I’m Patrick McKenzie (patio11 on the Internets) and for the last several years I’ve run a small software company. My first product was Bingo Card Creator, my current product focus is Appointment Reminder, and I do occasional consulting for a variety of clients, mostly on helping them sell more of their software over the Internet.
Traditionally, right before Christmas every year I release an annual report. See, for example, 2006, 2007, 2008, 2009, and 2010. (Crikey, have I really been doing this for that long?) I’ve also traditionally published live stats for Bingo Card Creator, but not my other lines of business.
Writing the annual report is partially to keep me grounded, partially to talk through my thoughts on the year and goals for next year, and partially to (hopefully) give other folks ideas that they can use in their own businesses. I hope you find it interesting or, at the very least, mildly amusing.
Obligatory disclaimers: Assume any statistics that I give are “roughly accurate, to the best of my knowledge, at the time this report was written.” There are still a few weeks left in the year. Sales are typically low in the last two weeks, but the exact timing of credit card charges can cause a bit of jitter in the December stats. From past experience, I have a high degree of certainty that there are about $1,000 or $2,000 of expenses (across all lines of business) which aren’t in the bookkeeping system yet and won’t be until I sit down in March and check things for taxes.
Capsule summary: Best year ever, by a lot. Broke $100,000 in sales for the first time and increased total profits to ~$70k. 2012 has inflection points coming for life and the business.
The Year In Brief
I put Bingo Card Creator into maintenance mode for approximately 48 weeks out of 2011: I only answered emails and kept systems running, but took no action to improve the product or marketing. (The other four weeks I tried a few minor things out.) This was, theoretically, supposed to free me to spend most of my efforts on Appointment Reminder…
… but that didn’t end up happening. For a variety of reasons, most of my focus business-wise went into consulting. Although I technically only did about 10 weeks of consulting during the year, I spent quite a bit of overhead time on e.g. arranging deals which ended up falling through, arranging the deals which did actually go through, and doing general promotion activities like speaking at conferences. (I had the opportunity to speak at about a half dozen conferences this year, and assorted other events. It is great fun, but since I generally have to fly to America for them, they tend to munch a full week out of my schedule each. I spent almost three months of the year in the US, doing a combination of family events, consulting, prospecting, speaking, and meeting some Internet buddies to discuss plans for later.)
I also lost two solid months due to dealing with legal issues, mostly centering around Immigration. I’d love to fill you in on the nitty-gritty, but have been asked not to by people close to the situation. Suffice it to say that I was a shoe-in for a Japanese visa back when I worked at a large megacorp, was not a shoe-in for a visa when doing my own thing, and had a very hairy experience with getting them to approve me as a “self-employed engineering consultant.” Tips of the hat to my Japanese clients, particularly Makeleaps / Webnet IT and myGengo, whose support was instrumental in getting Immigration to approve my renewal.
Despite not having nearly as much time to work on Appointment Reminder as I would have liked, I did manage to firm up its technical underpinnings, add new features requested by clients, and do a small amount of work marketing it. I hope to make that more of my focus in 2012.
Bingo Card Creator
Despite being in maintenance mode, BCC continued performing like a trooper. People always ask “Could you afford to live on it only?” and the answer is “Yes, but barely, and it would require a lifestyle adjustment, mostly in the don’t-fly-across-the-Pacific-so-often department.” BCC did not meet the numeric goals that I had for the year.
Sales: 1,539 (up 6% from last year’s 1,451)
Refunds: 14 (down from 22 last year, to .9% of sales from 1.5%)
Sales Net Of Refunds: $45,479.93 (up 5% from $43,398.55)
Expenses: $22,560.00 (up from $18,287.93, but largely just due to an accounting issue — I can’t split costs in my homegrown bookkeeping software, so the ~$3,000 I paid for servers for AR is hiding in that number)
Profits: $22,919.93 (see above accounting issue, essentially flat from last year’s $25,904.66)
Wage per hour: Let’s see, ~15 hours of programming, 20 minutes a week on customer support… about $700 an hour. Not too bad.
(All stats are from bingocardcreator.com unless otherwise specified.)
Visits: 821k (up from 777k)
Unique visitors: 670k (up from 655k)
Page views: 2.9 million (up from 2.7 million)
Traffic sources of note: Google (46%), AdWords (18%), Binghoo (13%)
Trial signups for online version: 82,000 (up from 72,000)
Approximate online trial to purchase conversion rate: 1.8%
Aside from kicking up AdWords spend modestly (to no good effect) and running a few A/B tests, nothing really substantial happened with Bingo Card Creator this year. I lost probably $1,000 to $2,000 of sales when the site crashed right during the middle of the Halloween rush for ~9 hours while I was on an airplane. That was a little disappointing, but while it broke my candy budget it won’t exactly put me in the poorhouse.
Projections that BCC would continue to grow despite not being actively worked on turned out to be totally wrong. I forecast 50% growth, reasoning “Hey, most of the systems work pretty much without my intervention, so I think the overall growth of the Internet plus a few A/B test means, oh, 50% or so.” It mostly tread water. I’m not hugely disappointed.
What Went Right:
- Not having to work hardly at all for it.
- Aside from the Halloween crash, the system was largely stable for the year. I think I got woken up by the automated alarm maybe once.
- SEO, AdWords, email marketing, and the usual scalable marketing stuff continued to be my bread and butter even when I was too lazy to actually cut and butter bread.
What Didn’t Work So Well:
- Crashing on the third busiest day of the year, in such a way that it depresses my AdWords campaigns for the first and second busiest days of the year.
- I integrated Stripe and expected a huge lift in conversions for going from Paypal to a simple CC-based payment system. I tested this extensively in A/B tests. I love everything about the Stripe system, but I have no evidence for “Stripe is better than Paypal/Google Checkout”, “Stripe/Paypal/Google Checkout is better than Paypal / Google Checkout”, etc etc. That said, it might be something as simple as my buttons being ugly. I’ll probably take a whack at it in the future, or better yet, have my designer take a whack at it.
I did a few weeks of consulting this year, for several different clients. Mostly, I do my engineering / marketing shtick for software companies, although some of my clients have been a wee bit farther afield. I wrote up a fairly typical engagement with Fog Creek. That one was a mutual success and we’ll continue to work together in the future. (To the best of my knowledge, all of my consulting clients are happy with my work.)
One thing I’m going to do differently in the future is to work for less clients. Don’t get me wrong: I love all my clients. I was privileged to work with them. However, it takes approximately X units of work to set up an engagement with a previous satisfied customer, 5X units of work to get a new prospect to the go/don’t-go decision on a new engagement, and I generally have to get three to four prospects to that point to actually wind up with a signed contract. As my buddy Thomas at Matasano says, “That is life in the big leagues.” However, since I’m not in a position where 100% utilization is a huge overriding goal of mine, I don’t need to keep the new prospect pipeline totally full… so I’m probably going to cut back on it quite a bit in 2012. I’ll continue doing follow-up engagements for established clients where it makes mutual sense to do so, and I’m still of course available for interesting projects, but I’m not going to be doing six-week fly-across-America-four-times tours to drum up new business.
The following numbers are approximations only. NDAs and having the sense God gave a tadpole constrain me from revealing my “going rate.”
Consulting sales: $55,000
Consulting expenses: $13,000 (mostly hotels and airfare for prospecting, which I pay for out of pocket.)
What Went Right:
- Client selection. I was, again, privileged to work for people who have interesting businesses, problems that I could make substantial contributions on, and the willingness and ability to pay all invoices in a timely fashion.
- Raising rates. My first guesstimate at my rate, back in 2010, was $X. It turns out that I could do just about as much work as I wanted regardless of whether I charged $X, $2X, or $5X. As a result, I typically quote fairly high rates and mostly stick with them, unless there is another reason I really, really want an engagement to happen.
What Didn’t Work So Well:
- Disorganization. At one point I was juggling something like five simultaneous proposals out while preparing for three conferences, two engagements, and six weeks of travel. It got so bad that I showed up at a city once and checked at the airport for where I was staying, quickly seeing that I mistimed a conference by three days and thus had no hotel booked, booking a hotel from the taxi, and then arriving at the hotel to recheck my schedule and discover that I had used the previous year’s schedule and was actually simultaneously at a different hotel across Brooklyn. (Shoutout to the Brooklyn Beta guys for saving me from my own stupidity that week.) There were multiple points in the year where I found myself wishing for either a boss or a secretary or somebody to just say “Show up to X on Monday and Do Stuff and all the stuff that is not Stuff will be taken care of.” My occasional slipups in dealing with the demands of a growing business caused me to drop balls in ways that were sometimes client-visible, too. This is a major part of the motivation for cutting back next year. (There is Plan B, of course: hire folks to do either the execution or the admin and take whichever part they’re not doing, but I don’t think I’m moving in that direction.)
- Too much work! Largely due to overhead and travel, plus the outsize distraction generated by the same, consulting munched a heck of a lot more time than I thought it was going to. I wanted to have a solid eight months of the year to work on AR. I think I probably got maybe two.
I launched Appointment Reminder last December, with the goal of having approximately 200 customers and $10k in monthly recurring revenue by now. I had planned on focusing for most of 2011 on marketing and selling it to more businesses. That largely didn’t happen, but since I got the fundamentals of my SEO strategy in place (while largely ignoring the modestly more advanced content creation / etc that runs BCC and that I usually help clients with), the business grew despite my best efforts at totally neglecting it to focus on consulting and not getting deported.
AR has been hanging around at a crossroads for a while now. There are two very different trajectories it could go down. In one, I grow it organically, and it grows into a modestly profitable software business which will provide handsomely for my family and (in the fairly near future) employees. In two, I take outside investment, and attempt to grow as quickly as possible to $N million a year in revenue, at which point options would include either a) selling to one of the larger players in the small business software space or b) continued operations at scale with a focus on growth. Luckily, I have the luxury of waiting on making that decision: my runway is infinite, the market opportunity is only getting bigger, and the perceived value of my involvement with a startup among investors does not appear to be depreciating.
This is one of the reasons I can’t be as open as I would like to be about the current status of the business. BCC has essentially no secrets, and would not really benefit from having them, as — aside from elementary school English teachers — there is nobody out there who has something I want for BCC. However, if I hypothetically wanted to take investment, then accredited investors suddenly have something I want very much and having secrets about AR gives me something with which to trade to get it. (It is similar to not putting prices on an Enterprise Software website. You can trivially get them, but the price of getting them is giving a salesman permission to give you the spiel. Similarly, folks who ask about AR’s numbers these days are generally asking in the hopes that they eventually receive a phone call asking them for a check.)
The other reason I can’t talk about AR numbers so much is that I radically underestimated how important the enterprise market would be to the business, and you can’t spell enterprise without NDA.
So: I wanted to have two hundred customers by now. For the publicly available plans, I currently have a few dozen paying customers. There are ways to get things from me that don’t involve paying the numbers on the Pricing page.
AR is modestly profitable — it covers all of its own costs. I plow most of the money it generates back into the business, though, rather than taking distributions. For example, I’m now about 95% certain that I will have significant contractor or employee involvement on it in 2012.
Expenses: Undisclosed (very modest ongoing expenses, reinvested most profits)
Profits: I took about $5k just to have a number that would minimize disbelief at the tax office.
What Worked Right:
- Twilio. The Twilio API and service have been unalloyed epic wins for Appointment Reminder. I had zero disruptions in service attributable to them, their customer support has been fast, responsive, and technically savvy (even helping me debug my own code at points), and they’ve been very supportive of me. Plus they have these awesome red track jackets that they keep sending me, which you’ve probably seen if you’ve seen a picture of me doing any talk this year. (I actually wear them mostly because I love the color red, but apparently I wear them so often that folks at the Fog Creek office thought the Twilio logo was my logo.)
- Sendgrid: It’s like Twilio, except for email. Great service. No red jackets.
- Unit testing & staging servers. I am gradually getting more sophisticated in my engineering practices, and have been ramping up my testing activities since starting to code AR. It has transformed the way that I do development, for the better, and made it easier to respond to customer requests to change things while decreasing the number of problems I have caused. Total win. See my presentation at TwilioConf for examples of the specific ways I use it for AR.
- Exact match domain names. ”Hey Patrick, how is it that with no marketing budget and nearly no marketing work you rank #1 for [appointment reminder]?” I told everybody that I was buying the .org specifically because that would happen but apparently folks didn’t believe me.
- Using the self-service site as lead generation for enterprise sales. Fairly self explanatory.
- The service itself: AR solves a clear customer need, and my customers are raving fans of it. There exist many services businesses which incur hundreds in direct costs and thousands in forgone revenue for a single missed appointment. (Think, say, an HVAC company which sends a three-man team of tradesmen out to your house to replace your heater, which is a $2,000+ job, only to discover that you aren’t home to let them in.) One of my customers reports that just the delta in no-shows since starting to use AR would pay for his mortgage and his daughter’s college education. Many of my other customers report that their office managers, who previously did telephone reminder calls manually, are ecstatic to not have to do them any more. Customer retention among folks who actually use the system (as opposed to signing up, doing a test call, and forgetting about it) is virtually 100%.
- Talking to smart people for advice: Since I’ve been going back and forth on the investment question, I talked to a lot of entrepreneurs and investors whose opinions I respect. I really appreciate their feedback, which ranged from “Are you kidding? You’d hate it.” to “I want to invest in you, but realistically, you would lose nothing by waiting until you are sure.” to “Best decision I ever made.” and helpfully included a lot of actionable advice on how to do things in the meanwhile such that options remain open.
What Didn’t Work So Well:
- Catastrophic engineering failures. I had one combination outage/catastrophic failure in February (the details are recounted in that TwilioConf presentation) and a ~3 day period of sporadically degraded operations after my move to Rackspace, which I finalized over the Thanksgiving holiday. Both of those were my fault, for architecting the system in a way which did not gracefully handle its multiple moving parts getting out-of-sync with each other. I’ve since done significant work on making it more stable. (Overall reliability for the year has been excellent, but those periods were easily the most stressed I’ve ever been about any business issue.)
- Lack of focus: I’ve been commenting above on this, so I won’t belabor the issue, but I really didn’t get to work on AR as much as I wanted.
- Enterprise sales: I’m actually fairly decent at Enterprise Sales, and am working with someone in the industry who has a deep Rolodex among folks who would be great candidates for AR, but (partly due to the focus issue and partly due to my own comfort level) I didn’t put nearly enough effort towards it this year. What I should honestly do is go to a conference some time, prospect like a madman, and then make following up on those leads my only job until I’ve got contracts signed. (The prices for enterprise SaaS make this very economically viable.)
Goals For 2012
Bingo Card Creator
- I’d be happy with continued flatness ($~30k profits on $50k sales), maybe. It isn’t the source of growth for my business anymore.
- Continue using it as a laboratory for weird ideas I have on conversion optimization.
- Don’t break it during Halloween.
- Do less work prospecting for new clients.
- Do more work for existing clients.
- Modestly increase billings, if that makes sense for where my overall business is. (If I take external investment in AR, that will likely require shuttering the consulting business.)
- Figure out whether I want to take investment or not. If so, do so.
- Convince Keith (who I do my podcast with) to work with me, if possible. (Don’t worry, he knows this is on the agenda. We’re best friends.)
- See about transferring responsibility for the engineering (particularly front-end) side of things so I can focus on marketing/sales.
- 10x current sales numbers. That seems to be a fairly safe bet regardless of whether I shoot for a small business or for a high-growth business. (1,000x-ing would be another story.)
A personal note: The last 3,300 words ultimately matter much, much less than the next 3: she said yes. We’re announcing to our family on Christmas, as per our family tradition.