In this episode of Startups For The Rest Of Us, Rob and Mike answer a number of listener questions including launching books, compensation for a side project, and starting a product with a lot of runway.
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Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about launching books, compensation for a side project, starting a SaaS app with a lot of runway and more listener questions. This is Startups For The Rest Of Us episode 350. 350 episodes, Mike.
Mike: Wow. It didn’t even occur to me that this was 350.
Rob: It’s crazy. That’s almost seven years because we tend to release one a week.
Mike: I think it’s more than seven years. Because we started in 2010, didn’t we?
Rob: Yes, you’re right. It was late March of 2010.
Mike: So this is eight years?
Rob: No, because it’s 2017. It’s July 2017.
Mike: Oh yeah, you’re right.
Rob: I was trying to divide 350 by 52 and it’s only like 6.7, but you’re right. I don’t know how the numbering worked out. It’s weird.
Mike: I think it’s because there was a time for six months or so where we were going every other week for a while. That’s why it doesn’t quite work out.
Rob: Really? That wasn’t at the start, was it in the middle?
Mike: Yeah. It was probably a year into it or six months into it, something like that.
Rob: Okay, we dropped down because we had hundreds of listeners and it was like why are we doing this every week? Was that why we did it?
Mike: No. I think it was because we were trying to figure out whether or not it would impact growth and we had other things going on. We were just trying to figure out, “Okay, does it really matter?” And then, we went back and looked at the stats and said, “Hey, publishing once a week actually makes a huge difference.”
Rob: That’s right and we also, I remember early on, we had a tough time coming up with content every week. Remember we got like 20 something episodes in and we’re like, “Alright, that’s all we have to say. We’re done.”
Mike: We had no idea what we were going to talk about next. Of course, we were also a lot more careful about what we were doing, now we just shoot from the hips. It’s like yeah, whatever.
Rob: Welcome to Startups For The Rest Of US, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching and growing software products. Whether you’ve built your first product or you’re just thinking about it. I’m Rob.
Mike: And I’m Mike.
Rob: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Mike: I’m hoping that I can get through this entire podcast episode without touching the mute button and then touching my face or mouth in any way, shape, or form because our cat started chewing on stuff including cables and chewed through a couple of cables so I’m like, “I don’t want it chewing through my headphones.” So I sprayed them and you run into at least three situations over the past few weeks, used my headphones, where I touched it and then I wipe my mouth or something like that. And let me tell you that anti-cat chewing on stuff tastes god awful. It’s the worst thing in the world and it doesn’t come off your hands.
Rob: Oh, I bet. There was something called Bitter Orange or Bitter Apple that my mom used to use because we had several dogs for that kind of stuff and I got it on my mouth once, it was horrendous. And yeah, your soap doesn’t take it off. That’s the point. It’s really, really hard to get off. You’ve been working on a video series here. What are you? Seven or eight days into this?
Mike: The ninth one got published this morning so the 10th will go out tomorrow. I’m doing an ask me anything for that one. By the time this airs, that’ll be over.
Rob: Cool. It’s the 21 days before your SaaS launch. If people head to singlefounder.com, they can sign up to hear more about it. I’ve watched every one of the videos although many of them at 1.7 or 1.8 speed, I’ll admit, but it’s been cool to follow along. I’m glad you’re doing this.
Mike: Cool. I’m publishing a new blogpost today probably that’s basically just going to open it up. Previously, I just had it available for the people on my mailing list but I’ve got enough comments and feedback and stuff that I think it might be beneficial to put it out there so that even if you’re not on the mailing list, if you just want to head over to the site and click on the videos and stuff, you can watch or barrel through them if you want to catch up. Yeah, I’ll be doing that today.
Rob: One thing you do that I had a question about is in every episode, you hold a bottle of whiskey and you talk a little bit about it for 30 seconds then you take a sip of it and then you go into what you did that day but I was trying to do loose math. I’m not that great at math, Mike, but if you’re doing 21 days and you hold up a different whiskey bottle, do you actually have 21 bottles of whiskey?
Mike: Do you want the honest answer to that question?
Rob: The honest answer, Mike.
Mike: There’s technicalities here. I probably have closer to 30 or 35, but in all fairness, somebody came over and dropped off a 12 pack of nips of Fireball at one point. If you include that, it’s a little higher than it should be.
Rob: I don’t count Fireball as whiskey, I’m sorry.
Mike: I don’t either. I was really torn about whether I’m even going to show Fireball. I think I might put several whiskeys together and be like this one’s terrible, and then drink it.
Rob: I thought it was funny. One of the best parts is you did Crown one day and then the next day you did the maple flavored or something and then you were like, “Ugh! This is god awful.” Like the look on your face was hilarious. I think you offended some people with that comment.
Mike: I don’t care. I’m sorry but it is a very fake maple taste. There are Maple whiskeys out there that you can get that actually have maple syrup in them but they tend to be classified more as a liquor than as whiskey just because of the content which there is technicalities there, I get it, but there’s another one called Sortilege, I’m not sure exactly how to pronounce it but that’s a liquor and it’s got whiskey and real maple syrup in it. It’s actually quite good. But the Maple Crown Royal is just awful.
I actually had somebody’s comment to me like thanks for turning me away from that because they were going to try it. In terms of full bottles of whiskey, I have 18 or 19 full sized bottles.
Rob: You’re going to have to run out last couple of days?
Mike: Yeah. Sometime between now and next week, I’ll probably go out and pick up a couple of extra bottles just so I’m not repeating some things.
Rob: That’s interesting because I drink a lot of whiskey but at any given time, I have maybe two or three bottle in the house and then as I finish, I’ll buy something else but I don’t have a big place where I could store that much, I don’t think.
Mike: Got it. I was born in Japan and my mother brought over all these Japanese hand carved furniture from Japan and she gave me the bar that they had so I have that fully stocked with all these different whiskeys. I used to just collect them but I got to the point, probably six months ago, I’m like, why am I collecting these? Why am I not just drinking these? I’ve been digging into them a little bit.
Rob: Now that we’ve lost all of our listeners, I think there’s three people left listening, they’re like, “When are these guys going to start talking about startups for the love of God.” For the last week on my end, I’ve been doing some hiring, more interviewing. We’ve been interviewing constantly pretty much since the acquisition but we hire slowly. We’re extremely picky about skill set and about personality and culture fit and a lot of elements so we hire a lot slower than most SaaS teams or most startup teams do.
We have just stumbled on two or three really good candidates in the past few weeks. It’s nice to grow the team slowly and a lot of people get on board and productive. I don’t know if I said it on the podcast but we’ve had several weeks of the highest feature velocity in terms of shipping new features. The last month or two is probably the highest in Drip’s history.
That’s just gut feel, I don’t have absolutely numbers on it but it’s like we’ve shipped a ton of a new stuff and that’s partially because we’re, in my opinion, actually growing the team slowly and I want people get up to speed so that when you’re constantly adding people, you’re detracting from that people who should be being productive because they have to train everybody and get them up to speed and everything. Looking ahead, I guess I’m just optimistic and enjoying. This is when it’s fun, it’s when you’re getting a lot done.
Mike: I’m surprised that Drip being acquired by Leadpages and Leadpages is a funded company. I’m just surprised that culture is there of hire slowly to make sure that you’re getting the right people as opposed to I think most people when they picture a Silicon Valley startup, it’s like, “Oh, just hire whoever you can possibly get your hands on to get them in there because you need bodies to generate code to put it out the door.”
I do think that it’s a much better approach but there’s a tradeoff there in which you’re going to have to move slower and release less features over a certain time frame because you just don’t have the people. At the same time it’s like, you’re releasing good features and they’re quality so you don’t have to go back and incur a lot of technical debt because those people are coming up to speed at the right pace, so to speak.
Rob: To their credit, Leadpages has let us make that decision and has basically said, “As long as Drip keeps growing and you’re scaling and you’re doing all the right things, like you have been in the past,” Drip’s four and a half years old based on when we broke around on code and it’s probably about three years old from when we launched, and they say, “as long as you keep doing what you’re doing, you can grow as fast or as slow as you want.” They let us drive that, us being Derek and I.
Again, it’s to their credit. They haven’t forced any type of hiring culture on us. Leadpages itself grew rather quickly. I think they hired 100 people in 2016. They hired a lot of people that year. They did do exactly what you’re talking about, the high growth funded startup approach but they haven’t forced that on us.
Something else too is we haven’t had to hire that many because I’m only talking about product and engineering, I’m not talking about support, sales, marketing, finance, HR or any of that because there was already that infrastructure. We have a team of I think 12 full time support people working on Drip right now and I really hired one, it was Andy who’s been with us essentially since the start and since pre-acquisition but I didn’t have to hire those 11 people. It is a bit of apples and oranges because Leadpages had to grow an entire organization and I only have to grow the product engineering org.
Mike: Yeah. That’s true. I have seen cases where a new company will come in and they’ll acquire a smaller company and then a lot of the administrative marketing or sales team ends up leaving just because the bigger company already has those things in place and the smaller company basically gets gutted and they move everybody or let them go because they don’t need those roles filled anymore, it’s overhead. They’ve already got those things in place.
You are definitely in a different position but like I said, it’s nice to be in a position where you can just make the right decisions because they’re the right decision as opposed to being told like hey, you have to do this because there’s money to spend or something like that.
Rob: I agree. The other thing that has been nice with this funding, basically “being funded,” is that we are hiring fewer people but since we are so picky, they tend to be really good and thus, they tend to be really expensive. They tend to make a lot of money where they’re at and they’re worth that and it was something that couldn’t have afforded when we were bootstrapped. I’m pretty much across the board all the salaries that we make and that we’re hiring the people at. They’re worth it, it’s market rate. I just couldn’t afford to do that when we were bootstrapped in Fresno. How about you, what’s going on before we dive into some questions?
Mike: Not much else, really. I’m adding a couple of more customers to Bluetick on the way to my launch. I talk a lot more about that probably in my video series. I’ll leave it there just in case anybody’s interested. I think the plan is to try and add as many customers before the launch as I possibly can. I’ve done a couple of private demos for people here and there. It’s just interesting showing certain screens or how to do certain things and it’s like the light bulb moment, they’re just like, “I want it. That’s enough, I don’t need to see the rest of it.” It’s actually difficult to shut up at that point because it’s like they’ve already said, “Here, take my money.” And you’re like, “Oh no, but you see this, see that, over here.”
Rob: That’s really cool, man. Really good to hear. Alright, we’re going to answer some listener questions today, they continue to come in. We’ve got a couple of voicemails but first, I’m going to kick off with an email from Dan Miller, and he says, “You inspired me to write a book.” He says, “I’m Dan Miller from Canberra, Australia. I’ve been listening to Startups For The Rest Of Us for about two years and my wife, Christy, and I also listen to Rob and Sherry’s podcast, ZenFounder. About a year ago, I decided to take the first steps to move out of full time software consulting. My long term idea is to start a SaaS but when I heard you guys talking about the stairstep approach, I realized that going straight from consulting to SaaS was probably too far of a leap so I decided to turn a bunch of development notes I had taken into a book and this is about on the MEAN stack.”
Mean is MongoDB, Express.js, AngularJS and Node.js, just a technology stack you can use to build apps. He’s built a lot of apps, kept a lot of notes and so he launched a book, it’s called Lean MEAN Web App Machine. Says it’s going to be available soon in print from Amazon and a PDF from Gumroad. His website is miller.productions, that’s not miller.productions.com. I think productions is actually the TLD. So it’s miller.productions and he says, “Thanks again for all your work and creations over the years, you guys really have inspired me. Keep it up. I look forward to following your progress and learning more from you.”
Mike: I do think one thing we probably haven’t emphasized enough about your stair step approach, Rob, is the fact that it’s not even just the experience level involved in building a SaaS but it’s also the resources that you need and the length of time that it takes to get something workable and viable out the door.
I spent six months after I got the initial version done just trying to get it to a point where people would look at it and say yes. Even though I gave you a pre-order and paid for it, I’m still not necessarily comfortable moving forward because the product just really wasn’t there yet and it took a long time to get there. I underestimated how long it would take to get through that process and I think that it’s very easy to do that.
Rob: Right, and lose motivation and you questioning whether you’re going to find customers eventually and you don’t have the runway. There are so many things that stair stepping takes care of and it’s not just actual skill set and money but it’s confidence. It’s just confidence that you’re going to make it happen because you have before on a smaller scale.
Mike: Yeah. I think in my situation it was more just the runway and the timeline and everything that went with it, not so much the confidence. With the pre-orders and stuff I had the confidence, it’s just the product wasn’t there yet. It’s like, “Oh, this sucks.” But getting through that second wave, I’ll say, or that second iteration on the product was extremely helpful. It was a lot longer than I expected it to be.
Rob: He also said he gave us a shout out in the acknowledgment section of his book so that’s cool. He did give a discount code, if you’re interested in buying this. First 50 listeners that purchase the PDF copy can enter offer code startups at the checkout. Thanks for writing, Dan. I appreciate it.
Mike: Thanks, Dan. I think our listeners will really appreciate that.
Rob: Next, we’re going to a voicemail question from Cory Moss.
Cory: Hey, Mike and Rob. This is Cory Moss. I have a side project I’ve been working on for a couple of years and I’ve grown it to about $800 a month. For a big code upgrade coming up, a developer friend of mine is joining my team of just me. He’s expressed ongoing interest so he might be around for a few weeks or he might be around for the life of the product. Given that there are no shares to split, how would you guys offer him compensation? Like I said, it’s a side project, it’s not a company. There are no salaries, there are no titles. I’m not working on it full time and I probably won’t be for a long time and it’s a side project so there’s a little risk. These are really the things that one user has to figure out equity. How would you recommend that I compensate myself for the time that I put in versus how do I make sure he feels compensated even if he only ends up helping me out for a couple of weeks? Thanks for everything you do. I appreciate it.
Mike: Cory, it’s an interesting situation just because of the fact that it’s a small product and I think what strikes me, there’s a few different pieces that I plucked out of this. The first one was that you’ve been running this for a while, a couple of years now and it’s at $800 a month so it sounds to me like the growth is not there yet. It doesn’t mean that it won’t come but it doesn’t sound like it’s on a hockey stick trajectory where you can count on revenue from this upgrade being large enough to sustain both of you full time.
The other thing you need to consider is is this person really interested in coming on as a business partner? Is the product itself capable of supporting either salaries or dividends for both of you and can you afford to just pay him outright? Those are all kind of considerations that you need to think about. But I think that because of the situation you’re in, I would probably lean towards at the very least talking to him and just establishing an initial compensation to see how things work out.
I think that that does a couple of different things for you because if you just jump right into a partnership or relationship of any kind like that, then you can very easily have issues down the road where you find out that you don’t work very well together. Bringing him in on a consulting basis or I don’t want to call it partnership basis but to assist with the certain pieces of it, then it gets you through that and it gets you some familiarity with how you each work and whether or not you’re going to work well together. I would just pay for that outright with the understanding that yes, we can talk about that other stuff down the road but right now, let’s just see how this works out first.
You could also, depending on what the actual profit margin is, you could potentially pay for that out of profits down the road especially if you don’t have the money to pay him upfront right now. If you could work something out, say, “This is how much it’s making, $800, I’ll give you $400 or $600 every month for the next x months until your time is paid off.” That’s another way to approach it. Essentially, you are using, I’ll say worker financing, to get the work done and still be able to pay for it. Because otherwise, you got to front the money and that might be difficult based on what situation you’re in.
But I would try a short term approach where you just do some consulting work together a little bit, feel things out, see if it works out. If it doesn’t, that’s the end of it and you’re good. If it does, then you can discuss where to go next and whether or not the business has an opportunity to succeed both of you putting time and effort into it. And then you can figure out what does that look like. In terms of valuation of what your time is worth and how much you’ve put into it, I would probably look to see how much is it currently worth today and you can guess about how much time and effort you’ve put into it but it may very well put the product completely out of reach of somebody buying into it.
The other mechanism obviously is you could say, “Okay, we’ll buy it in a lower amount and then we both work x number of hours or you put in x number of hours in addition to what I’m putting in, to make up the difference. At that point they’re putting sweat equity into it and at some point, they’re vested at 50% or 25%, whatever the split between you two is. Those are the kinds of things that come to mind but Rob, what are your thoughts on this?
Rob: This is a tough one. Sometimes, handshake deals, honestly, can be a way to go if it’s someone like a long term friend and you really do trust the person. What I mean by that is, Chris said there’s no stock to split. He probably owns it personally, it’s not an entity on its own and it probably goes straight to his schedule C income on his tax returns so there’s nothing to give out. But I question if starting a LLC or even going so far as to formalize a partnership, I don’t know if that’s worth the effort given how little revenue it makes and how slow it’s growing.
I guess that’s where I would use my judgment. For example, if suddenly I had a side project and it was doing similar amounts of money and someone wanted to explore this opportunity, I do think that there would be a certain number of weeks or months where it would make sense to do the trial like you said and then if things work out and things do start growing, then you formalize it. That is something we did with DotNetInvoice. It was never really its own business entity but in the US, you can do something called just a partnership agreement. I think you can file that with the state, I don’t even remember but you basically sign a partnership agreement and there’s not stock but you can do an equity split.
You can just say I own 90%, you own 10% or whatever. And again, you have to ask yourself then, what if he only sticks around six months, is it worth the 5% or the 10% or whatever number you’re giving him. Because you can do restricted stuff and I don’t know how this is getting far beyond my understanding of technically, if it took you to court, is there a way to restrict partnership ownership, I don’t know. I’ve heard of restricted shares and stuff like that.
With DotNetInvoice, with Jeremy, the guy who I partnered on it with, he came along later as very much similar to this and it was doing $2,000 a month or something, we just signed an agreement and we view this legally binding between us but frankly, I don’t know how it would have gone over in court. We just didn’t expect that to happen and we were good friends and we’d worked together for a decade doing consulting.
It was a handshake deal that we put in writing and both signed and then he basically got more and more equity over the course of a year as he contributed more. He, in essence, did vest when that was the idea of it. I’m not saying you should or shouldn’t do that, to be frank. It was just how we handled it because we had that relationship and it worked out. I owned DotNetInvoice for several years and then since then, when I divested myself of everything as Drip got bigger, I actually gave the product to him, my ownership half. We just dissolved the partnership and now he owns it.
There’s a lot there and this is a complicated topic. I’m glad you called in and I hope that’s helpful, Cory. As we said last episode, people who send voicemails, you tend to go straight to the top of the cue. Cory just called in in the past couple of weeks.
Our next question is from Juka and he says, “You pointed out that it might be a bad idea to expand your product into a new feature area because you probably won’t be best of breed in both.”
I think he’s referring to me talking about how we’ve kept Drip focused on email marketing, marketing automation and we haven’t attached all these other apps to it. We haven’t built a shopping cart or landing pages or affiliate management like some of our competitors have done. Continuing with this email, he says, “Since that’s what he’s planning to do. I’d like to get into more detail on this. For example, using two separate best of breed products will most likely be more expensive than one product that does both things. Wouldn’t people appreciate the lower total price and the tighter integration as well? Personally, I’m starting out with time tracking and planning to add invoicing and accounting and later on maybe even stuff like payroll, CRM, etc. I don’t have much of a vision for my product besides that it’s meant to help people deal with stuff related to running a business. But I also want to make it very good. I think I’m headed towards having best of breed time tracking and I think I can implement the other stuff well too. What’s your take on this?”
Mike: I think when you’re looking at this specific situation, the thing to keep in mind is whether or not the features that you’re adding, could they stand as a completely separate products on their own or is it something that really needs to be integrated into the product that you currently have?
There are certainly products that go out there in the marketplace and over time as people make more requests, they expand their footprint and they get more functionality and then they cost more and they tend to move up and away from the customer base that they originally started with. There’s nothing fundamentally wrong with that but you do have to recognize that as you add more features and become much less of a point solution and become more of a, I don’t really want to call it a platform, but a one stop shop for accomplishing all things within a particular silo, then you start to eliminate yourself from contention for consideration via certain segment of the population because they’re not interested in all those other things. They need one or two pieces of it but not the whole thing.
You could make it modular and say buy this or buy that and do ala carte sort of thing but then things get really, really messy so I probably wouldn’t recommend that. I don’t think that having two best of breed products and making them work really well together is a bad strategy. It does pose some marketing challenges though because how do you present that in such a way that it is obvious to people that you can either buy this or but that or you can get this suite of products that lumps them together. That’s probably a better approach.
That way, you silo it all underneath a corporate umbrella where everybody is coming to you for solving problems in this particular niche and if you need the CRM, you get this. If you need the invoice and accounting, you get this piece over here and by the way, you can lump them together and instead of paying $50 for each of them, you can pay $75.
That’s similar to the strategy that Intercom has gone with a lot of their products. They have four different products right now and you can buy them individually or you can buy them in a bundle and it costs you less money to buy them all as a bundle. But otherwise, you get them individually. For you as a consumer, the benefit of that is in theory, the company behind it is all working on the same code base or on the same teams and they have much better access to the code behind it and the teams and can do a much tighter integration that works better than if you were to tie things together using Zapier or custom webhooks or anything like that.
I don’t know if it’s the worst thing in the world to go in that direction but there are people out there who are just looking for a point solution. You have to be cognisant of that facts because that may be all that they want.
Rob: I think if you are in a vertical market, meaning you have time tracking for hair stylists, or for electricians, or for designers, whatever, like a really niched down market, I actually think you could add these other things and be okay, you still will not have multiple best of breeds because you cannot out compete teams who are totally focused on just that space or just that one app.
You can build a good product. It’s keeping up with all the feature requests and the changing environment. You got to think about people who have teams of 10 or 20 engineers and if they’re just focused on time tracking, they are going to out feature you and they’re very likely going to out innovate you and if you have time tracking, you were saying the CRM and whatever else, you’re going to get smoked. You will not have best of breed products in all of those spaces.
Again, unless you’re in that vertical where you really have niched down and then you may have it within that space again, the hairstylers’ space and the designer’s space is a tough one because there’s a lot of people doing it for that. That’s why I’m not saying like designers, developers, or freelancers because there are so many time tracking apps there. So if you’ve picked a vertical, then maybe I would perhaps consider building out an entire business suite. But if you have a horse on a product that you’re going to service everyone, I would say that there is zero chance of that happening.
With that said, if you have zero customers right now and you aren’t already dealing with support and adding features and all that stuff, then you need to launch before you start building anything or building anything further. If you believe you have a best of breed time tracking app, then take it to market and see what happens. I don’t believe that adding on another piece is going to help but you will know once you have 500 customers or 1,000 customers. You’ll know exactly what people are asking for and you’ll know what can potentially retain more customers or broaden your market. That’s my take on it. I hope that’s helpful.
Our last question for the day comes from Tom and he says, “I’ve been wanting to do a SaaS startup for the last few years but I run a consulting firm. Not in the same situation as a lot of other people, I have been a software engineer for over 10 years and my custom software consulting business does several million dollars a year. I have been able to put myself in a good spot financially.” He says he has runway of six to seven years. He says, “If you did have the cash to go full time with a runway of six or seven years, would you recommend going after a larger SaaS business even though you do not want to raise funding? Is a super long runway and a lot of determination enough or are you still going to need to raise several million dollars in VC to tackle something that’s either saturated or creating a somewhat new market?”
Mike: I think that springs an interesting question about the potential for having too much runway. The reason I say too much runway is that if you try to build something and you don’t have enough runway, obviously, you’re going to fail because you run out of runway, you can’t get the product out the door in the time that you have.
But if you have too much, you run into the opposite problem where your motivations to finish things or to get it out in the market as soon as you possibly can so that you can learn things is going to be impacted and you run the risk of waiting too long to launch and packing so many things in there that really doesn’t matter to the customers.
I think that that’s something that you need to keep in mind when you’re looking at this. I would probably cut that down and put it into chunks and say cap it on certain things. Let’s say 18 months or something like that for a particular idea that you’re going to pursue. If it doesn’t start to get any sort of traction, then you kill it and move on to another one. I think that’s a good approach because you do have the runway to be able to make those types of decisions and chop it up but being able get the traction within a certain amount of time is going to be critically important for this.
I do think you got plenty of runway to try a SaaS, even if it’s your first time out because you have enough runway to fail several times along the way or find several ideas that you start and make same false steps and it doesn’t ultimately impact negatively. There’s no negative repercussions for going down this road and failing or having it not work out. Or even just break even. That’s not exactly the situation you’re looking for.
But again, you have to keep in mind that that’s going to be a hard thing to deal with and you will have to think about it because you can easily get to a point where you’re like, “Oh, screw it. I don’t want to deal with this customer support issue. I’m just going to shut the whole thing down because I don’t like what these people are saying.”
Rob: Yeah. You’re in a great spot admittedly, right? Not doing it on the side is just a better way to go. Because it’s not as stressful as trying to hack nights and weekends. I’d been there and I wouldn’t do that again if I had the means. When I’m think of having six or seven years of runway, I’m just going to throw out a number, I’m imagining you have $600,000 in the bank, maybe it’s $400,000 but it’s probably a substantial sum of money.
The question to ask yourself is how much of that are you willing to spend and feel okay about? Because if it really does take you two or three years to get there, you might chew through hundreds or thousands of dollars, will you be okay with that? Some people are okay, it’s risk capital or whatever and they’re willing to put it in and other people, it would drive them nuts to be drawing their savings down like that.
The other question I would throw out is do you plan to do this solo because it’s going to take a lot longer or do you plan to hire a couple of people to help you? Because when I look back at how we grew Drip which is basically, I was in a smaller position as Tom, I didn’t have enough money in the back but HitTail was throwing off enough cash that we basically funded Drip using HitTail. By the time we broke even, I was out somewhere between $150,000 and $200,000. Not just because of my expenses but because I hired people to help us.
If you want to move faster and you think about hiring people, you may not have six or seven years of runway. I’m just going to take this $200,000, set that aside and then the rest of it I’m not going to touch at all. That’s my personal money that I’m not willing to get into and then use that $200,000 kind of as your own little angel round. And put that in the bank, the company bank account in essence, that you start and draw off that as you hire, as you pay for hosting expenses. There’s just going to be other expenses, it’s not just your living expenses, unfortunately. Especially if you’re trying to go into a bigger or more crowded space. That’s my initial thoughts on the money part.
Then there’s the question of if you have never launched a SaaS app and you want to launch into a place where it’s crowded and there’s VC funding and there is all kinds of chaos, basically red water, they call it. Personally, I would not have had the skills to do it until I had done several of my software products, until I had done HitTail. That set me up to do Drip. It gave me the skills and the confidence and the experience and all the things that I talk about with stair stepping.
I guess you have to judge for yourself, I would try not to be overly optimistic that just having six years and determination are going to mean that you can compete in a big space. I don’t think you need the VC money either though, like Tom said in his email, but I do think you need a skillset and some experience and the confidence that you can do it, otherwise you may get six or nine months in, get discouraged and bail because you’re wasting money or you may get two years in and since you’re just learning so much at once because all of the moving parts of SaaS, not just the tech, right? It’s the marketing, the sales and the customer’s success, and the support. All that stuff, trying to learn all that at once, it’s going to be a big learning curve.
Those are my thoughts. I think that you got to do some soul searching and know yourself on this one.
Mike: One thing that came to mind as you were talking about all that was that if you have this much of a runway, you could also consider just buying an app that somebody else doesn’t want to work on anymore, that is already making $10,000 or $20,000 a month and then using your runway to grow that. That takes a lot of the risk out of finding the market and finding customers and it allows you to put yourself in a position where you’ve got money in the bank that you can use to help scale the business. And as long as you can find something that would have the type of trajectory you would like it to have, it just needs some funding and money behind it, you’ve got that to bring to bear. That might be an option as well.
Rob: Yeah. I was totally going to say that. I’m glad you brought that up. That’s actually what I would do. That’s what I did multiple times. You can gain experience that way and it can be lucrative and you do have to put some money out upfront. As soon as I hit the point with consulting where I had a bit more money than I had time, that’s when I started saying how can I spend less time but still get to the same end?
I think some of the best decisions I’ve made in my entrepreneurial career were acquiring DotNetInvoice, acquiring HitTail, acquiring a couple of the other products I did because I learned so much and it gave me the means to basically change my life and then to fund future red water market stuff like Drip. I think that’s a real avenue I would explore myself.
Mike: Tom, I hope that was helpful and thanks for the question.
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