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.
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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 interviews Derrick Reimer about the selling of his product Codetree. They discuss everything from the inception of the idea, to gaining traction, to launching, and finally the negotiation and sale.
Items mentioned in this episode:
Rob [00:00]: In this episode of ‘Startups for the Rest of Us,’ I talk with Derrick Reimer about what it’s like selling a $128,000 side project. This is ‘Startups for the Rest of Us’, episode 311.
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.
Derrick [00:28]: And I’m Derrick.
Rob [00:31]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s the word this week, sir?
Derrick [00:35]: Well, I’m getting geared up for a real winter to come for the first time in my life.
Rob [00:40]: Indeed. It’s been getting chilly the last couple of weeks, huh?
Derrick [00:42]: Yeah. We had our first drop below freezing last night, I think. For those who don’t know, I recently relocated, along with you, from Fresno, California out to Minneapolis, Minnesota. I’m a born and raised California native, so this is all a new experience for me.
Rob [00:56]: Well, I guess the highs have been in the 50’s, which isn’t bad, but when I’ve been getting to work in the morning it’s like 44 with wind. And realizing that it’s going to be 50, 60 degrees cooler than that here in a few months is a little chilling. But it’s been like, “Boy, I’ve got to get the big coat out of the closet.”
Derrick [01:12]: Yeah. My wife and I went out and bought jackets that can actually keep you warm in this type of climate, because we’re used to just our California jackets. Right now we’ve basically reached California winter status and it’s only October.
Rob [01:23]: Yes. That’s right. It’s really October. Cool. We’re here to talk today about your recent sale of Codetree. To give folks a little bit of background, you’re Derrick Reimer, cofounder of Drip. You were CTO to my CEO, nd we were acquired three months ago by Leadpages, everyone knows. But during the time that we were building Drip I have always had my little side projects, podcasts, and conferences, and I had HitTail going, and you went and built Codetree.com which is lightweight project management that lays over GitHub Issues. This actually came out of a need that we had internally, right? Managing multiple developers and prioritizing?
Derrick [02:02]: Yeah. We were using FogBugz before we switched to using GitHub Issues, and we were just starting to see the product wasn’t totally actively maintained and it wasn’t meeting all of our needs. So I really wanted to start using GitHub Issues. We were already using GitHub in a lot of our processes, so looked at that idea of using GitHub Issues, and it was not quite there. It was about 80% there what we needed. It seemed like there was an opportunity to just build a little layer on top, something that would give us the ability to prioritize things, and maybe view things in a little bit more compact manner. And so I looked into what it would take to do that, and then the light bulb went off in my head and I thought, “You know, I wonder if other people are using GitHub Issues in this way, and need to do a little bit more project management type of stuff with it?” So it was right around 4th of July, just about a year and a half ago, when I threw up a landing page for it. I just threw it together in a weekend, and started tweeting about it, ran a little bit of Twitter ads to push it out to basically the people on Twitter who are following GitHub, so I could target them pretty easily, and immediately started getting a bunch of interest, which kind of set me off on the track of building it.
Rob [03:09]: And were there a lot of competitors doing similar things at the time, or were you the one of the early ones?
Derrick [03:13]: There were a few. There have been more that have popped up in the last year and a half for sure. I did take a look at them, and they all were kind of lacking exactly what we were looking for. I had a little bit different vision for how it would work. Most of them were kind of locking you into a Trello-style task board view. It wasn’t quite exactly what we were looking for.
Rob [03:35]: Right. That’s what I liked about Codetree. We – just to give folks full disclosure – this is still what we use – even though you don’t own it anymore – we use it as it runs all of Drip’s [basically?] engineering prioritization. So all of our issues, bugs, new features go into Codetree, and we assign them out to all the folks who are working on them. We have our DBA in there. I’m in there for some kind of project management level stuff, and decision making stuff, obviously not pushing code. But one of the coolest parts of it — well there were a couple of cool parts. One is that you can do prioritization, which I think at the time you couldn’t do in GitHub. And the other thing was the fact that I can look at a table-based view per developer. So the Home screen for me is just each developer with a table of the first 15 issues that are assigned to them in priority order. But the developers themselves can just switch to basically a task-based view, I think you call it – task list view – and it’s like Trello. And so you can just work in that view. That was like the ray of sunshine. It just made tons of sense to do that.
Derrick [04:30]: Right. So it was very specific use case around GitHub Issues, and so it was something that I felt like was pretty safe from GitHub building themselves. I felt like this was a good alternative use case that that would be, hopefully, pretty resilient against GitHub kind of clobbering what I was trying to do.
Rob [04:48]: Right. I mean we had conversations all during this, because you and I were in a Mastermind with Phil, and we would meet every couple weeks. We were talking through like you need to be agile enough to stay ahead of them. It could potentially be an acquisition target later on, which is good. They very well may clobber you, but you have to think about innovating and doing things that they aren’t doing.
Derrick [05:06]: Right.
Rob [05:07]: And, you know, when you initially launched it, if I recall – I mean this was before you had an ownership stake in Drip, and you were essentially an employee of the Numa Group, which is what owned Drip at the time. And you were looking to grow this into like a full time gig.
Derrick [05:24]: Yeah. I definitely had the itch at that point to have equity in something, and to be using my skill set that I had built up over the last few years building products and then working alongside you on HitTail and Drip. I was really looking to leverage that into something that I could have ownership in. So I saw Codetree as a good stepping stone. You know, you talk about your stair stepping approach, and I felt like it is SaaS – which is a little bit more complex than something like a Word Press plugin or a one-time sale product – but I also felt like it was small enough in scope that it was manageable for my first crack at a SaaS app.
Rob [05:57]: Yeah, for sure. And this kind of was part of the reason we started having conversations about that, because it occurred to me like, “Wow! Derrick’s really valuable to Drip.” And you, obviously, had ownership and kind of a love for both of these products, right? You kind of had the desire to do them both, I think. And you were doing them both for quite some time. And I think you had dropped down to three quarter time with Drip at one point. And that’s when you and I really started talking about, “What does the future look like? Where are we 6 to 12 months?” And that really led to the conversation of, “All right. Let’s talk about cofounder status. Let’s talk about ownership.” And you communicated well. You were like, “I need to feel ownership in something. Like I’m the founder, I’m an entrepreneur. Can’t keep doing this stuff forever and working for somebody else.”
Derrick [06:37]: Yeah. There were like two conversations that stand out in my mind. There was a conversation we had right around the time when I was starting to build Codetree. And you approached me and were like, “All right. So, where are we heading?” Basically, “Is my long-term with Drip, or is my long-term with Codetree?” And at that point you were looking for a commitment, like which way is it going to go. And it was a tough decision at the time, and I ultimately decided to continue development on Codetree and forego setting that aside in favor of an equity stake in Drip. And then I think it was maybe seven, eight months later when Codetree had launched, and it was just starting to gain traction when we had a second conversation that ultimately led to me kind of doubling down my time on Drip and letting Codetree remain a side project.
Rob [07:19]: Yeah. I mean speaking of that launch, let’s give folks a context of how long did you spend developing it? How big was the list by the time you launched? How did you do the launch? Did you just email everybody? What was the early traction? We can talk numbers if you want, loose MRR, or if you don’t feel comfortable, that’s cool too.
Derrick [07:35]: I broke ground on – at least launching a landing page – in July. And –
Rob [07:41]: Yes. You started marketing before you started coding.
Derrick [07:43]: I did, yeah.
Rob [07:44]: I love it.
Derrick [07:45]: It was the first time I had done that. I had tried building other projects before, and I, of course, spent months building the product before anyone had even heard about it. So, I was determined not to make that mistake again. So, I put up a landing page, got the early traction. I started running Twitter ads and I felt like I could target the GitHub audience specifically. I felt like that was a good medium, and a lot of developers are on Twitter. I managed to find some things that converted well. I was gathering maybe 20 to 50 email addresses a day of just people clicking a button saying, “Yes, I’m interested in this product when it launches.” I had basically a one-page landing page set up that kind of described the problem it was solving. It had a headline something like, “You love GitHub Issues, but you hate project management, and here’s how Codetree can help you do your project management in the GitHub flavor.” basically. So that seemed to resonate really well with a lot of developers. I would say I didn’t have as many conversations up front as I probably should have had, but I took the signal of people clicking this button at least signaled their interest enough for, hopefully, a few people to be willing to pay for it once it launched. So with that bit of traction I started development probably a few weeks after I launched the first landing page. It really was a nights and weekends project for me. I was fulltime on Drip. It took me a good six months before I was able to launch an early access. I had a list of maybe about 20 people who I had more direct conversations with later on in the process, and I think I just gathered those based off of sending out an email to the mailing list that I had gathered through the process of running Twitter ads. By the time I launched early access I probably had maybe 1,500 people on that list; so a good chunk of people to start trying to get for my early access program. The response was good, but it was a good learning phase, as is most early access programs for SaaS apps. I learned a lot about what things people wanted built, and I kind of had to come to the decision of: Was I going to spend a bunch more time building full laundry list of features that people wanted, or was I going to launch what I had? And you, me and Phil sat around Mastermind meetings talking about strategy about this, like ‘Should I just get it out there, or should I try to build more features?’ Ultimately there were a few 11th hour features that made it in. Like I built a rough version of the task board, I believe, right before launch, but a lot of the things I just saved for post-launch. So it launched in January. First landing page in July, launch in January.
Rob [10:12]: Very cool. Do you remember what the conversion rate was to trial? And did you ask for credit card up front? I don’t recall.
Derrick [10:19]: Yeah, so no credit card upfront. I felt like developers especially would have a big aversion to that. And the conversion rate, that’s a good question. I’m pretty sure I got hundreds of trials after the launch, and I had a 14-day trial, so of course, there was the waiting game of waiting to see how many of those would actually convert. I believe at the end of my first month I had maybe between $400 and $500 a month in MRR, which felt like a big win at the time.
Rob [10:44]: Yeah. That was a nice little jump, kind of from a standing start, right, because you weren’t working from a network you had, you weren’t working from an audience. You just kind of proposed an idea, landing page, and built enough of a list to hit that. And that, if I recall, covered your expenses at the time. I think you were on Heroku and stuff, and maybe you made just a trivial amount of money.
Derrick [11:03]: Yeah.
Rob [11:03]: That’s cool. And then, it was a side project but you were investing time into a little bit of marketing and a lot of feature-building for the next, what was it, like four to six months before we really had the conversation about Drip, and you kind of shifted focus and really put it on? It wasn’t autopilot so much. You were still fixing bugs, and I remember you released some tiny little features stuff over the next six months after that maybe. But how long was that initial kind of investment after launch, and then we can take it from there.
Derrick [11:31]: Yeah, so I definitely spent a lot of time – nights and weekends – building out functionality in those months’ post-launch. I was trying to keep momentum going, and also trying to address all of the feedback that I had gotten from early access and from the initial wave of interest. So I think my wife could attest to that time was pretty crazy. We were still super aggressive on building out Drip, and so my days were filled with a lot of high intensity work, and then nights and weekends I was spending a lot of time building out features and probably not focusing much on marketing at that point. I was really just trying to keep the momentum going from the initial wave after the launch, and I remember, I think it was in March, I actually took a work retreat where I knew there were some features that I needed to bang out but I wasn’t going to necessarily have time to do them split up into small chunks. I really wanted to get some long stretches of time to get stuff done. So, I think I stole away to the central coast for a few days and just worked around the clock trying to hammer out some of those features. So I definitely tried to get creative during that time to get some big things done.
Rob [12:33]: Cool. And then at a certain point, obviously, you know, we had this conversation, and then you kind of made that transition. It was doing a few thousand dollars a month at that point. Is that right?
Derrick [12:41]: Yeah. I think it might have been around $2,000 a month at that point.
Rob [12:44]: Cool. And then at a certain point late last year — it was funny. I think I had gone on a retreat, or something, and I had written in my notebook – it was a bunch of stuff for me. And then I thought, “You know what, I wonder if Derrick should think about – he has enough revenue history, and I wonder if he’s still kind of committed to Codetree long-term, or if he should think about maybe selling it? And I wonder what he could get for it.” It was kind of just this thought process, and I think at the next Mastermind meeting you brought it up. And you said, “I’ve been thinking about selling Code -.” It was just funny that it had like both hit us at the same time. It was either late 2015, or maybe early 2016?
Derrick [13:17]: Yeah. I think you’re right. Something like that.
Rob [13:20]: Cool. What was the process for you? What made you – the thought process? You know, why did you decide to sell it?
Derrick [13:26]: You know, I was feeling like the product had a lot of potential still, and I felt like I just — especially with my decision to double down on Drip, I didn’t feel like I had the time to commit to it. The product was relatively bug free, and there was a happy base of users using it. I was growing by a handful of customers each month, so MRR was slowly ticking up. But there was still kind of an ever-mounting list of kind of larger, high level features and directions that I could take the product to really provide a lot more value to the customers. And I just didn’t have the bandwidth to tackle those larger things. I knew that in the hands of someone else it could definitely reach a much higher potential then where I was taking it. Also, I felt like ‘This can’t last forever.’ This market is competitive enough, and there’s enough innovation happening with project management in general, that Codetree can’t maintain its growth and its revenue in an auto-piloted state. So really, if I am going to sell it, probably the right time was then before the product started to decline.
Rob [14:29]: Yeah, and if I recall I said I would kind of check – I think I even checked anonymously. Didn’t I say, “Hey, I’ll talk to Tom Smale at FE and just check, “Hey, hypothetically I have this friend who has an app doing this much per month, and this much history, and what do you think he could get for it?” And he kind of asked some more questions and threw some multiples around, and I think you were like, “Yeah, I think this is worth investigating.” And so I made an intro between the two of you guys. What came next?
Derrick [14:55]: Yeah, you introduced me to Thomas, and we talked back and forth a little bit. I provided some more numbers, and he came back and said, “You know, I think this is a really strong app. There’s a lot of people looking for SaaS apps in this price range. There’s a lot of people wanting a first app to buy, and many of their best ones are in the $500,000 and up range which are just kind of out of the range for a lot of beginning folks. Then on the lower end there’s like the types of products you see on Flippa, that are maybe $30,000 to $50,000, and not great code base and all the other problems that come with that.” So, he made me believe that Codetree really kind of sits in that sweet spot, and he felt like we would be able to sell it quickly and be able to get an all-cash buyer. So all these things sounded really attractive to me. At that time, we were already knee deep in negotiation with Leadpages and, I believe, we were starting to near letter of intent and due diligence phase with that. So really, all these things were compounding at once, and that made it especially attractive to me the prospect of getting this sale done in a relatively short period of time.
Rob [15:59]: Yeah, if I recall you and I sold Drip; you sold Codetree; you sold your house; I sold my house. Did you sell a car or anything during that time?
Derrick [16:09]: I didn’t, but, yeah, it was really like a period of mass liquidation.
Rob [16:13]: Yeah, it was such an interesting and chaotic time. But there was a feeling of energy. I remember us kind of talking about it, of like, “Man, it’s good to kind of get some of the fruits of your labor.” You know, or like to be able to take some money off the table. And also to feel – I know that it had bothered you for a while that Codetree was there, and you knew it was solid, and you knew it could grow, and you felt like — It’s just a shame. I felt the same thing with HitTail. It was like, “Somebody should be growing this, and it’s just sitting there.” And so I knew it was going to be a relief for you when it finally closed.
Derrick [16:41]: Right.
Rob [16:41]: And so, it’s due diligence, but it’s essentially like all the requirements gathering and all the numbers, right? The FE has a really intense process there where they ask you a lot of questions about MRR, and where the traffic comes from, and growth opportunities and all that. How was that? How long did it take?
Derrick [16:56]: I had been warned ahead of time. I think at MicroConf earlier that year, Patrick McKenzie had talked about his experience selling Bingo Card Creator. You had the experience of selling HitTail. And so, I knew that it was going to be an intense process, but I feel like you’re never prepared for that; for just the amount of in-depth questions that need to be answered. So preparing income statements, and deep in-depth discussion about what marketing has been done, and how much has been invested in all the different areas to grow the business, and on and on and on. It probably took a solid two weeks of time just in my off-hours compiling together information and pulling data out of Stripe and all the different places.
Rob [17:34]: Cool. And then the sale happened pretty quickly, is that right? If I recall, you had several offers or at least several highly interested parties pretty early on.
Derrick [17:42]: FE likes to do like an early access circulation of a new prospectus. So they emailed their insiders group and tried to drum up interest that way. I think there were maybe three interested parties who came forth during that period before it even went to the broader audience. And, ultimately, the buyers who bought Codetree came through in that early phase.
Rob [18:05]: Right. And for folks interested in hearing more about this – especially from the other side – the buyers did a really good job of putting together a series of three blog posts. The third one culminated in this extremely long, very highly informative article about all the terms of the deal, and negotiation, and all that stuff. That’s really why you and I are able to come on here and talk about it, and why in the intro, or in the title of this there is going to be a price. Otherwise you wouldn’t have done that. But they wrote a blog post called ‘What It’s Like Buying a $128,000 Side Project.’ And we’ll, of course, link this up in the show notes. During the negotiation, once you had all the docs in there and then you started getting offers, was that stressful for you? Or was it — you know, compared to the Drip sale, I know that they are different orders of magnitude in terms of stress – but were you stressed or concerned or, I don’t know, did you feel out of control at all with the Codetree sale?
Derrick [18:53]: I think I would have felt that way if I were handling it on my own. I think having David from FE International, my broker who happened to also work with us on the Drip sale, was really pivotal for me in just keeping a level head. He bore the brunt of circulating this to perspective buyers, and vetting incoming buyers, and handling all of the follow up. We would have discussions and he would say, “Okay, this is what they’re offering. What do we want to say? Are you okay with this?” And I could just give him back an answer like, “No, I’m not okay with that.” Then he would handle the whole process of thinking through the best way to craft a response to the buyer that would not totally tick them off, or turn them away, or whatever. So just not having to deal with those finer points of the negotiation really eased my mind. It was in that first weekend – right after David had circulated the prospectus to the FE insiders – when I got initial interest from the ultimate buyers of Codetree. We had a call with them, and that was a little bit stressful to jump on a call with potential buyers. You want to make sure you don’t say something wrong, or something that’s going to hurt your negotiating position. So I definitely felt on guard with the first one, but David did a good job of kind of mediating the conversation and making sure that he jumped in any time there was a question that maybe was not something that we were willing to disclose at that time. So shortly after talking to them on a call an offer came through. That was a really exciting – just to get the first offer was a really exciting thing. We can talk about numbers, talk about what we’re going to ask for it, but actually getting a cash offer was pretty exhilarating. But the cash offer was for $103,000. So it was way lower than what I was asking at the time. And so, that stuck in my head where I was – there was a lot of emotions around it. One, I was exhilarated, but I was also mildly offended maybe that I would receive such a low ball offer. I remember thinking I had to decide at that point, was I willing to take less than what I was asking or was I willing to sit it out and wait for the right buyer to come along? And fortunately, David was there. I think I also talked to you about it. And everyone said, “Look, you don’t need to concede at all at this point. Just wait.” And that turned out being the right decision. But I think not being a savvy trained negotiator myself, it’s hard to think of like, “I’m going to just completely walk away from $103,000.”
Rob [21:14]: Right. Yeah. It’s definitely shocking the first time you see that and think, “Wow! That’s going to be wired to me in a few weeks if this all goes through.” But I totally remember you were in such a good negotiating position because the app looked gorgeous, it was solid, it was well built. You had your reputation of quality from Drip. I don’t want to say “overshadowing”, but kind of that Codetree benefited from, because Drip is just a really respected product, easy to use, and looks good. There was just so much going for it that Codetree was, in my mind, a premium product and a nice – it was a low priced product in the sense of we see a lot of SaaS apps that come through and they’re $800,000 or whatever. And it’s like, “Really?”, you either have to have a lot of cash or take out a big loan to do it. But to find an app of this quality in let’s say the low six-figure range, it’s pretty uncommon. And so, my gut was that, yeah, you were going to get a full price or close to that offer.
Derrick [22:07]: Yeah. It was fascinating to read the third part of the blog post series that the Codetree buyers put out, where they kind of go in detail about negotiation from their side. And they kind of outline, “At this point in the deal, here was our negotiating position, and here was the seller’s.” And kind of talk about how I think as a seller I was probably in the better position on this deal. So it’s really fascinating to see their thought process and how it aligned with what I was thinking at the time.
Rob [22:31]: Yeah. There is just a dearth of solid SaaS apps for sale, period. And especially at this price range. And I have several friends who have been trying to acquire things along this line for 12 to 18 months, and it’s just not happening. It’s definitely a seller’s market today, in terms of if you have a decent quality SaaS app you can get a good multiple for it. Cool. And so, you guys went through negotiations, you eventually settle on the price – as we said it was $128,000 – and after closing, did you get the bank wire right away? The same day that it closed?
Derrick [23:04]: No, so okay. If you’re ever selling a SaaS app don’t chose non-wire transfer methods.
Rob [23:13]: You went with the three day ACH -?
Derrick [23:15]: I went with the ACH. And so that was, yeah.
Rob [23:18]: But why did you go with the ACH, Derrick? Tell everyone.
Derrick [23:21]: Because there was a $20 fee for the wire transfer.
Rob [23:23]: There was a $20 fee! That killed me. I loved it.
Derrick [23:27]: When I made the decision, this was like weeks before it was ever going to close, I’m like, “You know, yeah I’ll save $20,” but totally not worth it.
Rob [23:35]: And then you got there and it closes. And there is some stress, or some anxiety, through it, and you get there and you’re like, “Finally, it closed today. Such great news.” And you’re like, “I cannot wait to see that wire in my bank account.” That is the true culmination, and the big dopamine rush, when you see it, and you had to wait three days for it. That’s terrible. I was like, “Oh, no!” And I think I was like, “Can you change that? I’ll throw the $20 in.” You’re like, “I totally want to do it.”
Derrick [24:00]: I tried. I tried.
Rob [24:01]: But it was too late, because it was Escrow.com or something, is that right?
Derrick [24:03]: Yeah.
Rob [24:04]: It was already locked in. So that was funny.
Derrick [24:05]: Yeah.
Rob [24:06]: And so, if I recall the next week you showed up in a Tesla, right? Is that what you did with all the money?
Derrick [24:14]: Oh man. I wish. No, I stuck it in a high yield savings account.
Rob [24:17]: Very good. Nice play, sir. Well, yeah, I think we’ve pretty much covered it. Is there anything else that you feel like you maybe left out of the story?
Derrick [24:24]: No, I think that covers it pretty well. I think probably my take-aways from this – if someone out there in the audience is looking to sell their product – one of the biggest things is don’t underestimate the amount of effort that due diligence is. And there’s things you can do to make your life easier, like keeping everything separated. I had a dedicated bank account for Codetree. I had a dedicated Stripe account for Codetree. All my other different SaaS things that helped power Codetree were all siloed in their own accounts, and that made the handoff a lot easier. It made it a lot easier to narrow down the exact costs that were involved, and where revenue was coming from. And I could produce a bank statement without having to filter out other non-relevant transactions. And so that made my life a lot easier. But there was still weirdness with like, when a Stripe charge comes in on one month do you count it in the month when it happened or do you count it in the month where the cash hit the bank? And you’ll see in the write-ups from the buyers that one of their big issues during due diligence was this supposed discrepancy in revenue reporting. So, some of these little things that don’t seem big in the grand scheme can potentially hold up the deal.
Rob [25:29]: Yeah, you were really well organized. And that’s kind of your nature and I think it helped make this a less stressful process. When I sold HitTail, which was November – it was almost a year ago now – it was so enmeshed with other things because the Numa Group had all these products at one point, that it was much more of a headache for me. Even to just suss out the numbers- the expenses mostly – because they were all comingled with things on the same credit card, and then the transfer over it was actually in the AWS account that Drip was in at the time. It wound up being a big mess during the actual transfer process. But yeah, I think that’s a really good piece of advice for folks who are listening.
Derrick [26:05]: Yeah.
Rob [26:06]: Sounds good. Well if folks want to keep up with you online where would they do that?
Derrick [26:10]: You can keep up with me on Twitter. I’m @DerrickReimer. And I also have my website at scalingsaas.com where I blog occasionally and publish other content.
Rob [26:19]: Sounds great. And you’ve been cohosting the Giant Robots podcast for a few weeks, right? I think you’re on maybe a hiatus right now?
Derrick [26:25]: Yeah. So, yeah, Giant Robots is in its third iteration, and Ben is bringing on cohosts to cycle in and out. And so, I’ve had an eight-episode stint there and it’s been a great time. We kind of delve into the behind the scenes of building out SaaS apps, so we talk a bit about behind the scenes of Drip, and also some technical things too.
Rob [26:44]: Sounds cool. So if you’re listening and you want to hear more from Derrick you could actually check out certainly Giant Robots, the last eight episodes. I’ve listened to them all. They’re very, very good. And there is more about Drip and other stuff in there, too. And then, actually episode 274 of ‘Startups for the Rest of Us,’ you came on and we talked about how to mentally and technically prepare for your launch, and we talked through the launch of workflows that happened earlier this year.
Derrick [27:03]: Yeah, it was a good one.
Rob [27:04]: Sounds great, man. Well, thanks for coming on the show.
Derrick [27:07]: Cool. Thanks for having me.
Rob [27:08]: If you have a question for us, call our voicemail number at 888-801-9690 or email us at firstname.lastname@example.org. Our theme music is an excerpt from ‘We’re Outta Control’ by MoOt. It’s used under creative comments. 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, Mike interviews Gabriel Weinberg, founder of DuckDuckGo, about the mistakes founders make in getting traction. They also discuss Gabriel’s new book “Traction: How Any Startup Can Achieve Exposlive Customer Growth”.
Items mentioned in this episode:
Mike [00:00]: In this episode of Startups For the Rest of Us, I’m going to be talking with Gabriel Weinberg about the mistakes founders make in getting traction. This is Starups For the Rest of Us, Episode 257.
Mike [00:17]: Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products. Whether you built your first product or you’re just thinking about it. I’m Mike.
Gabriel [00:25]: Hey, I’m Gabriel.
Mike [00:26]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Gabriel?
Gabriel [00:30]: Great. Thank you for having me come back.
Mike [00:33]: Yeah, no problem. So to give the audience a little bit of preview here, we’re going to be talking to Gabriel Weinberg about the mistakes that founders make in getting traction. We talked to Gabriel back in Episode 199 about a year ago, and for those of you who don’t remember or didn’t listen to that episode, Gabriel was the co-founder and CEO of Opobox which sold for ten million dollars back in 2006. In 2008, he started DuckDuckGo which is an internet search engine that emphasizes protecting searchers’ privacy and avoiding the filter bubble that is offered by personalized search that you would be most familiar with from Google. So you’ve co-wrote the book ‘Traction’ with Justin Mares and people can find that at either tractionbook.com or Amazon or Barnes and Noble. The new version comes out today. In that book you talk mostly about the bullseye framework that people can apply to help them get traction. Because the second edition of the book is hitting shelves today, can you give us a little bit of a refresher for those people who didn’t catch that episode about the bullseye framework and what the book itself is about?
Gabriel [01:32]: Yeah, sure. I actually started working on this book a long time ago, back in 2009, when DuckDuckGo was just starting to get traction itself. I was trying to figure out how do I get more traction, which is obviously what almost every business sets out to do once they launch their product. How do I get this thing traction? I found out that there was no great framework for getting traction. There was nothing like a procedure you could do to really think about how to pick the best marketing channel for your business at the time. So I went out just to investigate that myself. Then after interviewing lots and lots of people, really hit upon this framework, and extracted it from their successes and called it the bullseye framework because of all the channels that you can use, and we identify 19 in the book, you’re really trying to hit that bullseye, the right channel for you to grow your startup and meet your traction goal. So once I had the framework, I realized there’s really a need in the market for this book just so that startups can use this. That’s when I got my co-author, Justin Mares, to help really flesh out the book. From then, I thought I was 70 percent done, but I was really 20 percent done and I had to really write the book, edit it, and put it out last year. People started using it right off the get go and it starting working really well for people. We sold 35,000 copies, sold out our three printings. Then I started talking to people, doing events, and all sorts of things and really understood where people were getting it wrong and where people were getting it right. From that, I wanted to do a re-write that more crisply helped people get traction and that is what this second edition is. In that context, the bullseye framework in the first edition was a five step process and we simplified it in the second to a three step process. That three step process is simpler and it is the following: the first step is to go through all the 19 channels, these are all the different ways you can get traction, SEO, search engine marketing, trade shows, etc., there’s 19 of them, and really brainstorm a test in each channel where you could possibly get traction from that channel. Then the second step, and we’re talking about this, but the visualization of this framework is a bullseye, like a target, with three rings. So that outer ring is these 19 channels. Then the middle ring is you pick three that seem the most promising tests to run then you run those tests. Those tests are meant to be very small, simple tests, take less than a month and $1,000 to figure out how many customers you can really get through that channel, how much it would cost to acquire the customers, and are those the right customers you need right now to achieve your traction goal. So you run those tests in the middle ring. Then hopefully we assume one of those middle tests look really promising. One of those channels seems like it could be the channel to move the needle for your business. Then you go down to the inner ring, the bullseye, and you double down on that channel and focus on it and try to achieve your traction goal through it by running additional sets of tests within the channel to discover the best strategies to do that. So that’s why it’s called the bullseye framework is because you’re trying to hit that bullseye and find that one channel of the 19 that is going to make you hit your traction goal.
Mike [04:49]: When you went about this new edition of the Traction book, what areas were you seeing where people were making mistakes in implementing it? Was it a result of the fact that it was a five step process and it needed to be cut down to the three step process or were they just kind of misinterpreting different things? Is it the difference between optimization or understanding?
Gabriel [05:07]: The three step process really simplified it and people were a little confused by some of the steps that we had cut out. They were things that you needed to do, like ranking the channels and prioritizing them; really we combined into just one step. There was a little confusion around that, but the bigger issue was in each of these now three steps there are ways that people routinely messed them up. We tried to reorganize those parts to really make it clear to not mess it up in those ways. They’re non-intuitive ways and I can go through each of those. Besides, that’s all in the intro, the first five chapters. Then the last 19 chapters are a chapter for each of the channels. For those, we updated them and we really tried to edit down the parts that were kind of too fluffy. We just did better editing. We ended cutting out about 50 pages of the book even though we added two additional sections, a preface which explains kind of my history of getting traction and some of the mistakes I made, and then a testing addendum at the end which is one of the things people really wanted and were messing up of how to do cheap tests in each of the channels. We have a list of all the channels and we give you a way to do cheap tests in each of them.
Mike [06:20]: I think those extra tests are extremely helpful just because it may not necessarily be clear for some people, for example, offline ads or viral marketing and things like that. You kind of have a conceptual idea of what it is, but you don’t necessarily know how to go about doing it because you’ve never done it before or you’ve never considered it before. I think the addition of those things can certainly help a lot of people. What are some of the broad non-intuitive mistakes that you were seeing people make over the last year of talking to people that are pretty common?
Gabriel [06:52]: Right. There’s four of them. Three of them relate to each step in the new process. The first one is over-arching before that and it’s not starting traction early enough. People think that they need to, and we did say this in the book, but you know now it’s says a lot more crisply, people think that you really need to launch a product before you start going to get traction. The reason is the ‘Leaky bucket’ metaphor. We reuse that in the book and try to use that to explain it. The ‘Leaky bucket’ metaphor is when you start your product it has a lot of holes in it, right? It’s essentially a leaky bucket and if you pour customers on the top, and you can think of customers as money because it costs to acquire customers, then that money is leaking out. So the intuitive answer is I should not spend money on traction efforts until my bucket holds water. The problem with that is that what people do instead is they get beta customers and they get these beta panels and they iterate on the product just off these beta customers. Those beta customers, they’re too close to you. Not only do you become friends with them and you kind of know them, but they are not getting first impressions of your product at any time. They are seeing this evolution of the product and they are primed with what they previously know whereas if you have a steady stream of cold customers coming through, through some traction efforts then you’re constantly seeing real market feedback and whether your product is really going to resonate in the market. You want that so you can really figure out where the holes in your bucket are or else what happens is, this is what usually happens, you then launch your product, start to get traction, try to get traction, and realize, “Oh, I thought my bucket wasn’t leaky from my beta customers but it really is still leaky.” So you really want to start that traction effort right away, right at the beginning of product development. We try to argue strongly in the book that you should spend 50 percent of your time on it. Just to make it even more clear of why you should do this is you think that you might be getting a lot of this information from your product development methodology from your beta customers, but what you’re getting in addition to finding the holes is when you’re testing these traction efforts, you don’t have to spend a lot of money on it just to get a few customers coming through cold, you’re figuring out what messaging is best. You’re figuring out what niche to focus on when you launch. So when you do launch you can figure out the right channel to launch with, the messaging, the niche to focus on, and you can really hit the ground running with a real useful product launch.
Mike [09:27]: Yeah, as you were talking, and I’m not sure this is a good analogy to make, but the whole leaky bucket, I think that people have this whole conceptual idea of like all the holes are exactly the same size and I just need to put a patch over each of them, but the reality is that depending on your product those holes can be different sizes. They can be different shapes and the solution to patching each of those holes can be completely different. You need the customers going through that bucket in order to get the information you need to figure out what the patch is for that. So whether it’s a new feature or whether it’s a new marketing message, every single patch is going to be different. You can’t just take a blanket approach of, “Oh, let me create this product and implement all these features because I think that’s what people want.” Those customers coming through and leaking out of the bucket is where you’re going to get the information you need in order to patch those holes. You can’t do it in advance. If you try to, your patch is not probably going to be the right size or shape and you’re going to end up doing too much work or not enough work. In either case you’ve either wasted effort or not done the things that need to be done and you’re still going to be leaking things out the bottom.
Gabriel [10:31]: That’s exactly right. I think the real known intuitive piece is that you have a false sense of security with beta customers. That’s been the product development methodology for a long time and it’s a good one. You should have beta customers, but it’s just not enough.
Mike [10:46]: What are some of the mistakes that people make in terms of the different channels? Because obviously there’s 19 different channels that you can choose from but there’s going to be certain ones that people are much more familiar with. Shouldn’t people be focusing on those?
Gabriel [11:00]: Right. That’s the number one mistake in the first step. When you’re brainstorming all these channels, people navigate towards the ones they’re already familiar with. That’s just availability bias. We saw more and more that people just wanted to ask us and say, “Okay, which of the channels are great for my type of business. Which are good for SaaS businesses, which are good for this offline retail business. That’s the wrong question to ask because you almost want to ask the opposite question. This is the non-intuitive piece of which are the most underutilized channels for my industry or business. Often those are the ones that are greenfield that you can have huge traction opportunities in. Unfortunately, the piece that people mess up is they often ignore these underutilized channels because they’re not familiar with them because they’re from that industry. Say everyone in that industry is using search engine marketing so therefore they need to use search engine marketing. That’s usually a bad idea because that channel is very competitive because all your competitors are using it. If you could find something better to do, even offline, that would be a good choice. A good example of this is WP Engine, the Word Press and hosting company which we profile in the book. They are an online hosting company for word press. A very competitive industry. They ended up going for two very underutilized channels through different parts of their growth. One was offline ads. So they ended up a lot in magazines which no one else was really doing. Then two, they built a side product, a speed tester for word press which we call as a channel engineer and as marketing where you build this other tool that’s completely free on another website that’s complementary to your product. Then everyone started using their speed tester and then they could capture their e-mail and upsell them on the hosting product. If they had just focused on the regular channels, search engine marketing is what people mainly use and SEO, they would have had a much harder time growing.
Mike [12:53]: Now isn’t the risk of doing that also that you are choosing channels that your existing competitors have tried to make work and were unsuccessful doing? That would be my natural inclination. My fear would be, “Oh well, I’m not sure about doing offline ads because there must be a reason that my competitors aren’t doing it.” Is that a fear that people should be concerned about? Is that a real fear or is that more imagined than anything else?
Gabriel [13:19]: I think that’s a fear that people really have. It’s an imagined fear in the sense that almost everyone has the same availability bias and so, quite honestly, no one is really testing these under utilized channels for the most part. But, you make a really good point which is it’s almost the highest leverage tactic you can do. Go talk to other founders, not currently competitors, but failed competitors in your space who are very willing to talk to people usually. They’ll go tell you about all the things they tried and why they failed. It may be the case that they did try something five years ago that didn’t work for x, y, or z reason that may work now or you may discover they tried a bunch of things that for good reason won’t work now. This is kind of the other broad area where people fail in this first step of brainstorming is that they don’t really brainstorm deep enough. You really want to have a good sense of your competitive landscape, whatever you think, marketing channels everyone’s tried, go talk to people of things they haven’t tried, go talk to complementary industries to see what they’re trying. There may be some overlap there. Really spend a lot of time thinking about each channel and how it could be used whereas what mostly happens is people say, “Oh, I don’t know much about that. I guess maybe I could use that for something,” and they give it maybe a minute of thought. The problem with that is that underutilized, overlooked channel may be the one that could just jump you to success.
Mike [14:46]: But I guess how would you know? That kind of comes back to the question of how to test these different things. If you’re looking at a particular channel and you’re not entirely sure how to go about testing that channel, there’s, I think, this bias towards not spending a heck of a lot of money or time doing it because you don’t know what you’re doing. How do you come and get past that? How do you scope the tests that you’re doing such that you’re not wasting time and money, but you’re still doing what would essentially be a definitive test to find out whether or not that channel is going to work for you?
Gabriel [15:18]: Right. That’s exactly why in the second edition we added this testing addendum where we’re giving you suggestions of how to test these channels. In the scope of these tests, you’re trying to answer three things again. You’re trying to answer how many customers could I get through this channel and how scalable it is; how cost effective it is, how much does it cost to acquire customers through the channel; and are these the right type of customers that I want right now because each channel can bring in slightly different demographics and types of customers. You’re measuring those against your traction goal which is also a hard number, which in the beginning is often how much traction do I need to get to profitability or financing. Say I need 1000 customers and I run a test and this channel we only think it’s going to give 100 then that’s probably not going to be a good one to focus on whereas one of these that say, “Oh, it seems like I can get 10,000 if I really blew this out.” That might be a good one to focus on. So what you’re doing in that first step is really identifying tests you can run in each of these channels and then you look at them and you say, “Okay, based on my guesstimates of these tests, I think these three tests are the most promising to run.” Then you literally run them in the second step. The part that people mess up in that second step is trying to optimize too early, premature optimization there, and if Facebook ads are the channel you’re going to test, you run 40 ads. You really shouldn’t be doing that. You should be running four ads and what we say in the book now is don’t run a test longer than a month or more than $1000 except in extenuating circumstances. Then from those tests you can have data to dump to the next step. So to really answer your question is you need a good way to run a cheap test in these channels and if it’s cheap and short then it’s really easy to test these underutilized channels because you have a good sense of what you can do that doesn’t take a lot of time or money to really bear out whether that’s going to work or not.
Mike [17:12]: Now are there any guiding principles around that $1000 versus the month of time? Is that just an arbitrary cap or is that something that is helpful for a founder who is trying to boost up a company and they have much more time than money versus somebody who says, “Hey, I really need to find this out fast, let me just blow $1000 in a week to try to test out say paid advertising or something like that.” Are there guiding principles around striking that balance or is it more just kind of what resources are available to the founder?
Gabriel [17:42]: Well we look at all, we try to come up with good cheap tests for all the channels. We looked at them and we said, “Okay, that cutoff seemed appropriate and it encompassed all these test ideas.” Then where we saw people messing up was they were spending either too much money or too much time on these tests and not cutting them off sooner when they had the information they needed. So, yeah, it is a guiding principle. I think that particularly is guiding for early founders trying to initially find their traction channel. The caveat there is like DuckDuckGo or I Am Now, we’re running tests of much greater magnitude because our traction goal is so much higher and we want to get the error bars down on our estimates so much lower. So we’ll run bigger tests that take longer and take more money. When you’re first starting out or just going into a channel for the first time, I think you should keep it really small, even if you had a lot more money and time. There’s no more reason because you reach diminishing returns very quickly on these tests.
Mike [18:43]: Got it. So the purpose of those principles of $1000 or no more than one month of time are really for newer businesses that are just going into a channel and those limits can fluctuate between the different types of channels that you’re going into. So when you’re targeting blogs, for example, you wouldn’t probably be spending $1000 but it might take you several weeks of back and forth with the relevant blog owners in order to get your product mentioned on their site or to kind of get through their process of doing guest posts versus something like paid advertising where you may very well spend up to $1000 and you can do it within a couple of days, but those bounds are really to encompass all of the different channels that you might try.
Gabriel [19:27]: That’s right. Exactly. A lot of the tests will be free. Some of them you can do very quickly. Yeah, they’re more like guidelines of limits. If you see yourself going over these limits early on, you might be doing something wrong.
Mike [19:39]: Right. That totally makes sense. I just wanted to make sure that we clarified it for the listeners. So are there any other mistakes that people are making when they’re going into specific channels? If you’re testing a specific channel, what sorts of things should you be focused on? Obviously there’s also the potential to focus on multiple channels. Why wouldn’t you try to do more than one at a time?
Gabriel [20:00]: Right. So in the testing phase, the things that people really messed up are the premature optimization, going too deep while you’re just trying to get error bars around these numbers, and the second is not really doing it quantitatively which we really haven’t mentioned. You have these three questions you’re trying to answer and you really should be trying to get hard numbers against them and then compare those numbers to another hard number which is your traction goal. Once you identify the right channel that is really promising that seems like it might actually work in the sense that the numbers look good, and if it looks like you started to optimize it and scale it, it would reach your traction goal, then you’re doubling down. This is the other area people mess up. This is the inner circle now. You hit the bullseye and you’re working on that channel not getting rid of the other channels. It’s really non-intuitive because say you have three promising tests in channels. Say you did a little PR and you did some social ads on Twitter and you did some offline meet ups. All three, they were promising. They had a little bit of success, but the Twitter ads were just well and above the rest. The right thing to do in our framework is to double down the Twitter ads and really focus on that. What people often do is they still focus a bit of their time on the PR and the meet ups because they know they are going to get some results out of them. The problem with that is their marginal benefit of focusing on the Twitter is much higher and when you really focus on it, what you’re really doing then is now focusing your testing effort on that one channel so now you’re uncovering the underutilized strategies and tactics within that channel. The only way to do that is to really focus. The time you’re spending on these other channels that yeah, they get you a little traction, but that’s time taken away from uncovering the best tactics you could use on the main channel. That’s the other area that people messed up when they’re focusing is not really doubling down on the one channel and getting rid of the other tests they were running.
Mike [22:03]: It almost seems like by focusing on the one channel you’re getting exponential results versus some of these other channels where you’re getting incremental or multiplicative results which are not comparable if you go far enough into that one channel that you’ve dug into or that you’ve identified as the one that’s going to give you the most traction. Is that an accurate way to portray that?
Gabriel [22:22]: Yeah. Not everyone can get the exponential growth, but that’s what you would hope. To do that, what you’re doing or advocating is you are becoming a worldwide expert at that channel. If you’re really focusing on say social ads via Twitter and Facebook, you’re really digging into all the case studies, all the forums, what people are on the platform cutting edge, what they’re saying about their own platform. For example, so right now Facebook video ads are kind of outperforming everything because Facebook is really focused on competing there. That may not be the case a month for now, but you want to be first to those tactics because when you’re first to those new tactics, those are where that exponential stuff really happens, the really high click-through rates and things like that. You want to be on the cutting edge of those. This just goes more into saying that going to underutilized places in the world gives you great conversion rates both channels and then tactics within channels. The only way to really do that is to really be in optimization mode and that requires a lot of effort and all that other effort is distracting you from getting there.
Mike [23:30]: Now one of the things that you talked about earlier was that you have to be in each of these channels and before you even do that you go and you define what your traction goal is going to be so that you have some sort of basis for measurement. Now how do you define that traction goal? What should that look like? Are there some ideas that you can share about how to define what that is or is that more specific to the type of product that you have?
Gabriel [23:54]: Yeah, I totally agree. That’s basically step zero. The other thing we added to the book was a preface about a little more of my history. That’s something I messed up early on. To give you a good example, I set out early on to get traction via SEO because that’s what I knew from my last business. But it turns out that I was pretty successful at that and spent a lot of time doing it and so I ranked really highly for the term new search engine to get to duckduckgo.com. I got number one on it, but it was just not enough people to really move the needle for what my traction goal really needed to be which ultimately was like 100,000 searches a day, not 10,000 which is where that ended up getting me. If I had sat down initially and realized my traction goal should be 100,000 searches a day, then I would have looked at SEO and either changed my SEO strategy completely or not done SEO to begin with. So it really is important to take a step back initially and figure out what your traction goal is. What I think that should be is a hard number that really moves the needle for your business and achieves some kind of significant inflection point of your business. That could be a number of things depending on what your situation is. The number itself, of course, will vary depending on your business, but for most people starting out that number is often one of three things. It’s how much traction do I need to get profitability, how much traction do I need to get financing, or what do I need to prove that I have product market fit. Those are usually specific numbers like I can look in the market and see which companies are getting financed and see how much traction they have in terms of growth or revenue or whatever the metric is in your industry and say, okay that’s what I need to hit. Then you can back out from that from your pricing about how many customers I kind of need and that’s the number you should be evaluating against these tests. You should definitely start identifying what that goal is. It goes right back to what kind of business you’re running too because if you’re not concerned with high growth or financing and you’re really concerned with paying your bills at a certain level of profitability, then that should be your goal. You should say I need to take home x amount a month and from that I can back out how many customers I need to do that then that should be your traction goal.
Mike [26:10]: Yeah. So those traction goals can either be the revenue that you’re specifically looking at or could be tied to a piece of functionality in your product. For example, a search engine, number of users is much more important, or not even users but like searches per month is important versus if you’re in a situation where you need to be able to pay the bills, you need to have that revenue coming in and you need to be able to tie those marketing efforts directly back to those revenue goals. You can tweak the numbers in terms of the price and the number of people coming in and just do some multiplication there to figure out is this really working for me, is this going to be a channel I can leverage or do I need to go someplace else? Depending on which of those situations you’re in and which of those metrics is important to you, you can then find what your traction goal is.
Gabriel [26:57]: That’s right. That exercise, that’s basically saying what is your business model and trying to clarify that initially, which is really an exercise everyone should do because, like you said, you can think about the pricing of your product. There’s a good post, I’m forgetting who wrote it, about the ‘hunting’ metaphor, but like hunting deer and elephants and different things, but it’s basically saying how much it’s going to take to get to a million dollar business which is what most people’s goal is initially based on what your price point is average revenue per customer. There’s wide ranges of businesses that get $0.10 a customer to $10,000 a customer and knowing where you are on that scale really influences what your goals are in terms of how many customers you need, which then changes everything about how you’re going to get traction.
Mike [27:44]: That article that you just mentioned was from Kristoff Jans and he wrote the blog article on ‘Five Ways to Build a One Hundred Million Dollar Business’. It’s kind of a graph of the size of your customer and how much money they’re paying you versus the number of customers you have. Obviously there’s this graph that goes along with it. I think the two extremes that he uses are one thousand enterprise customers each paying you $100,000 a year or, on the other end of the spectrum, you’ve got 10 million active people who you’re monetizing at $10 a year by selling ads for example. The metaphor is essentially you’re hunting elephants or hunting mice and how many of them do you want to go after and what’s your business model look like? I think it’s an interesting metaphor he used.
Gabriel [28:26] Yeah. He’s got a follow up too. He adds three more things there and he goes down to hunting flies because people wrote him back and they are like what about some of these other businesses? So he has an addendum article. It’s even a wider range. It’s really interesting because each of those categories are very different businesses, but has very direct implications for how many customers you need and how much traction you need and what your traction efforts are. So it’s really good to think about that ahead of time and think about really which type of business am I in? Which category am I on the scale?
Mike [29:00]: I think that leads back to another interesting point about if you start bringing that type of model in and start looking at, for example, a SaaS business versus a services business. Services businesses fit into this model where you’re probably charging them a heck of a lot more because you have to, because you’re interacting with them. You have to sell them on an engagement and it might be five weeks, it might be five years, but the reality is you’re charging them a heck of a lot more and those are kind of your elephants versus a SaaS model where, I guess, traditionally you want to charge as many customers as you can smaller amounts of money. But the problem is that it takes much longer to get that mass of customers. That kind of leads back to the analogy that Gayle Goodman from Constant Contact called the ‘Long, Slow SaaS Ramp of Death’. Getting that mass of customers that you need takes a long time. You can get there faster if you can charge fewer customers more money, which lends itself more toward the services model, but a lot of people are trying to get away from that if they’re trying to build product. There’s this balance that kind of needs to be struck and, as you said, it depends a lot on the model that you have behind your business. I think it’s interesting how that should be what is the piece that’s influencing what your traction goals are. I think that sometimes it’s a little confusing because the type of business that you want does not necessarily match up to the type of business that you’re going to end up with.
Gabriel [30:23]: Yeah. Right. What you’re getting at is people end up going through this and not doing this early and then they meet with kind of that harsh reality a little later on. That’s why I think it’s good to do this early and really think about hard numbers, what your goals are, because that will inform everything. Maybe you want to change what you’re doing initially.
Mike [30:44]: I think that’s a super important point to make just because going through this process you may very well find out, hey this isn’t the business that I thought it was, maybe I should go do something else. So what startups have impressed you with their ability to gain traction and why? What is it that has made them so successful?
Gabriel [31:00]: So we profile a bunch of ones in the book and each kind of has an interesting story that they did something really cool with traction. This concept, I was talking earlier with WP Engine and this engineer and his marketing I really liked because we literally had to name that channel because no one else really had named it. HubSpot and RJmetrics are two other companies that have really embraced that channel and does it pretty well. Moz would be another one. They’re all making complementary tools and sites and they’re using some of their engineering resources. The reason why it’s so cool is it’s non-intuitive that engineer resources are so sacred in a company that everyone thinks they should always use their product, but this is taking a little of those resources and using them for marketing. Developing this other tool that then drives the whole business. So HubSpot recently IPO’d, did that with their site called Marketing Greater where you could go type in your domain name and it would tell you all about how you’re doing in online marketing which basically every business who goes online needs. So they got millions of businesses through there and then from that they had a great lead channel to do inside sales and sell them on their main product. Moz has done the same thing and RJmetric which is a kind of cohort analysis company in data analytics, has done it with a bunch of different sites where a lot of their target audience is in house data development and teams who independently need to do database queries and things like that. So they made all these database kind of tools for these developers and then on there they educate them about RJmetrics. So I really love businesses go after these kind of underutilized channels. Another good example of another under utilized channel is publicity stunts which most people completely shy away from because it seems like they would be unscalable and repetitive. To some extent that’s true. There’s been a lot of ones that happen just at launch. A great example, an old example, but I like it also because I’m in Philly, for example is half.com, Josh Kopelman who currently runs First Round Capital. When they first launched half.com they had a city in Oregon renamed to half.com, Oregon, which was Half, Oregon, and they gave two jobs to the of the people there. The whole thing cost maybe $100,000. Got them national TV across the board, 40 million impressions before there were any social media. So back in 1999 and immediately vaulted them up. Six months later that company was sold for 300 million dollar plus. Then another company who does publicity stunts, Grasshopper, they really have invested in this over time and they have two employees completely dedicated to thinking up these publicity stunts and things they can do, run contests and things like that. Half of them fail, but they’ve gotten most of their traction through this effort because when they do take off it’s such a great press story. They get so much press it makes up for everything.
Mike [34:05]: Now at what point do you start taking into account the ROI on some of these channels because some of the things that you just used such as HubSpot, they have these different website marketing graders and things like that, but their price point is also substantially higher than I think your average run of the mill SaaS application. I think that their pricing starts at $200 a month and if you kind of extrapolate and say, “Ballpark it, I don’t know what these numbers actually are.” If an average customer sticks around for two years with them, that’s $4800. So for them it makes sense to fill that pipeline with as many people as they can because each of those customers is going to net them $4800. It becomes this awkward situation, especially for the people who are running really small businesses where the look at that and say, “Well that sounds great, but I can’t really afford to have an inside sales team calling these people even if that is going to be successful because I just simply can’t afford it.” How do you take those types of considerations into account?
Gabriel [35:01]: This is where the testing really comes into play. When you’re running these tests you’re trying to assess those three numbers, what the scaleability of it is, how many customers, how much it’s going to cost to acquire the customer, and is it the right customer? The second one, how much does it cost to acquire the customer, is the key one here. In this scenario, say the engineer and his marketing, they don’t need to have an inside sales team necessarily. It could be an off the shelf product that you sign up for in some kind of signup flow and that’s the test that you’re running. Will people convert from this and sign up and then how much would it cost to get them? How much contact would I need to have with them. You’re absolutely right. If you’re a small SaaS company you can’t afford any kind of personal contact like that. It costs too much money. So you need to be testing whether it will just work for your regular signup flow. I think that all comes out in the testing. That relates back to your traction goal and kind of knowing how much you can spend to acquire a customer.
Mike [35:57]: I think that’s a pretty good place to wrap it up. This book comes out, I believe, today you said, correct?
Gabriel [36:02]: That’s right. Today. October 6th.
Mike [36:04]: So if anyone’s interested in buying that, they can go over to tractionbook.com. We’ll link it up in the show notes. They can also get it on Amazon or Barnes and Noble, correct?
Gabriel [36:13]: That’s right. We have a couple other retailer links like IndieBound. They’re all at tractionbook.com.
Mike [36:18]: Great. If anyone wants to follow up with you, where would they do that?
Gabriel [36:21]: Twitter is best. My handle is @yegg. Y-E-G-G.
Mike [36:25]: Awesome. Well thanks for coming on the show Gabriel.
Gabriel [36:27]: My pleasure.
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