Kalzumeus Podcast 5: Quitting Consulting Via Productization

Keith Perhac and I are back with the 5th epsiode of the Kalzumeus podcast.

Keith and I both have experience working as consultants in software development and online marketing.  People often ask us how to transition away from the feast-or-famine nature of freelancing, where you do very well when you’re delivering engagements and getting them paid quickly, and then do very poorly when work dries up or you have invoice collection issues.  One way to improve on this is building recurring revenue for your consultancy, via products.  A lot of folks think that the only way to do this is spinning a SaaS out of your consultancy.  While I have an abiding love for SaaS, building SaaS businesses takes a metric truckload of time and largely is not a good option if you have e.g. a personal burn rate of $6,000 which you need to cover next month.

Happily, there are many ways to productize your relationships with customers or your expertise as a consultant.

[Patrick notes: The transcript below has my commentary inserted like this, as usual.]

What you’ll learn in this podcast:

  • Why I wound down my consulting business recently, even though it was pretty successful
  • How to sell consulting clients retainer agreements, long term support contracts, and software licenses to become less dependent on revenue from new engagements
  • How “productized consulting” (it’s like infoproducts, except with a less obnoxious name) can make tapering down consulting viable for people who need predictable revenue
  • Examples of non-software products that technically-oriented folks could be creating
  • How Keith and I have applied content marketing (God, another word I hate) and effective use of email to sell these sorts of products
  • Our advice on pricing/packaging, and a few pointers at successful implementations of it to copy liberally be inspired by

If You Want To Listen To It

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Transcript: Quitting Consulting Via Productization

Patrick McKenzie:  Hideho everybody and thanks for tuning into, what is this, the fifth episode of the Kalzumeus Podcast. I’m Patrick McKenzie, better known as Patio11 on the Internets and I’m here with my co‑host Keith Perhac.

Keith Perhac:  Hi, I’m Keith Perhac, not known on the Internet.

Patrick:  Yeah, it’s been an absurd amount of months since we did the last version of the podcast together. What’s new and exciting with you, Keith?

Keith:  Oh my God, so much. I have a new daughter, which is fun, takes a ton of time out of my life but the main thing that I’ve been working on, non‑family related, is new productization. I’m sure you have a lot to talk about that, as well. I’ve been doing consulting about two years now, going on three. It’s gotten to the point where I want to start that whole productization thing. I think that’s what we’re going to talk about today.

Patrick:  Yeah, I think we’re going to be floundering around a little bit, as always, but largely people have been talking to us. Both folks who want to start consulting, and we’ve covered that topic before I feel, but also folks who feel like they’re stuck in the freelancer/consultant treadmill and want to get off it and start a product business based on that.

Keith:  Exactly.

I Quit Consulting.  Here’s The Expurgated Version Of Why.

Patrick:  We’re addressing that this time. Let’s see. I quit consulting recently.

Keith:  Congratulations.

Patrick:  That isn’t very public on the Internet, but it’s out there now, I guess. A brief background if you haven’t tuned into the other podcasts, since about April 2010‑ish, I’ve done occasional consulting for largely business‑to‑business software‑as‑a‑service firms. At the end of it, it was typically more successful firms in the industry that were doing between $10 and $50 million a year in revenue. I largely did my shtick for them. If you’ve been following me around the Internet, you know I love A/B testing, conversion optimization, pricing and vice, running email campaigns, yadda, yadda, yadda. Basically, if you boil it down to a business card that was tweet sized: “I make money for software companies.” I did that for a while. It was often fun. Unfortunately, I got to the point where there was not much of a future for it.

That isn’t actually true. There was a future for it, but it wasn’t a future that I wanted for myself. For example, at the end of last year, I was routinely bringing business from the Fog Creeks of the world, very successful companies that had a certain amount of scale. The step up from doing fairly motivational things for them at their levels of scale was to go into the Fortune 500 because there were other people who could continue to generate the growth in my weekly rates that I wanted or provide exciting new challenges.

I had an engagement at the Fortune 500 almost happen at the start of this year.  Obviously, I’m NDAed because the Fortune 500 company’s legal department is better funded than the Axis of Evil and twice as nasty.

My experience with the Fortune 500 company didn’t work out so well.

After that didn’t work out so well, it had collapsed in such a way to take out months of my consulting pipeline. [Patrick notes: When established clients or new prospects came to me and said "Do you have any availability in $TIMEFRAME?", I kept saying "I'm sorry, but I believe a large client will have 100% of my availability for the forseeable future."  Then I'd pass them to other consultants.]  I was thinking, “Do I really want to start rebuilding the consulting pipeline?” Which just means getting other engagements on the calendar, prospecting and talking to people who could potentially be good fits and whatnot, with an idea of starting to do more engagements starting in, say, August for delivery. Then having to pretty much pound the ground every week from August to December to make my numbers for the year work out.

Was there a reason to do that?  I took a look at the growth in my product businesses.

Every year for the last two, I’ve said “This is going to be the year where I actually work on Appointment Reminder in a consistent manner.”   And every year it gets neglected.  Appointment Reminder really deserves my attention (both in terms of “it deserves to have a fair shake” and “look at the revenue graph now extrapolate where that would be if you treated that like it mattered”).  I’ve just decided to quietly wind down the consulting business and focus more on my own stuff, which has been working out pretty well. I probably have done more coding on Appointment Reminder in the last month, month and a half, than I have in the previous two years. That’s fun.

Keith:  That’s something that I think a lot of people don’t realize when they get into the consulting or the freelancing gig. Especially I thought when I quit my job and started freelancing, I was like, “This is great. I’m going to be doing interesting programming and development work 80 percent of my time.” [laughter]

Keith:  That is the biggest lie ever. Now, I do still do a lot of development, less so now, but 90 percent of my time, honestly, is overhead. It’s finding new clients, like you said, setting up that funnel for your consulting business. Who is going to come in? Scheduling that all, getting contracts signed, getting contracts done, talking with customers, talking about what you’re going to do. Then you actually only spend a week or two weeks, depending on the contract, doing it. The rest is all overhead.

Patrick:  This is particularly true when you move from a solo consultancy into a firm model, like Keith has. I think, Keith, you are the principal at the firm. You have a bunch of contractors who occasionally work with you.

Keith:  Correct. It’s actually I say that I do a little development. I do much less development now because I do mainly the planning work. It’s like, “We have to meet these target numbers, so we are going to do A, B, C and D.” Then I work with my devs and it’s like, “Hey, let’s accomplish this with one, two and three.” Then in 90 percent of the cases, they’re the ones that are actually coding.

Patrick:  We talked about this in our earlier podcast with Brennan Dunn and company. In the solo consultant model, you’re typically doing pretty well if you can actually bill 75 percent of your time, so 75 percent of the time is actually billing engagements. The other 25 percent of the time is overhead, prospecting for new engagements, taking your vacations, yadda, yadda, yadda. When you move into a model where you’re no longer the sole partner and you have to manage people, typically your billing efficiency drops in drops until the 50 percent region or less as your firm scales up. Then the remaining 50 percent is unbilled time where you are more managing your people or continuing to rain make, get the new engagements, do the prospecting, deal with the administrivia such that your team is able to sustain a 75 percent‑plus billing efficiency.

That’s one reason why when people switch from a solo consultant to having a team, their income actually typically goes down for the first while until they have enough people under them such that the…what’s the word, leverage? Yeah, the leverage works out to more than replace their higher prior rate.

Keith:  Correct.

Patrick:  Anyhow, that’s where our consulting businesses are at, and we frequently hear from other people when we’re going to conferences and whatnot or just reading our inboxes. They similarly have a certain amount of success doing the consulting dance. The word burnout is used very frequently. Consulting, I don’t know if higher stress is the right word, but there is less stability than involved in W‑2 employment, where you just have one boss that you need to keep happy. You often don’t know where next month’s paycheck is going to come from. This sort of thing motivates a lot of people to find something that’s a little more stable for themselves.

Keith:  There’s also a lot of more concentrated work in consulting. Where if you’re, like you say, a W‑2 employee and you have a project, you’re there eight hours, maybe ten hours, depending on where you work, a day. You don’t have that huge rush. For consulting, you line up and spend your time rainmaking, getting the consultants lined up. Then it’s a week of solid work or two weeks of solid work, where you’re not doing anything, except these projects. You don’t have any downtime for meetings. You don’t have really time to just screw around because you have a deadline. You have your milestones that you have to accomplish and you have a very limited amount of time to do it.

Patrick:  Right. One of the reasons consultants can justify our crazy weekly rates is that typically we parachute into the project and just grind it out. Whereas with a W‑2 employee: every business has a cycle associated with it. Sometimes you have your busier periods and sometimes you have periods with a little more slack in them. You can have slack in a consulting engagement. That happens, but typically it’s a result of at least one of the parties not being on the ball. It doesn’t happen quite so often. You will typically spend fairly little time when you’re billing out at $200‑plus an hour reading Reddit.  Well, one would hope.

Keith:  [laughs] One would hope, yeah. I actually had a client (NDAed) who told me after the week was over that I had accomplished more in three days than they had accomplished in six months. He was like, “How do you do it?” I’m just like, “Honestly, because I don’t have to deal with your meetings every day, I don’t have to deal with any fires that come up. If someone says, ‘Oh, someone hacked the server, A and B’s privacy policy isn’t correct,’ I don’t have to drop everything and deal with that. All I have to do is concentrate 100 percent on the milestones in our engagement.” That gives a lot of freedom to just be really creative and be really, really productive.

I’m in the middle of a couple of engagements right now that are much more freeform. They’re mainly for friends, or friends of friends. [Patrick notes: Uh oh.] It’s not a, “Here’s a week of my time.” It’s, “We’ll do about eight, ten hours a week.”

What I’ve actually found is that it’s much harder to do that. It’s much harder to have that ramp‑up and to ramp down and to balance it between my other clients. I would actually highly recommend, and you’ve recommended this to me before, to definitely not do hourly, but not even do daily. Get your contracts as a weekly rate. Block off the time and say this is what we’re going to do in this amount of time. Otherwise, things just sprawl. They really just sprawl out of control.

Patrick:  I also think that it’s generally an anti‑pattern if you have any serious work scheduled for part of your time and then have friends’ or friends of friends’ engagements. You and I are friends. Occasionally we do work together, but it’s difficult to maintain the correct level of professional distance with friends.

Keith:  Definitely.

Patrick:  It’s also difficult to schedule them against the rest of your business if, for example, the rest of your business is actually charging meaningful rates. Then you have a grandfathered rate with a friend where you’re charging what you were charging when you were stupid and just out of college. Not that you were stupid or just out of college when you started your consultancy.

Keith:  [laughs] I was not out of college. I will not say anything about the being stupid when I first started. I think we’re all a bit stupid when we first start consulting.

Patrick:  This is true. That’s one reason why, and this is a little widely ranging, people very rarely stick with their initial set of clients. Partly because your business grows and it’s difficult for all client relationships to grow with you. There were clients that I really, really loved working with that started working with me in my first year of consulting. My rate went up from, I think it was $100 an hour, when I started. By the tail end of the career, I was putting out engagements that had $30,000 a week or $50,000 a week on the estimate and winning them. Not all clients made that jump, to put it mildly.

Keith:  I’m actually in that same position right now. I’m working with a lot of clients. I’m starting to have to phase out some of my older clients, because they are still at the, “Oh yeah, a week of Keith’s time is worth $1,500.” It’s just not anymore.

Patrick:  Yeah. Let’s see. We were talking about why people would want to quit and move to more of the perceived security and control that they get from running a product business, where they are both able to confidently predict that they’ll have enough money to pay the rent next month, even if the pipeline doesn’t work out at 100 percent or if their cash flow management with the existing consultant clients doesn’t work out at 100 percent. For example, there was a thread on Hacker News recently, where somebody had been doing six weeks of consulting for a particular client. There was a $10,000 check that was floating out somewhere. He really needed that $10,000 check. The first way to never get screwed about a $10,000 check is to not really need it.

But, if you’re in that position and the $10,000 will make a meaningful difference to you or your family, that can be a very difficult thing to have to juggle every month versus say having the typical SaaS model, where you might be getting the same $10,000, but it’s split between 40 accounts at $250 each. Any one client deciding to be a screwball with regard to paying their invoice doesn’t necessarily give you the risk of homelessness.

Keith:  Right. It also ties you to your client. If you have a large client that’s paying you 10K a month or 20K a month or whatever in a retainer function, then losing that client hurts you a lot more than if you have maybe 200 customers for your product, paying you $50 or $100 a month. Losing any one of those customers or two of those customers is not going to hurt you as much as losing that one big client.

Patrick:  I think Brennan Dunn had a great line in his podcast recently. He said, “If you are a W‑2 employee, you have one boss. If you move into consulting and have three clients, who are each responsible for about one third of your billing, you now have three bosses.” Each of them is independently capable of getting peeved off at you and independently capable of having a material impact on your standard of living, where if you move up to having 300 clients you no longer have bosses. You have people whose business you can take or leave.

Keith:  It’s in a good way, in a good way, not in a, “Screw you customers, go home.” kind of way. I find that you are more free to be creative and be engaged with the customer, when you are not beholden to them.

Patrick:  I think that’s totally true.  [Patrick notes: This sounds like a theme of 37signals work.]

Keith:  When you are 100 percent in that person’s debt, you’re much less likely to stick your head out and fight for what you believe in, because you’re not willing to rock the boat.

Patrick:  Mm‑hmm, right, not just fight for what you believe in, but also fight for the best possible outcome for the customer. Sometimes what customers need and what they want are not exactly the same thing. Giving them what they want is typically the best way to preserve the relationship. Sometimes, as consultants, you might be incentivized to do things, which you know, in your professional opinion, are not quite the best idea for them, but which are the easiest things that you could possibly sell them. For example…

Keith:  That’s a hard example to come up with. [laughs]

Patrick:  That’s a hard example to come up with, because we don’t want any past client thinking “Oh wait, that was our engagement!” [Patrick notes: Wry humor.  My clients were, of course, uniformly geniuses.]

Patrick:  You can imagine that there are clients out there and let’s say you do web design. You know that certain things convert better than other things. But the design has to get signed off not just by your point of client contact at the company, but their boss as well. A certain way of designing the page might have a little more visual flair to it and makes it easier for their boss to sign off on it, where that would negatively influence their convergence. You know ultimately that they are not in the business to have a beautiful website. They are in the business to make shedloads of money selling their product to customers, who will be happy to use it. But, because you need to continue that relationship, you might be perversely incentivized to give them the design that their boss will like, rather than the design that will convince their customers to get into more business with them.

Keith:  I actually had a customer I can talk about. He loved music on his top page, for some unknown reason.

Patrick:  Oh God.

Keith:  I know. It was a real estate agency.

Patrick:  Oh God.

Keith:  They insisted on putting it on. I was like, “This will drop your conversions. People will run screaming from the page.” The owner of the company told me, “I’ve been doing this web thing for five years. I know what’s going on.” I’m thinking to myself, “I’ve been doing it for 15, but whatever.” Anyway, at that point, we had Google Analytics and the numbers showed that the bounce rate went from something like 30 percent to 80 percent. People just ran screaming from the page. Nothing would convince him otherwise, nothing.

Patrick:  I’ve got to ask. I have a funny feeling what the answer is… Keith, is this one of your American clients or is this one of your Japanese clients?

Keith:  [laughs] No. This was a Japanese client, who I dropped like a hot rock.

Patrick:  I am shocked, shocked to hear this.

Keith:  [laughs] Yeah, no. I would also drop an American client who said that to me as well. But I have had much better luck with my American clients. For everyone, who is just now tuning in, Patrick has been telling me to drop my Japanese clients like a hot rock for quite some time.  [Patrick notes: Not because they're Japanese, just because Keith's conveniently available cross-section of the Japanese market has been uniformly pathological.]

Patrick:  Right. Don’t get me wrong. There exist large classes of people, who you should never, ever work for in America. But you typically don’t get to the top tiers of successful tech companies by being a client you could never, ever work for, whereas that is very, very common in Japan, especially in our neck of the woods. Just empirically, in Keith’s and my businesses, it has been the reproducible problem that working with Japanese corporations has not been nearly as successful as working with American clients. They typically have a much lower peg for the amount they are willing to pay engineers or people who kind of look like engineers. Keith and I don’t really look like engineers in Japan, but, be that as it may…

Keith:  I would just say tech people.

Patrick:  Right, tech people.

Keith:  Anything that deals with technology, like that whole Internet thing.

Patrick:  Right, that whole Internet thing. That whole Internet thing should cost $3,000 a month in Japan, for the fully loaded cost of an engineer [Patrick notes: Hmm, a little low -- $4,000 fully loaded, probably], whereas, in America, it’s closer to $20,000. If you ask for a “ridiculously high rates” like the equivalent of say $60 an hour, your Japanese clients will balk and balk hard at that, whereas a $200 an hour rate or let’s say a $100 an hour rate in America is the number that you would get for just putting out your shingle as a new consultant, who knows how to do in demand technology stack, even if you’re not sophisticated about bringing business value with that technology stack.

Keith:  Right.

Patrick:  By the way, a lot of people ask, “Hey, I’m a freelancer and I don’t charge $100 an hour. How do I get to the point where I can charge $100 an hour?” The answer is often just stop taking engagements at less than $100 an hour, because you are in demand at the moment.  [Patrick notes: For the most actionable business advice packed into the fewest words, see this post by Thomas Ptacek.]

Keith:  Right. I think there is a difference in that you have to position yourself better. This is kind of getting off topic, so I want to close this thread as soon as we finish this. You have to position yourself in a way that the $100 an hour is palatable to the person. You can’t just say, “Oh yeah. I’ll code up your web page for $100 an hour.” That’s probably not going to fly.

Patrick:  Right.

Keith:  Although lately rates have gotten so high that it may fly in some cases. But, if you position yourself, even if you are just coding up a web page for $100 an hour, if you position yourself in such a way that it shows that you are producing value to the business, and that is the biggest thing that you will deal with. This is something we are going to talk about with productization with B2B over B2C. If you are producing actionable results and business results to a company, they are willing to pay whatever. I’m looking for a new accountant here in Japan right now. One of the things I’ve been talking about is accountancy rates, because they go from almost nothing to ungodly expensive. I’ve been very clear. Anyone who can save me, in my taxes, more than I am paying them, I’m happy to pay that.

Patrick:  Right. There is no rate too high.

Keith:  Right, exactly. If I pay you $10,000 a year and you’re saving me $15,000 a year, I’m making $5,000. I’m very happy with that. That’s getting off topic.

Patrick:  That’s totally true. We’ve covered that topic in previous podcasts before.

Keith:  Yeah.

Patrick:  Let’s go into the models that people can use, both when they are still consulting, to do a soft transition to productization and then the harder transition later.

Keith:  Right.

Patrick:  Let’s see. One semi‑productization model for consulting is to just get your clients from the point where you are doing individual engagements and no money comes into the company without a new engagement being proposed, a new statement of work getting issued and a new contract negotiation, to the point where you’re getting money on a recurring basis from them.

Keith:  Right.

Patrick:  One model for that is called the retainer agreement. Keith, I think you have more on the ground experience with this than I do, because I was stupid and never got retainer agreements.

Keith:  [laughs]

Patrick:  Why don’t you describe how you set that up with a typical company?

Keith:  OK. For the first year of consulting, I never had any retainer agreements. They are also hard to do in Japan, another reason why you should not do consulting in Japan. [Patrick notes: Keith is talking about getting clients to agree to them, rather than they being legally problematic or anything.] But, eventually what it comes down to is that it is… after finishing an engagement, it behooves the company to have someone who understands what’s going on behind the scenes with the engagement. If you’re doing an A/B testing engagement, someone who knows the numbers can measure the impact and can essentially take the time every month to iterate, and that’s a great word for startups and it’s really true, iterate on the engagement. If I spend a week creating new landing pages, a new content management strategy for people to increase their SEO, and a new lifecycle email, that’s great. They have created that. But who is going to do the reporting? Who’s going to do the new iterations of that every month? If that’s something that they are willing to do in‑house, that’s great.

But most of the time, when you have hired a consultant, there’s two reasons.

One is you don’t know how to do it yourself. The other is you don’t have the time to do it yourself. That’s a very big one. Even if there are very smart people in your company, they are involved with company things. Like we were saying earlier, someone, who is only focused on tasks A, B and C is much more effective with getting those tasks done. [Patrick notes: One of the hardest problems across clients in my consulting career was convincing the client that they needed to re-task one employee to implement my bag of tricks on an ongoing basis.  A lot explicitly asked me to join the company to do that.  Stupidly I did not have a back-up offer after politely declining, like a retainer agreement for ~3 days a month.]

Having someone every month, not at the full rate…let’s say you charge, for example, $10,000 a week…not someone, who is going to charge you $10,000 every week, but someone who might charge $3,000 or $5,000 a month to come in maybe a day or so, maybe 10 or 20 hours, and put together a report, come up with some new test ideas, approach them to the company and implement them.

Patrick:  Right. This isn’t just a great thing for the consultants. It’s actually a great thing for the company. This both has the perception and the reality of decreasing project risk. You won’t believe how many projects I worked on, where they were a success as of the day I handed them off to the company, but then, for internal focus reasons or whatnot, they just didn’t get somebody to do the feed and watering of the new infant and then the infant died.

Keith:  Right.

Patrick:  For example, they want to protect their investment of say $20,000 in setting up the A/B testing system or getting them running. But they might just not have enough bandwidth internally to make that somebody’s job or they might assign it to a particular engineer and then that engineer gets busy with other priorities in the company and then that one is easy to drop, because it wasn’t his baby. Given that it was your baby originally, just telling people that you can be on top of that for them and that, as a result, it’s going to continue being successful and the engagement won’t get wasted, is a massive value‑add.

Keith:  Right.

Patrick:  It can be the natural continuation of the thing that you did for them. For example, if you’re starting with A/B testing, then obviously continuing to review A/B testing results every month and then sending them a report saying, “Here’s how much money we’ve made in the last month. I have tested these new three things this month. These two got a null result. They failed to create any meaningful value for the business. This last one increased your sales by five percent. Congratulations. BTW, invoice due as usual.” is a big win for them. The consultant reason for doing that is, he amount of time it takes you to implement three new A/B tests, is probably going to be pretty piddling relative to the amount of time it took to win and deliver the engagement in the first place. But you can conceivably get strong amounts of ongoing value for the customer from doing that. Then charge them relative to the strong amounts of ongoing value rather than the marginal amounts of additional work required.  This allows you to crush many conceivable hourly rates.

Keith:  Right. Because you’re charging for an ongoing service and you are charging for an ongoing service that is part creative and part administrative, this is something that is also very good for working within the consultancy. If you’re not a one‑man consultancy, what you do is you have the person or administrator who worked with you, you say, “We have clients A, B, C and D. Please write up the reports for them.” They know how to get the reports. They give you the reports. You look at them. You say, “OK. These are not performing well. These are performing well. We are going to change these A, B, C and D. You go in and change them,” you say, “and then we’ll send the email.”

Patrick:  Right. Typically, in a multi‑person consultancy, you have the A team or the partners winning the engagements. Then you might often have delivery of the engagements being handled by people that have been trained by the A team or the partners, but they’re not necessarily at that level themselves.  [Patrick notes: This is called "leverage" and it is the fundamental economic engine of multiperson consultancies.  Like they say on The Wire: "Buy for $1, sell for $2."]

Keith:  Right.

Patrick:  That is particularly well‑suited to retainer work, because, given that you have created a list of 15 things to try on say on the customer’s home page, actually implementing that within the visual website optimizer, which has already been set up, does not require the partners’ personal attention. They’ve already dictated most of the creative thing. It just needs somebody to actually go in, do the button clicking and then generate a report and send it to the right people at the right time every month.

Keith:  Right. I’ve had a couple of clients balk at this idea. “I’m paying you to do the work, aren’t I?” It’s taking my time from being creative, from coming up with the ideas, from working on ideas and strategies for the company, in order to write the emails or to pull a report. Depending on the report, that can take three to five hours, so that’s three to five hours that I’m spending crunching numbers instead of looking at the report and figuring out what needs to be done. It’s not value added work.

Patrick:  Right. People, who can generate SQL queries or, in pathological cases, people who are capable of downloading Excel spreadsheets and then copy/pasting the numbers into a PowerPoint are probably quite a bit cheaper and just as effective as the founder would be in doing that same amount of grunt work.

Keith:  Right. But someone, who can look at that PowerPoint and say, “Oh crap, here are the trends that we need to fix now” is a much, much different value proposition.

Patrick:  Right, right. It’s making sure that PowerPoint actually gets looked at as opposed to being left on a server somewhere, with no one being assigned to actually look and act on it every month.

Keith:  Correct.

Patrick:  Retainer agreements would have been absolutely transformatively good for my consulting business. Obviously the consulting business was always a part‑time thing for me. I never did more than about 20 percent of my time on it in a year, about 10 weeks of consulting. Say I had 15 consulting clients. I think out of the 15, probably 10 of them would have received enough value in the engagements that they would have happily signed off on having me continuing to keep an eye on things for them over time. Even assuming a fraction of my weekly rate, as the monthly rate for the  retainer agreement, that would probably have had a baseline value for the consultancy of upwards of $20,000 to $30,000 a month in billings. If that had happened, and hypothetically that happened and my consultancy still had the same problem this year with regards to the pipeline going forward, it probably wouldn’t have killed it, because it would be still very worth the time to continue servicing those clients and then build up the forward‑looking pipeline.

But, given that I did not have that, it didn’t have enough residual value for me to justify keeping it around. It’s no skin off my nose, because I have other products in the mix. But if consulting was my primary form of income or my sole source of income, then I would honestly be in quite a pickle at the moment, because I’d be essentially unemployed or unemployed until August.

Keith:  Right.

Patrick:  Then I’d probably be doing things like banging down the bushes to get engagements and not have the amount of pickiness that I can typically generate, typically exercise, with regards to finding engagements, finding a client that I can really do good work for and who is willing to pay the prevailing rate.

Keith:  Right.

Patrick:  Anyhow, other things that you can sell to clients besides retainer agreements?

Keith:  Let’s go into source code or licenses rather, because that’s a really simple one that’s an easy push, from consulting or development work.

Long-term Support As Productized Consulting

Patrick:  OK, then let’s talk about that. A great example of this, by the way, is, if you look at railslts.com, there’s something I suggested a few months ago. I’m still on Rails 2.3. If you’ve been following my blog, you know Rails 2.3 has had some severe security issues in the last six months. It’s also at the end‑of‑life for the product, which means the open source team that supports Rails, Rails core, doesn’t want anything to do with Rails 2.3 anymore. It’s like, if you find a security bug in it, good luck. They don’t want to be in charge of writing patches or managing releases for it anymore. I said that basically any consultancy,which does a significant amount of Rails development and has a lot of clients on 2.3, could get a significant line of business by supporting it in a commercial fashion.

What does that mean? They do the work they are already doing. If a vulnerability is discovered for 2.3, write the patch. Do the work to release the gem for it. But then charge on an ongoing basis for guaranteed access to those gem, to those security releases, in a particular guaranteed timeframe.

Actually, I urgently needed to buy this for my business, because I use Rails 2.3 in Appointment Reminder, which has hospitals as customers. I can’t just tell hospitals, “Yeah, I’m using an old unpatched version of Rails on my server. This technically means that your patient information could be rooted at any time.”

That’s not a very effective sales pitch. [Patrick notes: To say nothing about what Health and Human Services would say if I had a HIPAA-reportable data breach.] I needed to move to a supported version. I talked around with a few people. I found a consultancy called Makandra in Germany. They have a dozen people working for them and they have 50 clients, who are currently on Rails 2.3.

We hammered it out in a way such that I paid them a guaranteed amount of money per year, $10,000 actually. It’s a fair chunk of change, but cheap relative to hiring Rails programmers. They guarantee that, within 24 hours of having a severe vulnerability released for Rails, that they will write a patch for it and incorporate it into their privately distributed fork of Rails 2.3.

Keith:  Here is the difference between this and what we were talking about earlier with the retainer contract. They are not going to patch your software.

Patrick:  Right. They’re not going to patch my software. They didn’t write my software. All they’re doing is taking an extraction from stuff that they have written for other people and selling it to me as a product that I can just basically buy with my credit card.

Keith:  Right.

Patrick:  I think I get something like three hours of guaranteed integration support with it. But it’s not one of their partners will be individually discussing with me about this. It exists. I have access to it. I can buy that. Similarly, you can go to railslts.com and buy that, without having to go through the whole dance of writing a proposal, getting a master services agreement and a statement of work written to wire transfer this over to Germany. It’s just something you can buy on a SaaS model basically.

Keith:  Right. There are two things I want to say about this. First of all, they are not a sponsor. We just love them. [laughs]

Patrick:  Yeah. They are the opposite of a sponsor. They sponsored us for negative $10,000.

Keith:  [laughs]

Patrick:  Ow. By the way, that is the single largest check I have ever written for my business.  [Patrick notes: Good thing I don't have full-time employees, or it would be called "payroll" and be due every two weeks.] I was thrilled to write it, because it means I will not be locked up for losing patient information.

Keith:  Yeah. Yeah. I actually will talk about the big check that I am writing tomorrow in fact. I’ll talk about it in a minute. But what I do want to say on this is that people will think, “They created a product and they are selling it. What’s the difference between that and a productization?” This isn’t a product they created. This is something that they have to do for their day‑to‑day existence as a consulting agency. They are a development consulting agency. They have a lot of clients that they support on this recurring revenue, on these retainer type things, so they have to do the work anyway.

What they are doing is the work that they’ve done overall they’re then reselling.

Selling Licenses To Pre-Written Software To Your Consulting Clients

Keith: I do something very similar to this. I’ve been doing consulting on info products for about two years now. I do a lot of work with things like AWeber, InfusionSoft, OneShoppingCart, all these great or not so great systems, I won’t say which is which, that need coercing.

They don’t work exactly how the customers want. The customers generally want different functions out of them. I have essentially my toolbox. Any one of these can be a licensable piece of software for a client. Not in a SaaS model, because that requires a user interface a lot of the time.

It’s something that I can go to a client and say, “Hey, you know you want to run a contest that interfaces with AWeber and tweets people on their iPhone, when they’re sleeping, etc. I have a great piece of software that does that. We can work out some sort of licensing agreement in addition to the consulting. We do the consulting engagement. We get it all set up, in addition to other stuff. In order to keep using that software, you pay a recurring fee of X.

Patrick:  Or even, depending on the difficulty of the tool, it could be a one‑time downloadable thing with a one‑time license fee.

Keith:  Right, exactly.

Patrick:  There is a great example in the Rails world, about somebody who developed basically a skeleton, bare‑bones app between Rails with the SaaS charging model in place, which obviously a lot of people want to do. It is at RailsKits.com.  You can pay $300 for that and get all of the stupid crafty work of taking credit cards done for you. I happen to know that was greatly successful for his company. That was basically an extraction out of, “Oh God, I’ve written the same code 10 times for 10 different consulting clients, with very slight variations between them.” Given that all the value for the engagement comes for what we layer on top of that code, we could extract that basic user model and the subscribe/unsubscribe pages for the application, extract that, put it into a git  repository somewhere that could be conveniently consumed by people outside the company and then charge for access to that.

Keith:  Exactly.

Patrick:  By the way, that convenient consumption is very important. There are a lot of things that are good enough to do internally, given that it’s only going to be you and people that you know who have used it, which are not good enough to be used externally.

I do a small bit of angel investing. I recently invested in a company called BinPress, which is basically trying to do a dual licensing model for open source projects. If you’ll let me give a little plug for them here: the dual license model for open source is you have one license, which is very permissive, such as GPL or MIT. It’s typically GPL, because GPL plays better with it. You allow anybody to use it. Then you have a different license, which you sell to people, which lets them use the same source code in a less restrictive manner.

For example, the big thing with GPL licenses is, if code is GPL licensed, it is viral and it infects the rest of the application. You can’t have GPL code within an application which is sold on the iPhone App Store, for example. Apple, just blanket, does not allow you to do that.

For example, if you happen to be a mobile developer and you open source any code, if you GPL it, you can sell anyone who actually wants to use it in an application that is put on the App Store, a license that basically un‑GPLs it, with respect to them in particular. It’s a license to distribute it on the Apple App Store.  It doesn’t give them the right to the code. It doesn’t let them sell that code to other people.

They get to see the code. They get to use the code. They get to embed the code in their products on the App Store. But that’s the extent of it. (That was actually a fairly common license for software developers, prior to open source becoming such a big model.)

RedHat also uses a similar variant on that, where you can use the RedHat distribution for free, but there are additional dual license tools and whatnot that you can buy from them. I think they do that. Anyhow, binpress.com makes it easy to facilitate that transaction between people. That’s not a transaction that you have to make in a low-touch model, like buying straight from a website.  (That’s, of course, an option, but then you have to find distribution for it.  cough Binpress cough)

You can just offer that to consulting clients of yours, where, “Rather than paying me two weeks to write something for you from scratch and then you getting the rights to it, under a work for hire arrangement, there is some pre‑existing code I happen to have around that already does this. For a one‑time payment of $1,000, I will write you a two sentence email, which allows you to use it in your product. But you don’t retain rights to the code. I retain rights to the code.”

Keith:  That’s the big one. I’m actually talking with clients now that are like, “Yes, we want to use the code. But we also want to resell it.” That’s where things get really into the sticky situation.

Patrick:  That’s why you should charge them at least 10 times as much, if not more.

Keith:  Exactly, exactly. This is something you need to be careful with, especially if you’re doing dev work as consulting. What is owned by who? I was saying earlier that I write code for interfacing with AWeber. Who owns that code? Do you own that code and the client has a license? Does the client own that code and is it a work for hire, in which case, if it is a work for hire, you cannot use that code for another client. There’s a lot of things that you need to be careful with that I’m looking at that are way out of the scope of this podcast.

Patrick:  Check with your lawyer. If you need to know about this, by default, you will probably be writing things under work for hire. Definitely get a lawyer to look over your standard MSA, master service agreement, which clarifies the assignment of intellectual property. The most consultant‑beneficial thing you could do is to give clients a limited, non‑exclusive license to the code that you write for them, but that doesn’t assign the ownership of it to them. Many clients will push back against that. That’s basically a nonstarter at some larger clients, which will be forcing you to use their MSA and to basically work under work for hire. That’s something where you just have to work out the numbers. Are you charging larger clients enough such that you not getting any capital improvement, as a result of working for them, is a worthwhile thing for you?

Keith:  Right, exactly. You need to keep in mind…and I’ve had a lot of conversations with this. Like Patrick says, get a lawyer. They are worth their weight in gold for things like this. If it is a work for hire and you, for example, have a tool that you’ve been using in the past and you use it for that client, that is no longer your tool.

Patrick:  Right. That can be very, very unfortunate, particularly if that tool is already running on other people’s systems.

Keith:  Exactly.

Patrick:  Oh God, a situation you do not want to be in.

Keith:  Long story short, get a lawyer. [laughs]

Infoproducts: A Word We Hate But A Business Model We Sort Of Like

Patrick:  Anyhow, we were going to talk about info‑products next, right?

Keith:  Yes, I believe so.

Patrick:  Man, that word info‑products, I hate it with a burning passion in my soul.

Keith:  [laughs] I had another description that you hated even more, but I will not say it. I’m not going to rile your anger. [laughs]

Patrick:  OK. The way I always described it is productized consulting, at least in my business, because they were largely outgrowths of the sort of thing that I did for consulting on a routine basis. For example, last October, I released a thing called Hacking Lifecycle emails, which was basically a way to use lifecycle emails and drip marketing campaigns to sell more software for software businesses. It’s obviously a theme that I talk about a lot. That course basically came out of my experience of doing a particular engagement for consulting clients five times and figuring I could continue doing that consulting engagement for five new clients every year or I could distill it into a five‑hour video, teach people how to do it for themselves and then sell it at a fraction of what the price to get me in to do the engagement was.

Keith:  Right, exactly. People will look at this and say, “Oh, but aren’t you just cannibalizing yourself?” You’re taking essentially a $20,000 or $30,000 engagement and you’re compressing it into essentially…I forgot how much you sold it for. Was it $500?

Patrick:  Yeah. It was originally $250 and then $500, after the discount period was over.

Keith:  So you’re essentially cannibalizing your own consulting.

Patrick:  That is the exact opposite of the truth. [laughs]

Keith:  It is, it is. What happens is not only are more people going to get it, but it’s also a gateway drug, in a manner of speaking, because, to be perfectly honest, you do not pull any punches in the video course. You say everything that you do during a consulting engagement with regards to lifecycle emails. You go through every step. You go through everything that you talk about with your clients. The difference is that your clients have not been doing this for three years lifecycle emails. They can get started. They can do a lot with that infoproduct. You can go from zero to quite a bit very quickly. At the same time, it does not hold the same amount of value as hiring Patrick, for example, or hiring you as a consultant to do a week’s worth of work.

Patrick:  Right.

Keith:  That goes back to the conversation we were having earlier. When you have a consultant, they don’t deal with anything but that project.

Patrick:  This is partly a reflection of all clients wanting advice which is exactly specific to their interests. It’s something which Amy Hoy says a lot is that, “If you are starting a new software business, you should probably make it in B2B, because B2B customers are willing to pay a lot more for your software and will have less issues with buying it than B2C customers will.” Amy gets a lot of emails from people saying, “I’m thinking of starting a new business. Should I start it in B2B or B2C?” When she tells them, “You, specifically, Bob, should start it in B2B, because it will allow you to charge a lot more money and have less issues with selling it to customers.” Bob will say, “Wow. Thanks for writing that specific advice to me.”

I often joke that consulting clients really want to buy dramatic blog post ratings as a service.

Keith:  [laughs]

Patrick:  But it definitely seems like they really need to hear, “With respect to your particular business, after looking at all the factors, I will give you the same advice that I give to everybody else, but directly told to you.”

Keith:  Right.

Patrick:  But that’s a risk reducer for a company, because there could be some factor that they’re not aware of that could contravene your advice in the one percent case. They just want to make sure they’re not the one percent case, prior to committing to do something that might be worth six or seven figures to the business.

Keith:  Right, exactly. It’s also a matter of work. I’m having a contractor, right now, redo my yard finally, because it was just overgrown with weeds. He is of the opinion that, “Hey, anyone can do anything.” That’s a great position to be from. For free, he told me essentially what I need to do. He says, “You need to get a backhoe. You need to go here. You need to pour your concrete.” After step three, I’m like, “I understand how to do all this. When am I going to have the time? When am I going to have the inclination to do this? I would rather have you do this for my specific situation.”

Patrick:  The words, “First, you rent a backhoe,” has to be like the, “And then you read two weeks’ worth of free information on the Internet.” of the gardening industry.

Keith:  [laughs]

Patrick:  I had a great line in an email recently. I want to repeat it for everybody, because it’s so true. If clients have internal staff that they could be giving the project to and if the client has to have the internal staff read up on what the information is that they need to start the project and become an expert at the thing that you already have 5+ years of domain expertise in, even if it’s totally free information, they’re going to be writing a $10,000 payroll check with the memo “Reading free information on the Internet.”

Keith:  Right.

Patrick:  Free is not free for them anymore, after it has an actual clock ticking on their employees. That’s a pricing anchor that you can use, both for your consulting services and for infoproducts that put a curation layer on top of the “Wonderful amount of free information that is floating around on the Internet,” if you have the time to search for it and hunt through all the garbage and whatnot.

Keith:  Right. That’s another reason why your infoproduct and other infoproducts in general are so attractive. Yes, I will say, the information that you give on your infoproduct, most of it…I would say maybe 50, 60 percent is available elsewhere on the Internet.

Patrick:  I would say 90%+, if you knew where to look.

Keith:  90? OK, I was being generous. But, if you’re going to say that… [laughs] I think it would take at least three to four months to find it all.

Patrick:  Right. It’s not like I have some über secrets, which I keep from people. If you wanted to, you could probably reproduce most of it from just reading the 350,000 words on my blog, 100,000 words I’ve posted on Hacker News comments and watching approximately 15 hours of conference talks which I’ve given. If you have enough time to do that, mazel tov. You don’t have to pay me any money for anything.

Keith:  Right. But, who has that time? This is something that I think a lot of people miss, before they get into consulting and before they get into real business. When you are an employee, your time to yourself is not that valuable, in many cases, because you have a salary. If you’re sitting there, dicking around on Reddit, if you’re sitting there reading free information on the Internet, you still get paid the same as if you were coding constantly. It’s all a matter of your workload. However, to your employer, that is a very different value proposition.

Patrick:  No employee, anywhere, is free. They are so expensive. People who don’t have employees don’t understand how expensive employees are. I think primarily because people see their own salary and they think the salary is the cost of employing them, whereas employers do the automatic add another 50 to 100 percent to it, because they know that employees cost taxes, benefits, yadda, yadda, yadda, overhead.

Keith:  Space, computers, everything, yeah, free sodas, $10,000 worth of sodas every month. [laughs] My employees drink a lot. [laughs]

Patrick:  Soda, I hate soda as a perk. Soda, as a perk, the message that sends to me is that the company expects you to be a stupid twenty something, who can be convinced to give up tens of thousands of dollars in salary or meaningful amounts of equity in return for lots and lots of free commodity product, which they can purchase for $.60 a can themselves.  [Patrick notes:  And additionally that the company not only does not care about employees' physical health but wants to actively encourage them to compromise it.]

Keith:  Right. [laughs] I hit a sore spot it seems like.

Patrick:  Yeah. OK, let’s make a little less about soda and how tech companies like to screw their young and clueless employees and more on how actually to start from doing info‑products, given that you’re already fairly successful freelancer consultant. What can you make an info‑product about? What’s a good topic for it?

Keith:  Wow. That’s an open‑ended question honestly. If I had the answer, I’d be making a ton of them.

Patrick:  Why don’t we start with particular generalizable tasks, which are needed by a lot of people and that you’ve ended up delivering to a lot of people before?

Keith:  Right.

Patrick:  For example, you’ve said you’ve done lots of work with integrating for various companies that do training as a business, integrating their AWeber and InfusionSoft and yadda, yadda together. Obviously they have API documentation somewhere and that’s something that you could snap together with enough time or with downloading some code to do it for you. But you might be able to produce, for example, a 50 page book on how to integrate X, Y and Z together.

Keith:  Right, exactly. This is one of the problems that, as a domain knowledge expert, you come into. As an expert, you don’t know what other people don’t know. It’s very difficult. This is one of the things. If Patrick was to come to me and say, “What would I do an infoproduct about?” I could give him maybe five or six ideas. But he asked me and I’m like, “I have no idea.” I don’t know what of my knowledge is marketable. I know it, as a consulting style, but not in terms of what I could put in an ebook.

It’s interesting, you mentioned the InfusionSoft. Jermaine Griggs has done just that. He’s been using InfusionSoft pretty much since it started. He has built up a large consultancy just on getting InfusionSoft to perform the way that marketers want. It’s doing very well for him.

No matter what you do, if you have done it over and over again…and what I do, for any client, is have a swipe folder for whenever a client says, “Oh wow, I never would have thought of that. Hey, would it be possible to do this?”

If you have one client saying, “Is this possible?” there’s a chance that other people are saying it is well. This might be something to go back through and look at, when you’re thinking of an info‑product, when you’re thinking of what information you can package up. It’s like here are A, B, C and D, which I think are a 10 minute piece of work, but apparently produced a lot of value to my clients in the past.

Patrick:  Speaking of hitching your star to an existing product or service, many of us have tools, be that a software package or a service that they use, that we really like. Given that the profile for that tool is often larger than our own personal profile, writing the definitive guide on how to use that tool, vis‑à‑vis a particular industry or attempting to do a particular task, can be a very worthwhile way to get started on infoproducts. I don’t do it for consulting clients that often, but I have a legitimate amount of expertise on getting Twilio to work in a production environment, because Appointment Reminder, for example, actually runs in production.  [Patrick notes: To paraphrase Joel Spolsky on using cutting edge technologies, I have "bled all over" using Twilio in pursuit of actual business goals.  Ask me about how you explain answering machine detection to non-technical customers sometime.]

No documentation for a company is ever complete.  I know the missing bits to the Twilio documentation. “After you’ve gotten the quick start, here’s how you get into production without having clients want to break your neck when it’s distributed denial’s of service them.” Or “here’s how to test Twilio applications correctly.”

Keith:  Sorry to break in real quick, but this is something that, for an employer or for someone that wants to use Twilio in a production environment, instead of going through 60 free blogs with information that may or may not be correct or that may be old, or honestly just may be horrible, having it all in one piece of information that is paid…and this is the key. Paid information has a sense of quality about it. It relies on a person selling it to keep that quality, because otherwise, no one is going to buy it. It’s free for someone to post crappy information on the Internet. To get someone to actually be buying your information, it has to be good enough that people are going to buy it, not refund it, and tell their friends.

Patrick:  Right. Just the act of putting a price tag on something increases the perceived value behind it. Again, I’ve done essentially dramatic blog post readings for clients, where they could have read the exact same advice on a blog. In some cases, they had read the identifiable post that I was about to quote them. I just told them that straight to their face. They said, “Wow, we are going to get on that right away.”

Keith:  [laughs]

Patrick:  Yeah, you can look at Twilio and say, “OK. There is no good information on the Internet right now or no good concentrated, curated source of information for how to test a Twilio application, so I’m going to write that book.”

In 2013, even as a fairly accomplished Rails developer, I don’t know how you would go getting someone from the point of, “I have a git repository right now. I want to deploy this Rails application. What is the best practice for that?” Is it to “just use Heroku”? There’s no button on the Internet that says, “Click here to just use Heroku.” It’s a little more difficult. How do you set up a repeatable deploy process for Ruby on Rails? “Just use Capistrano or just use Chef or just use Puppet.” If you wrote the consumable, “Here is a book that you can buy for $75, which is going to save you the next two weeks trying to read blog posts written about Puppet in 2011, which are using command line parameters that don’t currently work anymore,” that would sell decently.

How To Package Products Intelligently

Patrick:  Is that something that you do on a regular basis, you know where the pitfalls are and you know where the pain point is that’s going to drive the developer to look for that, you can certainly package that up. Packaging it up in multiple formats works well. Nathan Barry is totally a genius at this I think. This is a trick that I will be using in my own info‑products in the future. There is a spectrum in how passive and active people want to be with information. The passive approach is just, “I want to buy a book and read it and do all the work myself.”

There is approaches, which are less passive, where the outcome is more guaranteed where, “I don’t want to just buy the book, I want to be able to talk to other people about the implementing the advice in the book or talk to you about implementing the advice in the book.” One level closer to the action or closer to the desired outcome might be, rather than talking to other people directly or hearing advice from you directly with regards to other people, “I want to just get on a phone call with you for an hour and talk about our particular circumstances such that nobody else can hear it.”

That might be a good way to break down three tiers for fundamentally the sale value proposition but three tiers of a product which capture increasing amounts of value from the customers for deliver increasing amounts of value for them, in terms of getting them closer and closer to their goal of getting the application deployed or what have you.

Keith:  Exactly, and that’s a mix of the info product and the consulting package, right? At the lower levels, you’re essentially just selling an ebook and at the higher levels, you’re selling your time, again for consulting. It’s packaged in such a way that it is more repeatable than going out. You don’t have to rainmake for it. It’s work that comes to you instead of work that you have to go out and get.

Patrick:  You don’t even necessarily have to put in your time into the higher‑level packages, by the way. For example, if just the e‑book…If you have the deploying Twilio, or the deploying applications book or whatever, if just the e‑book is the first tier, then you can have a tier that costs twice as much or more for the e‑book plus a git repository of downloadable code samples that they can copy/paste into their own applications and start mangling until it works. Or the e‑book plus your recommended puppet script for getting a bare‑bones Twilio testing environment to put into production, or what have you. Then on top of that, you could have the ebook plus a screencast of you setting up a Twilio application from scratch, plus the Puppet script. Play with the tiers there, but you can have an incredible amount of additional sales driven from customers who are not that price sensitive if you have additional value associated with the more expensive plans.

It gives you an easy, consumable, affordable option at the low end for people who just want to test the waters, and then for the people who have been fans of you for a while, they know you generally produce good work, they have a burning need for this in their organization, it gives them a way to spend more money on you.

Keith:  Right, exactly, exactly.

Patrick:  Nathan Barry has great blog posts (here and here among others) about how he did a three‑tier structure for some of his e‑books like “Designing Web Applications,” which worked out very well. The first tier for just the e‑book was, I think, in the sub $50 region. Then the middle tier was about two times that. The top tier was about five times that. It’s actually something that I heard from the Gumroad folks. Gumroad does fulfillment for info products. They say that A, their most successful merchants do a tiering structure and B, the most successful merchants, be they selling business‑to‑business info products or even things like CDs, generally have a 1X, 2.2X, 5X breakdown into the pricing for the tiers. I don’t think 5X is the ceiling, by the way, especially if you’re getting into a more hybridized consulting offering at the high end.

Keith:  Definitely not.

Patrick:  It’s a start. One of the reasons when I released my first product last year, the email thing, that I didn’t have hybrid structure was because I just didn’t have time to do any sort of delivery in the several months after releasing it.  I thought, “Well OK, I’ll just do a one and done thing, buy it or don’t buy it.” I didn’t have many tiers associated with it. Then I had an idea. “Wait, it’s going to be downloadable and people can watch it at their own speed, but I’ll just put a license on there for corporate use, so that you could download it and share it with your team at the corporation.”

That required virtually no work on my part. It was just adding another thing into the possible checkout basket and writing two sentences of legal copy saying, “Yes, you are allowed to share this with up to 100 members at your organization,” and then putting a price tag on it.

The price tag for that is, I think, $2,000 if you buy it off the shelf right now. Surprise, surprise, people buy it because $2,000 at a software company doesn’t really move the needle. If they’re going to make six figures, plus, off the implementation of the advice, then they’re going to want to cross their I’s and dot their T’s with regard to the licensing of the things that they’re using within the companies.

That’s a fairly hot‑button issue at software companies. You always want to know the license of the code you’re using and you always want to respect the IP rights of people whose products you’re using, because software companies are basically built on that. Yeah, micro tip, use a corporate license, charge 4X or 5X as much as the personal license. It’s free money.

Keith:  You had mentioned writing a Twilio book. I wonder when we’ll see the first, “Learn How to Use Twilio: The Pitfalls” e‑book come out on Hacker News.

Patrick:  Please write that book, seriously.

Keith:  Yeah, it would be great.

Patrick:  You can steal that idea. I’m never going to do it, just because I am interested in Twilio. I do a talk like that every year at the Twilio conference, but that was never the burning enough interest for me to actually sit down and do the work of writing that book. If you’re going to sit down and do the work of writing that book, please.

Building Products For Other Peoples’ Platforms Gets You Access To Their Audience

Patrick: By the way, you might not think I have enough of a profile to do something like this. If you write the definitive book on Twilio, you know who will be happy to get that book into the hands of as many people as possible? That’s right, Twilio, because Twilio makes money when people make phone calls and SMS messages on Twilio. Since your book knocks down the objections within client companies of, “Well, yeah, we could use that Twilio thing, but no one here knows how to use it.”

Twilio would happily send out an announcement about that book to their list of 100,000 developers who are writing about the platform. I don’t know that they would be happy about that, but I rather suspect they would be.

Keith:  Now, this is something interesting. When you’re working with platforms and talking to them, definitely talk to the people that you are writing about. If you’re writing AWeber book, I know the guys at AWeber would be thrilled for someone to write a book like that because it’s free PR on their side and, like you say, it gets people using AWeber. The same with Infusionsoft, actually it’s interesting. If you go to Infusionsoft’s website, you will be retargeted for ads for Jermaine Griggs’ stuff because he is the number one Infusionsoft marketer. They use him. They essentially have a group promotion thing going on, I assume. I don’t know.

Patrick:  Let’s talk about you and I just understood what happened there, but I think some of the folks who don’t understand retargeting technology recognize the importance of what you just said. They basically allowed this consultant who uses their service, to put a tracking pixel on their own website, such that people that view their website are pitched his stuff when they go to other websites, like Facebook or TechCrunch or what have you. They get those lovely little ads that stalk you around the Internet in the top corner.

Keith:  Which are highly obnoxious, once you know what’s going on.

Patrick:  That’s not true.

Keith:  Well, I did not say they were not effective. [laughs]

Patrick:  They’re not obnoxious if the thing you need to do for work this week is to get Infusionsoft integrated. Then those ads are exactly what you want to be seeing.

Keith:  Exactly.

Patrick:  Clearly, he has such a close enough relationship with them, such that they’re placing things on their own web pages at his commercial behest.

Keith:  This is conjecture on our part because I visited the Infusionsoft website and then I started getting those retargeted ads. I do not know any contract between the two, etc. I’m just saying that is a view that is happening. That might be happening.

What you’re doing is you’re saying someone who looked at Infusionsoft, “Oh, I might be interested in Infusionsoft, but I don’t know how to use it.”

Suddenly, you have all of these advertisement. You have all of this information coming to you. It’s like, “Don’t know how to use Infusionsoft? Check out this book, ‘The ABCs of Infusionsoft.’ See how to get the most out of Infusionsoft.”

What this does for Jermaine is it gets him customers for his book and for his consulting. What it gets Infusionsoft is tons of new customers, because they see, “Oh, this is really powerful. Oh, this is really easy to use.”  [Patrick notes: More importantly, it reduces perceived execution risk of using Infusionsoft improperly.  That risk is a core objection to adopting Infusionsoft in the first place.]

Patrick:  Now, in an ideal world, you would expect your technology platforms to be writing all of this documentation and giving it away for the customers for free, but how many technology platforms do you know out there that have ideal documentation written for them?

Keith:  It’s not even ideal documentation for most companies. There was an interesting article on Hacker News that was you don’t know who your API users are.

Patrick:  Oh, yeah. That’s absolutely true. Why don’t we give the brief rundown of that article?

Keith:  Can you give that real quick then?

Patrick:  Sure. The idea with you don’t know who your API consumers are, or that not all API consumers are folks like us, developers that are used to integrating APIs and do this 15 times a week. A lot of them are power users of applications. They’re technical enough to understand, let’s say, Gmail and Basecamp and name your favorite invoicing software, Freckle. Freckle doesn’t do invoicing, so Gmail, Base Camp, Freckle and FreshBooks could together be used to run a web design consultancy. They’re not technical enough to integrate those four APIs together, but they know it has to be able to get done somewhere.

They have some long‑tail need, in terms of, “I want it, when I send an invoice to somebody, to automatically send me an email two weeks later to remind me to follow up with them.” That’s something that they could build in 15 lines of code if they just knew how to use your API. You should build your API such that it is easily consumable by people who are not technically developers, but want to do it to build in the one percent features that you’re not going to build into the actual product.

Keith:  It goes to the same, even if you’re not on an API. I use AWeber a lot because my clients use AWeber. I’ve talked to the guys at AWeber and some of the comments I get is, “No one uses AWeber like this. No one has gone this in depth into AWeber.” There’s always going to be power users. I don’t think that we do that amazing stuff. We do what I consider a bare minimum, but there’s a lot of ways that your customers are probably using your platform that you don’t know about.

Patrick:  That’s totally true, too. A lot of these companies, there is only a certain amount that the people at the company can possibly know about the environment in a given industry or customer or use case. Twilio has north of 100 very smart, dedicated people working for them. Despite this, I’m willing to bet that nobody working at Twilio understands the banking industry like somebody who has worked at a bank for 10 years does. If you routinely grind out two factor authentication apps for the banking industry, I bet you could write a very compelling book about two factor authentication apps for the banking industry that Twilio would never be able to write even in 100 years. Whether you could sell enough of that to make it worth your while is a good question. But considering that you are writing things for banks, you are probably charging them very significant amounts of money. They could also pay very significant amounts of money even for just the description of it.

A lot of the products, even just books and whatnot that are sold on very technical topics to industries that are awash in money cost scads. There is a great book about the microstructure of the financial markets. That’s not the exact title, but it’s something like that. It’s basically how the various pieces of US exchanges talk to each other on a software level. If you need to know that, millions of dollars is riding on you not screwing that up. That book costs…That’s not something you can go and buy from Amazon for nine bucks.

Keith:  It all goes back to what it would cost, if I was to learn this myself, and not only what is the cost if I was going to learn this myself, what it the cost if I was to learn this myself and fuck it up.

Patrick:  Right. What is the risk associated with that? You do not want to be the next team lead in charge of Knight Capital. “Oh, we hooked up a testing system to the real Internet and then blew up our company [laughs] and did $400 million of trades in a day.”

Keith:  Oops.

Patrick:  That sort of oopsie is what is called a “career limiting move.” Given that people can often spend their company’s money on avoiding career limiting moves for themselves, that’s a win all around. Right?

Keith:  Right.

Email People Things That They’ll Find Interesting.

Patrick:  Let’s see. We briefly talked about the productization stuff and how people get started on that. We didn’t talk about email yet. Let’s bang the drum one more time. If you’re going to be selling anything, whether it’s consulting services or whether you’re thinking of productizing, you should really have an email list. You should be publishing something, such that people get on your email list. Then you should do a nice job of watering that email list or keeping it warm by periodically sending them things that they will be interested in.

Keith:  Right, exactly, exactly. I wanted to talk…

Patrick:  Do you have an email list?

Keith:  Yes. Ask me how many emails I send out?

Patrick:  How many emails did you send out today Keith?

Keith:  I think I’ve sent out three in total.

Patrick:  OK. I have an email list. I recently recommitted to emailing it every week, rain or shine. I’m currently on week one of that. It’s going to be week two as of this Friday. [Patrick notes: This is as of several weeks ago due to the time lag in producing podcasts.] If you’re not on my email list by the way, it’s training.kalzumeus.com. I’ll link it up in the show notes. You should be on it. There was an email last week about what product companies can learn from consulting companies. If you are listening this much into the podcast, it would have been very interesting for you. There will be an email in the next couple of days on what consulting companies can learn from product companies, which would also interest you, which you probably won’t get, because you are hearing this podcast later. The next thing you will be interested in, you should be on the email list for. This is the equivalent of a sponsored ad for the podcast, except it’s sponsored by me.

Keith:  [laughs] Listen, subscribe to Patrick’s emails. Don’t subscribe to my emails, because I never send them. That will be coming probably by the next podcast.

Patrick:  Why don’t you send them? We are giving this advice to people. It easier for us to give advice that we don’t actually take. How hard is that actually going to be for you to write an email to that email list? If this was a consulting client, and they said, “Oh God, I’ve got too many things to do. I don’t have enough time to write an email.” Does your consulting client really have enough time to write an email?

Keith:  They have enough time to write an email. I have enough time to write an email. Someone said this. I don’t remember who it was. You need to change the way you phrase things. You don’t phrase things as in, “I don’t have time,” because you always have time. You say, “It is not a priority.” When you choose to not do something, because you “don’t have time,” it’s not that you don’t have time. You could easily move something. It’s a matter of priorities. Right now, where I am in the consultancy and where I am with my productization, it is not a priority to get those emails out, to be 100 percent honest. It should be. It should be. For myself, there are other things I need to be working on. That’s why I say, in a month, those emails will start going out, because that’s part of the product plan.

Patrick:  Right. Figure out the 15 minutes that you need to write that email. Your first email could literally be the difference between not having enough time and priorities as a mindset.

Keith:  Exactly.

Patrick:  You could just write two paragraphs explaining the thing that we just talked about and then three examples of applying it to a business, and boom, done. That’s an email.

Keith:  Right.

Patrick:  That keeps your name in front of people and gives them some sort of value to hang their hat on for getting emails from you.

Keith:  Exactly.

Patrick:  For many, especially the less sophisticated consultancies in the room, that might be a mind blowing mindset shift for them.

Keith:  Yes.

Patrick:  OK. So you will be writing emails. I will write emails.

Keith:  [laughs]

Patrick:  To all the people, who are listening to this, you don’t have to have the infoproduct written yet. Just get the landing page up for it, maybe with a little bit of a description on what the thing you are eventually going to be selling is. Then just ask people if they want to hear about it, giving their email address. Then just keep in touch with them about that.

Two great examples of this which I saw recently, both regarding Rails security: Rails Security and Securing Rails.  They’re worth looking at both if you’re interested in that topic and for the meta-topic of how to do a good pitch for asking for an email address.

Keith:  While you’re doing that, I want to jump in with two things, really quick. I think, after the email conversation, we are going to cut it, because we are already at an hour and a half.

Patrick:  Sure.

Keith:  There are two things. First of all, like you say, before you even have the product, you can have an email list. When Meteor was just becoming a name, what was that? Nine months, a year ago, or something like that, all they had was a five‑minute video, a sales page or an information page that said what they were doing and then an email list that said, “Let me know more.” It was so compelling that so many people signed up. Suddenly they have all these people that they are communicating and reaching out to every month, every week, whatever timeline they decide. Those have two purposes. One is just to keep your name in front of them.

Patrick:  Right.

Keith:  Honestly, if Meteor had never emailed me again, I would never have thought of them twice. But, because they emailed me about once a month I guess with new information, I’m always like, “Oh, I wonder what Meteor is up to.” It gives me an idea that they still exist. The other one is just amazing freaking content. This is a recommendation for everyone. I’m going to ask if you know Wistia, expecting people on the podcast to answer me. [laughs] Wistia does video hosting. They are kind of like Vimeo. They are kind of like YouTube. But they are completely amazing. They probably have the best email marketing campaign that I have ever seen in my life.

Patrick:  I will +1 that opinion. It is totally amazing.

Keith:  They are probably the only email that I will drop whatever I am doing to watch it. It’s generally about a five‑minute or less than five‑minute video that tells you just amazing information on how to take better videos.

Patrick:  Right.

Keith:  They’re well made. They’re very informative, and they’re just a quick little snippets.

Patrick:  Right. They knock down objections to using the product like, “Objection, I can’t take video. I don’t have a good camera.” They have a video how to produce production‑quality video using your iPhone, which is shot on an iPhone. It’s got a funny ha‑ha sensibility to it, but it’s also funny ha‑ha sensibility which also actually teaches you how to shoot production‑quality camera footage on an iPhone. Like, use a stand, lighting is very important, here’s how to do the lighting. Then a few weeks later, they send you a video just on how to do lighting on a $100 budget. You can put together a lighting kit at Home Depot, or Best Buy or wherever.

Keith:  Which was amazing. Honestly, the iPhone video and then the lighting video pretty much sold me on that campaign. I’ve listened to everything ever since.

Patrick:  Right. Who are you going to use the next time a client needs video hosting done?  [Patrick notes: Sorry, the SEO in me wanted to give them a nice anchor for the attribution link.]

Keith:  Wistia.

Patrick:  Yeah, of course.

Keith:  At this point, again, they are not a sponsor. I use Wistia exclusively. I believe you use Wistia as well.

Patrick:  Yeah, my current lifetime value to them $3,200 and counting.

Keith:  Woo‑hoo.

Patrick:  I continue to doing it.  I suppose theoretically I could move some of my videos to YouTube or whatever, but why would I ever do that? Their product works really well and I feel I’m going in debt to them for making my business better every month just by teaching me things.

Keith:  Exactly, exactly. This goes back to the same thing that we were talking about with Twilio is that when they have more people making good video, they are making more money. The more people who are making good video, the more people who are watching the video, the more people who are signing up for their service to make, to produce video and to distribute video, the better their company is.

Patrick:  By the way, if Wistia didn’t already have that lighting video, you could have made that lighting video and sold it. Wistia would be happy to plug you to their email list about it. You could potentially have an arrangement where, “Hey, I noticed that you have a gap in your education/offering, such that people don’t know…” I don’t even know enough about video to know what I don’t know about video.

Keith:  [laughs]

Patrick:  It’s very true about customers, by the way. If you, being a freelance videographer, know enough about video to know what I don’t know about video, you could go to Wistia and say, “Your customers don’t know this thing about video that Patrick doesn’t know.” We’ll make this thing for them. Maybe we’ll let you use that for some flat fee. You can give it away for free to all of your customers. We’ll sell it on a paid basis to other people. That’s a way to underwrite your own content costs, without taking on the market risks yourself.

Wistia presumably has the scale to make it work. You go to a platform company and say, “We’ll produce this” and get $5,000 or $10,000 of guaranteed business from them prior to selling it. Now that you have the production costs covered, you can sell the marginal copies at $50 or $100 or whatever.

If it’s a great hit beyond that, great. If not, well, you’re not out any money.

Keith:  Right, exactly. We’ve said this multiple times during the podcast. You look at things like FreshBooks and whatnot. They are very happy to promote people who are using their API, who are using their system to produce that value to their customers, because in the end, that gets them more customers. Whether that’s an info product, whether that’s an actual developed product, like something that hooks into the system that reduces a pain point, these companies will help you sell your information, your product, because it helps them in the end.

Patrick:  Ooh, micro hint here: You can approach any API company or product that you do business with routinely and offer them a trade like, “I will write something for you, for example, a guest post on your blog with a description of an integration that we did for one particular company. All that I ask in return from this is a little link at the bottom,” to say the landing page where you’re going to ask people to sign up for your email list. It’s a great way to get your name in front of people and start developing your list, which is an asset that you can use to sell your own stuff. Where selling it directly from their blog, that might be more socially awkward to sell to the platform company.

Keith:  Right.

Patrick:  Attribution links, very easy sell and then you can still get a meaningful amount of exposure based on it. Plus, then that gives you something to put in your sales page, “As featured on the blah‑blah‑blah blog…”

Keith:  [laughs] Oh, that social proof. I think that’s a conversation for another time.

Patrick:  Yeah, probably. All right, well, thanks everybody for turning into this edition of the podcast. We’re hopefully going to be doing on them, knock on wood, more consistent schedule going forward, although I think we’ve said that in five out of five podcasts so far.

Keith:  I think we have. We’ve been doing this, what, almost a year now? Over a year, a year and a half.

Patrick:  People tell me closer to two, actually.

Keith:  Wow, that’s mind blowing, and we’ve done five. We will work harder, especially since Patrick is getting out of consulting and he will hopefully have more time in Japan so that we can get these made more.

Patrick:  Yeah, definitely. All right everybody, well, if you are somehow not in our ecosystem already, you can follow my blog at www.kalzumeus.com or, again, sign up for emails at training.kalzumeus.com. Keith, where can people follow you?

Keith:  Right now, they can’t because I have my products under the radar and my consulting web page is all in Japanese. [laughs]

[Patrick notes: He really is a marketing genius guys... just mostly for other people.  Incidentally, for those of you who wonder "How could you possibly run a consulting business without being'Internet famous'?", despite literally not even having an English language website Keith's company has billings in the you-wouldn't-believe-me-if-I-told-you region.]

You can always go to delfi‑net.com. If you can read Japanese, you’re welcome to check out the blog and the company information. If not, I should have something for everyone by next podcast.

Patrick:  A micro tip for everybody, by the way, if you do conference talks or anything, not to grind Keith’s nose in it, but have a better answer to that question than Keith did.  Put a link on the last slide saying “Interested in this topic?  Give me your email address at (PUT A BITLY LINK HERE) and I’ll send you (SOMETHING OF VALUE GOES HERE).”  It always works and takes mere seconds to say.

Keith:  Yes.

Patrick:  Anyhow, we’ll see you next time.

Keith:  All right, take care, guys. Thank you.

And Now A Brief Word From Our Sponsors Me

If you are currently a consultant and are intrigued by some of the ideas we discussed in this podcast, such as

  • how to sell clients on giving you more money, more predictably, for less hours worked, and having them love every minute of it
  • building sustainable revenue to de-risk your consultancy
  • growing your business beyond the inevitable constraint that you only have 24 hours a day

Then you should come to a bootcamp on the subject of building recurring revenue for consultancies.  Brennan Dunn and I are hosting it, on your local Internet, on August 8th.  We’ll be taking a very in-depth look at retainer agreements and other hybridized product/consulting models.

If you’re on the fence, here’s what one consultant had to say about my business advice:

“I’m a consultant that delivers web application software for startups and small businesses. Patrick writes concise, high-impact advice on running consultancies. Putting his strategies and tactics to use at Happy Bear Software has kept my pipeline full, my clients happy, and my bank balance consistently on the rise (via improved cash-flow, negotiating, and raising rates). His writing has single-handedly changed the trajectory of my business. If you run your own consultancy, his advice is the most important thing you’ll implement this year. It will probably make you astonishing amounts of money. I’ll be at the Bootcamp, too.”
Najaf Ali, CEO of Happy Bear Software

Go read about the bootcamp and, if it is appropriate for your business, sign up for it. We’ve got two dozen people committed to attend, and want to keep the class manageable, so we might have to close registration at some point.  If you want to be sure you’ll get in, reserve your spot earlier rather than later.  (Also, if you buy before the 24th, we’ll give you a professionally designed retainer agreement monthly report template.  Good design is one of the ways that you communicate to clients that they’re getting their money’s worth.  Want to hear more ways to do that?  Come to the bootcamp.)

We look forward to seeing you there.

About Patrick

Patrick is the founder of Kalzumeus Software. Want to read more stuff by him? You should probably try this blog's Greatest Hits, which has a few dozen of his best articles categorized and ready to read. Or you could mosey on over to Hacker News and look for patio11 -- he spends an unhealthy amount of time there.

3 Responses to “Kalzumeus Podcast 5: Quitting Consulting Via Productization”

  1. Matt McCormick July 25, 2013 at 11:03 pm #

    Thanks for the podcast guys! Looking forward to more frequent ones.

    I really enjoyed the 2nd part of the podcast especially considering multiple tiers. I’m working on launching my first info product right now and hadn’t even considered that.

    I’m really curious though, what’s the other worse name for “info product”? :)

  2. Nootropics Reviews July 29, 2013 at 1:46 am #

    Hello there! I know this is kind of off topic but I was
    wondering if you knew where I could locate a captcha plugin for my comment form?
    I’m using the same blog platform as yours and I’m having problems
    finding one? Thanks a lot!

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