In this episode of Startups For The Rest Of Us, Rob talks with Christopher Gimmer of Snappa, about his journey to making SaaS his full-time income. He details how he stair-stepped his way from small apps and products to 7 figure SaaS.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, I talk with Christopher Gimmer about stair-stepping your way to SaaS. This is Startups for the Rest of Us Episode 480.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing ambitious startups, whether you’ve built your fifth startup or you’re thinking about your first. I’m Rob and today with Chris Gimmer, we are here to share our experiences to help you avoid the mistakes we made.
Welcome back to the show. Thanks for joining me this week. Pretty interesting story this week, Christopher Gimmer did a talk at MicroConf Starter back in April. He and his co-founder really stair-stepped. They launched an app that had one-time sales, it was a marketplace. They grew that to where it plateaued which wasn’t enough they could live on, and they saw an opportunity and started a B2C type stock photo site. I guess it’s not B2C, but kind of B2b and used that to parlay into a SaaS app.
I don’t want to belabor it as we get into Chris’ entire experience in the interview. One thing I really liked about Chris’ story is that he and his co-founder learned small things first and they didn’t try to go play in the major leagues when they didn’t have the skills to do that. They went and they played little league, then they went and played highschool ball, then they played college ball, then they played minor leagues, and then they played major leagues, that is that repeatable meticulous disciplined way that I’ve always believed in starting startups.
It’s not trying to raise hundreds of millions and take this bid luckshot that you may or may not have the skills or the confidence or whatever to do, but after listening to Chris’ story, you know that even if he were to exit his company today that he has the skill set that he can take with him to the next thing and it becomes this repeatable startups, building real products, selling to real customers for real money. Without further ado, let’s dive into our conversation.
Christopher Gimmer, thank you so much for joining me on this show today.
Christopher: Thanks for having me.
Rob: We are here today to talk about Snappa. Your startup that’s at snappa.com and your headline is, “Create online graphics in a snap. Whip up graphics for social media, ads, blogs and more even if you are not a graphic designer.” You did a talk about nine months ago at MicroConf Starter and it was a really interesting tale of your journey with your co-founder across six or seven years, multiple apps to how you got to where you are today. You and I were just talking before with a call, that you expect to hit a million dollars in ARR in the next month or two. Congratulations on that.
Christopher: Thanks very much.
Rob: You guys launched Snappa in November of 2015. You had $4000 MRR at the end of the first month, is that right?
Christopher: Yeah, we have built up a bit of a list before we officially launched and we had a beta period, so we had an audience launch too. Within a month of launching, we did hit about $4000 in MRR.
Rob: Which is obviously good. We are going to dig into that in this episode of how you got there and how you parlayed and stair-stepped your way up multiple apps. It’s a pretty interesting story. By April of 2019 which is about nine months ago, you guys were about $62,000 MRR, that’s what you mentioned in the talk and then you are just about to hit the magic $83,333.33 and for those who wanted to know, that is one million ARR.
It sounds odd when you say it in MRR, but in ARR it’s so cool to say, “Yeah, I run a seven figure business.” You are looking forward to that day?
Christopher: Yeah. Marc (my co-founder) and I remember when we first started Snappa, we are like, “Man, if we could just get to $10,000 MRR, life would just be magical.” Obviously, you end up hitting that and then everyone just talks about the $1 million in ARR and the seven figure. Once we […] full-time on Snappa and we are making a living off it, that next yardstick is super arbitrary, but I love to get to that $1 million ARR. So, we’ll definitely celebrate when we hit it most likely next month.
Rob: That’s cool. Do you have plans of what you’ll do? Are you and your co-founder remote? Are you able to get together and have a glass of champagne together?
Christopher: We both live in Ottawa. We are pretty much like bestfriends so we hang out quite a bit. We might do something special, we haven’t planned exactly what yet, but we will definitely do something.
Rob: If there’s anything I’ve learned from my wife who is (for folks who do not know) Sherry Walling, she’s a psychologist and she works with founders is to celebrate those wins because they are (unfortunately) few and far between. There’s a lot more struggle than there is the wins and I have never been good at celebrating the wins. She has forced me to do it and I think it’s a good thing for everybody. Frankly, the win is not just you and your co-founder. It’s like taking your wife out to dinner or your fiancée out to a great dinner or a great trip.
That’s the thing, the whole family had to put up with me when I was growing up my app. I’m sure your girlfriend (now your fiancée) has had to put up with a lot of crap from you as well. I think we all deserve to have those wins when they come in.
Christopher: Yeah, definitely. She’ll be excited to hear that.
Rob: Yeah, totally. Something about your story lines up with both stair-stepping that I talk about a lot, but also this concept or quote that I keep throwing out of, “Doing things in public creates opportunity.” You went through multiple apps to get to where you are now. You had one in 2012 that is unrelated, but was it in 2013 where you launched BootstrapBay?
Christopher: It was 2014.
Rob: That was a theme marketplace for bootstrap which is a CSS Framework. Tell me about how you guys thought what the goal was there in launching that. Was it, “We want to launch a business. Very much the dream of us is to get to the point where it’s supporting us full-time”?
Christopher: Yeah, that was definitely the goal of BootstrapBay. Marc and I were actually both working in the government. That’s how we met and it was funny because we were two of the youngest guys in the office. Naturally, we just started hanging out and became friends.
One day, Marc pulled me into his office and he was like, “I want to show you something.” It was almost a Zillow type of website, like a real estate website, and I was like, “Wow, you can actually program.” I had no idea because he was doing something not related at work. That kicked off the journey of me and him just trying to figure stuff out and see if we can launch a business that could enable to support our jobs.
The goal of BootstrapBay was something that we could do while we are still working in our jobs full-time and hopefully the idea was we can make enough money from it so that we can quit and go full-time on it. It wasn’t necessarily a project that we are super passionate about and that we were planning on running for the next 10 or 20 years.
Rob: That’s interesting. Why start it as a marketplace where you have to essentially get buyers and sellers rather than build out a bunch of your themes and sell them. You are basically a digital product company instead of a marketplace.
Christopher: Essentially, funnily enough we started reading about keyword research and SEO. Initially, we are actually looking for things that we can draw up […] or whatever. Marc stumbled across this bootstrap themes and bootstrap templates as a keyword that was getting a lot of search volume. At the time didn’t have crazy competition like ThemeForest, then you can have its own own bootstrap category. There was one major market place at that time which is called WrapBootstrap. I think it’s still really big today. For a variety of reasons and being super naive, we thought we could build something better than this.
In order to exceed the market place, Marc designed the first three or four themes. But we just thought it would be more scalable if we were able to get other theme authors on board and add more supply to the market place than we could generate on our own. That’s how it happened.
Rob: Was BootstrapBay a successful business? Can you give us an idea of how much revenue it brought in for you?
Christopher: The peak month was during about $8000 to $10,000. Once we paid out all the theme authors, I think we are profiting maybe $4000 or something. It was maybe a decent side hustle business, but we essentially got to the point where we are having trouble growing strictly through our SEO because our margins and lifetime value wasn’t high enough. We just couldn’t put any money into paid ads. We just started plateauing after a bout a year. We knew it was going to be an uphill battle from there which was why we started thinking about other stuff that we can launch.
Rob: No recurring revenue and the funnel is only so wide. There’s only so many people searching for bootstrap themes.
Christopher: The other problem was (like I mentioned) being the top marketplace and as you know, […] and it was something I learned after the fact is when you are the dominant marketplace and you got the first […] advantage, it was just so hard to unsee them, so we were ranking number two or three and the number one guy was just cleaning up. We knew it was going to be a really tough battle. One that we really didn’t want to keep fighting.
Rob: As you said, a nice side hustle because obviously $4000 a month is nothing to sneeze at. I have this concept of four competitive advantages when you launch a SaaS app. One is who you know, so it’s your network. The second is who knows you, so it’s your audience. The third is being early to a space, say Josh with Barametrics was early. In this case you guys were early. You were able to get in. You weren’t the first, but you were early enough that you were able to get in. Can you imagine launching a bootstrap themes marketplace now?
Christopher: It would be really difficult. We were even too late, but we were still early enough where the really big players hadn’t specifically focused on it. If we were to do that today, there’s no way we would have gotten any traction at all, quite frankly.
Rob: Yeah, It’ll be painful. You plateaued with that business and I think of it as a step one if I were to overlay this stair-step approach in bootstrapping. It was a nice step one on business. It brought in non recurring revenue. It brought in enough money that it made it worthwhile and it was a success. You gained experience, probably gained confidence in your skills both you and your co-founder.
You had a little bit of audience, I’ll say. Not audience in the blog or podcast type where people are looking at you as a personal brand but audience in the sense of traffic. You just had a lot of traffic coming in. Then you built out your SEO and your content skill set. You went from there and you started a StockSnap, stocksnap.io. Can you tell us about the unique opportunity you almost stumbled upon that led you from BootstrapBay to StockSnap?
Christopher: One of the ways we ended up growing BootstrapBay was primarily through content marketing and SEO. We ended up writing a blogpost about where to find free stock photos. This is when a lot of these really new creative comments started popping up like on […] today are really big. So when we had written that blogpost of where to get free stock photos, we started sharing it around Reddit, social media and whatnot. Out of all places, it went viral on StumbleUpon which I don’t even know if that site still exists today.
Next thing you know, we start ranking on the first page of Google for free stock photos. I figured it out at some point that would die off, but the traffic just kept increasing month over month. We were in this interesting position where we are getting so much traffic with just this one blogpost and we looked at all the websites that were linking to at the time and we noticed—again this is in the early days—that none of them had search functionality. A lot of them were releasing 10 new photos every 10 days or something to that effect. We thought, “Why don’t we just create our own stock photo site that you can actually search?”
Marc went ahead and I think it took them about three months and he ended up building what became StockSnap. Of course because we have all of that traffic coming to the blogpost, we just linked to ourselves as source and the next thing you know, we started getting a bunch of traffic to stocksnap.io.
Rob: At that point, were you thinking, “We want to start another business. BookstrapBay has plateaued and we are going to autopilot it. If we launch StockSnap, we are going to turn that into a business”? Or was it just a fun larch that you went, “Hey, I got all this traffic might as well put a website up”?
Christopher: Yes, that was the thinking. At this point, BootstrapBay was plateauing. We knew that it wasn’t going to be the business that would enable us to quit our jobs and everything. We just saw this opportunity and we knew that a free stock photo site is just something that is always going to have value. We just saw it as an opportunity that is like, “Hey, if we build this up now and we start getting a lot of traffic to this website, we will almost certainly be able to either monetize the website itself through ads or use that as a springboard to launch some other app down the road.”
To be honest, we started thinking about SaaS at that point and I had this idea in the back of my head for this graphic design tool for marketers or entrepreneurs, if you will, because I was always struggling to put these images together whenever I needed to add a featured image to whatever blogspot. That was the thinking of, “We are getting all this traffic to the blog post. Why not divert some of it to one of our properties which could be very valuable to us down the line?”
Rob: That makes sense. Did you wind up making revenue from StockSnap?
Christopher: Yes. After we launched StockSnap, like I said at that point we really started exploring the idea of a SaaS app which obviously became Snappa. I think we had one […] ad placement or something like that, which was bringing in maybe $1000 or $2000 a month in advertising, but almost from the start, we started using StockSnap as a way of promoting Snappa as opposed to really trying to monetize the website as much as we can.
Rob: That makes sense. With BootstrapBay and StockSnap, obviously people know the end result that you started Snappa […]. Do you still own those other properties or did you exit from them?
Christopher: We ended up selling them off. StockSnap was a bit of a more difficult decision in the sense that it’s still bringing in quite a bit of traffic, but when we first launched Snappa, probably 80% or maybe 90% of our leads were coming in from StockSnap whereas by the time we sold it, I think it only made up 10% or 15% of our leads because we had really built up our content and SEO and word of mouth. At that point, we decided that it just makes much more sense to put a bunch of cash in our bank account and focus on one thing as opposed to trying to maintain two separate properties.
Rob: That makes sense and by that time you had a SaaS app that you are focused on which we know takes a lot of attention. I’m curious. We glossed over several years of work here. We almost made it sound easy, like you stumbled into this thing and you ranked number one in Google for this free stock photos, which is very hard to do. In my experience, this kind of stuff is a grind, especially when you are learning it from scratch. Learning SEO to get as good as you guys are as well as content side of things, that’s really what your wheelhouse has become, is this social promotion of getting organic traffic for high competition terms.
How long did that take you to learn and did you feel like it was something where you are just grinding it out, not getting results for a while and it suddenly clicked? Or what is that process like?
Christopher: As you mentioned at the top of the interview, the first thing we ever launched back in 2012 was actually a […] website. Without going to much into it, that was basically a year of work that was not successful ultimately. Then there is actually another app in 2013 which didn’t go anywhere. There is basically two years that we are working on stuff and we got absolutely nowhere. I think a lot of people might have just given up at that point. So before BootstrapBay is when I realized I don’t know what I’m doing regards to marketing and I just read tons of blogpost and listened to tons of podcasts and videos.
At least with BootstrapBay at that point, I had built up some knowledge in terms of how to do it, but obviously you have to put that practice into motion. But even with BootstrapBay, the first three or four months, as you know SEO takes a long time. It was a lot of trial and error. A lot of blogpost didn’t end up working out, but the more you try and the more content you put out there, you start to realize what works and you get a little bit of process and a little bit of formula going.
I would say about six month to a year into it, at least in BootstrapBay we started figuring out the content side of things. With that being said, we did plateau and what was the next frustrating thing was we are a year into this business, it’s still spinning off a couple of thousand for the both of us. How are we going to get to that next level? At that time, we didn’t know that everything will work out, but we start questioning, “Is it worth it? Should we really be spending our nights and weekends trying to get this going?” We just have to persevere.
Rob: That’s what I like about your story is you really didn’t have these marketing skills and you went out and through founder forum you just learned things that were probably difficult trial and error. You grounded out and you start this site and it’s in a small niche. I’ll say bootstrap is not the most massive niche in the world and you learned the skill set in a less competitive space.
You didn’t start an ESP. You didn’t start a CRM. You didn’t start some massive SaaS app as your first effort. You started a couple of small things, BootstrapBay gets some traction, then you learned SEO and content really well, and then StockPhotos is one level harder than that. The Snappa stuff is still on the same boat, but it’s a very wide funnel, and if you didn’t have the four or five years of learning before that, starting Snappa would have been really hard without the skills. Do you think you could have even succeeded without the knowledge you have gained from the other failed and successful efforts?
Christopher: I think there’s two things that made Snappa successful. Number one was everything that you alluded to. The first couple of things that we launched, we just didn’t really know what we are doing. It took awhile to really learn those content and SEO skills and how to get traction. Just how to actually grow a software application or any kind of website to be frank.
The second thing that made it possible was having that existing funnel of traffic through StockSnap. As you know, the lower the price point, the more customers you need to make an app sustainable. It would have been extremely difficult if day one of launching Snappa we have no existing list or no existing user base that we can tap into to kind of get that going. That’s really why we were able to get up to $4000 MRR just after a month, because we had all of that list and that user base built up already.
Rob: Talk to me then about Snappa. You mentioned in your MicroConf talk, I remember you mentioned it. You built it to solve a problem that you yourself were facing. What was that problem?
Christopher: As you mentioned, I was doing a lot of content marketing for BootstrapBay. For each blog post, we need to create a featured image, and also some images within the content itself. I was doing a lot of this stuff and Photoshop. We didn’t really have the money at the time to hire a designer. Mark was pretty good with Photoshop, but he’s working on development which is more of a top priority.
I just thought, “Man, it would be nice if there was a tool that just made a lot of this easier.” When I did some brief market research at that time, I found that the tools are either too simplistic—it was essentially a code generator—or they were still too complicated. I thought there was a need to create something that was kind of in the middle where it was still super easy to use but still not overly complicated, that really anyone can just pick up and use it.
Rob: Talk me through the customer development you did to validate that, because there’s the old adage, “You should build stuff for yourself, solve a problem you have,” but I always caveat that with, “Yeah, but make sure other people have it, too, and make sure they’re willing to pay for that.” How did you do those things?
Christopher: Because we had StockSnap, we had an email list of people. The first thing that I did was email our list and just asked what they were using their stock photos for. As I kind of expected, a good percentage of those were using it for either social media or content marketing, which was kind of our target audience or what we thought would be our target audience.
For the people that did answer saying that they were using it for content and social media, I asked if anyone would be willing to hop on at 10-15 minute call just to learn about how they’re using the software, those and whatnot.
I ended up getting a call with (I think) around 15-20 people in the end. I was just asking them questions about exactly what they’re using the photos for and then going a step further in terms of what tools they were currently using to create graphics, what their process was like, who’s involved with that process, and taking a lot of the questions that I learned from the Lean Customer Development book.
The number one takeaway from that book is basically not to ask leading questions. I never once asked, “Hey, this is what I’m building, do you think this is a good idea?” or any kind of those leading questions. I was essentially trying to see if they would mention (without me poking them) whether or not they had pain points with the existing solutions.
After about 15-20 of those calls, a lot of people did mention or said things like, “Yeah, right now I’m using Photoshop and it’s a huge pain and takes too much time,” or, “Yeah, I tried this app out, but it’s not really that great,” or, “Yeah, we use an in-house graphic designer, but the turnaround time is sometimes 2-3 days. I wish I can just do it myself.”
When I heard enough of those kinds of comments, it gave us enough confidence to at least go ahead and start building some sort of MVP for Snappa.
Rob: Super cool. Mark is a developer. Did he just sit down and start hacking it out?
Christopher: Yeah, that was pretty much it. Like I said, we’ve built things in the past that didn’t really work out. We wanted to make sure that there is going to be a market for this because this is by far going to be the biggest and most complicated thing that he’s ever built. We wanted to really make sure that this could be a viable business. Once we had that validation, then Mark went ahead and just locked himself in the basement and started hacking away.
Rob: It feels like the story kind of writes itself from there. You have a lot of SEO and content skills. You applied that, you cross promoted from StockSnap, you had this existing audience, existing traffic sources that you then promoted in order to grow Snappa. I am curious. A couple of things, a couple of questions that I want to touch on before we wrap. One is, early on you said, “When we first started talking about building an app, we said, ‘Wouldn’t it be magical to hit $10,000?’” Was it magical when you hit $10,000?
Christopher: Yeah, it was actually. I don’t remember if it was exactly $10,000 but it was magical the moment that we knew that this was going to sustain us. We didn’t have to go back to our jobs, the business has legs. At some point, we would be able to probably hire more team members just to know that we had done it. It had taken us, like I said, the first thing we had launched in 2012. This is several years in the making. It truly did feel magical and we still feel very fortunate today that we’re able to do this.
Rob: Yeah, I agree. How large is your team at this point?
Christopher: Now we have four full-time team members and they’re awesome. Another thing that I really didn’t anticipate was how much more fun it is working with a team. We’re really fortunate to have such awesome people working with us at this point. We have four full-time and then we also work with a couple like freelancers and writers and stuff like that.
Rob: That’s good, that’s a pretty capital-efficient business to only have four folks working on it. Another question for you is your price points. On an annual basis, you’re $10 and $20 a month on a monthly basis, you’re $15 and $30. When I see an app like that, I think ouch. You’re probably going to have (just from the outside, I don’t know all your numbers) high churn, I would expect a low average revenue per user, which means you’re pretty limited in how you can market like you’re not going to run AdWords as an example because you don’t have the lifetime value. How has that been? Am I relatively on the mark? How has that been for you guys?
Christopher: Well, 100% you’re definitely on the mark. As you can imagine, we have probably higher churn than some of the other apps or founders that you’ve had on the show and that just goes with the territory of the low price point. That’s always been a challenge and enough reason why we had to get really good in organic (in particular) and why we focus a lot of time and effort on content marketing and SEO.
At this point, we don’t do any paid advertising whatsoever. We really do rely on word of mouth, SEO, and content, just giving a really good experience so that people talk about us. We get mentioned in blog posts and just have a sustainable and repeatable way of acquiring users.
One thing that’s interesting, though, that maybe not a lot of people think about is I think you had the founder of, was it Userlist that you had? That you were talking to a couple…
Rob: Jane Portman?
Christopher: Yeah. It was funny because I remember she was talking about how it’s difficult to get people to either try the app or switch to Userlist. I think on one hand, it’s really nice to have a low churn app, because once they kind of get in, usually they stick around and maybe it’s easier to build a sustainable business that way. But on the other hand with an app like Snappa, we’re premium, you can try it out, and really within a couple of minutes of even trying out Snappa, you’re going to know whether it’s going to provide value to you. The flip side of high churn is that our activation rates and the top of the funnel converts super well. That’s one thing that maybe some people don’t consider with these types of apps.
Rob: Yeah, there’s almost no switching cost. It’s just learning which buttons to click, but they don’t have to migrate stuff over. I agree, I think that’s a real advantage to it and I think longer term, I think an app like a Userlist or my experiences with Drip was, there was a lot of switching cost. It was harder to get people in. The churn was really low once they got in, but you’re right, the growth was tough. The growth was hard fought, but once you got that growth, it was there. It was locked in.
I think that’s where it cuts two ways. At Snappa, your funnel is so much wider. The number of people that visit your website, the number of people that sign up for a trial, and the number of people that probably start paying you is astronomically higher than what we had at Drip, as an example. I think that that is a unique advantage especially when your skill set is SEO and content, which tend to be wide funnel things. Not always, but especially in these spaces, you’ve been playing deliberately, these are wide funnels. That allows you to have this low price point and it allows you to not need to run ads but still grow business to seven figures.
Christopher: Yeah, I’d say that’s super accurate. Don’t get me wrong with low churns to go along with what we have. You learn that the market that you choose (to some extent) controls how high a churn’s going to be and that kind of stuff. We’ve learned to just embrace and accept it, and just stick to our lane, so to speak.
Rob: Yeah, it makes sense. I’m going to assume that if we look back, let’s say over the past year or even I guess ahead two months, you’re about to hit $1 million in ARR and I’m going to assume that that might be the high point of the year in terms of the business. What was a low point or the hardest part about the past year? A specific time that you felt like you were really grinding it out.
Christopher: I would say the last year. There wasn’t too much low point, but in 2018, I think it was around 2018, growth is really slow and we’re ready to start to plateau. At that point, we had, I don’t know if it was a combination of shiny object syndrome or we were so scared of competition because there’s actually quite a bit of competition in our space and we have a lot of really well-funded competitors.
We went down this rabbit hole of, we need to find a new business or we need to find another route because at some point, we’re just going to plateau and we’re not going to grow. I think we really took our eye off the prize, so to speak. That was a really tough year just seeing growth plateauing a little bit, trying to get these other projects and spinning our wheels there. I think that was tough.
In 2019 funny enough, we realized, “Hey, we’re in a really good position. We have this app.” I almost felt like we were taking it for granted or we realized that we were taking it for granted, so we said, “We’re not going to start any new side projects. We’re going to buckle down, we’re going to figure out how to get growth back on track.” We really focused back on the business and we promised ourselves that we would never consider launching another project until we hit $1 million ARR. It’s funny how that worked out.
Rob: Yeah, that makes sense, just refocusing. That’s the thing, these founder stories are almost never straight lines. It’s very, very rare. You hear the myth of people starting whatever, Uber, Facebook, Lyft, these big companies and they do a lot of side projects, there was a lot of uncertainty, and I think our stories in our own ecosystem are very similar where you often have multiple projects going at once. You don’t really know which one’s going to succeed often and you’re just trying to figure it out as you go.
I think the last question before we wrap is, you mentioned something to me about a pricing experiment that you ran, that goes against that “charge more” idea. As I said, when we talked about it, well yeah, you can always charge more until you can’t, or until people aren’t willing to pay that. There’s always a ceiling to this stuff. Talk us through what you did with your annual and your monthly pricing, and how that worked out.
Christopher: I’ve obviously been to a few MicroConfs now and one of our recurring themes is always to charge more. I’ve just always been really scared to do that again, especially because we’re serving the lower end of the SMB market. We’re in a really competitive space, but I thought, whatever. There’s enough people telling me to just charge more. We’ll go ahead and run the experiment.
What we did was we kept our annual price the same which is $120 a year for the program and then we bumped up the price of the monthly prescription from $15 to $19 a month. We were thinking more people and to send the annual plan which would obviously help out with the churn. Assuming that our conversion stay relatively the same because we’re getting the $19 a month price point even if the churn is a bit higher, all in all it should work out.
After running that—we ran it for a couple months—we realized pretty quickly that the churn had just spiked up way too high for our comfort, and the conversion rates had actually dropped more than we had anticipated. We ended up reverting back to the pricing.
I’m glad that we ran the experiment because at least now we can put that to rest, but it was just more proof that charge more, or charge less, or whatever isn’t always the best advice. It’s really a case-by-case basis, and that it just depends on a variety of factors really.
Rob: Sure. Charge more is a really great advice if you’ve never heard it before, because most people tend to charge too little when they launch. Most of us think our apps are not worth what they actually are. It’s definitely good advice. But obviously, the further you get in, if you’ve experimented, if you know your customers, there’s a certain point where pricing elasticity may or may not be there, and you’re also in a pretty price-sensitive space. You’re in a prosumer, I’d like to think one notch above consumers, so there’s going to be price sensitivity there.
The lesson I take away from it is: (a) experiment because now you know. You don’t have to think about it every month, every week, “Should I be charging more?” and, (b) you were scared to do it, but you did it anyway, and it sounds like it was a relatively easy experiment to undo which are the best. You just revert back. You just change the pricing back. Now, you have one cohort of people or something who are paying a little less I’d imagine, but that’s a small price to pay to have the knowledge that you probably are towards the top of your range right now.
Christopher: Yeah, for sure. The way that we did it was basically any new customers, they would see that new price point, and then once we reverted back, if there were any customers that were on that $19 a month plan, we just put them back on that $15 month. Now there’s no one on that increased price. It was a relatively safe way to do it and obviously, there’s no backlash as a result.
Rob: Yeah, that makes sense. I said people paying less at the pricing reverse, but whatever. Cool. We’re going to wrap up. If folks want to check out Snappa, it’s at snappa.com just like it sounds. You are @cgimmer on Twitter. Any place else folks should check out?
Christopher: That’s about it. I’m trying to make an effort to do more blogging on my personal site this year chrisgimmer.com. There’s only a few posts on there. Twitter is probably the best place for now.
Rob: Aren’t we all trying to blog a little more? I say that every year. It’s just so hard to find the time to write.
Christopher: Yeah. Essentially, my goal for this year is one post a month which I think is super reasonable and I think I’ll be able to hold myself to that and then we’ll see how that goes.
Rob: Sounds good man. Thanks again for coming on the show.
Christopher: My pleasure. I’m a huge fan of the podcast, so I’m happy to be on here.
Rob: Awesome. Thanks again to Chris for coming on the show. If you have a question, if you’re curious about part of Chris’s story, if you have questions about SEO or content marketing, feel free to either tweet me @robwalling or send them into firstname.lastname@example.org. If I get questions, I might invite Chris back on the show to share some of the skills, because he has hard technical skills in this SEO and content space, and he’s done a lot to grow. This business has really wide funnels and has a lot of knowledge there. If you want to hear more about that, I’m happy to have another conversation with Chris.
You can also leave me a voicemail at (888) 801-9690 or just email that question to our email address and attach a file via Dropbox or Google Drive. This podcast’s theme music is an excerpt from We’re Outta Control by MoOt. It’s used under Creative Commons. Subscribe to us by searching for Startups and we would love a 5-star review in whatever pod catcher you use. If you want a full transcript to this episode, wait a couple of days after it goes live then head to startupsfortherestofus.com, full, searchable transcripts of every episode. Thank you for listening. I’ll see you next time.
In this episode of Startups For The Rest Of Us, Rob and Mike take a number of listen questions on topics including bootstrapping an MVP as a non-developer, gaining traction with the stair-step approach, and more.
Items mentioned in this episode:
Rob: In this episode of Startups For The Rest Of Us, Mike and I talk about building an MVP as a non developer, gaining traction with stair stepping and answer more listener questions. This is Startups For The Rest Of Us Episode 366.
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. Mike, I have a question for you before we start the episode here. What is the lamest and/or most embarrassing domain name that you have ever purchased?
Mike: Lamest and most embarrassing, I don’t think of any that I got that were embarrassing. I’d say probably the lamest was dotnetforumsoftware, I think it was.
Rob: It was like dotnetforumsoftware.com?
Rob: I don’t remember offhand but I had some when exact match was such a big deal and the dashed exact match was not as good but almost as good, I had some horrendous, like five and six-word dashed dotnets. It’s like business-credit-cards.net or something like that. It was when I was hacking a lot of SEO stuff and just trying to figure out how to rank stuff. Most of those wound up being AdSense sites that made back their initial investment and then not much more because Google updates came along but there’s probably some pretty embarrassing names in the boulevard of broken dreams there.
Mike: Yeah. I can definitely think of a bunch that I don’t remember whether I’ve registered them or not but they were kind of non starters because they were either hard to pronounce or could be very difficult for people to hear it and associate a domain name with it. They were just bad ideas. I think one of them was bitclinic.com or something like that. I don’t think I ever registered that one but there’s a whole list of them that I came up with and they’re just disqualified for a number of different reasons.
Rob: Especially once you start hosting a podcast, or doing public speaking, or going on interviews, you realize how important the pronunciation and the ability to spell something in one way that there’s no ambiguity over which version, if you’re using a homophone or whatever, which version of the word that you’re using.
Mike: Yeah, God forbid you register penisland and try to sell pens because that’s just not going to work out.
Rob: Penisland, did you do that?
Mike: No, I didn’t but I remember reading somebody who did.
Rob: Got it. Cool. What’s going on with you and Bluetick this week?
Mike: I’m still working on that code refactoring that I started on last week or was working on last week and it’s just turned into a nightmare. I was going through a bunch of changes and I made them and then a lot of my unit tests failed and then I had to start digging to figure out why and then realized that there’s some architecture changes that need to be made so there’s code refactoring. I’m like, “Oh, this is way more complicated and way more involved than I thought it would be.” A lot of it is because there’s stuff that’s buried in the code that I learned it all like a while back and then left it out of my brain for a while and it was just brain dumped and I’ve forgotten most of it.
Now, I’ve had to go back and research some of the stuff and say, “Okay, how does this actually work again?” Because like I said, it’s going to be kind of re-factor and re-architect so it just makes it difficult.
Rob: Yeah. This is to give yourself a multi user capability. Is that right? Like folks can have multiple logins and pay per seat?
Rob: Cool. This sounds like something that’s pretty important especially based on our conversation last week. This is nice expansion revenue to get from folks who are using it. You’ve had this request a lot along the way and I know that you’ve avoided building it because you knew there was going to be some complexity around re architecting things.
Mike: Yeah. It wouldn’t be so bad except that a lot of the services layer is all hard coded for the user account. All the database changes and stuff are in place, the services layer is all really tied to either the user or the account at this point so that’s still reasonably good at this point but the problem is that authentication mechanism on the frontend, I’ve got to pass the account information up and down the stack, which if I could kind of separate that out and use it like an object to pass in as opposed to a user ID. It would make things so much simpler and it’s not that simple right now.
Rob: Yeah, it’s a bummer. It’s hard to do something you know you need to do but then it takes longer than you want it to. This is where the founder impatience kicks in of like, “I want to be moving faster but if I rush it, I’m going to cut corners and then I’m going to regret it later.” So how do you deal with that? I know the feeling, man. This is the time to hammer it out as quickly as possible. Drink a lot of caffeine and listen to some death metal.
Mike: I forgot when it was, it was earlier this week but I was looking at the stuff that I had to do and I’m like, “Man, I really should be switching over to doing the marketing stuff.” And I was like, “I know if I do that, then I’m basically leaving this half done and it’s going to take me longer to get back through it.” As you said, it’s got to be done right the first time. I figured I’d just pile through and made the conscious decision to just continue on it.
Rob: Alright. From my end, since I’m hopping on a plane tomorrow, I don’t have many updates this week. I’ve been wrapping up some loose ends and I’m actually talking about hiring plans for next year and just kind of looking. It’s November now and it’s starting to be time to look ahead and project growth, both revenue and usage growth and stay ahead of scaling. We’re looking at what hiring is going to need to be required in order to do that. That’s been an interesting exercise and one that I have not done so thoroughly in the past.
Our growth has never been this fast now that we’re in this venture funded engine. I have to be a little more deliberate about it because if we wait until we have issues, if I wait until we’re understaffed or if we wait until we start seeing performance problems and it’s too late because it takes months to fix these so I’m trying to think three, four, five months out right now. That’s been, I wouldn’t say fun because I don’t particularly enjoy it but it has been enlightening and I think a necessity if I want to feel relaxed and chill and have a good time next year.
Other than that, we have a lot of five star iTunes reviews. We have 550 reviews in worldwide iTunes repo. Most recent one was on October 9th. It says, “Tons of practical tips and lessons.” It’s from [Honey Maura 00:06:24] in Canada and he says, “I’ve been listening for about four years now and I love what Rob and Mike share each week. I’m hooked. I’ve been following Rob’s stair step approach since launching several premium WordPress plugins first and a few months back launching my first SaaS. Thanks for all you do.” He’s with repurpose.io.
If you haven’t left us a review, you don’t need to leave a full comment. We do appreciate it. Just going into iTunes, Stitcher, Downcast, Overcast, or whatever you use to catch your podcast as it may be, hopping in there and hitting the five star rating would do us a great favor.
Today, we’re going to be answering some listener questions. It’s funny there’s a whole theme going on. A lot of it is like I’ve launched. Now what? It’s kind of the theme of today. Maybe not every single one but there’s three or four here that are asking guidance post launch.
Our first question is from [Yan Wustland 00:07:13]. He says, “Hi Rob and Mike, thanks for the great show. Like everyone else, I have to praise your excellent work with the podcast. I feel I have a classical developer problem. I am a solution looking for a problem. I started with web development and then I continued to the iOS, Android, and Mac development. I like the stair step approach and I’ve been launching single products targeted towards web developers like myself, more specific to the niche of Laravel developers.” He has a link here. It’s eastwest.se/apps.
“So far, I’m selling a couple of licenses per week but it’s nowhere close to paying my bills. I have got a great response from the Laravel community and customers but I feel I have to make a move. Their expectations at Mac app should be cheaper than a WordPress plugin and most of my customers who are developers seem to dislike monthly subscriptions. I have a lot of ideas for new products but all of them are centered around MacOS, which I’m passionate about, where it feels a lot harder to justify recurring subscriptions. Without all the details, what advice would you give?”
He laid out some options and we don’t have to stick to these options but I’ll lay them out here. “Number one, continue with one time products and learn more about marketing. Number two, this is not the right place to be and I should try to come up with another product and then find product market fit. Eventually, the right idea will come up. Number three, bite the apple and try to introduce annual plans in my Mac apps with the risk of making customers angry. To me, all the possibilities are a bit paralyzing. How do I know which is the right one to go for? Again, thanks for the great podcast.” What do you think, Sir?
Mike: I’m looking at the website. One thing that I’ve noticed is that the apps themselves seem like they’re a little bit all over the place. There’s this thing called F-Bar which is for managing Laravel Forge Servers. Another one is git-ftp deploy, which is for ftp deployment and then there’s like a radio player and then plugs of the world, which is your guide to sockets and plugs for iOS. These different apps or utilities are all over the map in terms of what types of problems they solve so it makes it difficult to do the marketing for them because there’s no overlap between them.
I think I might go down the road of looking to see if you could just sell off a couple of these outright to somebody else and have them take them over and then focus the efforts on building a small suite or a tool set of different things that you could sell individually and then have a bundle option. If you really are getting a lot of interest from the Laravel community, then that’s a great option in terms of being able to raise your lifetime value for those customers because then that bundle option’s going to give people the ability to pay you more.
They’ll feel like they’re getting the deal on it because individually, these products might cost $100 but if you give it to them for $70 or something like that, then it’s a better deal for them.
Rob: I want to jump in here. What I’ve noticed in looking through his list of apps is the top two, one is like you said, the Laravel Forge Server and the other one is git-ftp deploy. Those two he charges for. If you click through, one is $15 and the other is $20. Everything below that, which is a radio player and a timer and crush cockroaches, a game, it doesn’t appear like he charges for those. Maybe when you click through to iOS, they’re $1 or $2. But I mean these are definitely really small utilities almost.
One thing I would say just for organization’s sake is on the website, on his apps page, I’d probably have a heading that says tools for developers and then other stuff I’ve built. Because I bet my guess is he’s making a lot more money. He said he’s only selling a couple of licenses a week at $15 to $20, so it’s not that much money. Maybe a low end car payment in a month. He’s probably making the vast majority of his stuff from this top two if he’s making any from the lower ones at all.
I agree with you. I think the folks are starting to focus on people who are willing to pay something. Even if it’s $15, $20 a month, I think that’s probably a decent first step.
Mike: Yeah. I didn’t get that far because I was trying to go through. When I browse, I usually will right click on a link and then go to the next one and right click on it so that I can open things up quickly in different tabs. The way that the website works is if you right click on something, it actually browses to it. There’s no way to open up those links in a different tab so I honestly didn’t get there. It was annoying.
Rob: That makes sense. I guess as I think about this, it seems like when I look at the three options, he laid out basically keep doing what you’re doing and build more products or start doing totally different things, try to launch a SaaS app or something or launch annual plans. It seems to me the third one is the easiest to test, launching an annual plan. If you pushed it out for one or two weeks and everybody’s angry and nobody pays it and sales plummet, or do it for a month. If it doesn’t work, it’s easy to undo this. To go back to people and give them a refund or just say, “We’ve abandoned the annual plans and now you just get it for good just like everyone else does.”
I would try that with one or both of the apps and realizing that you will get some complaints but if suddenly, you see more sales or you feel like you’re going to make money with that in the long term, I don’t think that’s a bad way to go and it’s easy to test.
The real problem there is even if you test that, if you’re only selling a couple of licenses a week, then you’re not going to see any fruit from this for another year until they come up for renewal. Really, you’re not doing anything to grow your revenue in the short term. I think one of the big issues is something that he pointed out is that utilities in the app in any app store, they’re a commodity in essence and you really can’t charge that much for them and so, they have to have wide appeal and you have to sell a lot of them in order to make any type of money at it.
I think it’s a tough space to be in. The other drag about it that’s a trip is selling through the Mac App Store means you have this instant, easy distribution. That’s a good thing. The bad thing is you’re really not learning much about marketing because you’re not building a website, building an email list, nurturing people, running ads or blog, doing content marketing or whatever it is that we want to talk about marketing a product. If you don’t have to do that, you can but you don’t have to do that if you’re in these app stores.
One of the benefits that I found in the stair step approach is you’re not just gaining revenue and you’re not just gaining confidence, you’re not just gaining money, you’re gaining experience doing things with these smaller products. Even the folks who do WordPress and they put them in the repo and then they have an upsell to a free version, they have to learn how to write nurture sequences and how to write good copy and how to build an email list.
There’s other things that they do that I think the app stores, while they’re a good starting point and including Themeforest in there, anything that you post into, that pays you a commission but has all the distribution, it is a nice thing to get started on the side. But to grow that to the point where it supports you is hard because the prices are low and even if you get to the point where it supports and you compile all your hours, you’ve really missed out learning a lot of things that someone who is slogging away, building WordPress plugin or an ad on the Shopify and he’s doing more traditional marketing, I think we’ll learn that.
I don’t have a really strong recommendation here but I do feel like if you can’t market these through other channels, because if you only get one or two a week through the Mac App Store, then obviously there’s just not that many people searching for it in there. Do you go market it elsewhere?
Whatever it is, whatever they purchase, you talk about it in forums or you go on podcasts or whatever, you have a message you’re going to use to promote it, you try to do those to grow sales or do you perhaps get into a space where there’s a little more margin and you can launch products that are at least $50 or $100. Having a lifetime value of $50 or $100 is still a pretty tough gig but definitely it would be a step up from these $15 and $20 sales.
When you’re selling something that’s this cheap, distribution has to pretty much be free. You really need to rank number one or top three in Google or rank high in an app store or in YouTube or in Amazon or in one of these places where people just find you because you just don’t have enough money to really do any type of paid marketing. That’s definitely the challenge here.
One of the things you can think about is you’ve built something that people want or at least there is some sales here and there, you may want to think about doing some of these deal a day sites, they have developer deal a day site. I know you have to cut your prices and it wouldn’t be a sustainable thing but it could be an interesting short term influx of cash that can help motivate you to build that next thing.
I think if I were in your shoes, given what’s going on, I don’t see any easy way to grow these existing products. Nothing jumps out at me aside from doing some of these deal things, which again is a short term thing. Personally, without knowing all the details, I would probably start thinking about a way to launch something else that has just a higher lifetime value, whether that’s a one time or a recurring thing, that just leaves a little more money to do some of these other marketing approach and try your hand at them.
Mike: A couple of things that come to mind is try and pursue an affiliate channel of some kind. There are lots of websites out there that just have dozens and dozens of products or actually, probably tens of thousands of products on them where people can go through and identify what products that they want to push as an affiliate on their own site. It’s hard to get noticed in those so you would probably want to pick and choose different people to approach for that.
If you have a set of customers who keep running into a particular problem that your software works really well to solve, then approach in like the vendor’s, whatever that platform is of that application and trying to get in the door as an affiliate and say, “Hey, bundle this other application, whether it’s your git-ftp deploy or your F-Bar,” that would be a good way to get in front of those people and provide yourself with an additional channel.
Rob: I like that idea. I like that. It could be worth pursuing as well. Find another JV channel, basically, to go through. That’s cool. Thanks for the question, I hope that was helpful.
Our next question is another one from Saphia and he had sent a question a couple of weeks ago. Subject line is we may have built [00:17:04]. He says, “I’m a big fan of the show. I’m still binging my way to the backlog since I discovered it. Thanks for the great advice. I’d like your opinion on something. My co-founder and I, first time founders, have been building a SaaS app for about a year, part time, based on an idea that he had as a business coach. Essentially, the app recreates a process but moves it online. It’s one he’s been successfully charging for offline for a number of years and it solves the problem of lack of clarity and difficulty onboarding new employees in a flat organization.
Our landing page has collected more than 500 emails. The feedback we get on blog and social media is generally super positive. People seem to be very eager to try the product. Now, we have an MVP that we launched with about 10 leads as a free trial for a few weeks. All the feedback is very positive. None of them have yet paid for the product. It’s a flat rate of $99 a month per team. Some have logged a few bugs in quick win features that I’ve deployed in a matter of days. How would you approach this? Should we go down the list of 500 prospects and another 10 leads? Should we focus our attention on the current 10 and get to the core of why they’re not paying? How do we know if we have problem-solution fit and most importantly, if there was a problem in the first place. Could it be that we built a cool looking product that is just nice to have? Am I too impatient? How long does it take to close a sale in the B2B world?”
I’ll let you take this first. At the am I too impatient, it’s like yes, we all are. You can be searching for product market fit for 6, 9, 12 months. This can take a really long time. I would definitely give it a little more time but why don’t you weigh in, Mike, on maybe what you would do next.
Mike: Welcome to the club of impatience. I don’t think that that ever goes away. Nothing will ever go as fast as you want it to or you won’t scale as quickly as you like. In terms of what to do next, if you’ve got a list of 500 people and you’ve only gone through 10 or so, I might look at those 10 a little bit and start asking those people questions. It sounds like maybe either haven’t asked them questions or you’ve asked a couple of people and maybe they didn’t get back to you but you really don’t have enough information right now to go off of.
What I’d be careful of is burning through that entire list of 500 and just trying to on board all of them and get to the point where you’re not getting enough information to make a good decision about what to do next. I think one of the issues that I ran into with Bluetick was that when I was putting people onto the system at first, I didn’t do a very good job of defining what a success card here was and what the next steps were for people and what the timeline was.
I feel like the timeline was probably the most important thing and I was the worst at that. I basically said, “Hey, try this out and let me know when it’s providing value and at that point, then I’ll start charging you.” That absolutely didn’t work. When I turned around and I decided to put a time pressure on it, that’s when people made the decision.
I think part of that was due to the fact that it just took so long to get to that point where, I don’t want to say put my foot down but I drew that line in the sand and said, “Okay, either you’re in or you’re out.” It’s very easy to just let things slide. If you go back to this 10 and you really can’t get answers from them, that’s fine. Just go to the next 10, that’s okay again. You’ve still got 480 more people.
But set clear expectations with them about how the process is going go, how long they’re going to be able to test things for, what you’re going to do if a bug comes up. You can explicitly tell them like, “We will pause the billing, for example, for x number of days.” Or however long it takes us to get that particular issue fixed. If they come to you and there’s a problem, push their trial out by a day or a week or whatever, if that’s how long it takes you. If it’s going to take you six months, obviously, then I would say move on because that’s not going to be beneficial for you and it’s probably not a good fit for them at that point.
But you can essentially iterate through probably 5 to 10 times and you’ll get through 50 to 100 of those people and you’ll find out a lot of information about what is working and what’s resonating with them and what’s not.
Another thing I would do is when you’re going through the on boarding process, don’t let them do it themselves, walk them through it. Get them on board, walk them through signing up with their account, get on a video call with them and watch them do it and watch where they have problems because that’s where you’re going to learn the most from. Having them tell you after the fact is just not going to be very helpful. You want to watch them struggle and watch what they’re doing.
That’s what I did with Bluetick, was watch people sign up for it. Every time they had a problem, I wrote it down. Even if they just looked around on the screen and they weren’t sure where to go next, I wrote it down because that’s a problem. Because when I’m not there to guide somebody or answer a question directly, how are they going to figure it out on their own? If I don’t see that that’s a problem or you don’t see that there’s a problem on that on-boarding area, you’re not going to be able to figure it out especially just by looking at statistics and data from Mixpanel or Kissmetrics or whatever, those things are not going to tell you what’s wrong.
Rob: That was a really good answer. Tell me honestly, did you rehearse that before this episode in front of the mirror?
Mike: No, I did not but I thought about that a lot.
Rob: It was really good. You called out basically handholding and watching people use the app and see where they stumble, you called out digging in with the 10 current ones and not jumping ahead and digging as much as you can into finding out why they’re not paying and setting expectations properly. And then only when you’re convinced that it’s not going to be a fit for them or that you can’t get the answers, then go to the next 10 and then you talk about doing that 5 or 10 more times, which might take months and months.
Remember, I called this the slow launch of Drip where we got our first paying customer in June. There was early access. They weren’t paying yet. But by the end of maybe June or July, I think it was our first payment. We didn’t launch to our big list until November. It took us five months of essentially this exact process of I was letting people in 5 and 10 at a time, looking at where they were succeeding, where they were failing, where they were getting value and doing that. This is the playbook, man. I think you captured it really well.
Sophia, I won’t just say that’s what I would do but that’s what I did and that’s what Mike did. You’re following the path and I think the answer to the question of are you too impatient is yes but we’re all impatient so don’t feel bad about it.
Our next question is from Sameer. He says, “I’m launched but I’m discouraged. What are my next steps?” He says, “I built dcaclab.com for teaching electronics. I feel schools all over the world will love to use it. In fact, some schools already use it but I still am not making enough income to leave my 9:00AM to 5:00PM job. I’ve done everything I can. I’m still pushing forward towards freedom. The most recent thing I’ve done is add a blog to the website so I could start adding content to get more traffic and hopefully more sales. It’s very hard work and I’m working by myself. How would you encourage me to keep going my website? Alexa global ranking is 338,000 and I feel tired. I’m interested in hearing from you on how I can keep strong and not give up.”
What do you think, Mike? Should he keep strong and not give up? I guess it depends on how much progress he’s made, right? It’s like if he has one paying customer and he spent a year, then he probably should give up, maybe.
Mike: It’s hard to answer with the data that we have. I think you have to figure out whether or not you’ve actually got traction. I think we’ve talked about this a little bit in the past but one of the things, and I heard somebody talk about this on a podcast as well, I can’t remember who it was, but they talked about the fact that if you launch a bunch of things, it’s a lot easier to see where the outliers are as opposed to launching let’s say three products and none of them do well. It’s hard for you to see what the outlier is, where things go really, really well and you recognize that.
If I remember correctly, it was somebody who I’d been talking to, Paul Graham, about that where they just didn’t know what success looked like because they didn’t have a very objective opinion. It’s just like, “Oh yes, get as many people as you possibly can onto the system or the platform and grow as quickly as possible.” You’ll know when you’re doing well and you’ll know when you’ve got traction and some success with it.
Unless you get to that point, you really don’t have a good understanding of what that actually looks like. If you don’t have any of those successes, it’s very difficult to be objective about your own situation. That’s how I would look back at the stuff that you have done and talk to other people who have put apps out there and have gotten some level of traction or progress with it and ask them to evaluate the different things that are in your business versus maybe theirs. Even if they’re only a little bit more ahead of you.
Let’s say that they’re making $1,000 a month, they can look at their own statistics and how they got to where they’re at, versus the things that you’re doing now and what you’re getting and let you know where the different problem areas are. There’s not going to be a silver bullet here but it will help point you at least in the right direction.
In terms of the app itself and the direction that I would go to towards trying to get more traffic and more sales, the name itself dcaclab, I get it. It’s direct current alternating current. But if you’re not really into electronics, you’re not going to really understand that. That’s not necessarily the point but the average person may not quite understand the subtleties of the difference between them. If you play with home electronics kits and stuff like that, unless you’re an electrical engineer or have electrical training of some kind, you really don’t completely understand that. It’s not going to come to you like if you’re searching for it on the web like dcac. That’s just not going to come up.
The SEO perspective is probably going to be a little hard. I’m not saying change it. It’s just something to think about. But this screams to me something that you could go to Kickstarter with. People in our age bracket are probably the most likely people to help fund something like this because they want to teach their kids about electronics and how alternating current works and how direct current works and how you can build little pieces of a large robot and experiment with those types of things. It just seems to me like that would be a great channel to go after to try and expand not just the horizon of what the number of people that you can reach but also to get an influx of cash. You could do a heck of a lot more with it.
There’s a lot of information out there on how to do a good Kickstarter and I’m not going to say that it’s easy because I know people who’ve done it and have made lots and lots of money from it or brought in lots of money but you also have to be able to deliver on it. Getting yourself to a certain point where Kickstarter really works well for you, you also have to do a lot of pre marketing in order to essentially accelerate it and pour gas in the fire once you do get it on Kickstarter.
The similar things that come to mind is you could go the route of trying to get into government funded channels like directly into public education, public schools, or even private universities or private schools, but those seem to me like the channel is going to take you a heck of a lot longer in terms of the timeline to develop and I don’t know how much time you have to put into this or even how much energy you have left to do it because it sounds to me like you’re at the end of your rope.
Rob: That’s a thing. Selling directly to schools or universities would be the money fad here in terms of the big contracts. It can make a difference. But it’s like one to two years sales cycles because they budget way out and you gotta convince them it works. I got to be honest. Just looking at the screenshots and I just watched a little video. It’s a pretty sleek tool. It really does look like a circuit board. I think you use it right here on a web browser. It’s interesting here.
It’s one of those tough markets of individuals probably aren’t going to buy it in terms of like, “I wouldn’t buy this for my kids because I might buy a coding class or something. It’s only $42 a year but I just don’t know. They’re not doing enough circuits right now.” You’re just going to get onesie, twosie sales. What you want to do is go after groups like schools, universities, even public, private, all that stuff but that’s just that enterprise sales cycle and so it becomes a challenge.
I like the advice that you laid out. I think that if you have almost no traction, if you literally have a couple hundred dollars in revenue, it might be time to just walk away, sell it on Flippa. You have built something here that has some value but it probably couldn’t sell through a broker if it’s that small. If you have at least say $25,000 a year in revenue, it may have to be profit actually, then you can approach a website or an app broker.
If you really are burned out and just struggling to get past there, that’s not a bad option, then you’ll find that you’ll leave out with a little bit of cash in your pocket and feeling refreshed. That’s something I’ve done a number of times so I know firsthand how that feels to keep an app around longer than it should and feel guilty about it because you’re not committing the time and you feel like you’ve invested a lot of stuff and you have this cause fallacy and you want to keep building it and you don’t know when to stop. I’m not saying that you should stop but you do need to listen to those feelings if you feel like you’ve just been pushing a boulder uphill and you haven’t really made any progress.
I kind of have a question mark in my mind, whether a blog, which is what you mentioned, has an x marketing channel is the right thing. I think if there’s a lot of SEO terms, there’s long tail, people searching for this kind of stuff, then maybe I wouldn’t do it for six months without some type of noticeable ROI. I might do it for a couple of months and of course, the hard part there is you have to need time to build this snowball there.
AdWords isn’t going to work here. Facebook Ads, probably not, given the low lifetime value. There’s not a ton of options aside from the places we’ve talked about before, which are the joint venture deals of is there anyone anywhere who’s bundling these things together. Is there anyone who has an audience that would be interested in this? Like a blog or that you could pay a big 40% affiliate commission to get the nice one time hit. What other free channels are there? Are there forums? Are there discussions? Is there a stock exchange for electronics? I’m almost sure there is. Can you become active in there and you don’t just hit there and pitch your thing, that you answer the questions because you haven’t seen a lot about circuits but you answer questions and then your profile has the links in it.
There are ways to do this. This is not like a high growth market. It’s not something that you’re going to hit a hockey stick by tapping the right thing. It is just going to be a slow build and if you’re interested in it and you still want to push it, then do that. If you’re not, then I would think about launching the next thing because you obviously have some skills to be able to launch this one.
Mike: Something else that came to mind as you were talking was what about building a course around teaching somebody how to use electronics and then bundling a one year subscription of this, or three months, or six months with it. That way, you’re really selling the course but this is kind of an augmentation of that course. That seems like a good idea.
Rob: Yeah. I pay quite a bit of money for my 11-year old who does coding courses. I buy those courses online and then he goes through them and he builds minecraft models and all that stuff. If there is a way to make this interesting, parents are likely to buy things for their kids. That’s an interesting market. It’s not an enterprise sale but it is a way, like you said, they’re going that B2C kind of Kickstarter path, selling the course with this bundled as a Kickstarter or an Indiegogo or something. That may be the best idea we came up with today regarding this business in particular.
Thanks for the question, Sameera. I hope that was helpful.
Our last question for today is about bootstrapping an MVP as a non developer. It’s from Rusty. He says, “I have an idea for a SaaS application. I feel like I have a great in, in an industry that I’m familiar with. However, I’m not confident enough in my abilities as a programmer to actually code a viable product. What’s the most financially viable way for me to get a demonstrable demo of a product up and running without having the personal ability to code it?
Mike: I think the first step is to take it from beyond having a great idea in an industry to talking to people and get in either commitments or actual presales from the people there to give you the confidence that go into that without having a development background and being able to know that you can essentially program your way out of any technical problem that you run into.
It is probably the place to start because if you can get those commitments and have that confidence that people are willing to pay for it and you’re able to find enough of those people, then that’s really the next step. It seems like a clear way to try and figure that out. If you do get that confidence, especially if you have let’s say $20,000 in pre sales, you can take that proof of presales and go to a developer and have a much higher chance of being able to convince your average off the street developer that hey, let me work with this other person or a partner and I’ll either do it for free or do it for a really low rate in exchange for equity or whatever in order to be able to latch onto this business that clearly has some legs to it.
Because what you’ll run into if you go to a developer and say, “Hey, I’ve got this great idea. I’d like you to build it for me.” I can tell you what’s going to happen. They’re going to say, “Haha, no. I don’t think so.” Unless they’re just not any good at it because there’s too many developers who’ve done that too many times and they’ve gotten burned. It just does not work out because the technical side of this is not the problem. The problem is the business side of making sure that you can get in front of enough customers on a repeatable basis. If you can prove that upfront, then you can move on towards actually building the product itself.
But I don’t think that there’s a lot that you need to do in order to even just put something in front of people who you’re talking to. I did Balsamiq mark-ups for Bluetick and that was all I needed in order to get presales. I would recommend having those conversations first and then going to the process of showing them what it might look like and then after that, if you can get them to buy into it, then move on to actually building a prototype until you get to that point where they say, “Yes, I’m willing to pay for it.” Or, “It’s a problem that I have that I need to solve.” It doesn’t matter. You can build all the prototypes you want but you could very well just be building the wrong thing.
Rob: That’s a playbook sort of recap. Have more conversations, have a bunch of one on one conversations. You can go out and you can look in forums and you can look in wherever folks who you’re trying to sell to hangout. If you have any inn in the industry, you already probably know a bunch of people in that industry. Talk to them, describe the idea in as much detail as you can and say, “It’s going to be $100 a month to whatever you think the pricing will be. What do you think?”
If they say yes, then say, “Awesome. I’m going to go build mock ups and I’m going to come back and show you. If I build this product, are you willing to pay that?” And then they’ll say yes or no. Once you get enough people and you really have an idea of what you want to build, like Mike said, make the mock ups. Balsamiq is a great tool. I think today, it’s like sketching and vision but you don’t need to get too fancy with this.
When you come back to them and you say, “Here’s what it is. Here’s what it really does.” They’ll have questions for you. Then you make a decision. If you get a bunch of people ordering and you get the validation, like Mike said, you can go to a developer or if you have savings, you can feel a little more confident that perhaps this thing will work and maybe you go and hire a developer, which is a whole other podcast episode. A lot of challenges there but you can hire someone to build it and essentially hire a cofounder or you could go down a different path.
If it’s a service that can be mocked up and handled by hand like by yourself or by a virtual assistant with minimal software, maybe no software at all like can you mock this thing up, have a fully functional version with Google Forms and Zapier and you copying some kind of a spreadsheet and manually sending emails through Gmail or MailChimp or manually crunching data in Excel spreadsheet, instead of an app actually doing it, then maybe you don’t even need a developer to get to the next step, past the mock-ups.
The next one is, “Okay, now I’m going to do this for you.” I don’t know what your service is so that’s where this part’s hard. But it’s like if you’ve committed that you’re going to bring 20 leads a week to lawyers or to real estate agents, it’s like, yeah you want to build a software to do that ultimately. But now, just get on a phone and generate the leads. Run the AdWords and generate the leads. If you’re going to do SEO analysis on something, then yes, you’ll want a computer to do that eventually. But for now, just do it yourself. Do it manually and develop the algorithm and send them pen and paper in essence. Send them that Excel spreadsheet that is super low tech and see if they’re like, “Oh my gosh, it’s amazing. I’m getting a ton of value out of this.” Or if they’re like, “Yeah, the results really aren’t as interesting as I thought they would be. They don’t necessarily need to, in a lot of cases, actually use a software to get the value that the software will ultimately provide.
That’s kind of your either or. They are depending on the idea. If you can’t do that and that is possible in more and more niches than you think and with more ideas than you think. But if that’s totally not possible, then yeah, you do go down the train of trying to build a prototype/mvp. Those things don’t have to be the same, but in this case, they essentially would be.
Mike: Thanks for the question, Rusty. I think that about wraps us up for today. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at email@example.com.
Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.
In this episode of Startups For The Rest Of Us, Rob and Mike take a number of listener questions including housing multiple products under one brand, stair-stepping, and dealing with pricing tiers.
Items mentioned in this episode:
Rob: In this episode of Startups for the Rest of Us, Mike and I talk about housing multiple products into one brand, stair stepping, pricing tiers, and more listener questions. This is Startups for the Rest of Us episode 352.
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, Mike?
Mike: I finished up my 21 day video series and I made Bluetick live over bluetick.io. I pushed it out to my mailing list and went from there. That went out on Tuesday and it is now Thursday.
Rob: Indeed, you did. Congratulations, man. This is a big milestone.
Mike: Thank you.
Rob: You’re public. People can go to bluetick.io, sign up for a trial, the whole deal.
Mike: Yup, for the time being. I’m debating whether or not to pull it back now at this point and make people go through a demo.
Rob: Demo only?
Mike: I don’t know. I’m going back and forth on that, to be honest. I have to think about it a little bit more but we’ll see how it goes. I need to think about it and figure out what would be the best strategy, because I know how the demos and stuff go and I also know how the product is portrayed on the website because the website is just not finished yet. It might be best to go in that direction at least for a little while, anyway. I can even do a launch every three or four weeks or something like that.
Rob: It feels to me, at this point, it’s time consuming but it feels like the right choice to still do demos so you can hear. You’ve built something that a small number of people want. You’re edging into some product market fit because you have paying customers and you’re in the low four figures. To get to where that’s 10 or 20 times that number, I think you have more to go, to build some unique features and I think those demos will really help not just close more sales, but will just help with the education and the customer development effort.
Mike: I totally agree with that.
Rob: Sounds good.
Mike: How about you? What’s new with you this week?
Rob: WordCamp Minneapolis is happening starting tomorrow. It’s over the weekend. That will be the weekend before this podcast goes live. I’m actually moderating a panel there with Cory Miller, my wife Sherry, and a guy from OSMI, which is Open Sourcing Mental Illness. It’s about staying sane while starting up or staying sane while being a developer and that kind of stuff. It should be fun here, Friday morning.
On Monday, I fly out to California. It feels kind of a much needed vacation. I’ve been travelling quite a bit but most of it has been work time. When I went to Chicago with my son, I pretty much worked that whole week. I’m actually planning to go to Central Coast, California and really take some time away and do some thinking about what I want to see in my life, both professionally and personally over the next 6 to 12 months.
I won’t have time to do a full retreat by any stretch, but I bet I’ll be able to carve out a few hours here and there. It feels long overdue to just step away from the laptop, get my head clear, and get a little bit of distance from work, both literally and figuratively.
Mike: Cool. Sounds like a good time.
Rob: I hope it is.
Mike: What’s on the agenda for today?
Rob: We have more listener questions. I’m finally getting to where we have, I don’t know, maybe after this episode, we’ll only have maybe half dozen in the queue. That feels good because we get backed up where we have 20, 30 in the queue and I feel like we’re not answering people’s questions in a reasonable amount of time. Cool part today is we do have a couple of voicemails. And as I like to say, if you want to go to the top of the question queue, you can send us an audio file to firstname.lastname@example.org or you can call our voicemail number at 1-888-801-9690.
Let’s dive into the first voicemail.
Jeff: Hey there Mike and Rob. This is Jeff Olsen calling from Saint Paul, Minnesota. A question for you guys. We have two profitable sites, one of them is membership. It’s called Food Blogger Pro, and the other is a food blog called Pinch Of Yum. We’re using some of the profits from those sites to build some software. One is a WordPress plugin. We’re building that [00:04:21]. The other is a SaaS app called [00:04:26] that reads nutrition information for content creators.
Wondering what your suggestion would be for how to structure that as a business. You have multiple businesses, multiple brands, you put this all under one umbrella, multiple LLCs, multiple [00:04:44]. We’d love to hear you talk through how that works, thanks.
Rob: Just to clarify. They have a food blog that would be, I would say it’s a B2C play. It’s amazing recipes and pictures of food. It’s called Pinch of Yum. Then they have a membership website for people who want to become food bloggers, which is cool because they have the proof of concept. They’re not teaching people how to become food bloggers without being food bloggers themselves. That’s a membership website.
And then they have two pieces of software that they’re either building or have built. One is a WordPress plugin. I think that’s for food bloggers. And then they have a SaaS app that does nutrition information. I assume it embeds it on a site or reads it or something like that.
There are four things. They’re all food related but they’re not all B2C. There’s B2C and then there’s B2food blogger. It sounds like maybe two or three of them are. With that background, it sounds like there are really two questions to think about. It’s like there’s corporate structure for LLCs versus one and it sounds like there’s a branding thing, like should they be multiple brands or should they perhaps be all shared under one website. What do you think about all that, Mike?
Mike: I think I’m a little confused about why all of them are starting at the same time or at least it feels that way based on how the question was worded. Do you know…?
Rob: Yeah, I do know more than that. Pinch Of Yum has been around for years and then they started the membership website. That’s been around for a few years but less than the food blog. I think these software things are in the works or maybe the WordPress plugin is done and they’ve kind of done them sequentially. I would of them like I had a blog and then, I would actually have to think about this, but I think what is now FounderCafe but what used to be called Micropreneur Academy came next, then the podcast came and then MicroConf. It’s kind of they were sequentially but there was overlap type of thing. What do you think?
Mike: It’s a tough call. I don’t know as much about each of those individual things. It seems that if there’s both B2C and B2B mixed in, then that makes things difficult and you probably want to separate them a little bit more. But if there’s much more overlap in that and it’s all B2C, then combining them would probably be a better way to go, especially if they’re all kind of in the same niche or a general field or vicinity to each other.
The advantage to separating them completely is that you can cross promote between them and people will probably feel like those are completely different services or things. But I think if it’s a B2C play, then chances are good that they’re probably not going to subscribe to more than one of them if it’s a paid membership or something like that.
I think that there are pros and cons to each of them. I don’t know if there’s a best solution though. Maybe just combining the B2C stuff and then combining the B2B stuff would be the way to go there. In terms of the corporate structure, I don’t know if you really even need to separate them. Not unless you plan on spending one of them off. That’s something you could really do later if you really needed to.
As you start combining them, it’s going to be difficult to disentangle them, especially if you put them all under the same corporate umbrella. The two B2C plays would be difficult to separate if you intertwine them early, and the same with the B2B stuff. The B2B stuff I think would be probably easier to separate but maybe not.
Rob: I am obviously with the caveat that neither you or I are lawyers nor can we give legal advice. I can tell you from the corporate structure perspective what I had done and then where it tripped me up. But I had a single LLC in all my products. He basically has four products. You can call them businesses but really, you manage them like products. You could manage them under a single corporate umbrella. That’s how I did it for years.
Eventually, when Drip did become, it was obvious it was more than a product, it was becoming an entire business and had more employees than the rest of my products combined, that is when I spun that out into its own S Corp. That was a painful process to do. It took several months part time of going through books and setting up new stuff and trying to pull it out.
That was very, very handy that I had done that once we started talking about acquisitions in terms of people acquiring us because once it was spun out, it was so much easier for them to just acquire all the assets of this company, of this corporation, rather than trying to… it would have been a nightmare. I don’t even want to think about how much of a mess that would’ve been.
That would be the first thing I would think. If you really do plan to keep a lifestyle business and you think you will keep these things forever, then you could think about doing the way I had, which was put them all under one LLC. It is the easiest way. If you think you would ever sell one or more of them, then unfortunately, you got to think about breaking them out and having their own Stripe account and each one having their own bank account so that it doesn’t all co mingle. Those are tradeoffs there.
In terms of brand, I agree with Mike. You just think about the audience. It sounds like one is B2C and the rest are actually B2food blogger. It services for food bloggers and software for food bloggers. Then it seems like you have two brands. You have the Pinch Of Yum which is a great brand on its own and has an audience. And then maybe somewhere on there, you have a little thing that’s a food blogger or want to be a food blogger. We also offer this and it leads over to those three things.
They may have their own websites, but I do think there should be kind of a central brand that you come up with that these things are related and you can cross sell them assuming again that it’s the same audience for all three.
Mike: Just to tackle a little bit what Rob said about splitting the business and then possibly selling it later, one thing you could do is a hybrid approach. When you’re doing things in your books, like when you’re hooking things up to a Stripe account for example, you can create different Stripe accounts for each product and then on the back end, inside of Stripe, you can essentially just add different email addresses. It gives you the ability to see and toggle back and forth between them and then send all the transactions and stuff back in your books, and keep them separate in your books so that you can specify a “product line” or a line of business and attribute the expenses and income from each of those things into that product line.
The difficulty comes when you have a single service that you use that spans multiple ones. Let’s say you have a Drip account. You use it for all of them and so it’s one subscription and you pay, I don’t know, $100 or $200 a month and you use it for all four of them. Then you almost have to say, “Well, yes. This goes into this bucket. It’s mutually used by everyone.” If you do sell it later on, you can point directly to those things and separate them out easily when you do go to sell the business. You could even do that in advance of selling it.
If you get to a point where you decide hey, I want to do this, you split everything out, put it all into its own separate LLC or different business, and you’ve got everything already separated. That’s a hybrid approach you could go. That’s actually the kind of hybrid approach that I’ve taken right now just because of all the different things that I have going on. It’s interesting to be able to separate the different products and say this is how much revenue this gets versus how much the expenses are.
Rob: Good question. I appreciate you sending that in. Hope the answer was helpful. Our next question comes from a founder who wanted to stay anonymous. He says, “I’m working for a founder on an idea to automate a process that works in a couple of very lucrative industries. Before I started, there was no product, just an idea and a false start with a development company. I feel like I’m doing the work of a co founder. They’re supplying me industry knowledge, contacts, and funding. I’m running all the discovery, coming up with growth hacking strategies, doing the prototyping, setting the technical and product strategy, and working to build the product with the development company.”
I don’t think Chris is a developer but they’re outsourcing the development. He’s kind of being a product lead. It’s what it sounds like. “I’m due to sign a proper contract of employment with him under a new limited company in a couple of months. My question is what can I expect/demand in the new contract? Is it too much to ask for equity or share options?”
Mike, I feel like there are two questions. Number one is do you feel like he is doing the work of a co founder or more of a product lead? And two, there’s his question. What can he expect or demand?
Mike: From the description that I hear here, it does sound to me a lot like the co founder. I’m a little unclear on the part where he says that they’re supplying the industry knowledge, contacts, and funding avenues. I’m running all the discovery, coming up with growth hacking strategies, doing the prototyping, etc. It sounds to me like that’s almost the division that you would make between two co founders or between an investor and somebody who is building the business.
It seems odd to me there’s this whole industry knowledge, and contacts, and funding avenues. And then separate from that, this person is doing discovery. What kind of discovery is that? Is that like product discovery? Is it customer discovery? It seems a little odd that that has been delegated to him. But it does seem to me like this is much more of a co founder relationship than anything else. I’m not real sure how many people are involved either. Is it one other person? Is it two or three? That’s not real clear from the question either. I think based on that, I would look at that to see how you would approach it.
If things are gumming along where there’s an expectation of a contract, I think it would be a mistake to wait for that contract to appear and then negotiate from there because once it’s down in writing, they’ve already got their expectations written down and what they think is fair and then you’re negotiating from where they’re already at, and it may not even be close to what you’re looking for. I think if you have those discussions early on before they write anything down, then you can probably get much closer to what it is that you’re looking for, whether that’s co founder status or 50% if it’s only one other person or 33% if it’s two other people, etc.
But I would not wait until you get that contract in front of you to start having those discussions because otherwise, you’re going to find yourself probably disappointed just because the expectations weren’t set up front.
Rob: I feel like this is a tough one because I’m not convinced that he’s doing the role of a co founder. I feel like he is a product person. I think the question when I think about a co founder is how hard are you to replace. If you’re working for free and doing a bunch of work, you’re really hard to replace because it’s hard to find people who work for free and who do a good job.
But if you’re getting paid a fair salary for what you’re doing and the expectation thus far has been that you kind of are a contractor or an employee, I think you have to think about how hard would it be to replace you. You and them are the only ones that are going to know this because there’s a lot of details and moving parts with this.
I feel like if you’re more of someone that they could just find someone else to manage this and pay them a salary and they do have the funding to do it, then I think you are much less in a co founder role or at least a very minority co founder. In that case, your percentage drops. I think if you truly are driving the vision and bringing just levels of game that most people would not be capable of bringing, then you could consider yourself, there’s like founding employees. There are phrases like that.
Typically, co founders are people who are putting in money. Most of the co founders will be putting in money as well. It’s not always but there’s a lot more equality between what everybody is doing. Frankly, industry knowledge, contacts, and funding avenues are actually I’m going to say they’re the harder part. Building a great product is not easy but there are a lot of people who can do that. Whereas trying to replace the people with the industry knowledge of a specific industry, the contacts of the specific industry and funding avenues, that is pretty important stuff.
All that to say, I think that if you do feel like you’re truly a co founder, I agree with Mike that you’re going to want to start this conversation early before stuff gets in writing. Yes, I definitely feel in both cases to be honest that you’re entitled or that you should get some type of equity, even if you are someone who they can replace, founding employees often get 1% equity, 2%, 3% equity. It’s a pretty small amount but it’s not totally unheard of if you really are driving the product.
I would even think, depending on how big the business might get eventually, even up to 5%, if you do truly feel like a co founder or consider yourself that, now, we’re talking 10% to 50%. It depends on how many people are involved. That’s kind of the range I would think about. What do you think?
Mike: I actually had missed the part about the paid work. I was operating under the assumption that it was more or less unpaid and part time on the side. I just missed the part where he said he was getting paid for it. I guess I would reverse a little bit but I do agree with you that it sounds to me like he’s pulling a fair amount of the load. He did comment it like I know you said that all the prototyping and the technical stuff and product strategy.
You can put people in to do that stuff, but what’s the discovery that he’s doing? That’s the part that I’m unclear. Is it actual customer discovery? If so, how much industry knowledge and contacts are they actually bringing? That was my question about it. It could go either way. I think there are a lot of subtleties here that we’re just not quite getting.
Rob: I know he wants to stay anonymous because obviously, he wouldn’t want someone to overhear it. He can’t give us all the details but it really does depend on a lot of those details. I think those were general thoughts but wish you the best of luck with that.
Our next question is from David. It’s a question about pricing tiers and dead zones. He says, “Our product Uber rider has a tiered per seat pricing model, where the more seats you purchase, the lower the per seat cost. This leads to dead zones where the price for 40 seats and 50 seats are almost the same if you target 50 as a breakpoint. Is this a bad approach and should a flat per seat price model be adopted to avoid this? We have had some push backs from larger 200 plus seat customers that the pricing was too high. How do you strike a balance here?”
What do you think, Mike?
Mike: This is hard because I’ve looked at specifically this problem before and you’re absolutely right. There are places where it is more cost effective to buy more seats than less, especially if you’re right on those thresholds. What I’ve seen larger companies do in these cases is that they’ll essentially sell you a larger package. Even just for the soul reason that it costs less money and they sell it based on the idea that it gives you overhead.
When you swap people in and out or people leave the company, you don’t have to worry as much about whether or not the license is blocked for x number of days or if you’re transferring it to a new person that you hired in anticipation of someone else leaving. You can just reuse it between them because you’ve got the overhead to play around with.
You can work that into sales discussions. When you start looking at extremely large customers where you mentioned the 200 plus seat customers, I’ve seen pricing for enterprise customers go as low as 10% of the list price. If you’re getting pushed back there, it could be that that’s the problem. They’re expecting a larger discount than you’re providing but at the same time, you also want to be a little bit careful of that because just because somebody is complaining about the price, it doesn’t mean that it’s too high.
If all of them are walking and not buying it, then yeah, that’s probably an issue to look at. But just because they say that it’s too high, it doesn’t mean that it actually is.
Rob: Yeah, it’s funny. I’ve always leaned towards having this flat per seat pricing and then offering discounts to larger customers because larger customers are going to tend to talk to anyways in advance or there’s a point where you just call for pricing and you deal with them. You give them whatever discount you need to land them.
But I have seen more apps that used to have flat per seat pricing move towards tiers, FogBugz is an example. The reason they moved, from what I can see, is they actually wanted to lower the pricing on the low end. You can now get a five seat FogBugz account for $20 a month. That means $4 per seat. As soon as you go to over 5, you need to go to the 10 seat license and that’s $100 so now you’re paying $10 per person. What they want to do is take the air out of the low end and they switching costs are hard in these systems and so they’re actually trying to get people in so that they use the product, get locked in and enjoy using the product hopefully.
And then eventually, way up high, I don’t know, it’s like 250 seats. It starts to drop very slowly and I think that could be a prejudice. If you drop the price slowly enough, then you won’t have dead zones or you could just put it up to a point, have just a few tiers that are flat because that’s how FogBugz is. The 10 is 100. The 20 is 200. The 30 is 300. It’s just pretty much linear. It kind of is like having no discount and then wherever the point where customers feel they deserve a discount or need a discount, you can just do a call us or expect the people to ask about it.
I could go either way. I think in the early days, if I were still trying to get market share, product market fit, all that stuff, I think it’s easier to keep it simple. But once you have more data, more information about usage, you know whether you have lock in or not, you know if the low end is going to be something that you really want to go after, you just get more knowledge about the space, you could actually make your pricing more complex because you have data with which to drive that pricing.
I think trying to guess out of it early on without data is probably a bad move and it’s going to mean you re-do your pricing multiple times. Whereas if you start flat, simple, and just go forward, you can always move to tiers later. I hope that was helpful, David.
Our next question is about health insurance in the US. It’s from Albert. He says, “Hey guys, over the past few months, I’ve grown more and more frustrated by my current 9:00AM to 5:00PM job and more excited about my side project. I’ve been considering quitting my job if I manage earn enough funding to be able to support myself for a year or two, while working on the startup full time. My main concern would be the health insurance situation. If I were to quit my job and give up its benefits, how do you recommend I get health insurance? Should I get personal insurance or are there any services that work with startups and single founders? I’m based in Florida. Thanks.”
The US, Mike. The only country in the world where people voted for the right to go bankrupt from health insurance issues. It’s kind of catastrophic for entrepreneurs. I think it’s an absolute catastrophe that there are founders, I see this, people talk to me, they don’t want to leave their jobs and be a founder and founders are the people who make a difference in the economy. It’s like the small businesses, people who create jobs. That’s where real job creation happens. What’s the number? It’s like 80% of jobs created last year are in companies like 10 people or smaller. Some insane number like that.
The fact that this many people are concerned about it and rightfully so, because it is expensive, it’s just a real shit storm. I think it’s something that we got to figure out. Anyways, that’s his concern. What do you think about it?
Mike: Like you said, it’s a hard situation. I don’t think that there’s any easy answer. I’ve had conversations with people about this. Depending on where you live, the rates can vary pretty dramatically from one place to the next. I’ve seen things as low $800 a month for a small family of four and then I’ve also seen rates as high as $1,500 to $1,800 for what appears to be the same coverage.
I remember bouncing back and forth between various insurance companies for about four or five years mainly because the same exact plan would rise dramatically in price from one year to the next and then the exact same coverage from a different insurance company would be dramatically lower for no good reason. Like I said, I have my conspiracy theory about what they’re doing and how they’re trying to figure out how much can we charge people. And they just jack up the price until enough people turn out, then they turn around and then they change the price.
Rob: That’s such a conspiracy though because they regulate it. We had the guy write in, you know.
Mike: I know. I know. But it still feels that way. No matter what, you feel like you’re getting screwed by the health insurance companies, that’s just the way it is. Whether it’s happening or not, whether they’re doing a delivery or not, you feel that way. I don’t have any good answers here. I used to use an insurance broker in Massachusetts. You really can’t do that anymore because it’s small potatoes for them and a lot of the larger insurance companies don’t work with the brokers anymore. The small brokers just said, “We’re done. We don’t do that anymore.”
Rob: Isn’t it just when you go on an exchange? That’s what they have now, right? Is it healthcare.gov or whatever in the US?
Mike: You can but you’re not required to.
Rob: I understand but that would be where I would start.
Rob: That’s probably where I would start looking. As well as, Kaiser is not as cheap as it used to be. I had Kaiser my entire life growing up until I was in my 20’s. There’s always the HMO horse. They’re actually a premium brand now, they’re very expensive. Not very, they are expensive. But I would rather fall back to that. This is just personal, what I used to do when I was in between things that provided health insurance. I would do Kaiser or I would go to these exchanges or even go to, yeah there’s healthcare.gov for the government but there’s like a ehealthinsurance.com and there’s a couple other, I think was it healthcare.net? I’m trying to look for it right now.
It’s basically these places where they will give you quotes. There’s a bunch of people competing. You can at least look up insurance by state, and by this, and by benefit. It’s just a matter of doing some research and then realizing that the premiums are way too high for every plan and that you’re not going to want to use any of them. That’s how it always is for me. And then just picking the least of the evils.
Mike: Something else you can do is talk to a CPA and find out what you can right off and what you can’t because depending on whether you buy an individual plan for yourself as a family, where you’re paying out of pocket, versus buying it through the business, that may make a difference. It might cost you a little bit more but if you can write off more of it or write off the whole thing, then it drops your overall taxes. There are games that you can play there too. Just be aware that there is a big difference between an individual plan which is for you or just your family or whatever versus one that comes and insures your business and the employees in it, which you can be an employee in the business.
And then you also have to be careful about whether or not you’re classified as an employee in the business, based on what the state requirements are and whether or not you have to provide coverage. I think if you’re under 50 employees, you’re kind of exempt from most of those things but you opt in one way or the other.
Rob: Right. What we did with Drip as it started gaining a little momentum and we’re still very small but some people were trying to get their own personal health insurance and it was a lot more expensive and it wasn’t taken by as many doctors. I went to Zenefits. Since we were an S Corp, just got it set up there and was able to get everybody health insurance through Zenefits. It still was quite painful. It seems like it should be easier than it is but these are the options that I would look into.
Our last question for the day is from Mike Fleming. He’s asking about multiple email provider conundrum. He says, “The short version is what’s the best way to combine transactional email, newsletter, and Drip campaigns in terms of subscriber consolidation and cost effectiveness? As a small SaaS owner, I used Postmark for transactional emails and MailChimp for newsletters. I’d love to add Drip campaigns. When I do though, I’ll have two providers. MailChimp and Drip that I have separate silos of user info. There’s a third if you count my apps user accounts. If you combine my newsletter subscription and user accounts, I’m well into Drip’s custom pricing tier, which is cost prohibitive for me at this time. My problem consists of having these email mechanisms while managing the silos and not breaking the bank. What are best practices in this area? Also, thanks for all the great info over the years. Every Sunday, I load my iPod with Startups for the Rest of Us. It’s the first thing I listen to on my Monday morning commute. Thanks.”
I have thoughts on this.
Mike: Really. Do you, now?
Rob: Yeah. Can you imagine why?
Mike: I can imagine why. I would love to hear this. I have a couple of my own but I’m curious to hear what you have to say specifically.
Rob: To me, your apps user accounts, you got to decide what’s the source of truth for your business. If you have a SaaS app, then to me, your database should be the source of truth for all of this stuff and everything else should try to sync up with it but you should always look back at your database. It’s different if I sell my book and I have a blog. For those, Drip is my source of truth. I have no database because they’re not SaaS apps. Your mileage may vary but if you’re a SaaS app, I think your own database is the source of truth.
In which case, Postmark’s transactional so that’s not another source of tags or anything. It’s just a mechanism to get email out. Really, you have your own database and it should sync up with whatever email provider you’re using. You’re using MailChimp right now for newsletters. I would either stay whole hog on MailChimp or whole hog on Drip. I know Drip can do obviously way more automation and more sophisticated, more powerful than MailChimp. If the pricing doesn’t work and you can’t possibly get over there, then I would just hack MailChimp. I know it sucks but hack it until it works.
Once you have the money or realize that the hacking was too much of a pain in the ass, because oftentimes another $50 or $100 a month sounds like a lot until you are maintaining these hacks because you outgrow MailChimp, which is how we get a lot of folks who do come from MailChimp to Drip. They have just outgrown it and they had hack after hack trying to do modern stuff. MailChimp has “automation” but it’s not that good.
As much as I respect MailChimp, I like the founder, Ben Chestnut, when I email him, he emails me back. I respect the hell out of what they’ve done. They have legacy and it’s tough to get around that. Smaller episodes like Drip have been able to, I would say, just do a better job at making it easy to do exactly what you’re trying to do. Drip campaigns, autoresponders, and sophisticated funnels.
That’s the weighing, the balance that I would do. I would not spread my people across both MailChimp and Drip. Again, you could try to sync it up using API, we both have APIs. I just don’t think that’s worth it. I think you have to bite the bullet. You pay extra. Our pricing is actually quite similar to MailChimp so it’s funny that I don’t know exactly how many subscriber you have, maybe there’s a tier where it goes off the rails but it’s usually 20% different or something. It’s not like we’re twice the price or anything.
That’s how I would think about it. Again, your SaaS database, source of truth and then stay with a single provider and go with the one that does the best job. I personally, what do you call it, it wouldn’t be pennywise and pound foolish in the sense of I want to spend five extra hours writing custom code to make MailChimp do something when it’s like how much is five hours worth to me? How many months of extra 20% or 30% could that pay for in a tool that could actually do this out of the box, so to speak. Those are my thoughts. What do you think, Mike?
Mike: I guess my thought really went directly to the number of subscribers he had. I totally agree with what you’re saying about not splitting them up because that was the first thing that I had actually thought of, splitting them up and saying okay, all the newsletter subscribers, you put those on MailChimp and then all your actual users, you put them in Drip. I think that you’re just asking for trouble at that point so I immediately discount it, probably like you did.
My second thought was going to the list itself and the list size and the pricing differences between them. While you were talking, I just pulled them up and plugged in 100,000 subscribers into Drip and into MailChimp. I’m not clear on MailChimp, if it’s 100,000 subscribers, he didn’t say that number but I just pulled the number out of the hat. It’s $475 a month, and then on Drip it’s $779.
The question in my mind becomes there’s two things. One is as you said, how much extra time are you going to spend trying to make it work in MailChimp and my guess is it’s probably more than three or four hours a month. The other thing is with the mailing list of 100,000 subscribers, what could you do that would get you an extra $300 a month out of that mailing list?
It seems like with that many people on it, you should be able to or you should at least be able to call that list down to a bit more of a reasonable size if those people are not active. Get those people off that mailing list if they’re just not opening emails and they’re not engaged in any way, shape, or form. Like they’re not doing you any good, they’re dragging all your stats down and they’re giving you false information.
Rob: I’m glad you compared pricing. I’m showing $649 although I guess that’s annual if you go to Drip annual. You’re right. That is a 70% difference or 60% difference or something. It’s a lot more there. One thing that we have noticed, and this is not marketing speak or anything, we notice when people come over from MailChimp or AWeber or these other list based solutions, if they have 100,000, since you can have duplicates, the same person can be in multiple lists and you would get charged for each of those, we typically see 20% to 30% drops in list size. 100,000 that would go in Drip would only be 70,000 or 80,000. In which case the pricings could run up here. 70,000 is going to be $569. 80,000 is going to be $600 or something.
It brings you down even closer. Again, I’m not saying you should move to Drip or that you’re a fool to stick with MailChimp because they built a solid tool but it depends on what you’re doing and like Mike said, how much extra are you going to get out of a tool that allows you to build sophisticated flows and to do things based on people’s behaviours and what their purchase behaviours and that kind of stuff.
In addition, we have pruning built in. That’s another way to get your list down. It’s just remove everybody who hasn’t opened the last x emails. That’s how people keep list size down. There really isn’t pruning in almost every other email tool. Everyone of our competitors doesn’t have that because it makes them less money but we built that tool to make super one click easy to get people out. Again, that’s another way to reduce that cost.
I think that’s a good question though. I bet other folks have thought about it as well. I appreciate you sending that in.
Mike: With that question, I think we’re running pretty close to out of time. If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or you can email it to us at email@example.com.
Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.