you2idea@video:~$ watch otbnC2zE2rw [1:05:37]
// transcript — 1476 segments
0:01 so what I would like to do to kick this off is talk about what I think a
0:07 so-called perfect the bootstrap startup is and what are those attributes what
0:11 does it mean in terms of making money in terms of going to market in terms of
0:15 acquiring customers and why could because I think most companies don't
0:20 work and just like heat and said in the in the video they're most companies for
0:24 one don't build something people want but I think it's even worse than that I
0:27 think they also maybe are building something people want but not in a
0:30 structure that lends itself to bootstrapping that is not in a structure
0:35 that lends itself for low money low time and all that kind of stuff either and I
0:39 feel like a lot of companies fail just because it's not a good fit for the
0:43 resources and constraints and advantages that you have having a small company and
0:46 as Rob alluded to I've built for companies by bootstrapping and all of
0:50 them made more than a million dollars all of them are a year all of them are
0:54 profitable two of them were sold even my current one WP engine was the same and
0:58 then I went and joined the other side and I raised some money and we're trying
1:03 to swing for the fences now which is a whole new challenge but I did bootstrap
1:06 it to this point before raising money so it still counts as far as this is
1:12 concerned so this is how I think about um what it means to do this and by the
1:16 way we were talking to heatin last night he says I don't like bootstrap I don't
1:19 even know what that means anymore it sucks and I don't like it like it like
1:22 someone said in the video I don't like lifestyle business because
1:27 there's just pejorative implied there and I agree with that and so Heaton
1:31 suggests that see now I'm stealing Heaton's thunder and he's gonna go talk
1:33 tomorrow and not have anything to say but oh good he seemed happy though but
1:40 Eaton said let's call it self-funded I said yes that's good self-funded and
1:43 maybe that means little friends and family maybe that means a little bit a
1:47 little debt but not the kind that you're giving up any significant amount of your
1:51 company for self-funded so let's call it that I think self-funded anyway so this
1:54 is what I think of as a self-funded company I think the right mind frame is
1:59 the frame of mine is to say that it is a cash machine meaning a predictable way
2:04 in which you're going to make profit every month and this is what I mean how
2:08 many people in here currently have a business where if you did nothing next
2:13 month you stayed in Vegas and went crazy business would make ten thousand dollars
2:18 in revenue next month for sure like without any doubt at all how many oh not
2:23 bad but still not more than 20% I'd say and that's that's kind of the point I
2:27 mean look at this audience of folks who can afford a fairly expensive ticket and
2:31 all this to come out here and still it's almost impossible to hit what I just
2:34 said which is barely really enough to just quit your job which is maybe the
2:38 first kind of a goal you might have in a self-funded startup just people to focus
2:41 on it full-time there's probably a biggest goal and especially if you have
2:46 a family or something like that where um it's it's especially you know it's
2:51 especially interesting to you to to make this company work so this is this is
2:55 what I want to talk about building for the whole rest of the time something
2:59 that predictably and repeatedly always gives you $10,000 a month per founder in
3:04 revenue and hopefully more like 20 30 40 that sort of thing and how I see
3:09 building that and to be fair um this is exactly the constraints I put on myself
3:14 with WP engine and even the company that I didn't do before that because I
3:17 couldn't find a way to make these constraints fit and decided therefore
3:19 it's not a good way to self fund something so first I want to talk about
3:24 revenue models and this might be pretty obvious but um my third company smart
3:30 bear was what you might call one-off software you bought it you downloaded it
3:33 and you don't really come back maybe there's upgrades maybe for
3:37 enterprise plans you get 20% per year if you really hackle them and they really
3:40 care about the features you added but more or less every time the month turns
3:45 over you have to start from scratch for revenue this is of course the opposite
3:49 of a cash machine as far as I'm concerned and I can tell you that smart
3:53 bear even after having millions in revenue and therefore probably should
3:57 have felt pretty comfortable each month that we'd be ok I literally would wake
4:01 up in the middle of the night wake up in the night panicked wondering how am I
4:06 gonna cover payroll in the this month and I felt that way when was just me for
4:10 two years and I felt that way 7 years later when was a team of 12 and all that
4:13 I still felt the same way it never got better ever ever and it's a horrible way
4:18 to live I had it's horrible so I don't like that so of course recruiting
4:22 revenue we don't have to gonna have to compete you over the head about that no
4:25 kidding that's what it means to get much to know I'm going to have money
4:29 is that it's recurrent but I think the details around this are not obvious I
4:33 want to get into what specifically I mean because you probably have heard of
4:39 this thing that Kevin Kelly first the thought of called a thousand fans and he
4:44 said you know all these artists especially especially musicians who want
4:50 to get away from the labels they they could get away with labels if they could
4:54 just get a thousand rabid fans to to buy like one or two hundred dollars a year
4:59 worth of merch and going to concerts and stuff like that and that's all they need
5:03 and they wouldn't need labels or anything it because what they really
5:07 want I mean sure they want lots of money that'd be great but considering right
5:11 now they are have to have a full-time job and barely can do the band versus
5:15 okay I don't have ten million dollars in the bank but I'm doing what I love which
5:18 is just playing music and traveling the country that's an amazing shift and all
5:22 you need is a thousand rabid fans this isn't this is a really romantic
5:26 fantastic concept and so Seth Godin got ahold of it and he's like that is and so
5:29 he posted it and then it got really popular and that's where everyone heard
5:33 about it more or less the problem is that a couple of weeks later kevin kelly
5:39 redacted the whole idea he said you know i was inundated with information from
5:43 actual artists and they said this is completely not true and first of all you
5:48 can't even get people to give you 100 200 dollars a year it's hard you can't
5:52 get a thousand rabid fans you can get like 30 or 50 of your you know your
5:55 friends and family and stuff but actually a thousand fans super hard to
6:00 get a thousand people at any price point is really hard how many people in here
6:04 have over a thousand customers ooh not bad how many of them give you $10 a
6:12 month or more $100 a month or more right it's really hard to get 10,000 of
6:16 anything and really hard to get you know a you know a decent amount of money and
6:19 the other thing was even if they did have the the you know one or two hundred
6:23 dollars a year times a thousand so to you know say call it $200,000 not enough
6:28 to cover all the expenses for traveling around doing paying a couple of band
6:31 members and stuff it actually isn't enough so unfortunately Seth it was it
6:36 was not in his interest to redact his own thing so he didn't Seth didn't say a
6:39 thing and so it was stuck in everyone's mind that thousand rabid fans is a good idea and
6:43 no one read the thing that said actually it's not so I'm gonna propose a
6:49 different thing instead that let's do one hundred and fifty fans or really
6:52 hundred fifty customers right and you can do one hundred fifty for sure and
6:56 because first of all you can get fifty just by scratching and clawing and going
7:00 to these kind of things and talking to people and you know I did things for
7:04 Debbie pangaean for example where I literally called our sorry email people
7:08 I'll give you the exact technique I would go to LinkedIn and I'd find people
7:12 who are consultants in WordPress because we're WordPress hosting and I would send
7:18 them the following email I'd say hey I'm a founder of this new WordPress hosting
7:21 company it's supposed to be designed for folks like you so I'd love to talk to
7:26 you about your pain and your needs into the you know customer development stuff
7:29 right and then I'd say now I know your time is valuable you're a consultant and
7:33 so I absolutely do not want you to feel like I'm just trying to grab time from
7:36 you I am very happy to pay whatever you think is fair for an hour of your time
7:40 even if that's more than your normal hourly rate because I appreciate this is
7:44 a weird one off thing so I I literally don't care but I'm very interested and
7:48 here's what happened I set 40 of those a hundred percent of them agreed to talk
7:53 to me on the phone and I actually talked to you know thirty-eight the rest didn't
7:56 schedule or whatever but there's a hundred percent positive response rate
8:01 and 38 of the 42 me and zero of them asked for any money in other words I was
8:05 just respectful of them they were happy to help so that's obviously only one
8:08 technique but it's a pretty easy one to use for pretty much anything so this is
8:11 what I mean you can scratch and get there with the with the idea for a
8:16 company I had before um WP engine I couldn't find enough people to give me
8:19 money and so I gave up both WP engine I was able to find 3040
8:23 people who agreed to give me $50 a month if I built this thing before I had a
8:27 company name before I had a PowerPoint presentation before I had any employees
8:31 before I had a server invited anything I already had 30 people doing that and a
8:35 capital factory which is an incubator in Austin that I helped start I tell
8:38 companies every single year to do this and usually about half of them try it
8:43 and you'd be surprised how many times you can get 20 or 30 people to give you
8:47 a check right there for something that does not exist if the idea is in fact
8:50 solving a pain that they really have which of course is the measure anyway so
8:53 you can get 50 people and you can you can do you know guest posting on certain blogs and other
8:58 social media stuff I actually don't think you can get a lot around that I'll
9:02 talk about that later but you can certainly scratch and claw a little bit
9:04 out of that and then finally you're gonna have some kind of marketing even
9:09 if that's as mundane as Adwords and or special ads on a particular you know
9:12 particular sites that are relevant to your thing or something like that you
9:15 can scrape that together again if you can't scrape that together over a period
9:19 of months of course but if you can't do that then I would argue that it's gonna
9:22 be hard to make this a company ever and so if it could be a company ever in 75
9:28 not not hard to do but the other trick is okay great I can get 150 but the goal
9:33 remember is I want a ten thousand dollars a month in revenue and so this
9:37 makes a very obvious formula that I need to charge what is what may feel like a
9:42 lot of money seventy dollars a month say on average and again a lot of people who
9:49 are self-funded realize that their product that doesn't have a lot of
9:52 features and it's kind of shitty and the support slow because it's just you and
9:55 like actually everything about it is kind of shitty and so I'm not worth the
9:59 charging a lot of money and so you know you feel like a home and in charge 19
10:02 dollars a month nine dollars a month and often that's coupled with but I'll get thousands of
10:07 customers which is of course again very hard so my argument to you is that
10:11 that's that is not a good idea that's a difficult way to go and the easy ways to
10:16 decide how it is valid to charge a lot of money and the good news is this is
10:19 something that Erica Douglas is going to talk about for her entire talk and in
10:22 fact several other people I believe we're going to touch on this and I'll
10:24 even throw out a few things you're getting a ton of ways to do this so you
10:29 have no excuse not to so one example of doing this is exactly the price points
10:33 that we did at WP engine we got started which are those and just having
10:37 different tiers with crap and um you know of course it'll vary by product but
10:41 more features or more a more volume of stuff segmented by customer type that
10:45 sort of thing the usual tearing kind of thing those were our tears and our average
10:50 revenue per customer was more than $100 a month with those particular tears
10:54 this is what I mean right another example is charge a lot for the product
10:59 ninety nine even $1.99 but then have coupons and specials all of the time one
11:05 thing we tried doing once is we it we had that $49 one what we did is
11:09 wrote 79 and then crossed it out and said 49 in sales went up right the same
11:13 thing it just kind of makes it feel so that's what I mean right
11:16 or it make it ninety-nine a month and that's fine except you go to you go to
11:19 bloggers and such and you give them a coupon for their readers which will give
11:23 them 30 percent off for a year which again just gets you back to the 66
11:27 average that you need but everybody feels like they're getting a lot more
11:30 value right so there all kinds of the Internet's full of tricks like this I
11:34 suppose and you'll again you'll hear a lot more but the point is you got to
11:36 charge more money there's lots of ways to do that this is no excuse and then of
11:39 course the nice thing is if you do get to 150 surely that's not the ceiling
11:45 even in a tiny niche and if 150 baguettes up 10 grand then you can see
11:49 oh well yes that's a good that's a good point to go for only because then it's
11:52 very clear that you could get to 15 or 20 probably who knows about a million
11:55 and who knows if you even want to do that but certainly you know you can get
12:00 a nice stable company that way and so again I don't want to beat up the the
12:03 price thing too much because you'll get more of that but what I do want to do is
12:08 is put one word in your mind about this and that's Boutique because you think
12:12 about outside of the tech world what does this mean what's a similar thing a
12:17 shop that's only got one or two people in it and it's super expensive and it's
12:22 barely ever open because it's just them it sounds like a micro business if any
12:25 kind of it can't answer the email we're here at work so you're not open kind of
12:31 right and but you get incredible attention and the work is amazing and
12:36 it's unique and it's special and you feel good helping out people who are
12:40 really making a go of it and so you don't mind that it's three times as
12:44 expensive as it should be for a dress or whatever the hell it is right Boutique
12:48 so you can be a boutique consultant like Patrick McKenzie you can be a boutique
12:53 anything right so this thing even a lawyer right the independent boutique
12:58 lawyer is a thing and so I think this is a nice positive way to say yeah this is
13:02 why it is ok to spend money and this this now dovetails with this with the
13:05 talk I did last year about saying you know if you say I am just one person
13:09 who's really making a go of it that's the kind of thing that actually lets you
13:12 charge more money because people go that's awesome because startups are cool
13:15 right now aren't they and so people want to give you more money Boutique
13:21 okay so staying with the concept of revenue but moving around a little bit
13:24 away from the model I want to talk about cash flow obviously very important for
13:27 any company but in particular self-funded one because you don't have
13:31 cash that's the deal and you know cash is king we're not going to talk about that but since cash
13:37 is king you have to use the annual prepaid trick how many people have are
13:43 using annual prepays right now very few that's interesting okay have to do it
13:47 you have to it's required by law it turns out um because let's suppose you
13:53 figure out a way that you could spend $300 and acquire a customer on average
13:58 that pays fifty bucks a month this is actually pretty easy there's a lot of
14:02 clicks on Google ads or that you know that's like one blog post that content
14:05 Lee writes that you post somewhere you only need one sale from it you know this
14:09 is this is actually a pretty easy bar to reach $350 a month but if that's true
14:15 you if you can spend that to do that then if you've spent 60 grand right now
14:20 if this was a perfect little model if you could you'd get to your ten grand a
14:24 month run rate right now just kind of an interesting thought if you think of it
14:29 in that way and so what happens with annual prepay is you can actually do
14:33 that because if you think about it if you put up on the site and say alright
14:38 if you sign up now for annual then I'll give you two months free so okay you
14:43 collect less money over the over the you know imaginary course of a year that's
14:46 true you can collect sixteen percent less money okay two months but the deal
14:51 is that you pay the 60 K for the for the signups and you get 100 K in cash now of
14:56 course if you waited over course a whole year you would eventually get 120 K
15:02 which is more but that means that right now you get 40 K in the bank right now
15:06 you get your already to your goal and you have 40 K in the bank to go deploy
15:10 on other stuff like more advertising or developing something or hiring a
15:13 designer finally so it doesn't look like ass or whatever it is you're gonna do
15:19 right like it's so having 40 K today now no cash flow problems is always worth
15:24 that what you would have had you would have had 60 K over the next 12 months
15:27 always every single time that's actually true of almost any SAS business period
15:31 but in particular it's true of self-funded businesses so you have to do
15:35 this now this is imaginary you can't make everyone do this right and so I'll
15:39 give you some hard figures this is exactly the numbers that we get at
15:42 wpengine so you can see what I mean one quarter of our signups that come
15:46 through the website elect the annual prepay by revenue so that means 75% of
15:52 the time it's true I only collect one month of revenue from the customer that
15:56 first month and a quarter of the time though I get ten times one month right
16:00 not twelve because it's they give us a discount and so math is pretty simple I
16:05 get over three times the cash flow every month that I would have had and in
16:10 particular the way that our with the cost of our customer acquisition we
16:14 actually collect more money in cash every month then it costs us to acquire
16:18 those customers just like the previous math that is exactly what happens and so
16:22 we literally operate with an infinite marketing budget the marketing budget at
16:27 W engine is not limited by money because we'll make it back in fact we make its
16:31 negative one months because I make the money in credit cards today gets
16:34 deposited in the bank right and then the credit card for stuff like Adwords
16:37 doesn't hit till next month does it actually a negative one months of cash
16:42 flow on that it's okay and so can you I'm saying now look maybe the ratios
16:45 won't be the same but any number of people that elected annually is a lot a
16:48 lot better and lets you deploy that money right away so by the way we can't
16:53 do infinite marketing though because we're constrained by other things like
16:56 human beings we actually stopped our marketing at some point because our tech
17:00 support organization was so overwhelmed with tickets that we were giving people
17:03 bad service which I suppose is a good problem to have but it's a problem
17:07 anyway anyway so it's very realistic that this is the case and I absolutely
17:11 think you have to do it and so let me give you a couple of extra and tips and
17:15 hacks of how to get people to do annual more as we do a really fun one is you
17:20 make a coupon again to give to other sources like affiliates and bloggers and
17:23 stuff like that people who might send you traffic and you give them a coupon
17:28 that says your readers can get three months free you if they sign up for an
17:31 annual prepay and of course the coupon has to only work in that case of course
17:34 you're giving them two months free anyway so three months is not that much
17:38 more but it's a big incentive for people to come up and do it and if it only
17:42 works on annual it's a big cash bump so that's one see another one I told
17:51 this to a company a capital Factory um so they were charging I believed $29 a
17:59 month and I said well and they were all sorts and they had something else like
18:02 they didn't have annual prepay at all and I said well no no I take it back
18:08 they were charging $99 a year and I said oh okay well um why don't you charge $49
18:13 a month and then make the annual discount like half off like it's it's
18:18 six months free just make it ridiculous so they did and signups didn't change at
18:22 all like the number of signups I mean didn't change at all in other words
18:25 everyone was perfectly happy to see a higher price monthly and then receive a
18:29 much much bigger price annually and all of a sudden that happened so if you're
18:33 worried about that annual net number is too big then just raise the monthly rate
18:38 a little bit and discount the annual lot so that it feels like a terrific deal if
18:42 people pick the monthly fine you just raise it a lot so great and if they pick
18:45 the annual they feel like it's a good deal so he encouraged them to do exactly
18:49 that right another thing I did at a capital factory and this is what I was
18:53 just confused with um is that the company was charging I think it was $50
18:57 a year and I said just make it per month and see what happens and they did and
19:01 signups didn't change at all again this is just like raising your price do it
19:06 and then he said okay well now do an annual and again like you can give what
19:10 kind of discounting you want so I got to do stuff like that I'll give you a
19:15 couple more hacks ARPU stands for average revenue per user that comes from
19:19 telco that's just another way of saying revenue per customer just a couple of
19:24 extra hacks on this because again this amount of money that you're charging per
19:27 customer is the most important metric I think in your company it's going to be
19:30 more important than things like cancellation rate even and other things
19:34 like that when you're small this is the most important thing that will move the
19:38 needle on stuff and again you'll hear a lot more in this whole conference so
19:41 that's good so one thing is just raise prices yet another story of here is
19:43 there was another capital factory company because see there's a hundred
19:46 companies and have a factory to understand so that's why have a lot of
19:49 stories in there but it's good it's a corpus of lots of things lots of people
19:54 bootstrapping and and they were charging 19 dollars a month and I said well double it and see
19:59 what happens no no you understand like just well do it for a week and if no one
20:04 signs up it's cool they're just the only getting one or two sign ups a day
20:07 anyways like it won't really matter so they doubled it to 49 or whatever it was
20:11 and signups didn't change at all they're like this is great I just doubled
20:13 revenue yeah what are you gonna do now they said oh I'm gonna buy a lot of
20:16 Adwords do all this stuff and it's like no you're gonna double it again or at
20:22 least fifty percent or something until something else until something bad
20:27 happens right and we just raised the damn prices that's one of them there's
20:32 other things this is this is when Erica taught me actually say so maybe I'm
20:35 stealing her stuff but you have the tears highlight the middle you've seen
20:37 this on lots of websites right you highlight the middle one and people tend
20:41 to get it instead of the lower one have really big one on the end for people
20:44 that really want they just decide they always want to spend the most money
20:48 people will do that it's nice another one from Erica is called the most
20:51 expensive when the business plan and the people with businesses will sign up for
20:55 that automatically it works and if you go to our website you'll see exactly
20:58 that thanks Erica and so there's lots of tricks and again you'll see a lot more this this uh
21:05 during this conference another hack a lot of people have free trials 15-day
21:09 free trial 30-day free trial that make sense customers want to test stuff out
21:12 first no one trusts anyone that's fine um but I hate free trials actually for
21:18 especially for bootstrap companies because you never get that money back
21:21 most people that sign up with a credit card will stay if that's not true by the
21:25 way something is incredibly poisonous fix that part and don't worry about
21:29 there as this right but if that's true then that means most of the time when
21:32 they give you their credit card you're giving them fifteen or thirty days for
21:35 nothing and you're never gonna charge them for it so you just lost the money
21:39 and that sucks so I don't like trials but you have to give them something so
21:42 we switched to a 60-day money-back guarantee instead of a 15-day free trial
21:48 and in both cases we took the credit card or originally and when we say but
21:51 we won't charge you until the trial is over and the other one we just charge to
21:53 charge them anyway and said we'll give you a refund and much more time and
21:59 sales went up and people would email us and say you know that 15 days didn't
22:03 seem like enough time now that I have 60 days I decided to sign up
22:08 but I'm charging you more like don't do it like I did yeah they don't it's more
22:12 time and so you get more money and actually it's it's a pretty interesting
22:16 and let me give you some data to back this up I'm like I have no time access
22:21 and no X and y-axis isn't that nice that's because it's not gonna give you
22:24 too much information of you fans and works but this is our number of
22:29 customers graph and there's a pretty obvious change point right there
22:33 and that was about January of last year we added a 60-day money-back guarantee
22:37 instead of a trial we changed our tears around a little bit like you saw a lot
22:40 of that again is due to Erica we added that business here when you rename the
22:45 tears including business look right and this is not even revenue is this number
22:49 of signups right revenue is even better right but number of science in other
22:53 words no it's not like well we charge more of a fewer people signed up in any
22:57 of that math no all of it went up now again won't always be like this but the
23:00 point is people are so scared of changing prices or did it it's like no
23:04 just do it and look at it and like that and the final thing I'll say on revenue
23:10 is I don't like any kind of self funded startups in which the the revenue model
23:14 is anything like what I call picking up pennies which is stuff like Kickstarter
23:18 where I'm gonna have all this activity and money's gonna move around and I'll
23:22 just I'll just scrape off the top or I'll have a donation site and people
23:25 will send money and I'll get 1% and the reason I don't like it is actually that
23:29 nicely demonstrated by Kickstarter they did over a hundred million dollars of
23:33 funding of stuff last year which is really cool except they only made six
23:36 million dollars and that wasn't even enough to cover their cost so they lost
23:39 money and so they have to raise more money and Kickstarter is one of the most
23:43 successful examples of a you know kind of quick growing um you know picking up
23:48 any sort of a company and even they they can't make money really add it I just I
23:52 don't like that maybe a scale at out other things maybe for raising money
23:55 maybe all that but not not this kind so I don't like anything like that I like
23:59 it when you go get customers and charge them lots of money that's what I want so
24:06 so now I want to set revenue aside and talk about markets what kinds of goat
24:10 what kinds of markets to me are conducive to a cash machine company and
24:14 again everything you know there's exceptions to all rules and stuff like
24:17 that but I feel like there are some markets which are intrinsically
24:20 difficult to build a cash machine in and markets where it's intrinsically easier
24:24 and so I just want to go through this and the first thing is this question of
24:28 like should it be B to C or B to B meaning do I sell to other businesses or
24:33 do I sell to consumers and I want to make a very strong argument that you
24:36 should absolutely never not not not sell to consumers people don't spend money on
24:41 stuff I mean Gmail is like one of the best and perhaps the best you know
24:45 online mail thing that has ever existed that ever ever and they started charging
24:48 people five dollars a month knowing what did crazy I know five dollars a month
24:53 for the most amazing email that exists App Store is a good example again I
24:57 remember reading a review of an app that I was gonna buy it's a one dollar 99
25:01 cent app and the review said this is terrible it didn't have this feature
25:05 whatever maybe if it was 99 cents it would have been worth it but not at a
25:09 dollar ninety-nine it's like that's the consumer market that's the deal this is
25:12 not conducive to seventy dollars a month right that's what people pay for their
25:15 time warner bill and even then they complain about it like an suit it's too
25:19 hard to do this in consumer back up a fly another good example they make they
25:23 make back they back up stuff that's a good that's a good cell phone kind of
25:26 company right backing up stuff I think so except they sold the consumers and
25:30 they only charge $40 a year to back up everything couldn't be done damn it so
25:35 they switch to doing business um and if you think about all the companies that
25:38 that you that you might um you know follow or idolize in this in this sort
25:43 of self-funded thing like 37signals and fog Creek and lassie and like in you
25:48 know all the all the people who spoke last year and all that kind of stuff all
25:52 my companies they're all b2b there's not a b2c one in there in fact on the
25:55 speaker list like right off the bat every single person in here almost is
26:00 selling b2b and the thing about but not Patrick right because he's got the be no
26:04 car crater that sells to consumers except talked to Patrick about it and
26:11 right please just don't do that is what he says don't do that so now he's
26:14 telling scheduling software people that have businesses so he's now in the b2b
26:17 camp - and then you have Rob and it's true that robbed these cell towels and
26:20 online and stuff like that the consumers like it fair enough
26:23 except he ditched all that and now he's telling invoicing software that's b2b
26:26 and then hit and then hit tail which is b2b and now a new thing which is B - B
26:31 so it's BV its b2b that's the deal all right that's that's all I got all right
26:36 so let me give you some markets I like and don't like so first of all I don't
26:43 like any market in which the pain that the customer experiences is temporary
26:46 where we have to catch them in a certain point in their life we had a company go
26:51 through capital factory that sold this really neat thing we took your wedding
26:55 photos and it made videos out of it it was inexpensive it was really cool every
26:59 single customer that used that everyone said it was awesome they would do it
27:04 again and made a testimonial everyone and who cares because you only get
27:08 married what twice three times so it's not that's not enough of recurring
27:12 revenue right and the problem is you have to catch them right like while
27:15 they're planning their wedding well you and everyone else on earth
27:19 trying to sell things to Brides and you know they spent a lot of money you know
27:21 a lot of big humming spending a lot of money trying to get in front of Brides
27:25 right it's hard to go get in that point of time and go sell the thing and it's
27:29 not recurring I don't like that events is another one you constantly see ice
27:32 constantly see startups trying to sell stuff to people who do events and they
27:36 it's hard to do that it's only once a year and most it's difficult another
27:41 another kind of different example of the same thing at my company smart bear
27:45 after we sold it we started acquiring other companies and and one of them was
27:49 a code profiler which is a tool that tells you how you're if your software is
27:55 running slowly why that's useful of course and so what what happened is
27:58 there was a free trial so what happened is there's suffering slowly and they
28:02 search for a profiler they get it they go fix the problem hooray what a great
28:05 tool except I'm still in my free trial period and now we don't have the pain
28:09 anymore so you can buy and it's very difficult to get them to get recurring
28:12 or something because the thing isn't recurring so temporary pain so if it's
28:17 not a continuous pain I like it so sort of conversely I like things not
28:22 necessary pain or but they value is itself somehow naturally recurring so
28:26 that it makes sense that you would continue charging in a recurring manner
28:30 so one example is if the costs of the service itself is recurring which is
28:33 like wpengine are a hosting company because obviously we have servers and bandwidth and stuff
28:38 like that and that sits there and fans have to spin and amps have to move
28:42 around and stuff like that and so like clearly there are costs and so it
28:45 clearly we charge you every month there's no doubt about it and the only
28:48 question is how much there's no there's no like it should be free like it's not
28:51 even it doesn't even come up because the costs themselves are ongoing another
28:57 example are anything tied to financial cycles invoicing reconciliation taxes
29:04 reporting metrics compliance HR admin is like a ton of stuff that sort of
29:08 attached to financial cycles monthly quarterly annual stuff all those again
29:13 there you have to do it and so anything that goes into that role is good
29:17 invoicing software is is you know Rob's invoicing software is a good example
29:21 another fun data point on this there was a study of thousands of mobile apps that
29:25 somebody did and they asked how much money they were making here's a here's
29:28 one I know most people here are doing Web Apps but still there's a funny data
29:32 point they asked thousands of mobile app developers how much money do you make in
29:36 your app and thirty percent of them said zero dollars and another thirty percent
29:43 said I don't know so from that same study that's interesting maybe a ward
29:46 away from from the mobile app thing for recurring revenue maybe but in
29:52 particular apps that were IT focused averaged a fifteen hundred dollars a
29:57 month in revenue and apps that were financed based averaged six thousand
30:02 dollars a month so again finance cycles good thing another one is um when the
30:07 nature of the pain or the challenge or the value itself changes over time by
30:12 its nature so a lot of examples here are like in digital marketing like SEO
30:17 changes Google changes its mind and other competitors come up and you do
30:21 other stuff and then it's just it's just ever-changing so whatever the tool is
30:24 that you use to track or improve SEO sort of bites very nature you have to
30:27 keep using it because the theme underneath it is moving so lots of
30:30 things in digital Marketing are like this AdWords SEO competitive reports email marketing
30:36 content marketing social media measurement techniques a B testing like
30:40 kind of anything in that world is by its very nature dynamic is an overused word
30:45 but it's true changing over time and so you kind of need a tool over and over
30:48 again um to keep up with it so that's a natural pattern another one is support which may be a
30:54 dangerous place to go for a self-funded company because that means human time
30:58 and that can be very expensive but the fact is that support is something that
31:01 is again naturally recurring it's very easy so for example we have a premium
31:05 support package that's $500 a month that gets you some better essays and stuff
31:09 and so for example a simple version of that is you could say for only $100 a
31:13 month you can have a you can have a premium support package in which your
31:16 tickets get priority over the people who are not and you just make two queues and
31:19 work them that way and so those people simply have faster response times bla
31:22 bla bla at the front of the line and it's pretty much free money because you
31:26 want to do all the tickets anyways and it just changes the order in which you
31:29 do it in such a way that people are giving you money so that's interesting
31:32 way to incorporate support in a way that is actually conducive to a you know low
31:37 touch support kind of thing like we're talking about we you know we now have
31:41 this big scaling support organization so it's more complicated as account
31:44 management stuff but anyway that's a way to do it in a small way so when I don't
31:53 like is products that are viral where that's supposed to be how they grow and
31:56 the reason is number one they almost never work just by the numbers they almost never
32:00 work and so I just don't like it at all because it's look it's low risk of
32:03 success and that sucks another thing is even if the viola coefficient is okay it's hard to get
32:09 going like the only have a hundred users and every month one percent of them
32:14 invite a friend it's like right that's one more user M or zero because now
32:18 we're in rounding error right like it's really hard to get going unless you have
32:21 this big corpus to start with right and so in that big corpus to start with is
32:25 often really difficult and expensive like you often can't charge yet and it's
32:30 hard so to me it doesn't fit the model of the cell phone at startup so I don't
32:38 kind of thing I do like is anything that um that isn't a real time in its nature
32:44 by which I mean it is not that the user absolutely gets something
32:48 out of you in this instant or else it's over so um Hosting is a bad is a counter
32:54 example so here's one example where the attention was not a good fit in this and
32:57 and rightly so I mean imagine how many times we wake up in the middle of the night to fix
33:02 something and that's because when a site is down and then all the night we have
33:05 to go fix it because it's a real-time right we can't wait till the morning
33:09 not okay that's supposed to invoicing software where it could wait till the
33:12 morning it's not ideal but you can you can send that invoice out in a day it's
33:16 okay doesn't be today and that's terrific that's what you want you don't
33:19 want to get up in the night that was a mistake you don't want to do that so
33:24 anything that's sort of decision support for a business so right analytics and
33:28 metrics and monitoring all these kind of things are almost never real-time in
33:33 their nature and and/or they make the data might be but the availability
33:36 doesn't necessarily need to be which is kind of more to the point another
33:40 example is again anything in finance because there's always lots of buffer
33:43 around when the finance folks have to do their various things and so you have
33:49 time project management's another random just just another random example these
33:52 are obviously far from exhaustive these just sort of the you know getting your
33:55 juices flowing project management again like if my if Trello isn't available for an hour that
34:02 does suck no doubt about it like I saw several Trello board so I was walking
34:05 around so for sure that's that's something but you're not gonna cancel
34:09 you're not gonna go in that case I'm gonna completely switch to different
34:11 problems just not gonna happen because it's okay anything that's content is
34:16 obviously something that's easy and content also is super easy to make
34:20 highly available anyway you put our an s3 finished right or something like that
34:25 like contents easy to make always available anyhow in it and anyway if
34:30 it's not available it's okay another market kind of market I don't like is
34:34 marketplaces this is where I have buyers and sellers and I bring them together so
34:39 that they have a marketplace of fun Etsy is a marketplace Kickstarter is a
34:44 marketplace eBay is sort of the quintessential it you know big
34:48 marketplace play Amazon oddly enough is kind of a marketplace and that they're
34:53 they're you know Amazon doesn't make any products okay now they make a few but in
34:56 general they don't right they just get consumers to a website and get
34:58 products and sell it that's a marketplace and the reason I don't like
35:01 it again marketplace is very difficult to build almost never work because you kind
35:07 of have two businesses you have the business of getting the sellers to get
35:11 over here and put your products here and use my method of payment and God knows
35:14 what else it is and you have to go do that and pull them over and you have no
35:18 buyers you have to do that with and you need two buyers you need to convince
35:21 them and advertise them whatever the hell you do to get them over here and
35:24 you don't have sellers yet see this chicken and egg kind of to business
35:28 Janus sort of thing going on it's hard and the good news is if you're
35:32 successful it's very defensible we were talking about this last night but
35:36 supposing Etsy right now open source their whole environment so can you go
35:40 compete with Etsy no because people type Etsy calm that is actually their asset
35:45 asset the fact that someone types at sea calm the fact that someone types evades
35:48 fact that some of the types Kickstarter is in fact the valuable asset of a
35:52 company not the code behind it right so that's cool it's great but again for a
35:56 self-funded startup I feel like two companies are have a much much lower
36:00 risk of succeeding than one you know two that have to both be successful in a way
36:03 and it's just hard so I don't I don't like it a market I do like going back
36:10 again is something that can be done and I think there's a ton of kinds of things
36:13 that can be done but what I mean is you don't want to be in a feature war with
36:17 another product where where your success is tied to things like oh they have more
36:21 features than I just have to keep writing because by your very nature you
36:24 don't have many developers and you don't as many resources in general your
36:28 designers aren't as good whatever by its very nature so why would you compete in
36:32 a space in which lots of features is it is is a differentiator when that's not a
36:36 kind of a thing that you're gonna have as a unique differentiator nico mac the
36:41 guy that made winzip with made a million dollars a year in the 90s with shareware
36:46 and winzip was done right I mean sure there was like WinZip nine and who even
36:49 knows what it did nothing right it's it's winzip and most of us stolen anyhow
36:52 and he still made a million dollars a year way back when that was actually
36:55 pretty hard and you were mailing postcards with checks and stuff for the
36:58 shareware remember that beer ware and all that um but that's what I mean a
37:03 product that can be done not that you never work on it again of course that's
37:06 not really the case but it can be done and there's a ton of kinds of products
37:09 like that I like that another thing I like is an aftermarket
37:13 by which I mean there's already an established incumbent product that has a
37:19 lot of following and you can tack onto the end of it and so some examples right
37:23 here smart fair was like that so you already have version control and now you
37:26 have code review so we integrated with perforce and subversion and CVS and in
37:31 fact a dozen different things balsamiq mockups started as add-ons to Basecamp
37:34 and so on woo themes obviously is is themes on the platform of WordPress the
37:39 current company is based on the fact that WordPress has a huge following and
37:42 they need a host somewhere that's an often after market service for WordPress
37:47 alien skin is a company that's that kind of well known for being around for over
37:50 a decade meaning making tons of money bootstrapped and they make photoshop
37:55 plugins cool photoshop plugins they don't make Photoshop they just make cool
37:59 plugins afterwards queue ODBC is a company's been around since 1984 let me
38:02 say that again and they're bootstrapped and all they do is sell this product that takes a
38:10 QuickBooks file and puts an ODBC interface on it so you can make database
38:13 queries against it pretty cool aftermarket tool for QuickBooks so um
38:20 this is what I mean it so much is it's easy to understand like this is the
38:23 product this is exactly how it works these are the pain points a lot of
38:26 people with this product have this pain point I know how to find those customers
38:29 because they use this particular product so the keywords are obvious many times
38:34 the vendors are interested in supporting you I gave a talk at the perforce that's
38:38 version control the perforce user conference every year about code review
38:41 because we were an aftermarket tool on perforce and we promoted perforce as
38:46 well um as a result just there was no agreement we didn't change money we just
38:50 did because perforce was good and so our tool worked well with it and so I got
38:53 customers all the time by being invited to their user conference and to give a
38:58 talk which is bizarre because they wanted to support it so even better are
39:02 the are the companies or what I would say ecosystems meaning companies that
39:07 intentionally go make this after market market and like Salesforce you can
3:24 revenue models and this might be pretty obvious but um my third company smart
3:30 bear was what you might call one-off software you bought it you downloaded it
3:33 and you don't really come back maybe there's upgrades maybe for
3:37 enterprise plans you get 20% per year if you really hackle them and they really
3:40 care about the features you added but more or less every time the month turns
3:45 over you have to start from scratch for revenue this is of course the opposite
3:49 of a cash machine as far as I'm concerned and I can tell you that smart
3:53 bear even after having millions in revenue and therefore probably should
3:57 have felt pretty comfortable each month that we'd be ok I literally would wake
4:01 up in the middle of the night wake up in the night panicked wondering how am I
4:06 gonna cover payroll in the this month and I felt that way when was just me for
4:10 two years and I felt that way 7 years later when was a team of 12 and all that
4:13 I still felt the same way it never got better ever ever and it's a horrible way
4:18 to live I had it's horrible so I don't like that so of course recruiting
4:22 revenue we don't have to gonna have to compete you over the head about that no
4:25 kidding that's what it means to get much to know I'm going to have money
4:29 is that it's recurrent but I think the details around this are not obvious I
4:33 want to get into what specifically I mean because you probably have heard of
4:39 this thing that Kevin Kelly first the thought of called a thousand fans and he
4:44 said you know all these artists especially especially musicians who want
4:50 to get away from the labels they they could get away with labels if they could
4:54 just get a thousand rabid fans to to buy like one or two hundred dollars a year
4:59 worth of merch and going to concerts and stuff like that and that's all they need
5:03 and they wouldn't need labels or anything it because what they really
5:07 want I mean sure they want lots of money that'd be great but considering right
5:11 now they are have to have a full-time job and barely can do the band versus
5:15 okay I don't have ten million dollars in the bank but I'm doing what I love which
5:18 is just playing music and traveling the country that's an amazing shift and all
5:22 you need is a thousand rabid fans this isn't this is a really romantic
5:26 fantastic concept and so Seth Godin got ahold of it and he's like that is and so
5:29 he posted it and then it got really popular and that's where everyone heard
5:33 about it more or less the problem is that a couple of weeks later kevin kelly
5:39 redacted the whole idea he said you know i was inundated with information from
5:43 actual artists and they said this is completely not true and first of all you
5:48 can't even get people to give you 100 200 dollars a year it's hard you can't
5:52 get a thousand rabid fans you can get like 30 or 50 of your you know your
5:55 friends and family and stuff but actually a thousand fans super hard to
6:00 get a thousand people at any price point is really hard how many people in here
6:04 have over a thousand customers ooh not bad how many of them give you $10 a
6:12 month or more $100 a month or more right it's really hard to get 10,000 of
6:16 anything and really hard to get you know a you know a decent amount of money and
6:19 the other thing was even if they did have the the you know one or two hundred
6:23 dollars a year times a thousand so to you know say call it $200,000 not enough
6:28 to cover all the expenses for traveling around doing paying a couple of band
6:31 members and stuff it actually isn't enough so unfortunately Seth it was it
6:36 was not in his interest to redact his own thing so he didn't Seth didn't say a
6:39 thing and so it was stuck in everyone's mind that thousand rabid fans is a good idea and
6:43 no one read the thing that said actually it's not so I'm gonna propose a
6:49 different thing instead that let's do one hundred and fifty fans or really
6:52 hundred fifty customers right and you can do one hundred fifty for sure and
6:56 because first of all you can get fifty just by scratching and clawing and going
7:00 to these kind of things and talking to people and you know I did things for
7:04 Debbie pangaean for example where I literally called our sorry email people
7:08 I'll give you the exact technique I would go to LinkedIn and I'd find people
7:12 who are consultants in WordPress because we're WordPress hosting and I would send
7:18 them the following email I'd say hey I'm a founder of this new WordPress hosting
7:21 company it's supposed to be designed for folks like you so I'd love to talk to
7:26 you about your pain and your needs into the you know customer development stuff
7:29 right and then I'd say now I know your time is valuable you're a consultant and
7:33 so I absolutely do not want you to feel like I'm just trying to grab time from
7:36 you I am very happy to pay whatever you think is fair for an hour of your time
7:40 even if that's more than your normal hourly rate because I appreciate this is
7:44 a weird one off thing so I I literally don't care but I'm very interested and
7:48 here's what happened I set 40 of those a hundred percent of them agreed to talk
7:53 to me on the phone and I actually talked to you know thirty-eight the rest didn't
7:56 schedule or whatever but there's a hundred percent positive response rate
8:01 and 38 of the 42 me and zero of them asked for any money in other words I was
8:05 just respectful of them they were happy to help so that's obviously only one
8:08 technique but it's a pretty easy one to use for pretty much anything so this is
8:11 what I mean you can scratch and get there with the with the idea for a
8:16 company I had before um WP engine I couldn't find enough people to give me
8:19 money and so I gave up both WP engine I was able to find 3040
8:23 people who agreed to give me $50 a month if I built this thing before I had a
8:27 company name before I had a PowerPoint presentation before I had any employees
8:31 before I had a server invited anything I already had 30 people doing that and a
8:35 capital factory which is an incubator in Austin that I helped start I tell
8:38 companies every single year to do this and usually about half of them try it
8:43 and you'd be surprised how many times you can get 20 or 30 people to give you
8:47 a check right there for something that does not exist if the idea is in fact
8:50 solving a pain that they really have which of course is the measure anyway so
8:53 you can get 50 people and you can you can do you know guest posting on certain blogs and other
8:58 social media stuff I actually don't think you can get a lot around that I'll
9:02 talk about that later but you can certainly scratch and claw a little bit
9:04 out of that and then finally you're gonna have some kind of marketing even
9:09 if that's as mundane as Adwords and or special ads on a particular you know
9:12 particular sites that are relevant to your thing or something like that you
9:15 can scrape that together again if you can't scrape that together over a period
9:19 of months of course but if you can't do that then I would argue that it's gonna
9:22 be hard to make this a company ever and so if it could be a company ever in 75
9:28 not not hard to do but the other trick is okay great I can get 150 but the goal
9:33 remember is I want a ten thousand dollars a month in revenue and so this
9:37 makes a very obvious formula that I need to charge what is what may feel like a
9:42 lot of money seventy dollars a month say on average and again a lot of people who
9:49 are self-funded realize that their product that doesn't have a lot of
9:52 features and it's kind of shitty and the support slow because it's just you and
9:55 like actually everything about it is kind of shitty and so I'm not worth the
9:59 charging a lot of money and so you know you feel like a home and in charge 19
10:02 dollars a month nine dollars a month and often that's coupled with but I'll get thousands of
10:07 customers which is of course again very hard so my argument to you is that
10:11 that's that is not a good idea that's a difficult way to go and the easy ways to
10:16 decide how it is valid to charge a lot of money and the good news is this is
10:19 something that Erica Douglas is going to talk about for her entire talk and in
10:22 fact several other people I believe we're going to touch on this and I'll
10:24 even throw out a few things you're getting a ton of ways to do this so you
10:29 have no excuse not to so one example of doing this is exactly the price points
10:33 that we did at WP engine we got started which are those and just having
10:37 different tiers with crap and um you know of course it'll vary by product but
10:41 more features or more a more volume of stuff segmented by customer type that
10:45 sort of thing the usual tearing kind of thing those were our tears and our average
10:50 revenue per customer was more than $100 a month with those particular tears
10:54 this is what I mean right another example is charge a lot for the product
10:59 ninety nine even $1.99 but then have coupons and specials all of the time one
11:05 thing we tried doing once is we it we had that $49 one what we did is
11:09 wrote 79 and then crossed it out and said 49 in sales went up right the same
11:13 thing it just kind of makes it feel so that's what I mean right
11:16 or it make it ninety-nine a month and that's fine except you go to you go to
11:19 bloggers and such and you give them a coupon for their readers which will give
11:23 them 30 percent off for a year which again just gets you back to the 66
11:27 average that you need but everybody feels like they're getting a lot more
11:30 value right so there all kinds of the Internet's full of tricks like this I
11:34 suppose and you'll again you'll hear a lot more but the point is you got to
11:36 charge more money there's lots of ways to do that this is no excuse and then of
11:39 course the nice thing is if you do get to 150 surely that's not the ceiling
11:45 even in a tiny niche and if 150 baguettes up 10 grand then you can see
11:49 oh well yes that's a good that's a good point to go for only because then it's
11:52 very clear that you could get to 15 or 20 probably who knows about a million
11:55 and who knows if you even want to do that but certainly you know you can get
12:00 a nice stable company that way and so again I don't want to beat up the the
12:03 price thing too much because you'll get more of that but what I do want to do is
12:08 is put one word in your mind about this and that's Boutique because you think
12:12 about outside of the tech world what does this mean what's a similar thing a
12:17 shop that's only got one or two people in it and it's super expensive and it's
12:22 barely ever open because it's just them it sounds like a micro business if any
12:25 kind of it can't answer the email we're here at work so you're not open kind of
12:31 right and but you get incredible attention and the work is amazing and
12:36 it's unique and it's special and you feel good helping out people who are
12:40 really making a go of it and so you don't mind that it's three times as
12:44 expensive as it should be for a dress or whatever the hell it is right Boutique
12:48 so you can be a boutique consultant like Patrick McKenzie you can be a boutique
12:53 anything right so this thing even a lawyer right the independent boutique
12:58 lawyer is a thing and so I think this is a nice positive way to say yeah this is
13:02 why it is ok to spend money and this this now dovetails with this with the
13:05 talk I did last year about saying you know if you say I am just one person
13:09 who's really making a go of it that's the kind of thing that actually lets you
13:12 charge more money because people go that's awesome because startups are cool
13:15 right now aren't they and so people want to give you more money Boutique
13:21 okay so staying with the concept of revenue but moving around a little bit
13:24 away from the model I want to talk about cash flow obviously very important for
13:27 any company but in particular self-funded one because you don't have
13:31 cash that's the deal and you know cash is king we're not going to talk about that but since cash
13:37 is king you have to use the annual prepaid trick how many people have are
13:43 using annual prepays right now very few that's interesting okay have to do it
13:47 you have to it's required by law it turns out um because let's suppose you
13:53 figure out a way that you could spend $300 and acquire a customer on average
13:58 that pays fifty bucks a month this is actually pretty easy there's a lot of
14:02 clicks on Google ads or that you know that's like one blog post that content
14:05 Lee writes that you post somewhere you only need one sale from it you know this
14:09 is this is actually a pretty easy bar to reach $350 a month but if that's true
14:15 you if you can spend that to do that then if you've spent 60 grand right now
14:20 if this was a perfect little model if you could you'd get to your ten grand a
14:24 month run rate right now just kind of an interesting thought if you think of it
14:29 in that way and so what happens with annual prepay is you can actually do
14:33 that because if you think about it if you put up on the site and say alright
14:38 if you sign up now for annual then I'll give you two months free so okay you
14:43 collect less money over the over the you know imaginary course of a year that's
14:46 true you can collect sixteen percent less money okay two months but the deal
14:51 is that you pay the 60 K for the for the signups and you get 100 K in cash now of
14:56 course if you waited over course a whole year you would eventually get 120 K
15:02 which is more but that means that right now you get 40 K in the bank right now
15:06 you get your already to your goal and you have 40 K in the bank to go deploy
15:10 on other stuff like more advertising or developing something or hiring a
15:13 designer finally so it doesn't look like ass or whatever it is you're gonna do
15:19 right like it's so having 40 K today now no cash flow problems is always worth
15:24 that what you would have had you would have had 60 K over the next 12 months
15:27 always every single time that's actually true of almost any SAS business period
15:31 but in particular it's true of self-funded businesses so you have to do
15:35 this now this is imaginary you can't make everyone do this right and so I'll
15:39 give you some hard figures this is exactly the numbers that we get at
15:42 wpengine so you can see what I mean one quarter of our signups that come
15:46 through the website elect the annual prepay by revenue so that means 75% of
15:52 the time it's true I only collect one month of revenue from the customer that
15:56 first month and a quarter of the time though I get ten times one month right
16:00 not twelve because it's they give us a discount and so math is pretty simple I
16:05 get over three times the cash flow every month that I would have had and in
16:10 particular the way that our with the cost of our customer acquisition we
16:14 actually collect more money in cash every month then it costs us to acquire
16:18 those customers just like the previous math that is exactly what happens and so
16:22 we literally operate with an infinite marketing budget the marketing budget at
16:27 W engine is not limited by money because we'll make it back in fact we make its
16:31 negative one months because I make the money in credit cards today gets
16:34 deposited in the bank right and then the credit card for stuff like Adwords
16:37 doesn't hit till next month does it actually a negative one months of cash
16:42 flow on that it's okay and so can you I'm saying now look maybe the ratios
16:45 won't be the same but any number of people that elected annually is a lot a
16:48 lot better and lets you deploy that money right away so by the way we can't
16:53 do infinite marketing though because we're constrained by other things like
16:56 human beings we actually stopped our marketing at some point because our tech
17:00 support organization was so overwhelmed with tickets that we were giving people
17:03 bad service which I suppose is a good problem to have but it's a problem
17:07 anyway anyway so it's very realistic that this is the case and I absolutely
17:11 think you have to do it and so let me give you a couple of extra and tips and
17:15 hacks of how to get people to do annual more as we do a really fun one is you
17:20 make a coupon again to give to other sources like affiliates and bloggers and
17:23 stuff like that people who might send you traffic and you give them a coupon
17:28 that says your readers can get three months free you if they sign up for an
17:31 annual prepay and of course the coupon has to only work in that case of course
17:34 you're giving them two months free anyway so three months is not that much
17:38 more but it's a big incentive for people to come up and do it and if it only
17:42 works on annual it's a big cash bump so that's one see another one I told
17:51 this to a company a capital Factory um so they were charging I believed $29 a
17:59 month and I said well and they were all sorts and they had something else like
18:02 they didn't have annual prepay at all and I said well no no I take it back
18:08 they were charging $99 a year and I said oh okay well um why don't you charge $49
18:13 a month and then make the annual discount like half off like it's it's
18:18 six months free just make it ridiculous so they did and signups didn't change at
18:22 all like the number of signups I mean didn't change at all in other words
18:25 everyone was perfectly happy to see a higher price monthly and then receive a
18:29 much much bigger price annually and all of a sudden that happened so if you're
18:33 worried about that annual net number is too big then just raise the monthly rate
18:38 a little bit and discount the annual lot so that it feels like a terrific deal if
18:42 people pick the monthly fine you just raise it a lot so great and if they pick
18:45 the annual they feel like it's a good deal so he encouraged them to do exactly
18:49 that right another thing I did at a capital factory and this is what I was
18:53 just confused with um is that the company was charging I think it was $50
18:57 a year and I said just make it per month and see what happens and they did and
19:01 signups didn't change at all again this is just like raising your price do it
19:06 and then he said okay well now do an annual and again like you can give what
19:10 kind of discounting you want so I got to do stuff like that I'll give you a
19:15 couple more hacks ARPU stands for average revenue per user that comes from
19:19 telco that's just another way of saying revenue per customer just a couple of
19:24 extra hacks on this because again this amount of money that you're charging per
19:27 customer is the most important metric I think in your company it's going to be
19:30 more important than things like cancellation rate even and other things
19:34 like that when you're small this is the most important thing that will move the
19:38 needle on stuff and again you'll hear a lot more in this whole conference so
19:41 that's good so one thing is just raise prices yet another story of here is
19:43 there was another capital factory company because see there's a hundred
19:46 companies and have a factory to understand so that's why have a lot of
19:49 stories in there but it's good it's a corpus of lots of things lots of people
19:54 bootstrapping and and they were charging 19 dollars a month and I said well double it and see
19:59 what happens no no you understand like just well do it for a week and if no one
20:04 signs up it's cool they're just the only getting one or two sign ups a day
20:07 anyways like it won't really matter so they doubled it to 49 or whatever it was
20:11 and signups didn't change at all they're like this is great I just doubled
20:13 revenue yeah what are you gonna do now they said oh I'm gonna buy a lot of
20:16 Adwords do all this stuff and it's like no you're gonna double it again or at
20:22 least fifty percent or something until something else until something bad
20:27 happens right and we just raised the damn prices that's one of them there's
20:32 other things this is this is when Erica taught me actually say so maybe I'm
20:35 stealing her stuff but you have the tears highlight the middle you've seen
20:37 this on lots of websites right you highlight the middle one and people tend
20:41 to get it instead of the lower one have really big one on the end for people
20:44 that really want they just decide they always want to spend the most money
20:48 people will do that it's nice another one from Erica is called the most
20:51 expensive when the business plan and the people with businesses will sign up for
20:55 that automatically it works and if you go to our website you'll see exactly
20:58 that thanks Erica and so there's lots of tricks and again you'll see a lot more this this uh
21:05 during this conference another hack a lot of people have free trials 15-day
21:09 free trial 30-day free trial that make sense customers want to test stuff out
21:12 first no one trusts anyone that's fine um but I hate free trials actually for
21:18 especially for bootstrap companies because you never get that money back
21:21 most people that sign up with a credit card will stay if that's not true by the
21:25 way something is incredibly poisonous fix that part and don't worry about
21:29 there as this right but if that's true then that means most of the time when
21:32 they give you their credit card you're giving them fifteen or thirty days for
21:35 nothing and you're never gonna charge them for it so you just lost the money
21:39 and that sucks so I don't like trials but you have to give them something so
21:42 we switched to a 60-day money-back guarantee instead of a 15-day free trial
21:48 and in both cases we took the credit card or originally and when we say but
21:51 we won't charge you until the trial is over and the other one we just charge to
21:53 charge them anyway and said we'll give you a refund and much more time and
21:59 sales went up and people would email us and say you know that 15 days didn't
22:03 seem like enough time now that I have 60 days I decided to sign up
22:08 but I'm charging you more like don't do it like I did yeah they don't it's more
22:12 time and so you get more money and actually it's it's a pretty interesting
22:16 and let me give you some data to back this up I'm like I have no time access
22:21 and no X and y-axis isn't that nice that's because it's not gonna give you
22:24 too much information of you fans and works but this is our number of
22:29 customers graph and there's a pretty obvious change point right there
22:33 and that was about January of last year we added a 60-day money-back guarantee
22:37 instead of a trial we changed our tears around a little bit like you saw a lot
22:40 of that again is due to Erica we added that business here when you rename the
22:45 tears including business look right and this is not even revenue is this number
22:49 of signups right revenue is even better right but number of science in other
22:53 words no it's not like well we charge more of a fewer people signed up in any
22:57 of that math no all of it went up now again won't always be like this but the
23:00 point is people are so scared of changing prices or did it it's like no
23:04 just do it and look at it and like that and the final thing I'll say on revenue
23:10 is I don't like any kind of self funded startups in which the the revenue model
23:14 is anything like what I call picking up pennies which is stuff like Kickstarter
23:18 where I'm gonna have all this activity and money's gonna move around and I'll
23:22 just I'll just scrape off the top or I'll have a donation site and people
23:25 will send money and I'll get 1% and the reason I don't like it is actually that
23:29 nicely demonstrated by Kickstarter they did over a hundred million dollars of
23:33 funding of stuff last year which is really cool except they only made six
23:36 million dollars and that wasn't even enough to cover their cost so they lost
23:39 money and so they have to raise more money and Kickstarter is one of the most
23:43 successful examples of a you know kind of quick growing um you know picking up
23:48 any sort of a company and even they they can't make money really add it I just I
23:52 don't like that maybe a scale at out other things maybe for raising money
23:55 maybe all that but not not this kind so I don't like anything like that I like
23:59 it when you go get customers and charge them lots of money that's what I want so
24:06 so now I want to set revenue aside and talk about markets what kinds of goat
24:10 what kinds of markets to me are conducive to a cash machine company and
24:14 again everything you know there's exceptions to all rules and stuff like
24:17 that but I feel like there are some markets which are intrinsically
24:20 difficult to build a cash machine in and markets where it's intrinsically easier
24:24 and so I just want to go through this and the first thing is this question of
24:28 like should it be B to C or B to B meaning do I sell to other businesses or
24:33 do I sell to consumers and I want to make a very strong argument that you
24:36 should absolutely never not not not sell to consumers people don't spend money on
24:41 stuff I mean Gmail is like one of the best and perhaps the best you know
24:45 online mail thing that has ever existed that ever ever and they started charging
24:48 people five dollars a month knowing what did crazy I know five dollars a month
24:53 for the most amazing email that exists App Store is a good example again I
24:57 remember reading a review of an app that I was gonna buy it's a one dollar 99
25:01 cent app and the review said this is terrible it didn't have this feature
25:05 whatever maybe if it was 99 cents it would have been worth it but not at a
25:09 dollar ninety-nine it's like that's the consumer market that's the deal this is
25:12 not conducive to seventy dollars a month right that's what people pay for their
25:15 time warner bill and even then they complain about it like an suit it's too
25:19 hard to do this in consumer back up a fly another good example they make they
25:23 make back they back up stuff that's a good that's a good cell phone kind of
25:26 company right backing up stuff I think so except they sold the consumers and
25:30 they only charge $40 a year to back up everything couldn't be done damn it so
25:35 they switch to doing business um and if you think about all the companies that
25:38 that you that you might um you know follow or idolize in this in this sort
25:43 of self-funded thing like 37signals and fog Creek and lassie and like in you
25:48 know all the all the people who spoke last year and all that kind of stuff all
25:52 my companies they're all b2b there's not a b2c one in there in fact on the
25:55 speaker list like right off the bat every single person in here almost is
26:00 selling b2b and the thing about but not Patrick right because he's got the be no
26:04 car crater that sells to consumers except talked to Patrick about it and
26:11 right please just don't do that is what he says don't do that so now he's
26:14 telling scheduling software people that have businesses so he's now in the b2b
26:17 camp - and then you have Rob and it's true that robbed these cell towels and
26:20 online and stuff like that the consumers like it fair enough
26:23 except he ditched all that and now he's telling invoicing software that's b2b
26:26 and then hit and then hit tail which is b2b and now a new thing which is B - B
26:31 so it's BV its b2b that's the deal all right that's that's all I got all right
26:36 so let me give you some markets I like and don't like so first of all I don't
26:43 like any market in which the pain that the customer experiences is temporary
26:46 where we have to catch them in a certain point in their life we had a company go
26:51 through capital factory that sold this really neat thing we took your wedding
26:55 photos and it made videos out of it it was inexpensive it was really cool every
26:59 single customer that used that everyone said it was awesome they would do it
27:04 again and made a testimonial everyone and who cares because you only get
27:08 married what twice three times so it's not that's not enough of recurring
27:12 revenue right and the problem is you have to catch them right like while
27:15 they're planning their wedding well you and everyone else on earth
27:19 trying to sell things to Brides and you know they spent a lot of money you know
27:21 a lot of big humming spending a lot of money trying to get in front of Brides
27:25 right it's hard to go get in that point of time and go sell the thing and it's
27:29 not recurring I don't like that events is another one you constantly see ice
27:32 constantly see startups trying to sell stuff to people who do events and they
27:36 it's hard to do that it's only once a year and most it's difficult another
27:41 another kind of different example of the same thing at my company smart bear
27:45 after we sold it we started acquiring other companies and and one of them was
27:49 a code profiler which is a tool that tells you how you're if your software is
27:55 running slowly why that's useful of course and so what what happened is
27:58 there was a free trial so what happened is there's suffering slowly and they
28:02 search for a profiler they get it they go fix the problem hooray what a great
28:05 tool except I'm still in my free trial period and now we don't have the pain
28:09 anymore so you can buy and it's very difficult to get them to get recurring
28:12 or something because the thing isn't recurring so temporary pain so if it's
28:17 not a continuous pain I like it so sort of conversely I like things not
28:22 necessary pain or but they value is itself somehow naturally recurring so
28:26 that it makes sense that you would continue charging in a recurring manner
28:30 so one example is if the costs of the service itself is recurring which is
28:33 like wpengine are a hosting company because obviously we have servers and bandwidth and stuff
28:38 like that and that sits there and fans have to spin and amps have to move
28:42 around and stuff like that and so like clearly there are costs and so it
28:45 clearly we charge you every month there's no doubt about it and the only
28:48 question is how much there's no there's no like it should be free like it's not
28:51 even it doesn't even come up because the costs themselves are ongoing another
28:57 example are anything tied to financial cycles invoicing reconciliation taxes
29:04 reporting metrics compliance HR admin is like a ton of stuff that sort of
29:08 attached to financial cycles monthly quarterly annual stuff all those again
29:13 there you have to do it and so anything that goes into that role is good
29:17 invoicing software is is you know Rob's invoicing software is a good example
29:21 another fun data point on this there was a study of thousands of mobile apps that
29:25 somebody did and they asked how much money they were making here's a here's
29:28 one I know most people here are doing Web Apps but still there's a funny data
29:32 point they asked thousands of mobile app developers how much money do you make in
29:36 your app and thirty percent of them said zero dollars and another thirty percent
29:43 said I don't know so from that same study that's interesting maybe a ward
29:46 away from from the mobile app thing for recurring revenue maybe but in
29:52 particular apps that were IT focused averaged a fifteen hundred dollars a
29:57 month in revenue and apps that were financed based averaged six thousand
30:02 dollars a month so again finance cycles good thing another one is um when the
30:07 nature of the pain or the challenge or the value itself changes over time by
30:12 its nature so a lot of examples here are like in digital marketing like SEO
30:17 changes Google changes its mind and other competitors come up and you do
30:21 other stuff and then it's just it's just ever-changing so whatever the tool is
30:24 that you use to track or improve SEO sort of bites very nature you have to
30:27 keep using it because the theme underneath it is moving so lots of
30:30 things in digital Marketing are like this AdWords SEO competitive reports email marketing
30:36 content marketing social media measurement techniques a B testing like
30:40 kind of anything in that world is by its very nature dynamic is an overused word
30:45 but it's true changing over time and so you kind of need a tool over and over
30:48 again um to keep up with it so that's a natural pattern another one is support which may be a
30:54 dangerous place to go for a self-funded company because that means human time
30:58 and that can be very expensive but the fact is that support is something that
31:01 is again naturally recurring it's very easy so for example we have a premium
31:05 support package that's $500 a month that gets you some better essays and stuff
31:09 and so for example a simple version of that is you could say for only $100 a
31:13 month you can have a you can have a premium support package in which your
31:16 tickets get priority over the people who are not and you just make two queues and
31:19 work them that way and so those people simply have faster response times bla
31:22 bla bla at the front of the line and it's pretty much free money because you
31:26 want to do all the tickets anyways and it just changes the order in which you
31:29 do it in such a way that people are giving you money so that's interesting
31:32 way to incorporate support in a way that is actually conducive to a you know low
31:37 touch support kind of thing like we're talking about we you know we now have
31:41 this big scaling support organization so it's more complicated as account
31:44 management stuff but anyway that's a way to do it in a small way so when I don't
31:53 like is products that are viral where that's supposed to be how they grow and
31:56 the reason is number one they almost never work just by the numbers they almost never
32:00 work and so I just don't like it at all because it's look it's low risk of
32:03 success and that sucks another thing is even if the viola coefficient is okay it's hard to get
32:09 going like the only have a hundred users and every month one percent of them
32:14 invite a friend it's like right that's one more user M or zero because now
32:18 we're in rounding error right like it's really hard to get going unless you have
32:21 this big corpus to start with right and so in that big corpus to start with is
32:25 often really difficult and expensive like you often can't charge yet and it's
32:30 hard so to me it doesn't fit the model of the cell phone at startup so I don't
32:38 kind of thing I do like is anything that um that isn't a real time in its nature
32:44 by which I mean it is not that the user absolutely gets something
32:48 out of you in this instant or else it's over so um Hosting is a bad is a counter
32:54 example so here's one example where the attention was not a good fit in this and
32:57 and rightly so I mean imagine how many times we wake up in the middle of the night to fix
33:02 something and that's because when a site is down and then all the night we have
33:05 to go fix it because it's a real-time right we can't wait till the morning
33:09 not okay that's supposed to invoicing software where it could wait till the
33:12 morning it's not ideal but you can you can send that invoice out in a day it's
33:16 okay doesn't be today and that's terrific that's what you want you don't
33:19 want to get up in the night that was a mistake you don't want to do that so
33:24 anything that's sort of decision support for a business so right analytics and
33:28 metrics and monitoring all these kind of things are almost never real-time in
33:33 their nature and and/or they make the data might be but the availability
33:36 doesn't necessarily need to be which is kind of more to the point another
33:40 example is again anything in finance because there's always lots of buffer
33:43 around when the finance folks have to do their various things and so you have
33:49 time project management's another random just just another random example these
33:52 are obviously far from exhaustive these just sort of the you know getting your
33:55 juices flowing project management again like if my if Trello isn't available for an hour that
34:02 does suck no doubt about it like I saw several Trello board so I was walking
34:05 around so for sure that's that's something but you're not gonna cancel
34:09 you're not gonna go in that case I'm gonna completely switch to different
34:11 problems just not gonna happen because it's okay anything that's content is
34:16 obviously something that's easy and content also is super easy to make
34:20 highly available anyway you put our an s3 finished right or something like that
34:25 like contents easy to make always available anyhow in it and anyway if
34:30 it's not available it's okay another market kind of market I don't like is
34:34 marketplaces this is where I have buyers and sellers and I bring them together so
34:39 that they have a marketplace of fun Etsy is a marketplace Kickstarter is a
34:44 marketplace eBay is sort of the quintessential it you know big
34:48 marketplace play Amazon oddly enough is kind of a marketplace and that they're
34:53 they're you know Amazon doesn't make any products okay now they make a few but in
34:56 general they don't right they just get consumers to a website and get
34:58 products and sell it that's a marketplace and the reason I don't like
35:01 it again marketplace is very difficult to build almost never work because you kind
35:07 of have two businesses you have the business of getting the sellers to get
35:11 over here and put your products here and use my method of payment and God knows
35:14 what else it is and you have to go do that and pull them over and you have no
35:18 buyers you have to do that with and you need two buyers you need to convince
35:21 them and advertise them whatever the hell you do to get them over here and
35:24 you don't have sellers yet see this chicken and egg kind of to business
35:28 Janus sort of thing going on it's hard and the good news is if you're
35:32 successful it's very defensible we were talking about this last night but
35:36 supposing Etsy right now open source their whole environment so can you go
35:40 compete with Etsy no because people type Etsy calm that is actually their asset
35:45 asset the fact that someone types at sea calm the fact that someone types evades
35:48 fact that some of the types Kickstarter is in fact the valuable asset of a
35:52 company not the code behind it right so that's cool it's great but again for a
35:56 self-funded startup I feel like two companies are have a much much lower
36:00 risk of succeeding than one you know two that have to both be successful in a way
36:03 and it's just hard so I don't I don't like it a market I do like going back
36:10 again is something that can be done and I think there's a ton of kinds of things
36:13 that can be done but what I mean is you don't want to be in a feature war with
36:17 another product where where your success is tied to things like oh they have more
36:21 features than I just have to keep writing because by your very nature you
36:24 don't have many developers and you don't as many resources in general your
36:28 designers aren't as good whatever by its very nature so why would you compete in
36:32 a space in which lots of features is it is is a differentiator when that's not a
36:36 kind of a thing that you're gonna have as a unique differentiator nico mac the
36:41 guy that made winzip with made a million dollars a year in the 90s with shareware
36:46 and winzip was done right I mean sure there was like WinZip nine and who even
36:49 knows what it did nothing right it's it's winzip and most of us stolen anyhow
36:52 and he still made a million dollars a year way back when that was actually
36:55 pretty hard and you were mailing postcards with checks and stuff for the
36:58 shareware remember that beer ware and all that um but that's what I mean a
37:03 product that can be done not that you never work on it again of course that's
37:06 not really the case but it can be done and there's a ton of kinds of products
37:09 like that I like that another thing I like is an aftermarket
37:13 by which I mean there's already an established incumbent product that has a
37:19 lot of following and you can tack onto the end of it and so some examples right
37:23 here smart fair was like that so you already have version control and now you
37:26 have code review so we integrated with perforce and subversion and CVS and in
37:31 fact a dozen different things balsamiq mockups started as add-ons to Basecamp
37:34 and so on woo themes obviously is is themes on the platform of WordPress the
37:39 current company is based on the fact that WordPress has a huge following and
37:42 they need a host somewhere that's an often after market service for WordPress
37:47 alien skin is a company that's that kind of well known for being around for over
37:50 a decade meaning making tons of money bootstrapped and they make photoshop
37:55 plugins cool photoshop plugins they don't make Photoshop they just make cool
37:59 plugins afterwards queue ODBC is a company's been around since 1984 let me
38:02 say that again and they're bootstrapped and all they do is sell this product that takes a
38:10 QuickBooks file and puts an ODBC interface on it so you can make database
38:13 queries against it pretty cool aftermarket tool for QuickBooks so um
38:20 this is what I mean it so much is it's easy to understand like this is the
38:23 product this is exactly how it works these are the pain points a lot of
38:26 people with this product have this pain point I know how to find those customers
38:29 because they use this particular product so the keywords are obvious many times
38:34 the vendors are interested in supporting you I gave a talk at the perforce that's
38:38 version control the perforce user conference every year about code review
38:41 because we were an aftermarket tool on perforce and we promoted perforce as
38:46 well um as a result just there was no agreement we didn't change money we just
38:50 did because perforce was good and so our tool worked well with it and so I got
38:53 customers all the time by being invited to their user conference and to give a
38:58 talk which is bizarre because they wanted to support it so even better are
39:02 the are the companies or what I would say ecosystems meaning companies that
39:07 intentionally go make this after market market and like Salesforce you can
39:12 there's literally s force com where they help you make a product that you can
39:17 then sell the Salesforce customers and Heroku does that with their plug-in
39:19 store and the Apple App Store is really the same thing for the device you're an
39:22 aftermarket for the device right now some of these ecosystems are more friendly than others
39:27 like the App Store is well known for you know not approving the app or maybe
39:31 competing with you eventually so that one's a little bit trickier I mean not
39:34 to say that means you shouldn't do it but it's a you know you have to look at
39:37 that risk but then you look at these ecosystems like Salesforce and Heroku
39:40 and it's very clear that they are committed to not doing that to you
39:45 and so like Salesforce people complain like they haven't added features in
39:49 years that's exactly right because they want other people to make money adding
39:52 features because that's part of their ecosystem and they know that's part of
39:55 what makes them strong and they act that way and so as Heroku that's good
39:59 that's the kind of ecosystem that's I love because look it's a marketing
40:03 channel sales channel a pricing channel like there's all kinds of stuff that you
40:07 sort of get built-in when it's like that and I love built-in and the last thing
40:12 about market I want to talk about is I think you should be in a big market and
40:15 this is typically something that a VC you would tell you right you want to be
40:19 in a big market with lots where people are spending billions of dollars and why
40:22 does a VC want that well because if you see wants you to be worth a billion
40:26 dollars and that's not possible unless people are spending billion dollars or
40:30 maybe you're making up a new market that you think is gonna be worth a billion
40:33 dollars so that's why they care we don't care about that at all but I still think
40:36 it you should be a big market because first of all there's lots of niches that
40:42 you can be in so you've sliced out this little customer segment of ok only
40:46 people from Wichita Falls who invoice to other states with sales tax then we're
40:48 going to nail it and there's 462 of them and we can find them because it's Wichita Falls is how
40:54 we can just walk around and find them and actually that's a pretty good idea
40:57 that's pretty good place to get started and then you can get bigger right so
41:01 that's good except the problem with a small market is that if that little
41:04 niche doesn't work there may not be another thing to go do that's of any
41:08 interesting size and so your options are limited and that's bad because obviously
41:12 at the front and even in the middle of the business you're never sure exactly
41:16 what's going to work out and what's next and all that kind of stuff a big market
41:19 has lots of playground lots of niches that you could if this fails you're here
41:23 if this is successful you could expand to there whatever you have optionality
41:28 and optionality is always power the other thing is your product doesn't have
41:31 to be the number one best thing ever for anything how many CRM tools are there how many
41:35 project management tools there how many time keepers software out
41:38 there how many invoice packages are there like hundreds that are in each
41:43 category maybe more and not everyone's making a bunch of money but actually a
41:46 lot of people are making enough money and that's interesting in a big market
41:51 there's so much space the it's okay if it's not the number one best thing for
41:54 everything you can still have a business and that's good and not necessarily true
41:58 in a smaller market and of course just the fact that it's big and people are
42:01 spending billions of dollars means there is a market at all and like Heaton again
42:06 said earlier a many perhaps most companies fail because they're not
42:08 building something where there is a pain that people will pay for that you can
42:13 get to all this other stuff but in a huge market there is a pain and people
42:16 are spending money and you probably can't get to it right it validates that
42:19 off the bat and that's a huge thing and it's easy to find those customers and if
42:24 you change your mind as I did with WP engine and decided to change it from a
42:28 cash machine to screw it I want to swing for the fences if been in a big market
42:32 you still have that option that's all options good so the third
42:38 thing I want to get through is um how do you acquire customers right so we talked
42:42 about charge a lot of money and how and kinds of markets I like you don't like
42:47 and now what about getting customers so probably the most controversial thing
42:51 out I will state is that I do not like social media in any form for getting
42:54 customers I don't think it works very well I think it's a lot of time I think
42:58 people don't acknowledge how much time and and cost it actually is and I don't
43:03 think it it often does not result in a repeatable business where it's a cash
43:07 machine and every month it does it and every month you can acquire customers
43:10 I want to business where I can put in a dollar and no I'll make four dollars
43:13 this year or maybe even now cuz I've annual prepay right that's what I want
43:17 and in social media does not give that to me it's ever-changing it's hard to
43:21 have a voice it's hard to do stuff I have a blog with 40 thousand readers and
43:27 when I launch WP engine a blogging platform I was sure I'd get maybe 30 50
43:31 new customers just out of people going Oh Jason's doing that I'm gonna switch
43:34 to that and see what it is right that's maybe that's egotistical well it
43:38 definitely is egotistical but that's what I wanted to do so I did and I got
43:45 two signups this many out of tens of thousands of readers and actually I
43:48 asked heating on my heating your really huh your internet-famous and you
43:52 launched these little companies and see them with your stuff what the hell am i
43:55 doing wrong means he just goes no it's always like that it doesn't work move on
44:02 just like that but great the you know so of course you can say well what about
44:05 buffer those guys are really good at social media yes yes yes you know of
44:08 course it can be successful especially if you're really good at it and spend
44:12 tons of time on it as they do yes of course but in general I don't like that
44:15 I want I want to know I spend money and make money that's what I want
44:18 and so since that's the model I like that it's it's very important that you
44:21 know how much you're gonna you're gonna pay per click that could be Adwords or
44:25 anything else but one way or another you're paying for a visit to the website
44:29 that's how most online marketing stuff can be boiled down to one way or another
44:32 so it's a good question how much should I pay per click so this is my answer
44:38 which is sort of needs justification my answer is that you can you take how much
44:42 average revenue you get per customer divided by 25 and that's what you can
44:46 pay per click so if your average $50 a month in revenue you pay $2 a click now
44:50 obviously it's like a ton of assumptions and going on in here I like this is
44:54 not what is this so however I didn't want to spend more time here going
44:57 through the math and stuff and besides you might want to tweak my assumptions
45:00 and my numbers come up with your own sort of better formula for you so I put
45:04 up a blog post which I hope is there maybe someone can check and make sure it
45:07 really went up because I didn't oh it is great um and it has the whole derivation of
45:11 this and blah blah so I'll just move on and let you look at that if you care but
45:15 the point is you know obviously this needs to be a data-driven thing what's
45:18 my conversion rate how much you know what's the quality of the traffic
45:22 segment by by market like there's a landing page optimization like there's a
45:25 million empirical data points you would actually do to compute this but of course you
45:30 don't have any of those data points and even if you have a couple hundred
45:33 customers you don't have enough data for that to be statistically significant
45:35 anyway so you still need a rule of thumb and so that there it is so now the bad
45:48 news so let's say all of this works you create this little company and you have
45:53 no employees are just a few employees you actually like working with and it's
45:59 chunking out 30 40 K a month in profit maybe that'd be nice and everything's going well what happens
46:08 next it keeps growing that's what it does that's what companies that are
46:15 successful do they don't stop and so if it keeps growing and you don't hire
46:19 people to work on support then you're gonna give bad customer support is that
46:23 okay is that all right for you is that the kind of company you wanted to build
46:28 that you enjoy working on and do you hire more people and if you do what does
46:32 that mean in terms of your job and you used to just worry about looking after
46:36 marketing or just looking after the code but now you're managing people now it
46:39 becomes a thing that wasn't the thing that you wanted to become that you
46:44 didn't set out for and so this is this is kind of an issue and so so what some
46:47 people do there's various ways kind of out of this you know you can you can
46:51 just sell the company for two big who's the guy that has the the that that book
46:55 about selling your company where's where is he selling your company online
47:01 yeah websites area so you go talk to that guy about selling your website
47:04 online and it'll help you cuz he has a book about so hooray but it's hard
47:09 obviously to sell that's easier said than done and usually don't get that
47:12 much money for it sometimes you sell it if you have a partner if you have an
47:14 employee sometimes you can sell to them a nice trick there is a lot of times
47:18 people don't have like a bunch of cash to give you and so you do some kind of
47:21 earn out like you're gonna get five or ten grand a month or a percentage of
47:26 revenue for three years and in that way the company can afford to pay you off
47:29 while you go off and that's not such a bad thing but of course you also don't
47:33 have your company anymore this is how this is what happened to my
47:39 second company IT watchdogs we were I guess I'm probably running low on time
47:45 right Rob how am i doing that time okay so um so we we had we had we had built
47:51 this amazing device for a customer of ours on a contract basis and it was
47:57 wildly successful to them they were immediately making millions of dollars
48:01 more money per year with this thing that was embedded in their stuff and I
48:04 remember we were sitting there in their conference room in Lincoln Nebraska and
48:09 they and they said hey what's stopping you from building the same product and
48:12 selling it to the other hundred power strip manufacturers and we thought we said nothing I guess
48:18 we don't have an exclusive so yeah that's not a bad idea it's a four months
48:26 later they bought the company that's it so it happens of course but again it's
48:29 hard to it's hard to like make that happen or plan for that common thing
48:35 people say is raise prices I mean shoot if you don't want more customers and
48:38 make each of the customers pay more this is good and that's true but they're you
48:42 know it does also change the nature of the business so this conference is a
48:45 good example this year was more expensive than last year and so some
48:48 people that were a little more of a wanna preneur and not really you know
48:52 not really that serious just sort of snooping around you charge more and some
48:55 of them will drop off and that was something that was useful for the
48:58 conference but if this conference retained grand like almost no one could
49:02 no one almost no one here could or shouldn't show up for that kind of dough
49:06 and who would I don't know but it'd be a different conference whatever that is be
49:10 different so just raising prices also changes the clientele and that may or
49:14 may not be again okay for what you want to do and again you can decide well
49:19 screw this bootstrapping thing I'm gonna I'll go ahead and raise money that's
49:22 fine and that's what we did with WP engine and so that's cool if you decide
49:25 you want to change your journey completely that's fine but if you knew this ahead of time then
49:30 all this bootstrapping was actually a bad idea in other words if you wanted to
49:34 go do you know if that was your goal in the first place then you should have
49:37 just been on that path and optimizing yourself and your time and going to
49:40 market and all that in the first place and not sort of gone too slowly at first
49:45 and then finally decide to accelerate so it's a sub optimization anyway and you
49:48 should have kind of known that ahead of time maybe so this is but this is this is
49:54 this is kind of bad like so what is the answer here I mean I want this little
49:57 company and then if I am successful then it won't be that thing it's just like
50:01 this weird catch-22 and there isn't a great there isn't a great answer
50:05 unfortunately this is one of those dilemmas you know how you know people
50:09 sell their company and then you know Oh boohoo money doesn't make you happy and
50:14 Oh boohoo you don't know what to do next Oh boohoo like you made ten million
50:18 dollars shut up right but actually it's very real and actually you know people's
50:22 happiness some fulfillment is very real and this is this is going to happen in
50:27 some form or fashion to you if you're successful and then it won't feel like you know oh
50:31 that's a high-class problem like yes and it's your problem and so what you can do
50:36 it's hard and so but it's supposed to why like working at IBM we're not doing
50:39 this now it's in our DNA we have to do this so the only thing I can tell you to
50:45 combated is this this guy fail ease was a Greek business man but then he turned
50:50 philosopher which I suppose that's kind of what people who are in tech now do
50:54 right like they get successful business and then they get blogs and right same
50:58 thing anyway so they lease it was asked famously um what is the hardest thing
51:06 and he said to know thyself hardest thing to me that is the sort of answer
51:11 to this dilemma of what is it that I want from this what am I trying to build
51:15 with this company I know trending money yeah I know I don't want to date you up
51:20 right on but what what am I trying to do for me what's gonna be fulfilling for me
51:25 and even that is gonna change over time unfortunately which means you have to
51:28 keep figuring that out and it's the hardest thing oops I thought building the company was the
51:33 hardest thing nope it's this that's the hardest thing and so that's again a very
51:38 difficult message because there's not much of an answer in that other than
51:42 yeah it's really hard no other than maybe talking about it and especially
51:44 talking about it with folks who have trod that path before and maybe doing
51:49 almost therapy with them to do that which I'm happy to do I know lots of
51:53 lots of other other people are very happy to do that sort of thing it's a
51:58 nice conversation to have um the other thing he was asked in that same
52:01 interview was what is the easiest thing and he says to give advice which is what
52:08 I've been doing for an hour so I'm doing the easiest thing by telling you do the
52:11 hardest thing great easy for me to say because then I can just wrap and leave
52:14 and it's up to you to do all the hard stuff and so people ask what's my
52:18 formula for success which is a stupid question but if there is an answer then
52:22 I've just given it to you but as best I can in this past hour which is that you need
52:28 to have predictable acquisition of customers which give you recurring
52:31 revenue that you're using an annual prepaid to solve all your cash flow
52:35 problems with any market that's conducive to the kind of company that
52:38 you're building and the constraints and advantages that you have like being a
52:41 boutique but not not have a million hours a week and that's how
52:46 you create a cash machine I hope everyone here does exactly that and
52:51 thanks for your time you talk a little bit about any advisor tips you have for
52:56 a SAS business that doesn't actually have subscription revenue but rather a
53:03 transactional revenue it's a b2b model acquisition is more traditional sales
53:10 with potentially larger revenue per customer but much of what I see and read
53:16 about in SAS is focused on you know getting business through clicks and and
53:21 writing the enterprise sales yeah an enterprise SAS company in particular
53:25 okay great yes so first of all you said it's not recurring yes it is it's an
53:29 annual contract mostly in enterprise right maybe quarterly but usually can do
53:32 annual and that's good because that's the annual prepay too and you can do
53:35 that in enterprise because their budgets are typically annual as well so they
53:38 could care less and of course it's easier to do one P o and one invoice per
53:41 year and do that with some kind of automatic renewal that they have to
53:44 contact you if they don't want that kind of thing right um obviously you gotta
53:48 charge a lot a lot and there's gonna be you know you have to deal with M SAS and
53:52 all kinds of stuff there the purchase orders gonna take forever to pay and all
53:55 that the other day we got a purchase order with net 130 on it okay well so so
54:04 actually that that's you know rough in that in that sense so um so obviously
54:10 you have a sales office often have a sales force model with that but to be
54:13 clear at smartbear it was almost all enterprise sales and there was no
54:18 salespeople and the way it worked as I did all the demos and I went on the
54:22 sales calls and everybody who was back at the office was competent in doing all
54:26 of those things and then when I had to hire really competent people because
54:29 they had to be able to write code and talk to customers and do tech support
54:32 and after sales questions which means they had to be really smart and
54:35 multi-talented and they were expensive but I also had a million dollars of
54:39 revenue per head because they were really good and so we could be really
54:43 lean not in the lean startup sense I suppose but in the not spending a lot of
54:47 money sense and so I could distribute the money to them instead which is great
54:51 so that's an example of a bootstrap company in the enterprise space where
54:54 you have terrific folks all around so you don't go haier haier out and build out a big
54:59 enterprise sales team you can do that of course um it's much harder to it to me
55:04 to bootstrap that exactly because of this time lag and money because to go
55:08 get them still you have to do cold calls or some other kind of outreach or some
55:13 conferences or put white papers on stuff and the sales cycle is often very long
55:17 especially because you catch them maybe in a discovery phase and they're not yet
55:20 ready to buy and they're not ready to select you and then the lawyers get
55:25 involved and it just takes a long time and all that cost you're eating and
55:28 humans and time before you get the purchase order and then still they don't
55:31 want to pay and then it'll go out in the next check run and you know it can be a
55:35 long time before you get the dough the good news of course is once you get it
55:37 you often keep those things for five years it was fantastic right but you got to
55:42 charge the Lots to sort of get over the hump of all that other stuff if you do
55:47 hire salespeople you got to go to you often will have to go to more of a like
55:51 Commission only but lots of commission model because you don't have the cash to
55:55 float you know a great sales guy for their you know one hundred hundred or
55:57 one fifty one fifty sort of a compensation model that they might be
56:01 expecting you can't say you just have to say well I hope you dragon a lot of
56:05 sailfish and then you can eat a lot I don't know right so that's hard to get
56:08 going so it is harder because of these constraints which aren't necessarily you
56:14 know working but um but you can do it I did it um the pilots are another good trick so
56:19 you say why don't we start with it often they want to do pilots anyway depending
56:21 on the product but let's just try it with thirty seats see how that goes
56:25 maybe you can turn that around a lot faster with a smaller budget and um and
56:29 then you get some cash flow going and some relationship going and then go many
56:33 of the transactions we did were like that our average transaction was twelve
56:37 thousand dollars but on the first transaction but our average total
56:40 transaction was sixty thousand because over time they'd buy more sometimes even
56:45 six and seven figures over the course of you know year and a half or so
56:48 and so that kind of like get in there and then go get more which sales people
56:52 call land and expand is not a bad model either and helps you get a little more
56:55 cash flow I mean this is a whole topic really so I hope some of that helps or
57:00 answered your question I know I know a lot of I'm coders that have products don't
57:07 necessarily take advantage of affiliate programs how do you feel about that um I
57:13 think there's a lot of products for which affiliate programs are great not
57:18 Enterprise but um we do pretty well with affiliates and at first we did not we
57:21 didn't do a good job when we first launched them and then we relaunched it
57:25 with ShareASale and we kind of did a better job and in reaching out
57:30 personally to affiliates and especially some of the larger ones and so on to try
57:33 to make it work giving them special coupons much like the ones I just said
57:39 those but I really like it and if you're gonna do affiliates I think first of all
57:42 you need it you need to pay the affiliate a lot because they encourage
57:45 them to do it and especially the bigger affiliates do get paid a lot and so you
57:48 won't get their attention unless you're spending a lot of money with them at the
57:51 same time that's a big cash flow thing because they get their money quickly
57:55 like typically in 45 days so if you're paying an affiliate two hundred three
57:59 hundred dollars there's a lot I mean most affiliate programs are more like 30
58:01 bucks and that's fine but you won't get a lot of attention but if you're
58:05 charging a lot of money then you can pay the affiliate a lot see isn't that
58:08 better to charge a lot of money it opens up options but also you need that annual
58:12 prepay because it's so much money that you're paying so quickly to them and so
58:16 again I would couple that with special coupons for them to encourage the annual
58:20 and then you're back to good from a cash flow perspective but in general I do
58:24 think it depends on the business there are things like the one we're in and
58:28 hosting or in WordPress where the a ton of companies who make a lot of money
58:31 through affiliate sales so it sort of stands to reason that we could - and
58:36 there's other areas where it's not true and so you'll just have to see but
58:39 certainly the affiliate doesn't get paid unless you know they say you get a sale
58:42 so it seems to me you could certainly make the math work and then either the
58:46 affiliate program will work or it won't and either you'll get better at it or
58:49 not but either way you're not gonna pay them till you get a sale so it's pretty
58:52 easy to make sure that equation works and then you know then give it a try but
58:57 if it does work it's incredibly powerful you want to talk about predictable
59:01 because those affiliates it's their job to get more money every month right so
59:05 you have these people who themselves it's it's in their interest to try to
59:10 send you new customers every month and that's great that's that's exactly the
59:13 kind of predictable cash machine that you want so in that sense I really like
59:16 affiliate sales and one final note of fear on that is there's a lot of shady affiliates and if
59:22 you ever go to Affiliate conference you kind of feel like you need to take a
59:27 bath afterwards uh-huh there it's a lot of them are are shady and so also you'll
59:30 get people if you're not if you're not controlling who actually is able to do
59:35 the affiliate program and kind of vetting them you'll be spread all kinds
59:38 of stuff that probably is not good for your brand or even for sales or any of
59:43 those things and so you may or may not care about that I mean may or may not be
59:46 interesting to us and it worked WP engine we care about our reputation
59:50 quite a lot we trade on that reputation of service and attitude and all that
59:54 kind of stuff and so it's important to us that that not be the case we even
59:59 don't do certain SEO things even stuff that's kind of gray hat just because
60:02 what if that kind of looked bad so because we value that we are careful
60:07 about affiliates but you may or may not care and we know one thing that you
60:14 regret doing or perhaps we're not doing on your business journey man all kinds
60:21 of stuff all of the time I think you're doing or not doing I mean anybody that
60:30 looks back over you know a year and can't and says like everything was
60:35 perfect I didn't make any mistakes you know not true I guess one thing I
60:44 would say is if I look at a pattern that I keep repeating that I have to be
60:47 careful about so the things I'm not really learning about and therefore I
60:51 really regret it because if you make that mistake the first time you can't
60:53 really regret it you say I made the best choice I could at the time and let's
60:57 move on right but if you make it repeatedly then maybe you start
60:59 regretting that you're not getting better at it I guess two things there
61:04 one is not getting rid of someone fast enough that needed to go almost always
61:10 culturally based very rare that it's skills based it's usually cultural based
61:13 because people do poison that well and that could just be a consultant it could
61:16 be employee it could be any of those kinds of things but that's really
61:21 important and no one ever says well we fired that person too quickly no one
61:26 ever says that but everyone has a story of when they didn't fire someone soon
61:28 enough so that's a mistake that I probably continue to make um and it's a constant
61:35 thing and again even if you don't have employees that could be true of a
61:38 consultant that you kind of feel may be taking advantage of you or isn't really
61:41 working out but you're sort of well but they're engaged so I'll just like
61:45 there's there's lots of examples of that kind of thing I regret not staying true
61:51 to what I felt was the right thing to do and that's in lots of different
61:53 situations um yeah like the affiliates a weirdo feel like I'm kind of I'm kind of skeevy
62:01 about having this person promoting my thing should I do that or not and to me
62:06 especially when you're building a self-funded company in which your
62:09 identity is so tied up in the company itself I always regret not following
62:14 what I think is the right thing how to treat people how to treat people coming
62:20 in coming out um the standards that you set up inside the company for yourself
62:23 the customers for the product for other people that you work with for hearing
62:28 something that someone says and not like and not kind of standing up for it and
62:32 saying no that's not acceptable here it's not it's not funny it's not okay
62:37 not doing that often enough the all kinds of things like that of I know I
62:42 feel right now this is wrong and I'm not acting strong enough to in to make this
62:48 known to everyone and to say no this is what I'm building this is what we're
62:52 doing this is who we are I always regret not doing that after the fact so you
62:57 mentioned earlier about the little formula of calculating your how much you
63:02 can afford per click so I noticed that was like a $2 $2 per click right so I'm
63:08 curious for wpengine or are you actually being able to get that sort of cost per
63:12 click or what are you doing no we can spend even more so again the real answer
63:17 there is you measure everything all throughout the funnel and you can
63:22 segment you segment out the cost to acquire a customer by by the marketing
63:26 channel and was that there was an affiliate there was a sales assisted was
63:30 your a coupon because that makes it cost more and that the customer stick around
63:33 or did they cancel and we even measure stuff like and how much server costs are
63:36 they costing how much support costs I think we have all of that and so for
63:40 every customer we have all of that is we have all this analysis that's very
63:44 detailed and per philia and per channel and jiù jiù jiù jiù right um and so
63:49 we're very precise about how the marketing campaigns are working what's
63:52 the payback period and so on that is the correct thing to do but you know we have
63:57 you know we sign we're in the four figures of new customers per month so we
64:02 have a lot of data right so we can do all that statistically and actually have
64:06 something also since we're shooting the moon now also we're willing to spend
64:11 even more money than there might be you know then you might think in order to
64:15 get customers and so we're that's even more because we just want the customers
64:18 because we know what to do with them and that's valuable to us another thing is
64:22 we are so good at word-of-mouth and social media and the consultant channel
64:27 that most of our new signups are actually without advertising at all but
64:31 what that means is we can spend that much more acquiring through advertising
64:35 because on average it's still very cheap and so we can afford against it so even
64:40 if we lose some money on some things just the fact that we have the customer
64:43 they might tell a friend they might upgrade later and so on just
64:48 having a customer is it has a value and financial value even over time even if
64:52 it's a little more difficult to measure all of that value it is true and so we
64:56 can spend even more so we measure all this and we do it absolutely empirically
65:00 so that we know that and so with that we're pointing out is until you are
65:03 signing up a thousand people a month and are measuring all this stuff even if you
65:06 are measuring it you still don't have enough data to really say and things are
65:10 gonna fluctuate a lot week to week month to month and so on and so until you have
65:15 enough data to actually use data I had this sort of assumptions in process
65:19 which actually came from other surveys and other things so that these
65:24 assumptions themselves seem correct in the main and and and so so I that's why
65:29 I like that formula but it's only because without data you have to have
65:31 some rule of thumb and this is my best effort at providing anyone with one that
$

Designing the Ideal Bootstrapped Business with Jason Cohen

@MicroConf 1:05:37 15 chapters
[solo founder and bootstrapping][product development and MVP][revenue model and pricing strategy][developer tools and coding][e-commerce and conversion optimization]
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Starting a business is hard enough. The last thing you need to do is set up a foundation that works against you. A better approach is to take stock of your natural advantages, disadvantages, goals and needs, and "back in" to what that has to mean about your business model, pricing, market, product, approach, advertising, etc... Watch These Next: From Idea to Billion Dollar SaaS Business with Jason Cohen: https://youtu.be/JleTJKIGHGg Bootstrapping VS Venture Capital - What's The Right Move?: htt

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