to be free. Something that actually gives someone a mindset view or an architectural overview that they would normally have to pay for, there is that line of you look at pricing of segment.com, their tiers are less based on usage and much more based on the integrations that you use.
I’m sure they know that someone integration with Salesforce tends to have bigger budgets and a lot more value out of segment than someone not doing that. Zapier, I think it’s the same way. There are certain things that are locked behind higher priced paywalls. Drip tends to be that in these apps that integrate with a lot of things because they know if someone is using Drip, they’re probably a more sophisticated marketer, they probably have a larger list, they probably have a bigger budget, that type of stuff and they’re gonna get a lot of value out of these tools.
This takes a lot of thought. The hard part about this is knowing what to lock behind these feature gates and doing it incorrectly is pretty easy. I’ve seen it swing both ways and I do think that if you find one of these other paths where your expansion revenue can be based on number of seats or it can be based on number of subscribers or contacts or it can be based on number of events, there are certain things to fit in, storage size, if your Amazon has three, then go with those.
Probably stay away from trying the feature gate right now, feature gating meaning you can’t get this feature unless you go up a tier, you pass through this gate by paying more money. If you don’t have an obvious way to use one of those obvious numbers that everyone else is using or makes sense for your product, then yes, you do need to seriously start thinking about ways, how do you build tiers when you don’t really have an easy one number like seats or subscribers or contacts to look at?
Mike: That’s actually a really interesting discussion topic just because I think that people look at those features and say, “What should I put in here as a feature gate to create these different pricing tiers?” I remember when Segment used to feature gate based on which integrations you were doing because presumably if you were using Salesforce, you had the money to pay for Salesforce. Clearly, you had money to pay more for a segment license. I think that they’ve shifted their pricing model and you don’t have to do that anymore. When you sign up, they have three tiers.
Rob: I was just saying that they did, I was mistaken. Zapier still does that, Segment used to.
Mike: They used to do that, they don’t do that anymore. I think it’s partially because they got to a point where they were far enough down the road that they had the ability to dedicate somebody to take a hard look at those things and see whether or not they mattered. Having the conversation with the customers to try and find out what the more optimal pricing model was for them.
Rob: They do it now on monthly track users, empty use they call it. It can be dicey, although with Segment that makes sense. How many users are you gonna track in a given month? That’s actually pretty easy to get an idea, you can think of how many either customers or how many website visitors unique in a month. Other times you’ll see like Amazon has pricing like this where it’s number of elastic compute units. What does that even mean? It’s something that is not defined anywhere.
I’ve seen things based on events and it’s like, “I don’t know how many events I’m gonna have in a month. How am I gonna know that?” Kissmetrics and Mixpanel have that problem of trying to define what these things are.
Mike: Even Segment has that problem because the empty use that they advertise, that is for the number of tract users coming to your site, not necessarily the people logging in. It’s not your team. If your website suddenly gets a ton of traffic from Reddit or Slashdot or something like that, you could easily blow through that very quickly depending on the company. You could either end up in a world of trouble with a giant bill or they could say, “We’re gonna turn this off, we’re not gonna allow you access to the rest of this data unless you pay for it.”
Rob: Something that Segment is – I’m looking at not the pricing grid at the top but they have a breakdown of what the differences are between the plan limit levels. Without knowing what their internal data looks like, they both have empty use, that’s monthly tract users, plus they have seats, the lower end only has 1 seat, and the team one has 10 seats. I’ll go back to my question, if I log into Segment as you versus me, do I see something different because as far as I know, you don’t. I actually think that’s probably not a good idea.
They have sources which is how many sources are you going to connect to Segment. The developer panel has two and then all the others have unlimited. Maybe that one is harder to say right or wrong. When you’re first starting out, you don’t have the trust of the market, you don’t have a brand name, you look at people like Segment or Intercom or MailChimp or Drip, we have the luxury of having a brand name and people are actually seeking us out.
We can raise our prices and we can do more complex pricing schemes because people are willing to come and use a tool that they trust and a lot of people are talking about. In the early days, this was with Drip as well as Intercom as well as your tool today, I’m speaking to a listener there, you don’t have the luxury of being able to have super complex pricing because no one’s gonna wanna bother with it because you’re probably struggling to try to get people to come and try it out and try to use it.
I would go extremely simple and I would go for one of these numbers, per seat, per subscriber, per contact or something else that’s very noticeable and easy to figure out until you get to that critical mass. You’re gonna know it by the fact that people are gonna start telling you, “Boy, you should raise your prices, you’re too cheap.” Or you’re gonna look around and say, “I haven’t raised my prices in a year, I need to rethink this.” You should have pretty good flywheel growth by the time you get to that.
Drip is now on its fourth version. We have versioning for pricing. We’re on our fourth version of it in four years. We haven’t done it every year on the dot but we actually did it three times in the first probably year and a half or something and then we really haven’t done any restructuring of pricing since then. Do try to keep it simple in the early days and don’t try to copy companies that are way further along because they have the momentum and the flywheel and the brand and you don’t have that yet. You don’t wanna make this mistake of confusing people.
Mike: Everything that we just talked about is really adjusting your licensing model in order to create more opportunities for upsells using those pricing tiers. Another option that you have that’s available to you is offering some annual plan, whether you offer upfront or you offer it a couple amounts down the road after somebody has started using your product and he’s getting comfortable with it.
Maybe there are certain trigger points where you say, “Let’s offer them an annual plan or a special discount upgrade for three month upgrade. Try this out, the platinum tier for free for 30 days or 90 days.” There are different ways that you can position that and pitch it to people. What you’re trying to do is you’re trying to increase that overall revenue from them so that it decreases the number of times that they’re gonna have to sit down and think about, “Do I really wanna continue paying for this?”
I think Leadpages used to do that really well with their webinars, if you attended a webinar, you could signup for Leadpages account and they would pitch you on a two-year plan. For two years, you are probably not going to go look for another landing page provider because you have this account. Unless it’s not doing what you needed to do, you’re not gonna go look for something else because you’ve already purchased it.
Rob: One of the big benefits of annual plans, especially when you’re starting out is you’re tight on cash. To get someone to pay for 12 months of service in advance, even with a discount, that cash is invaluable. If you can figure out a way to get someone to pay you for that full amount of service and you’re doing any type of paid acquisition, you are gonna be in a great spot. Basically spend a dollar, get $3 or $4 right away. It is a flywheel, it allows you to then acquire more people faster.
It’s pretty incredible, the power of being able to get annual. That’s why you’ll see pretty hefty discounts, 20%, 30%, 40% on annual plans because the cash is just so important to startups in their early days.
Mike: We mentioned this next one several times throughout the episode, it would be cross-sells. If you have other products that you have to offer, cross selling them after somebody has purchased the first product if there’s another one that relates to it or integrates with it, if there are signatures that you can identify with the customer that would indicate that they would probably be a good fit for this other product that you have, then there’s obviously ways that you would wanna interject yourself into a conversation with them to put them in an email campaign or have somebody call them and say, “Would you possibly be interested in taking a look at this over here because we think that this would help your business as well based on what you’re doing and what we’ve seen other customers get in terms of benefits and the similarities between the customers.” That’s another one.
I’m gonna move on from that. The next one is services and customizations. I think this one is a key piece that most software people overlook because we’re trying to build software companies. Our natural inclination is to build a software and sell people software, but the reality is sometimes people need a little extra help, whether that’s onboarding assistance or they need you to do something for them whether it’s a productized service.
There’s lots of different pieces to your application, it’s not just signing up for and plugging in a credit card. There’s usually a lot of other things that the customer is gonna have to do in order to get the value out of that particular product. Because you have all the insights and the backend knowledge and the main expertise for that particular product, you can do those things a lot more efficiently than the customer can.
You can create a service that is going to use your product on their behalf to achieve whatever the goal is and now you’re able to do a lot more because you can dig into the guts of it. If something is not gonna work the way it’s written, you can find ways around it, you can import things directly into the database if you need to and then make the software do it so that you can deliver on that service that you’ve promised them.
They’re more likely to purchase those services because it provides a lot more value to them by having it as more of a done for you service rather than they signup and it’s self-service because that’s most of what SaaS applications are, most of them are self-service versus a productized service where you’re hiring somebody to do something or deliver some sort of value or output. That’s what you’re paying them for, you’re paying them for the output. With SaaS, you’re paying them for the license to use that tool for the duration of them paying for it but they still have to do the work.
Rob: I think there are two aspects to this. You said services, it’s like the productized service. There’s a second aspect which is customization. It’s going to be like if someone came to us, actually we’ve used this with DotNetInvoice all the time. It was downloadable software you run into your own server, it was like self-hosted Fresh Books, a simpler version of that. People would buy it and say, “I don’t want this this thing added,” more like yeah, we’re not gonna build that feature, we’ll pay you to add it.
At first it was like, we’ll charge you $150 an hour and then we moved up to $200 an hour because we just really didn’t wanna them. It made some money but it was a hassle. Consulting, if you wanna be in that business, go do it, it’s lucrative in the short term but if you wanna build something long term, it’s hard to mix those kinds of businesses because they’re two different businesses, serving clients, offering deadlines, doing the contracts.
What if they’re not happy with it, what if they request changes, that’s a type of business. Building your own software product is another type. You’re not gonna move forward full steam on your software product if you’re busy doing a bunch of consulting gigs. The problem is the consulting gigs are like the quick hit, it’s like the crack cocaine where you get the $5000 or the $10,000 because someone wants you to do something.
Of course you’re gonna run off and do that but that revenue isn’t worth nearly as much because it’s dollars for hours. You’re not spending that time marketing your product and building features that other people will use. Even the market itself speaks, if you were to go raise venture funding or you were to try to sell your company even through a broker or you were to go public or whatever, any type of valuation, software recurring revenue is gonna be 3X to 7X your revenue multiple.
Consulting revenue tends to be in the 1X, maybe 2X if you’re lucky. It is a third to a fourth as valuable on the open market because it’s just how these things work. I think you have to be really careful about taking the quick hit or the quick dollar because it is gonna slow you down. If you’re super desperate and you really need the cash, there’s times when it’s not an absolute rule, there’s times when you might need to do this but I advise founders against doing this if it all possible.
Mike: The last item on our list for revenue expansion opportunities is to have an affiliate offer. This could be in the form of a direct product that you are offering that is a third party product that you are getting a commission from or it could be a referral. If you have a good relationship with a provider and there’s a subset of customers that you know need something that you’re probably not going to do it but you have a good relationship with somebody who does provide that service or that type of product, then you could setup an affiliate relationship with them where you will refer customers over to them where you’ll get some commission or kickback or finder fees, something along those lines for referring them over.
You could also do this for free, I know that there are people out there who like those types of things and they’ll just say, “Here’s some free business because I know that you’re gonna take care of them and I don’t really want anything from it.” Those opportunities are available as well, you can probably find people who will do the same thing for you. I think it’s much more common to have some sort of an affiliate relationship setup so that there is a specific dollar amount tied to it or percentage. It makes it easier for you to quantify how much work and effort it’s going to take you.
Rob: If you have other ideas for revenue expansion that you feel like we missed in today’s episode, feel free to come to startupsfortherestofus.com, Episode 365. Post a comment or email us at firstname.lastname@example.org. That wraps us up for the day. You can also call our voicemail at 888-801-9690. Our theme music is an excerpt from We’re Outta Control, it’s by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups. Visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.