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Kalzumeus Podcast Episode 9: Customer Onboarding With Samuel Hulick

Samuel Hulick, one of the guys I trust most with regards to SaaS user onboarding, joined us for this episode of the podcast.  I met Sam first when he was writing a book on the topic.  The best evidence I can give you for the proposition “Sam knows more than the vast majority of people about user onboarding experiences” is the fact that he’s written up 25+ of them publicly (e.g. Basecamp’s) and that the writeups are of very high caliber.  Check them out sometime.

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

What you’ll learn in this podcast:

  • What mistakes SaaS companies frequently make with regards to user onboarding.
  • How to start preparing users for success pre-signup, using site copy and appropriate expectation setting in marketing.
  • How SaaS companies often botch product tours, and how you can make yours serve the user rather than serving the product team.
  • How to use lifecycle emails to make customers more successful.
  • How organizational issues at SaaS companies often directly cause problems in the artifacts given to customers, and how you can avoid this.

Podcast: Customer Onboarding

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Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

Transcript: Customer Onboarding

Patrick McKenzie:  Hideho, everybody. This is Patrick McKenzie, here with the ninth episode of the Kalzumeus Podcast. Our guest today is Samuel Hulick, who is behind useronboard.com. My usual co‑host, Keith, couldn’t make it today.

I moved down to Tokyo recently [Patrick notes: And will talk about that more some other day.], so it’s a bit of logistical nightmare getting everybody together, but hopefully that’ll work out itself over the next couple episodes. Anyhow, it’s great to have you here, Sam.

Samuel Hulick:  It is wonderful to be here.

Patrick:  I think today we’re just going to talk a little bit about what you’ve noticed in your experiences as a consultant/author on the topic of user onboarding, what software companies typically do well, do poorly, how they can improve on it.

Also, on a meta-level, I’d like to ask about your experiences of building up the reputation as an expert in this emerging field of dev‑related topics, and how that’s worked out for you personally in your career. Sound good?

Samuel:  I would be delighted to cover all of that.

Patrick:  Awesome. I guess, first question. Sam is one of the few people I trust on the topic of user onboarding.  I trust Sam largely because he’s done maybe 20 public tear‑downs of websites, saying, “Hey, this is a SaaS company. I signed up for their product.”

He makes copious screencasts/screenshots of the product during the onboarding phase. If you’re not familiar with that term of art, onboarding is basically the experience immediately after you sign into the product for the first time. It’s analogous to unboxing in the retail world. Sometimes we call it the first‑run experience, too. Anyhow, onboarding is getting someone shoved into the software.

Sam did public tear‑downs about this for various websites, ranging from Gmail and Basecamp, down to no‑name websites like mine, and just highlighted, “OK, here’s what they’re doing well. Here’s what they’re doing poorly. Here’s what my recommendations would be for doing it better.”

One of the things that I noticed as I was reading a lot of Sam’s write‑ups is that they’re really, really good. These are the sort of things that I used to do for consulting clients. Mine were not nearly so in‑depth or detail‑oriented. I would just say, “I A/B tested things around this before.”

I would do X, Y, and Z, but I had no, really, theory of the mind of the customer that was informing X, Y, and Z, where Sam is much better at the theorizing behind it. Anyhow.

[Patrick notes: I think I was excessively self-deprecating here with regards to not having a theory of the mind.]

Samuel:  I’m honored that you think so.

Patrick:  After building you up so much…

Samuel:  [laughs]

Patrick:  What’s the general takeaway for software companies about our onboarding processes? What are the easy ways that we fluff things up right now, and how can we do that better?  Hmm, that sounds too generic, but let’s roll with it anyhow.

How You Structure Your Teams Spills Over Into How Your Product Is Experienced

Samuel:  I think that probably the biggest mental hurdle to get over ‑‑ well, a couple things. One is I oftentimes will look at how the organization is organized. There’s the term Conway’s Law, which is that the output of a team will be reflecting the way that that team was organized. If one department doesn’t talk to another, the parts of the application that they’re in charge of will likely not talk to each other.  Things like that.

[Patrick notes: This observation is almost painfully on-point at larger software companies.]

I find that a lot of times, when you’re looking at how a product is produced or how it comes to be, there’s typically a marketing department or team, where they’re organized around driving awareness and acquisition, sign‑ups, and whose responsibility just ends after sign‑ups a lot of the time.

Then you’re looking at a product team, where they’re driven around creating new features and driving ongoing engagement. There are often  really any humans in the organization that are really incentivized around bridging the gap from sign‑ups to highly engaged users.

Much of the time, if there’s an onboarding issue in the user experience, it’s a lot of times derived from the way that the teams were split up to begin with.

On top of that, a lot of times, onboarding seems to be something of an afterthought. I look at a lot of similarities between onboarding in a product, like a SaaS product, and tutorials in a video game.

[Patrick notes: I would explicitly point out Blizzard games or the Half-Life series, which quite literally have this down to a science.  Play the first 5 minutes of Diablo 3 or World of Warcraft or Hearthstone or Half-Life and observe how they're simultaneously effective at telling a story, manipulating the player's emotional state, and also introducing several core UI elements of a piece of software whose user-visible complexity rivals that of MSWord or MySQL.]

A lot of times, people seem like they get really carried away about making the “core” game, or the essence of the software product, without really looking at the problem to be solved as, how do you even get people engaged, to begin with?

I wouldn’t say that onboarding is necessarily something that I would recommend waiting till the very end, when all the resources and time are exhausted and trying to staple something on after the fact.

I would really look at your product as the essence of what you’re doing is creating some amount of success in people’s lives. The onboarding process is getting people transitioned from a situation that’s probably frustrating them, because that’s why they’re trying out a new product, to a situation that they’re a lot happier with.  Then, they pay you money for that pain relief.

That is my general take on the matter, as a brain-dump.

Patrick:  Sure. I largely agree with everything in that general take. It’s something that I often went to clients and other people in the SaaS industry and try to impress upon them.

Again, for reasons like you were talking about with Conway’s Law, and the fact that this is not tracked anywhere in the organization, most companies are unaware of this.

Depending on the SaaS company, if you have a free‑trial sign‑up model, where folks can have a way of testing your software out, somewhere between 40 and 60 percent of the people who start a free trial will never log into the software a second time. They get that one free‑trial experience, and then they’re out of there.

Given that the first five minutes of the use of the software is all a lot of people are ever going to see, you really have to make that first five minutes absolutely sing if you’re going to convince, literally, half of the market for your software that they have to do just a bit more work to get the change in their life that your software is promising to them.

[Patrick notes: I occasionally experience pushback from the phrase "change in someone's life", but I honestly think that that is about where we should aim as software entrepreneurs.  You don't need to have the impact of a religion or their spouse, but you should be at least aiming at "washing machine."  Take a person who has never had a washing machine, introduce them to a washing machine, bam, that is a major improvement in their quality of life.  That is, approximately, how much you want to revolutionize a business process with your software offering.  (Or you can try to do it in B2C, but it's really, really hard, and I only recommend doing so if you have a lot of money to spend, for reasons I've discussed before.)]

Patrick: Instead of just typing some information into the computer, they’re going to have to go to bat for your software with other people in the organization. They’re going to have to change the way they how do some process at their job. They’re going to have to change their habits over months and years to get value out of it.

That long trek to changing those habits and unlocking the value starts with just that first five minutes, so that first five minutes absolutely cannot be a blocker to them.

Samuel:  For those listening, I’m nodding vigorously right now. I completely agree. The 40 to 60 percent, I’m very thankful for you making public claims in that regard, because then I get to reference that in my material. Very, very much agree.

[Patrick notes: I'm a little afraid of citogenesis in the Wikipedia sense, so feel free to share stats from your own businesses if they agree or disagree with that range.  It is my rough rule of thumb for B2B apps sold on a low-touch free trial model.]

Samuel: I would also say, one thing that you touched on is it’s really important to make those first five minutes really great, but at the same time, I wouldn’t constrain the definition of onboarding to just that first‑run experience. A lot of times, when I see onboarding done really well, it’s because they have a really smart automatic‑trigger life‑cycle email campaign that follows, or things along those lines.

Then also, even before sign‑up, just orienting people around the value that your product offers and setting expectations and guiding their motivation and momentum in the right direction. If you think you’re signing up for one thing and you’re getting another, that’s an onboarding problem, but certainly the heavy weight could’ve been lifted long before that person signed up.

Patrick:  I have a priceless anecdote about that, actually. Everybody does experiments, right, with traffic channels, different acquiring customers, whatnot. I presume they won’t be too mad at me for talking about this.

Fog Creek has FogBugz, which is a bug‑tracking product for developers. Due to an AdWords campaign at one point, Google was sending people to the landing page who were looking for things like [bug for tracking boyfriend's car].

[Patrick notes: Back in the day, I did occasional consulting for Fog Creek.  Assume that I caused this problem.]

The landing page, at the time, did not disabuse someone of the notion that FogBugz was the right product for them. They got some very interesting feedback in the customer support channel about, “I don’t see how I track my boyfriend’s car,” “How do I start tracking my boyfriend’s car?” et cetera.

Samuel:  [laughs]

Patrick:  You can think of that as an onboarding problem. Obviously, the solution was tightening up our Google campaign so that we’re no longer paying them a lot of money to send people who want to do various illegal activities with software. Setting expectations is really important.

I like that you mentioned life‑cycle emails. Some of the best individual wins that I’ve seen companies get are just circling back with someone in an automated or semi‑automated fashion, a day or two after them signing up, and saying, “Hey, you signed up for blah the other day, but it looks like you haven’t gotten around to using it. Here’s how to get started.”

Then you’re giving them X, Y, and Z, where if you can, X, Y, and Z are triggered based on their actions in the app. For example, hypothetically, if I was writing one for GitHub, and somebody had signed up for the paid version of GitHub, but 48 hours later they didn’t have a single repository in their paid version of GitHub, I might ping them and say, “Hey, thanks for signing up for GitHub.”

“Github the place where you want to get all your source code, but you don’t have your source code in yet, so here’s how you can start by getting your source code into GitHub. Or maybe that isn’t your job. Maybe that’s someone else’s at the organization. Here’s how to give them the instructions they need to start using your company’s new GitHub account.”

Samuel:  I completely agree. I think that looking at what are the external pressures that are forcing that person to be trying out new software to begin with, and being as aware of those as possible, is a total no‑brainer.

Especially B2B software, understanding who’s the person who needs to sign off on this check being cut, is there an IT review of some sort that needs to happen, can you create a PDF that they can slide across the desk to their boss that explains the ROI of your product instead of hoping that they can come up with something clever on their own ‑‑ those are all things that I would highly recommend doing, for sure.

Patrick:  That ROI calculation is priceless. I actually do that in a scalable fashion for Appointment Reminder. Somebody, several weeks into a trial, once emailed me when I said, “Hey, your trial is coming towards the last couple of days.”

Since I have their credit card already, it’s just like a courtesy notification, like, “Hey, we’re going to charge you in three days. If you don’t want this to happen, cancel now.” That is not actually the copy I use, but that’s the sense of it.

They wrote me back and said, “Hey, Patrick, really appreciate the email. I’ve got a question. My boss is asking me for an ROI calculation on this software. I don’t know what ROI means and I don’t know how to calculate it. Can you do that work for me?” I’m like, “Well, since it’s going to help you pay 80 bucks a month for my software, I can certainly help you out for that.”

I attached an Excel spreadsheet, where I made some assumptions about their level of use of the software based on what I had seen in the database about them and assumptions on their cost structure as a business. I said, “OK. It turns out that this is saving you,” make up a number, “$500 a month. It only costs you $100, so that’s an ROI of 500 percent.”

Then, right after I sent that email, I’m like, this calculation is generalizable to everybody, and there’s approximately nobody who would hate hearing that they’re getting 500 percent ROI. I just changed the email that they’d gotten that eventually prompted them to ask about ROI, such that the computer automatically calculated the ROI if they were getting a happy number.

[Patrick notes: Maybe this would be easier to understand with a visual aid?  Here's the "trial progressing well" email, which goes out on day 20 for trials which the system has heuristically decided that the customer is likely happy with Appointment Reminder.  I've taken the liberty of marking it up a bit to direct you directly to the ROI-focused portion.

Appointment Reminder ROI Calculation in Email

]

If it calculated the ROI and they were getting an unhappy number, it instead sent them a second email, which was ‑‑ informally, it’s called “trial unsuccessful,” although that’s not actually in the email to them.

It basically says, “Hey, I’m a small businessman. I understand that sometimes I want to do something in a given month, and life just gets so freaking busy, and I’m not successful with getting that done this month. I totally understand how that might’ve happened to you, too. If it did, drop me an email. I’d be happy to extend your trial by another month.”

Maybe a quarter of people who get that email will write me back and say, “Hey, I wanted to use it. I just got busy. Can you extend my trial?”

Then that gives me an opportunity to both talk to them, figure out, if there was an issue with Appointment Reminder, how do I fix it such that they won’t need the second month. Also, the value of a trial that bounces out of your system is zero. The value of a trial that’s still in your system is nonzero.

To a first approximation, it’s always to your advantage just to give people the extra trial, especially if you don’t advertise that you’re doing that ‑‑ which, oops, I just told the podcast with 40,000 people, but none of you will pay me money so it’s fine.

Samuel:  [laughs]

Patrick:  Life‑cycle email is where it’s at.

Samuel:  I concur. Yeah.

Patrick:  One of the things that I see trip up folks a lot when they’re doing onboarding is sometimes the folks who are in charge of onboarding ‑‑ and this goes back to your organization point ‑‑ might not be the folks in charge of product.

Prior to customer.io and ‑‑ shoot, what’s the other dot‑IO company? Intercom.io, which gives people who are less technical the ability to set up these complicated life‑cycle email chains without having to necessarily dig into the code of the product to do it for themselves.

A lot of the marketing or customer success teams might have had a little difficulty hooking up life‑cycle email. In addition to life‑cycle email, what are tools that someone who might not have total control of the technical aspect, what could they do to influence the customer in their onboarding phase?

Samuel:  Hopefully I will be able to point to something that I am making sometime down the road.

Patrick:  Oh, please do.

Samuel:  In the meantime, I am a big fan of Jonathan Kim and what he’s doing at AppCues. That’s a piece of third‑party software that I would recommend people check out.

This maybe is cheating a little bit, but looking at live‑chat software, like Olark, just being present in there and understanding where your onboarding experience is breaking down, to me is really, really valuable. Most people who are faced with the onboarding dilemma in their company tend to be more like user experience or product, but just don’t really have the resources to pull it off.

Even if you’re just living in that world and can just say, “Guys, people think that they’re signing up for a bug to track their boyfriend’s car or whatever. Can we just make a copy change or something like that?”

Typically, those can get pushed through. It’s not like it’s a whole new feature, things like that. I would really recommend having live chat in that moment, because you can find out where one person’s going wrong and then make changes that affect the untold thousands of other people that will be following them.

The Fundamental Feedback Loop Of Low-Touch SaaS Companies

Patrick:  That is, by the way, just one of the generic secrets of running a SaaS company at scale. You do lots of stuff that doesn’t scale, and then use the stuff that doesn’t scale as fuel for the mass‑scalable approaches that affect the rest of the customer base that doesn’t talk to you.

Whether that’s automated email sequences, website copy changes, whether it informs your general marketing strategy, whether it drives changes to the product to make things easier to understand, et cetera.

Samuel:  Completely. One thing. I was speaking with Nick Francis from Help Scout the other day, and he made a really great point, which is, even if you’re using your own product or eating your own dog food, you’re not dog‑fooding your own onboarding experience. You’re not signing up for your product over and over every day.

A lot of times, you can be pushing out changes over the course of three weeks or three months that change A, B, and E, collide somehow and mess up your onboarding interface and the onboarding experience, but it’s a real blind spot for a lot of people. That’s another big reason that I really recommend getting a live‑chat box, like Olark or something like that, installed, just maintaining a presence there.

Patrick:  That’s actually a really good point. One of the exercises that I used to go to with consulting clients was, roughly on a quarterly basis, I would have people take out an actual, honest‑to‑God, physical credit card and sign up for the product. Not on the staging server, not through the API, not using autofilled details provided by the browser.  Buying the actual product from the actual production system. Put in a credit card, buy it, and see if everything works, and see if everything was optimally optimal.

I think sign‑up flows, purchasing flows, et cetera, they have a great tendency to go stale, because they get implemented by a junior Rails engineer in the first two months of the company, and since they <airquotes>”work”</airquotes> nobody ever looks at them again, until you break them in such a way that sales go to zero.

Samuel:  It’s crazy to me. I mean, you spend so much. Your team breaks their backs to create features that people would bother signing up for, and your marketing department is killing themselves trying to get more and more people to sign up for them, and then looking at just even getting people introduced to that or finding some sort of wins.

Then, even if they defy all the odds and get that far and they’re ready to pay you, like let’s put a ring on this, and then that experience breaks down. It’s super frustrating, so yeah. I completely agree.

Patrick:  You would not believe how many times you have really good, passionate product people in a room, these folks who would not tolerate a single comma out of place on a preferences screen, and you put them in front of the credit‑card form and ask them to buy their own product.

They put in their credit‑card number like it’s written on the credit card, with spaces, and the form blocks them from doing that.  “Your credit card number cannot contain spaces.”

Flag on the play. Why are we telling a human to do something that a computer can do better? Let’s fix this.

Samuel:  I completely agree.

Patrick:  That can be your takeaway. Just take out your credit card right now, try to buy whatever it is you sell.

Anyhow, one more thing on the topic of user onboarding, before we go in a new direction.

Samuel:  Sure.

Patrick:  I’d like to talk about one of my favorite tactics for improving the onboarding experience, even though it is a bit resource intensive: the product tour.  There’s the less‑invasive changes you can make to an onboarding process, like changing the marketing copy for the sign‑up to establish expectations better, changing the life‑cycle email copy or the life‑cycle email timing to rescue more of the people who might not have a hundred‑percent‑successful first‑run experience.

Or to not even rescue people but assist them in being more successful with the software, for folks whose decision‑making process just naturally doesn’t occur at their company in a five‑minute increment.

The more resource‑intensive thing that I do for my own products and do for a lot of clients is implementing a post‑sign‑up tour in the application. I was wondering if you could distill some experiences that you’ve had of doing that with clients, sighting it on the Internet, and dot‑dot‑dot.

[Patrick notes: Verbal ellipses?  Sure, why not.]

Samuel:  That is an area, philosophically, I have some issues with it, to be honest. I somewhat hesitate to anti-recommend it, given that you’ve presumably done a lot of experiments and had great success with it.

[Patrick notes: Careful Samuel and all you other guys!  I have actually done a lot of experiments about this particular thing, but because there is finite experimental bandwidth and because often we don't have enough traffic post-signup to get results before the sun goes nova, I will often ship things based on my/the team's best guess as to what user behavior is without actually testing them.  People assume I never do that because I talk about A/B testing so often, but that assumption is dangerous.

I also have to point out that, in the context of user tours, I am aware of ones which were major wins and ones which were "worthwhile to do but won't make a difference to our overall numbers" and other ones which had to be yanked out of the product at a later date, for a few reasons.  Like any tactic, they're heavily sensitive to the particulars of one's own use case, one's implementation ability, and uncontrollable vagaries.]

Samuel: I don’t want to pooh‑pooh it out of hand, but I think that there are a couple issues of going down the road of basically what you might call a tool‑tip tour or something like that, where you’re spotlighting different parts of the interface or things like that.

[Patrick notes: Tooltip tours are in vogue because they're comparatively easy to implement, relative to all the other ways of doing a tour experience.  Unless you put a lot of thought into what you're actually getting people to do with the tooltips, they are not value creating.  I see many more tooltip tours that are vexatious than ones which, like the Blizzard example earlier, excite the user while simultaneously instructing them on how to get started with saving the world from orcs and poorly managed projects.]

Samuel: One, going back to my initial point of tacking onboarding, stapling onboarding on at the very end of the product cycle, a lot of times, I think people use it to literally cover up user‑interface issues that they have. A lot of times, people will use it as a crutch to say ‑‑ I’ve literally seen a button that says, “Create project,” and there’s a tool tip that points to it that says, “Click this to create a project.”

There’s a really wonderful Flickr group that Jason Fried from Basecamp started a long, long time ago, called Signs on Signs, where he takes pictures, or he did at the time, took pictures of a sign in a library that says, “Please be quiet,” and then there’s a sign attached to that sign that points to it that says, “Look at this sign,” or “Attention, please be quiet,” or things like that.

A lot of times, if your interface is messed up, adding more to it that literally points to the parts that are confusing is not something that I would recommend. I would really recommend just fixing it to begin with. There’s that.

I think another issue with tool‑tip tours and things along those lines ‑‑ I’ve seen your Appointment Reminder tour, and it does not qualify for this critique, but a lot of others, I think, do ‑‑ is that they’re very focused on introducing people to features or introducing people to parts of the interface more so than they are at guiding people to actually accomplish something.

A lot of times, you’ll see six tool tips that all show up at the same time, and it says, “Click here to do this,” or “When you need to do this, go over here,” things like that. They’re not actually walking you through getting something accomplished. They’re just basically asking you to remember where to go when you’re faced with a situation in which that button would be useful.

[Patrick notes: This is, indeed, a failure case.  I pointed it out at one consulting client and asked who to talk to to get it fixed, and was told that nobody "owned" the tour, which is another failure case.  They thankfully came to the conclusion that that was suboptimal and tasked an engineer on it.]

Samuel:A lot of times, when I see tool‑tip tours done poorly, it’s because they ask people to learn by remembering and not learn by doing, which is not the case with yours.

You focus on one thing at a time, and the entire thing is about let’s just guide you through, hold you by the hand, and get your first appointment scheduled, and understand what it’s like, what kind of phone call you’re going to be getting when that happens, and things like that. I would say, not in your case, but a lot of times, that can be an issue.

Then, one other thing to really look for with tool‑tip tours is that they can be, how would I put it, sequentially fragile. There are a lot of times where, if your plan is to get people through maybe a 15‑step tool‑tip tour workflow, but if there’s an issue where somebody thinks they’re supposed to click on one button, but they’re actually supposed to click “OK” within the tool tip or something like that.

All of a sudden, it disappears. Getting back into it, do you start back at step one, or step seven, where you left off? Things like that. Using that as a highly linear narrative device can go sideways really quickly. That’s another thing to be concerned about.

Patrick:  Just in terms of building stuff, when I build out tours, partly because I’m aware of the fact of sequential fragility, there is generally an easily accessible bailout button for the tour at all stages of the process. When somebody bails out, it should probably keep them in a consistent state that doesn’t totally hose their account.

That’s not universal on all tours. Either you give them a wiped‑clean account, or, ideally, you would just give them full control over the interface, but keep the state of the account as whatever they were just seeing, to not have the leaky abstraction of, OK, the tour‑mode stuff was actually just fake objects created in a fake state that we displayed to you, but it was actually a lie, which is how a lot of them are implemented.

[Patrick notes: Why?  Well, since the tour will often involve running through the core use case for the application, it will necessarily plug very deeply into the core workflow / business logic / etc.  That is a non-starter at some places, so rather than changing the core workflow / business logic to accommodate a special tour state, they just fake the existence of the happy path of the workflow with smoke and mirrors.  Appointment Reminder's tour, by comparison, is done with maximum verisimilitude (and a whole lot of elbow grease, which involves some hackery deep in the bowels of the application, like a special case in our outgoing phone system which detects Hollywood phone numbers of the (555) 555-XXX format, short-circuits actually attempting to call them as you're directed to do in the tour, and then simulates the results of interaction by a human with the phone call that would have happened but for the short-circuit).

Samuel:  We almost think about, I can almost guarantee that you, myself, and every listener for this podcast has downloaded some sort of mobile app that's been greeted with a series of welcome screens, and gone swipe‑swipe‑swipe‑swipe‑swipe to just get through it to get to the actual thing. Then not know what was covered in the thing that you just skipped over and not really know how to proceed from there.

I would say any kind of intro or tour or anything, create it around helping people make progress and move forward, but don't absolutely depend on that.

I would design for a null state, where, basically, OK, is it still going to make sense and we're still going to be communicating the most important things when the dashboard is empty or things along those lines, and not really count on the hand‑holding as your only source of orientation and motivation.

Put Better Default States In Your UI For New Accounts

Patrick:  Definitely. Speaking of null states, often, if you're in a project‑management app and you have no projects, the first screen will say, "You have no projects."

Samuel:  Right, kind of accusatory.

Patrick:  I would always say, rather than saying, "You have no projects," OK, if you're in development mode, sure. Whatever. Put that up there, like zero of zero results returned for projects.

When you're shipping that to actual customers, just a quick, one‑line if statement, replace it with a, "Here's how you can get started creating a project." Then most people just put an arrow that points to the "add new project" button or they say, "Click above on 'add new project' to get started." Rather than that, I would give a little bit of goal‑oriented instruction.

Samuel:  100 percent. The only thing I would add to that is not only prompting them to fill it up with something, but also, "Here's the value of doing that to begin with."

Patrick:  Exactly.

Samuel:  "You don't have any projects yet, but this is where you'll be able to see which ones are at the biggest risk of not shipping on time. Click here to add your first one." Something like that, to me, that's my general recommendation. Because just changing it from, "You don't have projects" to, "Click this button to create one," it's not making it a meaningful action.

That's a term that I use over and over again when I'm looking at onboarding experiences. Do I even know what I'm doing, or do I even care about what I'm doing? Can you help me at least get to one, if not both, of those?

Patrick:  One of the things I really like is when you provide people with a vision of the future they'll have if they're using the software, ideally a vision more focused on them than just focused on your software. For example, I think Baremetrics does this very well.

They're a company that slurps data out of your Stripe account and presents a variety of metrics for you. My recollection is, when you start using Baremetrics, in the pre‑slurp state, it's got nothing to show you. Rather than showing you, "We've got nothing to show you," they show a grayed‑out version of their real stats.

It's like, "Wow. You can see all of this stuff, except for your business, if you just click the Slurp button and give us however much time it takes to do the Slurp out of your account thing."

Samuel:  That can be like a PNG. You don't have to build in a feature that has all this mocked out or whatever. Yeah.

Patrick:  Is that how it's pronounced, PNG?

Samuel:  I always call it "ping." I don't know. Do you just say the letters?

Patrick:  OK. Here it's PNG, but then again, I've lived in Japan for the last 10 years.

Samuel:  Do you call it a J‑P‑E‑G, or a J‑peg?

Patrick:  Wow, I don't know. It's different than "jiff."

Samuel:  [laughs]

Patrick:  “Jiff,” and then, I don’t know. It’s been too long since I’ve been in a Japanese office, despite being here for 10 years.

Samuel:  That’s something to celebrate, I guess.

Patrick:  Oh, yes. Every day that I’m not a seller man is one more day of actual life. Yay.

Samuel:  [laughs]

How Samuel Set Out To Become, And Became, The “User Onboarding Guy”

Patrick:  We covered onboarding tours a little bit. We covered a bit of the design of UX when someone is getting started with a product to feel like they can get more success and not just have to do meaningless busywork until they get to the good stuff.

We covered a bit of life‑cycle emails and whatnot. I’d be a terrible businessman if I did not mention the fact that if you go to www.lifecycleemails.com, there’s a course from me teaching you how to do that. A little plug.

I mentioned you have the blog at useronboard.com. Maybe blog isn’t the right thing. A site, where you go into this customer‑onboarding thing in a bit more detail than people typically do in a blog post, and you do tear‑downs of folks’ user‑onboarding experiences, the pre‑sign‑up process, the sign‑up process, the post‑sign‑up process. You dig into what emails they send.

Samuel:  Slideshows.

Patrick:  I thought this was really, really smart back when I first got to know you, in that you very clearly said that, “OK, there’s a million UX designers out there. I’m going to be the one that just takes user onboarding and owns that.”

How’d that work out for you? I know you wrote a book on it later, and we can talk about that in a moment, too, but I presume you also do a bit of consulting and whatnot?

Samuel:  I would say that going after a niche has been a highly lucrative decision on my part. The consulting and the book sales have both been really strong. Really, it’s been a pretty fun ride.

Patrick:  Awesome. Mind if I rewind the tape to a little bit before the fun ride and whatnot? What got you into this in the first place?

Samuel:  Interestingly, you were saying that I wrote the book later, but the book was actually what got me into it to begin with. I was a user‑experience generalist for years. I was at this weird in‑between place.

Looking at things like conversion‑rate optimization is not typically something that’s part of the UX wheelhouse, but I was always really, really interested in ‑‑ I think that you’re actually probably a good representative of this mentality of, “Let’s find out what the problems with this flow are and empirically demonstrate that we have improved upon it.”

To me, I guess, the job to be done of what somebody hires a UX consultant for is typically not that. I really struggled with that for a long time, looking at a competing set of passions that were between qualitative and quantitative, so user experience versus conversion‑rate optimization, and then the ever‑contentious term “growth hacking.” [laughs] Was that as well.

They all embody the same thing, which is aligning your success around your users being successful and paying attention to whether that’s happening and where that’s breaking down, and then being able to measure the impact of the way that you’ve improved upon it.

Let’s see. Where do I even start here? I decided to write a book, because I wanted to take a product to market, but I didn’t want to go six months to a year into developing some sort of a SaaS product and then take it on the chin with a bunch of rookie mistakes about just how to price something or how to create a landing page that sells it or how to have a product launch or things like that.

I thought, instead, “I’ll just have a really constrained product, in the form of an eBook. Surely I can write that in a couple weeks.” Which was, spoiler alert, not the case. [laughs] Then be able to just get my toe in the water by getting something out there and just go through that experience and learn from it.

Very naively, I put up a landing page for the book, and I titled it “Customer Growth.” It was basically all about “Grow your customer by helping your customers grow.” That was the one‑liner for it.

A lot of issues there. One, that’s not a thing that people explicitly care about. It’s more of I would have to write a very philosophical thought piece on why people should care about it to begin with, and convince them of the value of the subject, before even convincing them of the value of the book that covered said subject.

The best way I can describe it is nobody was sitting down and saying, “You know what? We have this problem with this thing that I’ve never heard of. I wonder if there’s a book out there on it.”

Patrick:  Amen. If you have to convince the market that they’ve got a problem, that may be an option, but you need to have a previous success behind you or a war chest or maybe VC investment.  [Patrick notes: But that wouldn't be my first choice for any of those folks, either!  Pick the screamingly obviously high-impact problems first.  Plenty are left unsolved.]

For those of us who are just getting into business for ourselves, you should not be targeting problems that you have to explain to people that they have. You should be targeting problems that they know they have, that when they wake up in the morning, it’s one of the one or two things that is keeping them up at night.

That’s a mixed metaphor. One of their one or two top hair‑on‑fire problems for today. Virtually, every mistake I’ve made in business in terms of product selection has been not targeting those, but that’s another podcast entirely.

[Patrick notes: I do not regret Bingo Card Creator or Appointment Reminder, but if I got a do-over, I'd pick something higher saliency in a tightly defined commercial niche that I would like exploring and knew I had "unfair" advantages in.  That would probably be selling software, though there's an interesting meta question in whether I would be any good at selling software but for the experience of BCC/AR and taking advantage of the doors they opened.]

Samuel:  The one thing that I did right, though, was fully committing to getting the book out before I started. As I guess we’ll get to in a second, there were definitely some hard stretches in the middle, where people would ask me how the book was coming or something like that.

I would very truthfully tell them that I was glad that I didn’t know how hard it would be before I started or I never would’ve started. I was equally true about how hard it was, and also equally true about how glad I was that that wasn’t the case, because I was fully committed when I started and I was just absolutely going to see it through.

I put up the landing page, wasn’t really sure how I was going to go about writing the book or establish my expertise. Obviously, Nathan Barry’s information out there was a big source of help and inspiration. He’s pretty email‑list‑centric. [Patrick notes: For a reason.  Email is the secret weapon of low-touch marketing like airplanes are the secret weapon of modern militaries.  It's not a secret at all -- if you don't have them, you're giving up a tremendous advantage.]  I was like, “I guess I should start an email list and see. Maybe I could get up to hundreds of subscribers or something.”

Literally starting at zero, not even having an email list, that was like, “OK, I’ll put up a landing page, get people to sign up.” I had to figure out how were people even going to be getting to the landing page. This was the definition of a cold start, I guess you could say.

As a UX consultant, generalist, at that time, a lot of times I would do something very much like the tear‑downs that are on the User Onboard site right now. I was like, “Man. I’m already writing the book,” which is really hard, because I’m a painfully, painfully slow writer, which is another issue. I was like, “Am I going to try to guest‑post on other blogs?”  [Patrick notes: I did a guest-post tour when I launched my Lifecycle Emails course.  I cannot recommend it for generating sales, though for someone with less of a platform it might make sense for audience building.  I think I wrote six good essays on the topic for other people, and seen in hindsight, six good essays for my own purposes would be better than six good essays for other's sites.  I think I have about $3k of attributable sales as a result of that, and even if you double the number to count ones which I missed due to the vagaries of tracking, I'd rather have the essays than the money, both for the initial results and for the residual portfolio value.]

Samuel: That’s even more writing on top of writing the book. I’ve heard sometimes you just basically get a really deemphasized link in the byline, and it results in three people signing up. I can’t spend 15 hours on a blog post and hope that that happens.

I was like, “Man, if only I could share these tear‑downs that I’ve been doing.” I’d feel weird, because they were commissioned and paid for and not really owned by me. I was like, “Oh, I can just pick a company and not ask them to pay me for it and just do whatever I want with that.”

I just picked a company at random, which was OpenTable, and recorded the experience, and I was like, it just didn’t really come out right. Their onboarding experience is very confusing, or nonexistent, almost.

I had to scrap that one. It was getting kind of late into the day, and I was like, “Maybe I will do this. Maybe I won’t. All right, screw it. I’ll try one other company.” That company, once again, just completely at random, was LessAccounting. Your listeners would probably be ‑‑ it’s kind of in a similar space, I guess.

Patrick:  LessAccounting, for those of you who don’t know it, is a bootstrapped software company that is basically a stripped‑down competitor to Quicken.

Samuel:  There you go, yeah. Also, they seem to really maintain a presence in the bootstrapper community and stuff. That’s what I was referring to.

Patrick:  Oh, yeah. It’s a funny little bit of community inside baseball, I think. Sometimes we overestimate how much folks know about the <airquotes>”scene.”</airquotes> If you hang out at Amy Hoy’s conferences and go out to BaconBiz every year or go out to MicroConf every year, then you’ve run into the LessAccounting guys and you know who they are.  (I would bet you that the average Quicken-using accountant or bookkeeper in Normal-Bloomington does not.)

[Patrick notes: I think this is observation is widely applicable.  Our community is simultaneously bigger than we realize and yet smaller than we think it is.]

Patrick: I happen to know that for a lot of the world it’s the first time they’re hearing about it right now. By the way, they’re good software. You should use them. A plug. Yeah.

Samuel:  Actually, speaking of which, that was back in November of 2013, so not even a year ago, I was one of the people who didn’t know who they were. I’d known them just because they’d been around for several years, didn’t really know that they were highly involved in the bootstrapper “scene,” or whatever that might be.

I was like, “All right, they seem friendly enough, at the very least,” went through, created the tear‑down, put it up on SlideShare.

I think it was the end of the day, and SlideShare messed up the formatting and the aspect ratio. I just wasn’t really happy with the product, but I was like, “I’ll just go home and talk to my wife, and tell her I blew another day while I’m trying to get this book out.”

I posted it, and the next morning I got an email from one of the co‑founders of LessAccounting. I see it in my inbox as the subject line and see who the email’s from, and I was just like, “Oh, no.” I was sure that when I clicked on it, it was going to be him coming and being like, “Oh, thanks a lot for airing our dirty laundry and pointing out how our onboarding experience isn’t working, and who even are you?”

It turned out to be completely the opposite, that he was like, “Thank you so much for pointing all these things out. We already made a bunch of the changes that you recommended. I see you’re writing a book. How can I help promote it?”

It was just total night and day from what I was expecting as a worst‑case scenario, really just a super‑supporting response. He wound up featuring it on the LessAccounting blog, and that was really the very first thing that I did that got a decent amount of traffic and a decent amount of sign‑ups for the email list and things like that.

Patrick:  Awesome. I think this strategy is very generalizable, and in fact, folks have done it in a lot of circumstances, and it often works well. Dustin Curtis is a designer. He basically made his name by taking a few big Fortune 500 company websites, doing redesigns on them.

I might have issues with that particular work product, but that’s neither here nor there. 37Signals, back in the day before anybody knew who they were [Patrick notes: 2002 -- Basecamp and Rails were in 2006, I think?], just did unsolicited redesigns of the FedEx application and said, “Here’s all the mistakes that FedEx is making.”

It wasn’t actually FedEx, because I think they were probably worried about getting sued, but it was a purple‑looking delivery company.

[Patrick notes: I apparently misremembered this -- it appears to actually mention FedEx.  Their BetterBank was a better example of a generically attacked problem.  Though I'm fairly certain that somebody has done a You All Know Whose Website I'm Talking About redesign without actually using the trademark -- can't recall who at the moment.]

Samuel:  [laughs]

Patrick:  They just had purpledelivery.pdf, with the redesigned with the purple delivery company’s Web app, which featured package tracking as a first‑class citizen rather than the 15th thing that you wanted to use.

Especially, if you do this for other people who are closer to the us‑es of the world than the Fortune 500s of the world, folks, often, the first impulse will not be send a cease and desist or be very annoyed at you. It’s like, “Hey.” Folks describe me personally as Internet famous, which is a funny, funny word.

To this day, my heart lights up anytime someone shows any bit of attention to one of my products. If you want to screen‑grab everything and show what I’m doing wrong with the world or how my pixels are out of place, I won’t think, “Oh, he’s insulting my pixels.” I’ll think, “Yes! Totally! Someone noticed me! That’s awesome!”

Samuel:  Just to briefly touch on the whole unsolicited‑redesign thing, I can see how I’m in a similar space as that, but personally, I’m really not a huge fan of unsolicited redesigns as a thing, largely because it’s a very surface problem.

You’re basically saying, a lot of times when you see them, especially on Dribble or things like that, it’s, “I didn’t think this was pretty, so I made it prettier,” where you don’t really know what’s working that well, what’s not, what kind of constraints the team is faced with. You’re probably not even necessarily the primary audience that the product was intended for.

For a lot of reasons, when I’m creating a tear‑down, I try to be very, very conscious of the fact that there are real people who had made this under real pressure, and it was to serve a job that may or may not be something that was…I’ll literally go through the sign‑up process to create the tear‑down.

It’s not like I’m even really genuinely trying to make it work for me in that moment. There’s already that, and maybe I’m not even a key audience member at any point in time. There are those issues.

Then also, I’ve actually had conversation with people, where maybe I’ll say, “Yeah, deciding to do that made me scratch my head,” or “That doesn’t really conform to the “best practices” or whatever that might be.” The design team will be like, “Yeah. Yeah, we hated it, too, but it’s working really well.”

Not having visibility into the conversion funnel or whatever that might be, and then also just not knowing about what kind of internal pressures they’re dealing with in the office, I really, really try to say, basically, “Objectively, these are what our best practices are, or not, considered to be generally within the community.

Then also, anecdotally, as a user, I was legitimately confused when I went through this.” Really, really distance myself from saying, “This is objectively wrong” or anything like that.

Patrick:  Right. I think that is a great attitude to have about it in general, and probably a karma‑maximizing attitude, if you’re hoping to borrow an audience as a result of publishing these things.

Also, I think, as somebody who has worked in a lot of companies and seen the sausage get made, it absolutely tracks with the internal human/political/resource‑based constraints on why something might not be totally optimal. There’s a lot of times where, heck, I’ll own it. I won’t blame the client, I’ll blame myself.

There are something that I have shipped where I could point to you X, Y, and Z decisions of the things that shipped today and say, “I hate X. I hate Y. I hate Z.” I had 100 points of awesomeness in that engagement, where awesome is an arbitrary resource. Fixing X would’ve required 20 points of awesomeness. We just had other things to spend awesomeness on, so we just shipped it out the door.

Samuel:  There you go.

Patrick:  Often, a particular team or person in the organization just did not want to budge on Y, and they had been really cooperating on some other part, and so you trade tit for tat. That happens all the time in real life.

Anyhow, going back to the book for a moment.

Samuel:  Yes.

Patrick:  You release some of these tear‑downs, and both the folks who were, quote‑unquote ‑‑ I hate that word, tear‑down, by the way. I’d like to say, “build‑up.”

Samuel:  [laughs]

Patrick:  You released some of this feedback on people’s onboarding processes. Some of the folks who were featured in this feedback found it really, really useful to them, like the guys at LessAccounting.

They spread all over the Internets to these people’s preexisting networks, as they said, “Hey, someone has taken this interest in our business and given us really useful feedback. We could read the writeup.” Thus, you got, what, a few hundred or a few thousand people to subscribe to your email newsletter?

Samuel:  Specifically, in the early, early days, it was maybe a couple hundred, when the book was still called “Customer Growth” and people probably didn’t really know what they were signing up to get.

Through the success of the tear‑downs ‑‑ so I did the LessAccounting one, and I was like, “Well, that went well. I should do another one.” Then I did Basecamp, and then that one got shared a lot. I think that wound up Designer News, the front page, for quite a while.

At that point, it was suggested to me that I stop using SlideShare and instead create a site that’s dedicated to those, where I could control the conversion timing, the asks, basically. I also just wasn’t really a super‑huge fan of the user experience on SlideShare, either.

Patrick:  Can I circle this point and star it, guys? There’s a lot of folks who put their best work on 3rd party sites. In my case, some of my best work is on Hacker News. In other folks’ cases, it might be on Dribbble, on Twitter, on Facebook, on Medium, et cetera, on GitHub, a major one for the developer community.

For things that are central to your career, building up a public portfolio, you really want to be able to control all aspects about that, both how the work is presented to people who will be future decision‑makers about your career and what you emphasize about it.

If you embed something in GitHub, you’re going to end up with a very GitHub‑y experience for that, regardless of what it is. The way that people consume that artifact that you have put on GitHub will be a very GitHub‑focused consumption experience rather than a you‑focused consumption experience or a them‑focused consumption experience.

Samuel:  Yes.

Patrick:  I would strongly encourage, from both a UX point of view and a “maximizing the future value of your passport to your future self” point of view, that you put your best work on your own darn website. Think about wrapper‑type issues, like:

Should I put a logo on it?  [Patrick notes: If it represents more than a work-week of effort from you you'd be crazy to not spring $100 or $200 for a logo.  I strongly feel like the logo, the dedicated web presence, and the non-zero effort put into documentation for A/Bingo were reasons it redounded to my favor.]

What sort of asks should I be having on the page? Whether that’s asking someone for their email address, or, for those of you who might not be selling a book but might be selling freelance or consulting services, maybe you ask them to send you an email and ask for a quote, or “Send me an email. I’d love to have a Skype chat about this if it interested you.” You convert them and do a request for a quote or something on the Skype chat, et cetera.

Yes, asterisk, asterisk, asterisk. You should absolutely have it on your own website. Which is, by the way, to this day, why ‑‑ well, aside from Hacker News ‑‑ almost all of my writing is on either my own blog or on my other sites. Most of the things that I produce even for free, the canonical source for it is on my Web presence rather than other people’s Web presences.

I love GitHub, don’t get me wrong. In the absence of contracts that I can neither confirm nor deny exist, my job is not to make GitHub money. It is to make my family and I money while producing stuff of value to society, so I tend to keep that on my own Web presence rather than theirs.

Samuel:  I completely concur.

Patrick:  Anyhow. You did the smart thing. You moved some of the stuff from SlideShare. By the way, you can still host stuff on SlideShare. Just put the embed in the write‑up in your own site, and then it will collect the links and citations that people are looking for.

Samuel:  There you go.

Patrick:  That’s what I do for all my presentations, by the way. You’ve created a Web presence for this.

Samuel:  Right. I guess, at that point, it was very clear, like, “Oh, user onboarding is the thing that I should be talking about, not a component of this very vague thing that I want to talk about.” I guess a good litmus test is, if you’re going to be writing an eBook, is it something that people would find helpful?

Are you doing it to help people, or are you doing it to preach at people? I made the shift from preaching at to trying to help when I made the shift from writing a book on customer growth to writing a book on user onboarding.

At that point, too, that’s when I bought the User Onboard domain, because useronboarding.com was already taken, created the site in a weekend, and transitioned the slides over to that, and then just kept coming out with new tear‑downs. Basically, it was like one a week at the beginning. At that point, the email‑list sign‑ups went from a couple hundred to a couple thousand, and then even further from there.

Nicely enough, the book’s already been out. I didn’t really launch it very well. I set out to do it so I could learn rookie mistakes, and boy, did I make some. A really nice thing about it, too, is having an ongoing Web property, there’s some repeatability to it, I guess you could say.

Every time I put out a new tear‑down, I know that’s going to result in X‑hundred more newsletter sign‑ups and Y more book purchases, or whatever that might be. It’s been nice to have as just an ongoing asset, for sure.

Patrick:  This is something that I really like about this emerging publishing model.  In the old model, you contract with a publisher, you write a manuscript, they pass it through a few other professionals, put it out, and it goes to bookshelves across the country, it sells a thousand copies. Then is available for back‑ordering from anyone who wants it, but nobody will because they are very launch‑focused.

When we control the assets and we control the marketing plan, we cannot just have a launch‑centric approach to the value we’re creating. Most of the value’s not created just by launching something. It’s created by building something of value and then figuring out what the right recipe of things is to get people to be exposed to that thing of value, and you can tweak and adjust over time.

Even in the ‑‑ going to use a word I hate ‑‑ information marketing space, a lot of it is very launch‑centric. I think that’s partially because a lot of folks who are broadly in that space don’t produce things of value, and then after the market figures out that the new thing that has been produced is not of value, sales go to zilch. For people who generally produce books, software, et cetera, of value, they often have a substantial long‑tail component to the sales.

If you follow the usual email/launch‑centric approach, where you’re collecting email addresses, the thing launches, you get 10,000 people or whatever with an offer to buy the thing in the first two weeks, then you typically will get a spike at launch day or in the first two weeks.

There is residual value to having that, both in terms of quantifiable money in your Stripe account, residual value, and also in the fact that you can point, in conversations with people three years from now, you’ll still be the guy who quite literally wrote the book on user onboarding when you’re talking to potential consulting clients. Or if you have a new book, it will be by the author of the bestselling book on user onboarding, dot‑dot‑dot.

Samuel:  For sure.

Patrick:  I wrote one book, by a nontraditional publisher, Hyperink, called “Sell More Software,” on Amazon. One of the things that traditional publishers tell you is, “You should write a book. Not because making a book will make you money, because it won’t, but because having written a book on something is great for consulting.”

I always thought that was self‑serving BS.  I still believe it is self‑serving when the publisher tells you that, but it is not totally BS. There are some clients who really, really connect to having a book available on Amazon. I happen to know that there’s a few copies of mine boxing around at Fortune 500 companies at the VP level, which surprised the heck out of me.

Samuel:  That’s awesome.

Patrick:  I also produced a video course two years ago about life‑cycle emails, and that just has, as I write more stuff for my email list and people get added to the email list, and then eventually, 30 days later, they get a brief blurb about the life‑cycle email course in one of the emails that on‑boards people onto my email list. It produces just a nice, happy Chinese water torture of sales over time.

Samuel:  [laughs]

Patrick:  I don’t do any active promotion for it, and it’s been out for two years. It’s probably still made $10,000 this year, [Patrick notes: for values of $10,000 equal to $7,500] which is a pretty nice place to be for not doing additional work. Would you mind if I asked, how many people do you have subscribed to your email list these days?

Overnight Success, Isn’t.

Samuel:  A little bit over 11,000.

Patrick:  That’s actually right about where I am, at about 12‑ish or so. One of the things that I frequently get when I’m talking to people about making stuff and then selling it, about the Internet, is that folks have unrealistic expectations about what “Internet fame” is.

11,000 subscribers to an email list is not a number that you have to be an international celebrity/Internet man of mystery to hit.

You and I are both, total mortals, we take the not too difficult to comprehend tactic, of doing the thing we were good at in public, and saying, “If you want more of this stuff, give me your email address, I am hooking that up to an easily available mail provider, which costs less than a cable bill, a month, and then, just continuing that for a year, in your case, or 10 years in mine.”

Oh boy! Can’t believe that I have been in the industry for 10 years now, blows my mind.

Samuel:  That’s also worth noting too, I have been in the industry for 10 years now, too. I would not consider myself to be an overnight success by any meansI think a lot of whatever success that I have found in the last year has come from paying attention to things that you’re writing and putting out there about like, “Yes, you can do this.”

You don’t have to just be toiling in obscurity. You can do a very reasonable amount of effort put into creating something that people find valuable and be able to benefit from that. It’s very, very achievable.

Patrick:  I totally got everything that you just said there. One of the things about overnight success that always staggers me is that Peldi, the gentleman behind Balsamiq Mockups. Balsamiq Mockups have the first like first year of sales of, virtual of any software company that I know about, aside from one that $500 million obviously injected into in year one at $300 million in adds and sold $200 million in software.

The absolutely meteoric graph that first year, Peldi had a great presentation where he showed the meteoric graph. That’s what it looks like from the outside. From the inside, and he shows a graph that expands 28 years in the past for as long as they’ve been in software game in various companies, where obviously, for the first 27 years or so was zero software sales.

Then, overnight success. Overnight success didn’t take overnight. It took 27 years. But then people selectively edited that down when they’re talking about it.

Yeah, very important to point out that overnight I was just doing, I call it the grind, just get up, day to day, bang out some code, write some emails, try some experiments. For, I’d say, maybe after four or five years of doing it, a thousand people knew who I was.

Samuel:  I like the metaphor of pounding the rock. Totally in agreement. I think it’s also a thing that you don’t have to be that long tail of toiling in obscurity, like I was mentioning it before. I could have been doing things so much smarter, so much earlier.

It wasn’t like I’m a radically more experienced or smarter designer now. I just had to do an inch more smartness around being able to distribute that information, I guess.

Patrick:  Kind of like operationalizing it, in a business sense. Oh, that just sounded like a management consultant.

Samuel:  [laughs]

Patrick:  Sorry, guys. Anyhow. I totally agree on that. That’s one of the reasons I have my blog, one of the reasons why I really like the openness in our industry, from folks like Paul Graham, Joel Spolsky, all the way down to folks like me, Nathan Barry, et cetera, where you don’t have to make all the mistakes to learn all the stuff anymore. It’s great. I’ve made so many mistakes so you don’t have to.

Samuel:  Hiten Shah has been another person I would certainly put up in that pantheon of helpfulness as well.  [Patrick notes: Hiten is writing again, after a long hiatus.  Check out his blog.]

Patrick:  I’ve learned many things from Hiten over the years. Man, could do an entire podcast just about intellectual influences for stuff that I do on a day‑to‑day basis, probably get up to 200 names.

Samuel:  You should. I would absolutely listen to that.

Patrick:  Putting it on my list. Intellectual influences. Sorry, just writing that down. Anyhow.

[Patrick notes: I'm serious about doing this, but it would be a lot of work and might not be interesting for folks who don't play inside baseball, so tell me if it is interesting to you.]

Samuel:  [laughs]

Patrick:  I’ve learned this over time. I think one little asterisk that I put, often, when talking about the topic of learning from other folks is that you should generally balance learning from other folks with doing for yourself. Just because I know a lot of folks who, they’re working the day job, the day job’s taking up a lot of their creativity/mental energy.

They listen to podcasts. They read the blog posts. They even go to conferences, watch the presentations. It’s like they’re perpetually in training for the championship bout that never comes.

Samuel:  Right. That totally resonates with me. For a very long time ‑‑ if this was school, I would be so ready to take the test right now, but nobody’s sliding that test onto my desk or whatever. Very much felt that way, for sure.

Patrick:  I felt like that myself for many years prior to actually starting a business. I would encourage all of you guys ‑‑ take the plunge. Doesn’t have to be a life‑changing, burn‑the‑ships decision or anything. Just start a blog, if you don’t already have a blog.

If you got a blog, start an email list. If you’ve already got an email list, put a stake in the ground on a product that you want to get out and make the progress towards actually getting that out there. Launch it. Everything about life gets better after shipping things.

Samuel:  I think it’s important to emphasize, too ‑‑ this is probably actually where I picked it up is from you. Don’t discount the expertise that you already have.

Patrick:  Yes.

Samuel:  Just because you’re not a nationally recognized name or whatever that might be, if people are paying you to do something, then that is enough expertise for you to be able to disseminate that information in exchange for an email sign‑up or something along those lines.

Patrick:  Getting somebody’s email address, you are not proposing marriage. It’s just like, “Hey. If, in this one interaction we’ve had together, you think that it might be useful possibly having a relationship with me in the future and hearing even more valuable stuff, here’s an easy way to accomplish that.”

I know many, many geeks have an anti‑email bias. I did, too, as an anti‑spam researcher, because I only saw the absolute worst of email for years and years. A lot of folks are not offended by being asked for an email address. Even if 50 percent of the audience is like, “I never give my email to anybody,” you can read the blog at your own pace. That’s fine. The other 50 percent, though, their email, those are quite valuable to have.

Samuel:  I think that it’s an important distinction to make, too. I certainly completely concur with that, but at the same time, I wouldn’t say just start a blog to have a blog or start a podcast to have a podcast. The lens that I would use on that is just start contributing things that people find useful, and whatever the delivery mechanism is.

Patrick:  Yes. Absolutely true. I totally agree with that. I also think that the effectiveness for these sort of things, both in terms of reaching an audience and creating a value to that audience and in terms of helping out your career/business interests, goes way the heck up once you find that thing that you’re good at.

I started my blog the same week that Bingo Card Creator shipped [Patrick notes: July 1st, 2006, crikey I'm old], and the original idea was I’m just going to write down stuff about what I did for Bingo Card Creator.

That blog really only hit its stride maybe three or four years later, after I figured out the thing that I had a comparative advantage against versus the rest of the Internet, that little, itty‑bitty intersection between engineering and marketing, and started writing about that a lot. It resonated with a lot of people. It actually, knock on wood, changed other people’s businesses for the better in a lot of cases.

The more I wrote about that, and the more I wrote about it in a particular format that you might be familiar with if you’ve followed my blog or podcast, et cetera, for a while, because I’ve got a style ‑‑ that style worked.

Whereas a 500‑word update on, “Here’s what I did for SQL optimization today,” there’s probably a post or two on my blog about that, which five people have read and nobody found tremendously valuable, and there’s much better SQL optimizers elsewhere on the Internet.

Samuel:  I guess, when you talk about going after a niche, whatever that might be, looking at the gaps in between really big things. For me, marketing and product, there’s user onboarding, or for you, between engineering and marketing. A lot of times, I think that’s a place that you would look.

Patrick:  That is good. It’s going to sound a little weird, but you can have a very happy, fulfilling, rewarding career just by being the spackle between different teams in an organization.

Samuel:  That’s why they have consultants. Otherwise they would have already staffed for it.

Patrick:  [laughs]

Find The “Known Groan” To Find A Profitably Exploitable Niche

Samuel:  If I could make a recommendation on niche‑finding…

Patrick:  Sure.

Samuel:  Actually, I was preparing for this, and I was like, “What do I do that I didn’t get from Patrick McKenzie [laughs] , that’s not already out there?”

One thing that I haven’t seen anybody really write about ‑‑ the people that I recommended it to have found it helpful ‑‑ is to pick a term, almost like if you wanted to compete for SEO or whatever, just like the presence of mind.

I very quickly realized that there was not the user onboarding guy. Specifically, that being a term that A, people had an emotional reaction to, like, “Ugh, onboarding.” I call it the “known groan,” when people are like, “Ugh. Yeah, ours sucks.”

Patrick:  [laughs]

Samuel:  Looking for something that they actually have some sort of emotional, I guess, revulsion to. That indicates that it’s a hair‑on‑fire need, like you were mentioning before.

Also, it’s a specific phrase, term, or something like that. Really, the actionable part of this recommendation is once you’ve…Maybe if you have a few different ones that you think you might want to try, set up Google Alerts for them.

If you’re getting flooded with stuff, you’re probably too broad. If you’re not getting anything, then people don’t care about it. If you’re getting three to four or five a day of new articles that are coming out, that have that term in the subject line, that’s a very strong indication that you can own that niche and it’s a niche worth owning.

You can be the person who comments. Every time somebody sees a user onboarding post, I should have some sort of presence there. I can leave a comment, or I can link to it through the user onboarding Twitter account or something. I have that Google Alert, and it’s been just tremendously valuable for me. That’s my tip of the week. [laughs]

Patrick:  I think that is a useful tip. One of the things that I struggled with in my own consultancy/larger business interests that there wasn’t really…I had an idea for what I was good at, but I don’t really have a word for it. I bounce around a little bit.

Other people created words for that sort of thing. “Growth Hacker” is a created word to identify some niche for a particular type of individual, and then allow them to go after it. I don’t particularly love that created word, but there might be better cases for it.

Anyhow, that’s neither here nor there. One quick question before we get off the topic of your book. Do you mind if we share with the audience what the results from that book were for you?

Samuel:  Financially speaking?

Patrick:  Financial or more important than that, either way.

Samuel:  Yeah. Either of those sound good. As I mentioned, I really did not do the launch super‑well. Being a hypocrite cost me thousands of dollars, I think [laughs] , in that scenario.

One of my strongest philosophies is paying attention to the last mile. Don’t tack onboarding on at the end. Make sure people are oriented around the value that they’re going to be getting, paying attention to those switching moments, so on and so forth.

I literally was editing my book up until hours before I launched and spent probably about one‑fiftieth of the amount of time I should have spent on the sales page. Worked really, really hard to build up the email list to a few thousand people, and blasted them at a page that was really confusing to them and did not emotionally engage them or anything like that.

Fortunately, because of the robustness of just having built up the list, trying to warm it up before I launched, and sharing the ride, I guess, as we were going, I still made 7,000 and change on the launch day, but there were some very forehead‑slappingly obvious problems with the sales page itself.

Fortunately, that’s, again, a nice thing about not just basically optimizing for launch and then trying to keep as much money from it as possible.

Being in it, invested in the long haul, and seeing it as an ongoing asset, I guess, for lack of a better term, I was able to make those changes within a couple weeks, and saw that things were not going to be nearly as dire as they appeared to be on launch day.

Actually, I just pulled up the launch‑to‑date stats in Gumroad. Also, I recommend Gumroad for those out there. One more person who’s a very happy customer. Probably by the end of the week, I’ll cross over the 70K sales number.

Patrick:  Awesome. Congrats.

Samuel:  Thank you.

Patrick:  That’s probably the first time I’ve heard a 10X increase from launch to lifetime. Actually, it makes a lot of sense in software. Man, the power of having assets. Just last week, Bingo Card Creator sold its 10,000th license.  [Patrick notes: I will note that while this asset is quite impaired these days, due to less traffic for some reason I've never really poked into, it is still trucking along quietly powering classrooms and underwriting lifestyles of the rich and famous maybe half our new-and-improved Tokyo rent.]

Samuel:  Awesome.

Patrick:  Only took 10 years.

Samuel:  [laughs]

Patrick:  Or eight years or whatever 2006 to today is. The power of having assets.

Samuel:  It’s also something where that is basically what I used to make in salary. Not only has it led to more consulting work, higher‑priced consulting work, and things like that, but just knowing my family’s not going to starve if something weird happened, just having that as an ongoing source of revenue is very comforting, I guess you could say.

Patrick:  It allows you to also optimize for other decisions. If you’re the typical person with a salary job, you have to have that salary job, or else the rent does not get paid for next month.

If you are the typical freelancer and somebody comes to you with a proposal, and you’re not really feeling it about this client, it’s not exactly the kind of work you want to be doing, or maybe they’re giving you pushback on your rates or whatnot, you might think, “I have to make these compromises in this business relationship because your rent is due next month, and I need to sell these hours.”

Where, if you have a baseline, even a small baseline, you get to be really picky about things. It’s like, “I don’t have a great option for consulting next week. I could take a middling option to consult for the next four weeks, or I could just wait and see if a great option shows up.”

That lets you be more selective with your clients, lets you pick the kind of work that you want to be doing. In a lot of cases, it actually is better for your clients.

Samuel:  Nodding vigorously over here, once again.

Patrick:  There were a lot of consulting clients where we heard the outlines of what they want and said, “Look. I am not the right guy for this, so I’ll just give it to you straight. Here is the right guy for it. You should have him do it instead.”

If I was more constrained by financial stuff, I might think, “I’m not the right guy for this but…” or “For my rate per week, I could be the almost halfway decent guy for it.”

When I go into clients, I have the ability to say, “You brought me in to do the best possible work and get you the best possible results, so we are only going to do projects which will be my best possible work and get what I think, before doing the project, is likely to give you the highest results. If you are not amenable to that, that’s fine. There are many consultants out there. I can recommend you to one of them.”

Samuel:  I totally agree. It’s at this point where I know the unit of work that goes into creating a tear‑down is going to result in roughly a certain amount of money coming back in book sales every time I do it. When I’m bidding on a project, I’m like, “How many tear‑downs, basically, is this project going to be?”

The number, financially, that I would get out of doing X tear‑downs is often a lot higher than what a client would be willing to pay for the same amount of work to work directly for them. Or at least it’s a healthy way for me to keep that in perspective, so there’s that.

Another nice thing is, as I mentioned way earlier, I’m in the very, very early stages of creating software for the onboarding space, and so I put out a survey. I didn’t even drive that much traffic to it. I haven’t sent out an email linking to it to my email list or anything, just tweeted it out a couple times.

At the end of the survey, I said, “It was really great of you to complete the survey. As a thank‑you, can I send you a coupon for 15 percent off the book?” It’s a nice opportunity to be able to be generous. There is something that you can offer, and also, at the same time, I don’t care if somebody buys it for 15 percent off.

If that’s going to be a triggering moment for them, then great. I’ve already made a couple hundred bucks just from putting out a survey. Which, I’m almost getting paid to do customer development. That kind of thing is really nice.

Patrick:  I really like your idea of writing the book before writing the SaaS product, for a lot of reasons. I think probably my next‑next project is going to be a SaaS, just because, a long story. I could do an entire episode on this.

Appointment Reminder is not exactly holding the fire in my belly, and I wanted to get into some sort of ‑‑ since it turns out the thing that I’m really good at and that my audience really trusts me about is making money for software companies, I want to make “making money for software companies” as a SaaS business.

Samuel:  That makes a lot of sense.

Patrick:  I’m probably going to be thinking in the next 18 months about how to actually turn that into something. It’s a heck of a lot easier to make the SaaS business after you’ve written a book on it and proved that there is an audience that cares about that topic.

Is empirically willing to pay you money about it than it is to just parachute into a field and say, “Well, I don’t have any evidence that people are willing to pay money for solutions to this, and if they are willing to pay money for solutions, I don’t know who that is. I’m going to spend the next six months writing Ruby code anyhow and see if it works.”

Samuel:  You’re going to be spending a bunch of time trying to build up that audience regardless. Looking at Rand Fishkin, with what he did with SEOmoz at the time, where he put out “The Beginner’s Guide to SEO” and got all that attention and built up his audience around that, and then were like, “Oh, we should create tools to serve this audience that exists now,” you can very clearly see the transition from one to the other.

Patrick:  I want to just do a little bit of a callback to something we were talking about earlier. You mentioned how, when you were writing your book, you had really, really hard stretches, like, “Man, this is taking much more time than I expected it to be.” Creative work is occasionally a beast. I have a funny story on that.

I’ve been saying since last August ‑‑ not the August in 2014 but the one in 2013. Yeah, I’m good with math that way. Since last August, that any day now, I was going to be releasing a course on conversion optimization.

Knock on wood, any day now, [laughs] hopefully before the birth of my daughter at the end of the month, I will be releasing a course on software‑conversion optimization. It’s on softwareconversionoptimization.com if you guys want to take a look at it. If you could, yay, great.

[Patrick notes: See the postscript.]

That’s the other thing I really like about the asset‑building approach to business, as opposed to the “grinding it out for the day job” approach to business. I am trying to just push the pause button on pretty much everything, aside from responding to routine email, business‑wise, for much of the next six months after my daughter is born, just to be able to be present for that, which is something that is difficult to do if you’re committed to the standard W2/working‑professional life.

Samuel:  There you go. Count me in as a first‑day purchaser of said course.

Patrick:  Oh, awesome. Thanks very much. I should also mention that I think I had bought yours as well.

That’s funny. There’s lots of stuff on the Internet that teaches various worthwhile things, like your stuff on user onboarding. Like any other business, I have a budget for training employees [Patrick notes: The business has only one employee and there is a heck of a lot he doesn't know.], and I think mine runs to ‑‑ I’m going to check with the accountant ‑‑ probably on the order of $2,000 a year.

My business makes, well, let’s say “mid six figures” in turnover. That $2,000 is not a lot of money. When you divide it over the fact that I only probably read 10 business books a year, that means I’m spending an average of $200 on each of them. Or maybe not books. Courses, products, what have you.

Then you figure, OK, if you can price things at $200 and then have businesses be happy to pay for them, like I’m happy to pay for your stuff. Then you aggregate that over even a small number of people, that turns into a real amount ‑‑ maybe life‑changing isn’t the right word, but definitely life‑impacting amount of money for an individual running the training business, in a really short amount of time, as a producer of useful stuff.

Samuel:  I wholly concur.

Patrick:  Thanks very much for coming and getting interviewed on the podcast, Sam. It was really awesome to have you. If folks want to hear more from you, where should they go?

Samuel:  I would recommend useronboard.com, as we’ve mentioned. On Twitter, also UserOnboard, and on Twitter as SamuelHulick, which is just my name as one word.

Patrick:  For those of you have difficulty spelling, like I did, it’s H‑U‑L‑I‑C‑K.

Samuel:  S‑A‑M‑U‑E‑L H‑U‑L‑I‑C‑K.

Patrick:  Awesome. Thanks very much for being on the program. Knock on wood, we’ll have another podcast available in about two weeks or so, assuming I’m not called away by either work duties or baby duties, and it will likely be on the subject of churn. I hope you guys can catch it. Thanks, as always, for showing up for the podcast, and we hope to see you next time.

Samuel:  Awesome.

Patrick:  All right. Bye‑bye.

Brief Postscript On My Conversion Optimization Course

This podcast was recorded a few weeks ago, when I was still holding out hope of getting the Software Conversion Optimization course out sometime before my daughter was born (later this month).

At the time I thought “One more quick sprint and I’ll finally finish this thing!”, but between the course and the impending baby I was under incredible stress and it was compromising both the quality of the work and my mental availability to support my wife.  Ultimately, I’m disappointed that I haven’t shipped this yet, but I’d be far more disappointed to not be a good husband and father, so in lieu of continuing to provide a slipping shipping date I’ll reiterate that “It will ship at some point, when it is ready.” and “If you pre-purchased the course and are in any way not happy with waiting, get in touch with me and I’ll refund you.”

If you’d like to hear when the course ships (and also get a free eight-ish lessons on software conversion optimization delivered over email), you can sign up here.

Harry Potter And The Cryptocurrency of Stars

If you’re wondering why my blog suddenly has Harry Potter fanfic click this to show the spoiler otherwise it might be more fun to dive right in.

With apologies to J.K. Rowling, here we go:

What Is Value, Anyway?

Goblin Banker: So, young Master Potter, I understand that these last few days have been a bit trying for you, but on the upside, you’re filthy stinking rich.

Harry Potter: I’m still having trouble wrapping my head around piles and piles of gold coins in a vault guarded by a dragon.  What did you call them again?

Goblin Banker: Galleons.

Harry Potter: And weren’t there Sickles and Knuts, too?

Goblin Banker: Meaningless complications for the moment, sir.  Let’s just focus on your galleons.

Harry Potter: What is a galleon worth, anyway?

Goblin Banker: What is anything worth, young Master Potter?  An apple or a dragon’s egg or the limb of an ancient yew severed in a lightning strike?  All things are worth what someone will happily trade you for them.

Harry Potter: I’m having trouble thinking that gold is really like an apple.  Surely it is worth much more, right?

Goblin Banker: I suppose that depends.  If you’re starving, an apple will save your life and gold won’t.  But we aren’t talking about gold, we’re talking about galleons.

Harry Potter:  Galleons are gold, right?

Goblin Banker: Galleons are a currency, Master Potter.  They happen to have a bit of gold in them, to be true, but the real magic of them — a strikingly ordinary kind of magic — is that the inhabitants of Wizarding Britain want to have them and, accordingly, you can trade for almost anything if you have enough galleons.  And, as we’ve established, you have enough galleons.

Harry Potter: Carrying that mountain of gold around is going to be trouble.  I need to go buy supplies for Hogwarts!

Goblin Banker: Not to worry, sir.  We have much more convenient ways of dealing with currencies than you might be used to in the Muggle world.  There’s none of this nonsense with carrying large amounts of money on your person and physically handing them to other people.

Harry Potter: Oh, you have a debit card which lets me withdraw galleons?  Maybe a Visa, accepted everywhere I could want to spend them?

Goblin Banker: OK, OK, I take your point, Muggles have progressed a wee bit over the years.  In the wizarding world, though, we use cryptocurrencies.

Harry Potter: Crypto-what?

Goblin Banker: Math math math, blah blah blah, suffice it to say that it’s magic which you have no need to understand but which allows you to conveniently exchange value without needing to physically hand over golden tokens to your counterparty.

Harry Potter: So I… buy this crypter-currency with galleons?  And then I hand it over to the shop?

In Which Harry Potter Discovers Debt, A Mysterious And Powerful Magic

Goblin Banker: Hmm…  young Master Potter, have you ever heard of the phrase “IOU”?

Harry Potter: Of course.

Goblin Banker: Think of cryptocurrency more as an IOU that you can conveniently trade to people.  For example, do you trust us here at Gringotts?

Harry Potter: Well, you seem to have just showed me a mountain of gold when you could just as easily have taken me to an empty room and I would have been none the wiser, so I suppose I do trust you.

Goblin Banker: Words are important in this world, young Master Potter.  Put your right hand on this ledgerbook and say “I trust Gringotts…”

Harry Potter: “I trust Gringotts…”

Goblin Banker: “… to the sum of 100,000 galleons.”

Harry Potter: “To the sum of 100,000 galleons.”

The Ledgerbook: Welcome to Gringotts, young Master Potter.  Your current balance is: nothing.

Harry Potter: Great Scotts, it’s magic!  So now I have 100,000 galleons?

Goblin Banker: No, you have a vault full of galleons, but the ledgerbook and all of Wizarding Britain just witnessed the fact that you trust us to give you an IOU worth anything up to 100,000 galleons.

Harry Potter: Why can’t I just trust you with… all the galleons?

Goblin Banker: No one is worth unlimited trust, young Master Potter, not even a goblin.

Here, let’s get you set up with some walking around money.  One hundred galleons should be plenty for the moment, so I’ll send a runner down to the vault to take out 100 physical galleons, which we’ll keep, and issue you an IOU.  You, or anyone else, can bring the IOU back to Gringotts, and we’ll give that person back 100 physical galleons.  Sound fair?

Harry Potter: Certainly.

Goblin Banker: Ledgerbook, send 100 galleons to Harry Potter.

Ledgerbook: Young Master Potter, your current balance is: 100 Gringotts galleons.

Harry Potter: Oh, you make the galleons here at Gringotts?

Goblin Banker: Well, in point of fact we do, but it is called a “Gringotts galleon” because we issued the IOU, not because we issued the underlying asset.  Don’t worry about it for now.

Debts Which Are Transferable Enable Transactions

some time later

Ron Weasley: Funny that three first-year Hogwarts students happened to bump into each other while doing shopping, isn’t it?

Hermione Granger: That’s so convenient for teaching Harry here about wizard commerce, it’s like Diagon Alley is the Room of Requirement.

Harry and Ron: What?

Hermione Granger: Clearly you two are going to be the best of friends.  Oh look, here we are, Olivander’s Wand Shop.  You’ll want a wand.

Olivander: A wand chooses the wizard, my boy!  Oh look, this one here with a phoenix feather core is practically singing to you.  It is a steal at only ten galleons.

Hermione Granger: Did you say a phoenix feather?  Where have I read about that before?

Olivander: Eight galleons then!  Seven if Little Miss Know-It-All never says another word while I’m negotiating with a customer!

Harry Potter: Easy, easy, I just want a wand so that I can do magic.  Seven galleons sounds like a fair offer.  Umm, where’s your ledgerbook?

Olivander: Goblins use the ledgerbook directly, but carrying around one with you all the time would be dreadfully inconvenient just to spend money.  I mean, think of how heavy it would be.

Hermione Granger: Gigabytes at the very least.  And if it were sustaining hundreds of transactions per second like Visa and each person needed their own copy of the ledgerbook then very soon ledgerbooks would represent a significant fraction of all disk space in the United Kingdom.  That’s clearly not sustainable.

Ron Weasley: What’s a gigabyte?

Hermione Granger: Your ignorance is wearying and yet strangely adorable.

Olivander: So instead of ledgerbooks, you just wave your wand and send a message to the world via a magic spell.  Here, Mister Potter, repeat after me: slight flick of wrist, “Stellarmus, send Olivander seven galleons.”

Harry Potter: Stellar-what?

Olivander: Stellar sounds nice and happened to have a domain name available. Stellarmus because Hogwart’s last Latin teacher got eaten by a troll four hundred years ago and they haven’t replaced him since.

Harry Potter: Alright.  Stellarmus, send Olivander seven galleons.

Olivander: … Great.  A pleasure doing business with you.  Please remember to bring your kids back in thirty years — you won’t believe how hard it is keeping a wand shop in business, what with it being a once-in-a-lifetime purchase which costs trivial bits of money.

Harry Potter: What just happened?

Hermione Granger: A minute ago, Gringotts owed you 100 galleons.  Mr. Olliver here trusts Gringotts IOUs much like you do.  You’ll find that is quite common in Wizarding Britain.  You told Stellarmus to send him seven galleons, so it transferred seven galleons of your Gringotts IOU to him.

Ron Weasley: So he can pop down to Gringotts and get himself some gold, any time he wants.

Hermione Granger: Or he could just Stellarmus it to anyone else who trusts Gringotts without having to actually withdraw the galleons.

Ron Weasley: Right, or that, I suppose.  Right then, I guess we’ll just wait around here.

Harry Potter: I have my wand, he has his galleons, what is there to wait for?

Ron Weasley: Well, shouldn’t transferring money take a while?

Hermione Granger: Some cryptocurrencies require you to wait while mysterious wizards called “miners” run hundreds of billions of magical maths spells, called a proof of work, to make sure no one is tampering with the block chain.  One block appears roughly every ten minutes and a transaction needs to have been included in a block at least six deep to be settled.  If we had settled this transaction with one of those cryptocurrencies, Mr. Ollivander couldn’t be sure we had paid him for about an hour, although that is just an approximation based on probabilistic reasoning and observed features of the protocol rather than anything deterministic.

Harry Potter: That sounds dreadfully inconvenient.

Hermione Granger: And it would be, but Stellarmus doesn’t use a proof of work system, it uses an iterative consensus algorithm, so confirmations are almost instant — closer to “a slow remote API request” than anything involving a blockchain.  No mining happens and there is no duplicative work performed worldwide in the hopes of getting seigniorage.

Ron Weasley: I don’t think I understood a single word in that explanation.

Harry Potter: Me neither.

Hermione Granger: Promise me you won’t talk to the Defense Against the Dark Arts Professor and you’ll never have to care about that.

Walking The Web Of Trusted Currencies

Ron Weasley: I’m famished.  Let’s drop by Muggle London for some chips.

Harry Potter: Great idea.

Ron Weasley: How do you people in Muggle Britain pay for things again?

Harry Potter: Well, since we’re children, typically that would be by handing over paper money.

Ron Weasley: That sounds dreadful.  Just Stellarmus them some galleons.

Hermione Granger: Wizards have this funny prejudice against Muggle financial instruments but they have the desirable property of actually working.  And you can’t Stellarmus galleons to a Muggle — he isn’t connected to the Stellarmus network and, even if he were, it would be his choice to accept galleons or not.

Harry Potter: No problem, mate, I’ll spot you.  Here, one plate of chips.  Get me back for a quid when you’ve got one, OK?

Ron Weasley: What’s a quid?

Hermione Granger: Quid, noun, British slang for one pound sterling.

Ron Weasley: What’s a pound sterling?

Hermione Granger: It’s like a galleon except used by Muggles.  Harry just paid using a pound note, written on paper.

Ron Weasley: Paper?!  Not gold?

Harry Potter: What’s it matter?  It bought you chips, didn’t it.  Everything is worth what someone will give you for it, or something.  A goblin told me that.

Ron Weasley: But couldn’t they just print more paper?

Harry Potter: Yep.  That’s sort of the point of paper.

Ron Weasley: But couldn’t they just print an unimaginably gigantic stack of paper and then all of the paper would be worthless and you’d have to carry around wheelbarrows of it to buy chips?

Hermione Granger: You have been talking to the Defense Professor, haven’t you?

Harry Potter: I guess we just have to trust they don’t do that.  Anyhow, you owe me a quid.

Ron Weasley: I don’t have a quid.

Harry Potter: No worries, I know you’re good for it.

Hermione Granger: You could make that official, you know.

Harry and Ron: What?

Hermione Granger: Well, since you trust Ron up to one pound, just tell Stellarmus.  Then Ron can send you an IOU for a pound.

Harry: Stellarmus, I trust Ron Weasley for one quid… that’s strange, nothing happened.

Hermione Granger: You have to say what kind of Great British pound you trust him for.  A pound isn’t just a pound and a galleon isn’t just a galleon.  A Gringotts galleon is useful to buy things from people because people trust Gringotts to actually have galleons when they ask for them.  You wouldn’t get very far if all you had were Weasley galleons.

Ron Weasley: Hey!

Hermione Granger: Sorry Ron, facts are facts.  Gringotts is widely known to be reputable.  The Weasley family doesn’t have that reputation and, as a result, currently absolutely no one trusts anyone else for a Weasley!GAL.

Ron Weasley: A what?

Hermione Granger: The mid-word exclamation point is a notation sometimes used in fanfiction to distinguish two things that, since they appear in radically different circumstances, might be quite different even though they have similar names.  The part before the exclamation point is the name of the gateway — the person ultimately responsible for turning real-life things into IOUs and IOUs back into real-life things — and the part after is the currency.

Harry Potter: Fanfiction?  You’re such a nerd.

Hermione Granger: You’re rich in cryptocurrencies, so glass houses and etcetera.  Anyhow, GAL is the three-letter symbol for galleons just like GBP is for pounds.

Ron Weasley: Do they have to be three letters?

Hermione Granger: Wow, that’s the first intelligent thought I’ve heard from you.  So I suppose that’s just a rather strange limitation in the Stellarmus spell which comes from us traditionally using three-letter symbols to represent currencies issued by nations.  Naturally, that’s far from the only kind of currency these days.

Harry Potter: Alright, let me try again:  Stellarmus, I trust Ron Weasley with one Weasley!GBP.

Ron Weasley: Stellarmus, send Harry Potter a quid!

Hermione: And there you go.  Harry now has an IOU from Ron for one pound, and Ron now owes Harry one pound.  It balances, just like double-entry accounting.

Harry Potter: That’s amazing!  Here, Hermione, go fetch us a soda.  Stellarmus, send Hermione a quid.

Hermione Granger: First off, you can fetch your own soda.  Second, that won’t work, because while you might trust this lummox with up to one pound, I don’t trust his pound IOUs at all.  To send me a pound, either you have to have a balance in pounds drawn on a gateway I trust, or you have to walk the trust graph to a currency and gateway pair that I do trust.

Harry Potter: Run that by me again?

Hermione Granger: Think of physical money.  That will make it simpler.  The chip shop only takes pounds.  You only have galleons, but you want chips.  You need to find someone who wants galleons and has pounds, trade galleons for pounds, and then pay pounds to the chip shop.

Harry Potter: So… I’d run out to a currency exchange.

Hermione Granger: Exactly.  But happily, that’s built into Stellarmus.  The wrinkle is that there is currently no path between the currency which you have, which is Weasley!GBP, and any currency that I accept.

Harry Potter: What currencies do you trust?

Hermione Granger: Ask Stellarmus.  They’re public knowledge.

Harry Potter: Stellarmus, what currencies does Hermione Granger accept?

Stellarmus rattles off a long, long list.

Harry Potter: What on earth is a Tokyo!ABL?

Hermione Granger: It’s a claim against an online Magic: The Gathering exchange headquartered in Tokyo for one Alpha Black Lotus, which is a card that I’ve wanted for a while.

Ron Weasley: You’d trust a random company in Tokyo to send you magic cards?

Hermione Granger: They’re not magic cards, they’re Magic cards, and yes, I’d trust that company to hold Magic cards for me.  Nothing else though.  It would certainly be dreadfully stupid to say “Stellarmus, I trust The Company That Must Not Be Named for 50 million USD.”

Harry Potter: Why do I get the feeling you know more about this topic than I do?

Hermione Granger: Welcome to life, Harry Potter.  I know more about every topic than you do.

Ron Weasley: Do you know how to have Harry send you a quid?

Hermione Granger: Sure.  At least one person has to make an offer which connects Weasley!GBP and anything I want.  Probably stellar.

Ron Weasley: Hang on, what’s a stellar?

Hermione Granger: Stellar is a convenience currency used by the Stellarmus network to assist people in making markets in currency/gateway to currency/gateway where they don’t have a convenient linkage between them.

Ron Weasley: Is a stellar gold or paper?

Hermione Granger: None of the above — it’s just a number.  Sort of like how a Weasley!GBP is just a number — after all, you have neither gold nor paper.  That doesn’t mean it isn’t real though.

Ron Weasley: Hang on a second — stellars?  I think one of my brothers gave me some once.

Hermione Granger: Alright then, one second while I phone a friend of mine who fancies herself something of a finance whiz.

Cho Chang: What’s up, Hermione?

Hermione Granger: There exists a counterparty trying to convince me to accept a GBP on an unreliable gateway and I’m not willing to take the counterparty risk, so I was wondering if you’d make an offer on Stellarmus to buy Weasley!GBP for stellar.

Cho Chang: Weasley!GBP?  Weasley as in “The Weasleys?”  Do I have to explain to you why nobody has made this market yet?

Hermione Granger: It’s only for one pound and I’m asking as a favor to teach a newbie how Stellarmus works.

Cho Chang: Alright, as a favor: Stellarmus, I offer to buy one Weasley!GBP in exchange for ten stellars.

Hermione Granger: That’s a favor?

Cho Chang: Counterparty risk, yo.  If your counterparty doesn’t like it, they can find another path through the trust graph to you.  Which, as we’ve established, doesn’t exist for a reason.

Hermione Granger: Alright, alright, thanks Cho.  Harry, if you were to try sending me a pound again you’d now be able to but…

Harry Potter: Stellarmus, send one GBP to Hermione Granger.

Stellarmus: We can’t find a path to send her GBP, but we can send her 10 Stellar at a cost of one GBP.  Does that work?

Harry Potter: Stellarmus, send 10 Stellar to Hermione Granger at the cost of one GBP.

Stellarmus: Done!

Hermione Granger: Have people ever told you to think before acting?  It is a useful skill in life.  While you’re taking time to do a bit of thinking, you might listen to people explaining important things to you.

Harry Potter: What?  You got a pound.

Hermione Granger: No.  Stellarmus might be magic but fundamentally it’s only an algorithm, and it just did exactly what you told it to.  It figured out a way to take one pound from you and transfer 10 stellar to me.

Harry Potter: So ten stellar to the quid, right?

Hermione Granger: So if I were to hypothetically use one of the more trusted GBP gateways in Wizarding Britain, the going rate is actually closer to 5,000 stellars to a pound.

Harry and Ron: WHAT?!  Why so many?

Hermione Granger:  Who cares how many it is?  Things are worth what people will give you for them.  The important bit is that you just transferred something which is actually worth about 1/500th what you think it is worth.  If we weren’t friends, it is highly unlikely that the transaction you wanted to have happen — to whit, me getting us sodas — would actually proceed as planned.

Harry Potter: So who has my quid?

Hermione Granger: Cho has her quid, more specifically, her Weasley!GBP.  It was only your Weasley!GBP until you told Stellarmus to figure out some way to transfer that value to me.

Harry Potter: Cho just cheated me!

Hermione Granger: Cho didn’t even talk to you, at any point.  She just told the world that she was willing to buy Weasley!GBP and as she has a worldwide monopoly on that poor life decision then she can name her own price for it.  You’re lucky she offered you ten, to be honest, because it requires her to be on the hook if Ron here fails to deliver.

Ron Weasley: Wait wait, so I owe Cho 1/500th of a quid?

Hermione Granger: See, this is what I mean about Ron being an unreliable counterparty, because he doesn’t understand what he’s agreed to do and might be considering defaulting on his obligations.  Before Harry sent his transaction, you owed one pound.  You still owe one pound.  You just owe it to Cho now.

Harry Potter: So if I’m hearing you right, I just tried to send you value, but lost a lot of it in the exchange.  What can I do to avoid having this happen in the future?

Hermione Granger: Well, for one thing, you could put your own offer out.  Something like “I will buy 1 Weasley!GBP for 0.2 Gringotts!GAL.”  Anybody could see you doing that and then decide to facilitate any Weasley!GBP transactions because they want Gringotts!GAL.

Or, in the alternative, Ron here could convince people that he was more trustworthy, because if people believe that a Weasley!GBP has value, and they tell Stellarmus that by attempting to buy it, then it actually has value.  Basically, you’d try to convince people to outbid Cho.

Or, you could just convince me to accept Weasley!GBP.

Ron Weasley: I like to think I’m a trustworthy guy.  I’m totally good for your Muggles weird paper-with-an-old-lady-who-doesn’t-even-move money.

Hermione Granger: I like you, Ron, but not enough to trust you with money.  Save my life a few times first and maybe we’ll talk.

Harry Potter: Should I buy stellars then?

Hermione Granger: I wouldn’t particularly recommend it.  There’s only two things you can do with them — power the Stellarmus spell, which uses so few as to not be worth mentioning, and use them as an intermediary currency when you’re trading currency/gateway pairs which don’t have a more direct connection to each other on the trust graph.  In the real world, most IOUs you’d actually want to own are issued by one of a number of highly-interconnected organizations bound together by strong pre-existing mutual trust.  It’s highly likely that in the overwhelming majority of transactions you don’t need an intermediary currency at all, you just play Seven (Or More, Or Less) Degrees To Gringotts Galleons, which is easy for you because Stellarmus does all the work.

Ron Weasley: But if you’re wrong, and I buy stellars while they’re still 5000 to a quid, and they later turn out to be valuable, can I get rich?

Hermione Granger: If you want to get rich, you should study hard in school and create something of value.

Harry Potter: Or find out that, surprise, mum and dad were secretly loaded and have left it all to you.

Hermione Granger: You, sir, are a terrible role model.

Ron Weasley: Where did your folks get all that money, anyway?

Harry Potter: I don’t know mate, I don’t know.

A Choice Of Evils

later that year

Defense Professor: Hello, students.  I’m the new Defense Against The Dark Arts professor.

Harry Potter: Pleased to meet you sir.  I’m Harry, this is Ron and Hermione.  What’s your name?

Defense Professor: We have too high a turnover to be given names.  Besides, I prefer to be anonymous.  Can’t be too sure who is watching.

Hermione Granger (whispering): Harry, first rule of wizarding: never trust the Defense Professor.

Defense Professor: Stellarmus, ten Hogwarts House points for Gryffindor.

Harry Potter: OK, now you’re just pulling my leg.  Hogwarts House points aren’t even a thing, and Gryffindor isn’t even a person.

Hermione Granger: Check Stellarmus, Harry.  Accounts don’t necessarily have to be people — they could be a person, or a House, or a company, or one of many accounts controlled by anyone who possesses the right magic words.

Harry Potter: Stellarmus, info on account Gryffindor.

Stellarmus: House Gryffindor has a balance of: ten Hogwarts Professor Hogwarts House points.

Ron Weasley: It’s that easy!?  Stellarmus, 10 points for Gryffindor!  … Why didn’t that work?  Stellarmus, 10 points for Harry!  That didn’t work either?!

Defense Professor: In the first place, House Gryffindor only trusts Hogwarts Professors, of which I am one, to be the issuers of Hogwarts House Points which it accepts.  In the second place, even if you got Harry to accept Hogwarts House Points from you, which would be a terrible decision of the type you both seem to love, the real-world decisionmaking only uses genuine Hogwarts Professor Hogwarts House points.  All other Hogwarts House points are meaningless forgeries.  It’s our own private currency, and even if you could possibly issue it, which you can’t, nobody except our pre-authorized participants can possess it.  That would be the four Hogwarts Houses.

Hermione Granger: That bit is important, because it lets gateways choose to restrict who they do business with.  For example, if your jurisdiction requires you to comply with Know Your Customer or anti-moneylaundering requirements, then you might not want to let people transfer your IOUs to pseudonymous identities on the Internet.  You’d require that people show up at the bank and prove their identity prior to giving their account the capability to hold your IOUs.

Harry Potter: Well, on the plus side, all this security means that nobody can take points away from Gryffindor.

Defense Professor: Stellarmus, in my capacity as keyholder for Gryffindor, five points from Gryffindor.  This is, as we say in teaching, an object lesson.

Ron Weasley: What just happened?!

Hermione Granger: The Defense Professor isn’t just the Defense Professor.  He can also act to control any accounts whose magic words he knows.  He knows the magic words for House Gryffindor’s account, presumably because the Hogwarts faculty are a closed system of mutually high-trust peers, and so he can direct their accounts to do anything.

Harry Potter: Wait, why do Hogwarts faculty trust the Defense Professor when the first rule of wizardry is “Don’t trust the Defense Professor?”

Defense Professor: Because the Hogwarts faculty are fools.  Trust is for the weak, anyhow.  The only real currency is a totally trustless currency.

Hermione Granger: Oh no, you did it.  Now we’re going to get the lecture.

Defense Professor: The problem with fiat currencies is that they can just be conjured into being.  And you know who does the conjuring?  Banks.  Governments!  Pah on all of them — anyone who trusts goblins or Muggles or civil servants is stupid and deserves what happens to them.  And what will happen to them is ruin.

Ron Weasley: Well banks sound fairly trustworthy, Professor…

Defense Professor: Don’t you understand, Weasley?  Gringotts is just a jumped up version of you — and how you convinced anyone to accept a currency you just asserted the existence of I’ll never know — they’re able to control the M1 money supply via fractional-reserve banking and …

Hermione Granger: Those words don’t mean what you think they mean.

Defense Professor: Stellarmus, five points from Gryffindor, for interrupting a monologue.  As I was saying, you need to have a fixed money supply, something that the banksters and goblins can’t inflate away the value of, and you need to be able to transfer hard assets, not debts which will ultimately be defaulted on.

Harry Potter: So you want something like gold?

Defense Professor: Not something like gold, Potter, something better than gold.  You can’t send gold to China in a second or carry enough gold to buy a castle in your head.  No, I mean cryptocurrency.

Ron Weasley: I remember that word.  You mean like stellar.

Defense Professor: A worthless pre-mined altcoin!  No, I mean the original cryptocurrency, the one with the most defensible network, the one whose initial distribution went to followers of a genius rather than people chosen at random from the Daily Prophet’s social network!  I mean…

Hermione Granger: The Cryptocurrency That Cannot Be Named.

Defense Professor: To speak its name is to invoke powers behind your first-year’s comprehensions.  What do you know of the blockchain?

Harry Potter: Math math math, blah blah blah?

Defense Professor: The blockchain is the most important technological advance since the Internet.  Possibly, in the history of the human race.

Hermione Granger: Stellarmus owes a lot to the underlying ideas of it, actually.

Defense Professor: Speak not of your little toy.  Real cryptocurrency is raw power.  Controlled by no one and responsible to everyone, it will forever change how finance is conducted.

Hermione Granger: You’ve used Stellarmus.

Defense Professor: Yes, but like most people, I use it like a toy.  The total market value of real cryptocurrency is worth billions of whatever your favorite illusionary “fiat” currency is.  Billions.

Hermione Granger: Hmm, OK, when you’re right you’re right: your network does have massively more adoption than my network.

Defense Professor: Right, and no currency network will ever, ever be more adopted than my network.  Currency is the strongest network effects business.

Harry Potter: Err, Professor, don’t the Muggles’ currencies count as a network, too?  I mean, you can send them by computer, and they have individual buildings which are worth more than all cryptocurrencies put together.  In addition to that being, um, disproof by counterexample, even if the networks effect argument were true, wouldn’t that have been an insurmountable barrier against the success of your own network, which you appear to think is succeeding?

Hermione Granger: The boys are, apparently, not entirely incapable of learning.

Defense Professor: A fat lot of good those buildings will do them when their civilization crumbles due to currency collapse because they trusted the wrong people!  I trust only math!

Hermione Granger: That’s all well and good within the network, but even for true followers, you generally aren’t paid in math and you can’t live only on math.

Defense Professor: A temporary problem.  It will be better after we seize power.

Hermione Granger: But in 2014, what do you do?

Defense Professor: …  I’ve been known to trade worthless fiat currencies for The One True Currency.  It’s no different than any other purchase, except I’m totally in control.

Hermione Granger: How was the trip to the creditor’s meeting in Tokyo?

Defense Professor: Your smugness is insufferable.

People who trusted that institution deserve what they got for trusting anyone.  This just reinforces the need for a trustless currency.  Not like stellars, which is built on a foundation of trust for centralized authorities.

Harry Potter: That’s true, isn’t it?  I mean, I say I trust Gringotts, but what happens if they go under?

Hermione Granger: That’s out of scope for Stellarmus.  I suppose you’d hope that Gringotts is a regulated bank in Wizarding Britain and that the Ministry of Magic would make you whole.

Defense Professor: Pah, the Ministry of Magic.  Quite possibly the only thing I trust less than a goblin.  While we’re on the subject of trust, Granger, why don’t you explain to the boys here what “trusting the network” means?

Hermione Granger: So in any distributed system you need some way to get everyone on the same page about what reality is right now.  Consistency, availability, partition tolerance: pick any two.  The Defense Professor’s cryptocurrency does this in a trustless fashion — no matter how many peers lie to you, as long as there is at least one peer who is truthful, you learn the true (consistent) state of reality.

Defense Professor: The truth will set you free.

Hermione Granger: Unless, of course, sufficient miners conspire against you, in which case they can retroactively overwrite reality at will.  You have to trust them not to do that.

Defense Professor:  You don’t have to trust their intentions, you just have to verify that the protocol is incentive compatible.  It would cost far more value for them to conspire against you than they would capture from that action, while collaborating with you is simple and generates more value for them.  So how do you trust your network?

Hermione Granger: Well, I seed it with trusted peers — like Hogwarts, Gringotts, and the Ministry of Magic — and then they vote on reality.  As long as they don’t all decide to tell me the same lie, I always get the truth from them.

Defense Professor: Granger is, of course, trusting that The Adversary never controls Hogwarts, Gringotts, and the Ministry of Magic at the same time.

Ron Weasley: That seems pretty reasonable, though.

Defense Professor: You think a far-reaching conspiracy can’t simultaneously capture all your trusted institutions?  I love the young and naive.

Hermione Granger: Well, while it doesn’t look like we’re going to settle this argument anytime soon, I have a suggestion.  You like a particular cryptocurrency.  I like stellars.  Trade?

Defense Professor: You go first.  I will never trust Stellarmus with a currency that I actually value.

Hermione Granger: Well, since we’ve established that you use exchanges — even while pinching your nose — if one of them happens to run a Stellarmus gateway, through the Stellarmus network we can find a path between one of my cryptocurrency balances and the exchange you tr… do business with, transfer them a cryptocurrency IOU, and tell them out-of-band to redeem it to you.  They’ll compensate me for the cryptocurrency.  What’s your favorite exchange?

Defense Professor: Alright, I’ll name one very quietly.

Hermione Granger: Great, as it happens, I already trust that one.  That makes it really easy — Stellarmus, I offer to sell a… you know… for five ChoChang!JPY.  And done.  The exchange will take care of settling up with you, off the Stellarmus network.

Defense Professor: Wait, what?!  That was at a gigantic discount to their present value.

Hermione Granger: Well, we’ve established that I don’t want that asset anywhere near as much as you seem to.

Defense Professor: Would you do that trade again?

Hermione Granger: Maybe, but there’s no liquidity for it at the moment.  I could put out an order for it now but your favorite currency bounces around all the time and I don’t want it going all the way to zero when I don’t have my eyes on the wand.

Defense Professor: At that price I will be your counterparty!  One second.

By the eldritch rites of Satoshi, transfer to my exchange’s account three infinitely divisible currency units.  I’ll bounce a fraction of them off your toy network into something that the Stellarmus spell will trade for a ChoChang!JPY, swap that for a cryptocurrency with actual value, and turn you into a value pump.

Harry Potter: I’m not feeling like anything is happening.

Defense Professor: Give me an hour or so to wait for confirmations and then this is totally on.

Author Notes

Have I mentioned that I don’t like Bitcoin?  I don’t like Bitcoin.  I’ve been working on a one-stop-shop explanation of why I don’t like Bitcoin, but haven’t posted it yet.  Check back here on the blog if it interests you.

While I don’t like Bitcoin, I tried to be fair to the technical reality of it.  To the best of my knowledge, no character in the above story ever tells a direct lie.

Do I like Stellar?  Too early to tell.  I haven’t really dug into it as an engineering artifact.  The embryonic ecosystem does not yet have any tangible economic value.  (And the Bitcoin ecosystem?  *whistles*)  Suffice it to say that at the moment it looks like a very interesting proposal for something that may some day be a toy, and some people I trust believe the toy may eventually be more than a toy, but I have no particular reason to believe or disbelieve that that will be the case yet.

Financial disclaimer: I hold no position in Bitcoin (though if it were conveniently possible, I’d hold a position best characterized by “long on far-dated far-out-of-the-money BTC puts, with a personally substantial chunk of money at risk”).  I participated in the free Stellar giveaway out of technical interest, but gave substantially all the stellar I received to Watsi.  (I tried to give all of them but technical limitations prohibit that at the moment.)

Kalzumeus Podcast Episode 8: High Touch Software Sales with Steli Efti

I recently met Steli Efti, founder of Close.io, in Palo Alto, and did a podcast episode with him.  Transcript and links below as per the usual.

Sidenote: I listen to a lot of podcasts and have been using Marco Arment’s Overcast app recently to do so.  It was the best $5 I ever spent.  Give it a whirl.

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

What you’ll learn in this podcast:

  • Why engineers speak a different language than sales people.
  • How we can get over our reluctance to do sales to sell more software (without selling our souls).
  • Tactics for getting over the pain of rejection when doing sales calls (and sales generally).
  • How to qualify prospects so you don’t waste time pursuing deals which you’d never, ever close and can instead concentrate on the deals which your personal attention will cause to close quickly.
  • Why Steli shuttered a multi-million dollar consultancy to focus on Close.io’s SaaS product.

If You Want To Listen To It

MP3 Download (~80 minutes, ~54MB) : Right-click here and click Save As.

Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

Transcript: High Touch Software Sales

Patrick McKenzie: Hi, everybody. I’m Patrick McKenzie and this is the — I don’t even know what this is – episode of the Kalzumeus podcast. Thanks for staying with us.

Keith, unfortunately, can’t make today. He and his wife and daughters are having fun back in Japan, but I am here in sunny Palo Alto, California with a buddy of mine who founded a company. We’ll talk you a little bit about the story later, but he founded a company, which these days, it’s Close.io, a YC funded company. Meet Steli.

Steli: Hey, guys. I’m super excited and honored to be on the podcast, a big fan of it.

Patrick: Steli, can you tell us a little bit about your background? I’m more from the engineering side of the house and you are… not.

Steli: I’m originally from Greece, born and raised in Germany. I’m basically a high school dropout that has no credentials whatsoever, completely unemployable, and never had a real job in my life. I’ve been an entrepreneur my whole life.

A lot of times I joke that the entrepreneurial super power that I use to move things forward is the hustle in sales. I love communicating. I love people. I love moving things forward, on the business end of things. I’ve been an entrepreneurial salesperson my whole life.

For the first few years, small businesses, boot-strap businesses back in Europe, and then seven and a half years ago sold everything I had, bought a one-way ticket to come to Silicon Valley, follow the legend of becoming a tech entrepreneur with the mission to be the stupidest person in the room. I’ve accomplished that every day since.  [Patrick notes: Silicon Valley sometimes seems to have almost Japanese norms with regards to modesty among founders, where the more self-evidently untrue statements like that are, the more you have to say them.]

I first built a business that spectacularly failed in a very painful way. This is the second venture, which took a few turns left and right, and we’ll talk about that, but that, thankfully, today is doing really, really well.

Patrick: One of the reasons I wanted to have Steli on the program is that Steli is one of the most successful sales guys that I know. I know it’s a personal weakness in myself that I’ve learned enough about sales and marketing to be dangerous, but I tend to always reach immediately for the low-touch sales, for things that can be automated, that play to my strengths.

Doing search-engine optimization, working on copywriting, working on scalable email strategies, lifecycle emails, that sort of thing, with the goal that I never get on the phone with anybody, and that I send as few emails as possible. That’s worked out pretty decently for my business.

But there are definitely times where I’ve thought, back when I was doing consulting, that, “Man, I just totally botched this opportunity for a $50,000 consulting gig because I was insufficiently aggressive following up with folks.”

Or, when I’m working on an Appointment Reminder, where the top-level accounts [Patrick notes: I'm speaking about the publicly available Office plan which costs $200 a month, not enterprise sales] have lifetime values in the $6,000 region that would totally justify me getting on a phone, and then yet I think like a lot of people listening to this, I have no idea of where that even starts. I think we want to talk a little bit about ales for software entrepreneurs and how you can use this to make your business better.

Maybe before we do that, talk a little bit about the elephant in the room which is that all engineers are socialized from a very young age to hate sales and everything it stands for. That Hacker News anecdote was priceless. These guys launched Close.io which is a CRM basically for sales guys for sales guys. It launched on Hacker News, what was it, two years ago?

Steli: January 2013.

Patrick: January 2013. The first comment on Hacker News was about your pricing strategy. Not about…not about the pricing strategy, it was about the pricing. It was like, “$125 a seat, that’s outrageous! I could build this in a weekend!”

One of your engineers actually wrote back and said, “Well, you shouldn’t see $125 in the context of that’s a lot of money to pay for software. You should see it in the context of if each of your sales reps was getting even one more lead closed a month into a deal, this would be worth much, much more than $125.”

I wrote back on that, “This is how a smart sales guy answers a pricing objection. Value-oriented pricing, it’s a wonderful thing.” Turns out that was a lot of the engineers, actually.

Steli: He was super proud that Patrick called him out as a sales guy, as a smart sales guy, he’s like, “I’m not even a sales guy!”

Patrick: Yeah, we’ve got this unfortunate and inaccurate socialization in the Dev community that all sales guys are like the characters on Glengarry Glen Ross, it’s the, “Always be closing! First prize is a corvette, and second prize is steak knives, and third prize is you’re fired!” Caricatures of sales guys. I’ve never seen the movie, my understanding is that intended as a caricature but some people idolize it.  [Patrick notes: You can see an analogous thing with Social Network, where Mark Zuckerberg is in the text of the piece designed to not always be a sympathetic character and yet some of the incidents which are supposed to make the audience wish for his comeuppance are things which developers really connected to.]

But be that as it may, that’s not actually what sales is about. You’ve talked a little, a while ago you guys basically did sales consulting for software companies. You would either tell them how to set up sales operations for software companies, or you would actually be the guys who would man the phones and sell the software to various prospects. Talk a little about software sales, how it fits into the picture of a software company, and the picture of the buyer’s company.

Steli: Maybe even before I comment on that, on the whole sales versus engineering culture clash between the two groups. I have just a few thoughts and observations that I’ve made over the years. I do think that engineers in general and sales people speak different languages.

Patrick: Definitely.

Steli: Therefore, there’s a lot that is lost in translation when they interact with each other. What I’ve seen is that building up empathy between the two groups can be incredibly valuable, educational to the individuals as well as to the company as a whole.

We would have retreats where we would have engineers do sales training, and they would have to pitch the product or do simulated cold call and a sales person would be a very difficult customer. Have them go through the pain of what makes sales difficult, so they can empathize more with it and then also train them on how to get better at it, and vice versa.

Have sales people be in small product brainstorming sessions and actually make them understand that you can’t just say, “Can we make this faster?” Or, “Could you just make, quickly just add this little feature that does this?” But actually have them think through all the implications of product development. How little is not really little, or this easy feature is not really that easy, and have them understand from an engineering point of view what it takes.

Once these two groups know a bit more about how each other’s work looks like and what is hard about it, and what it easy? Magical things happen.

Improving Software Sales: Low Touch vs. High Touch

Patrick: Definitely. I also think that there’s opportunities that are under-explored in a lot of software companies to make the sales team’s life easier with software. Most of the time when I’m talking about things that I build say in my consultancy or for my own products it’s using engineering to achieve marketing outcomes.

But you can also have engineering to achieve sales outcomes. Building, like you guys have built an internal CRM that you’ve spun out into a product.

But even those companies that already have CRMs or they already have an existing sales process, it’s amazing what you can do with a cronjob and 100 lines of logic in a Ruby application just to smooth that process along, or systematize it a little better.

Maybe we can talk about that in a minute. Let’s talk about for the folks here for don’t have a “sales function” at their software company yet, it’s just at solo-founder, they’ve got a website, people come to the website, they probably buy SaaS and in business we have a distinction between low touch sales and high touch sales.

Low touch is the 37signals model. You have a website that does most of the selling for you. Folks are brought to the website via some combination of search engine optimization, paid acquisition, etc. They get to the website, the website tries to get them into a free trial. The free trial is going to be the primary sales channel, and then maybe there’s some email that’s getting fired back and forth generally in an automated drip-email kind of fashion, or lifecycle emails.

Occasionally, the founder will write emails, but the understanding is that the founder isn’t really making the sale at that point, it’s convincing someone who has already convinced themselves on the software to get over the last hump.

High touch sales is the other end of things, where folks are broadly speaking, they’re getting on the phone, getting on emails, writing person to person communications with particular decision makers at the company. Man, there’s a lot of art and science in this guys. It runs billions upon billions of dollars in business in the economy. But in the SaaS industry specifically, there’s tiers of sophistication of software, where it makes sense to have high touch sales.

At the way high end we have large-scale enterprise sales where you’re selling to literally Boeing. That process takes between 6 and 18 months. It’s going to require typically that you send out the sales guy plus a support engineer who can answer all the technical questions.

You send them out to the office, they do a custom presentation that they’ve built specifically for Boeing’s use case. The presentation happens, and then go and take them out to a steak dinner where business is actually contemplated. Then this continues for several months and then maybe that deal happens, maybe that doesn’t.

The new innovation in the SaaS industry is that typically speaking the account manager, let’s make it the sales guy, the account manager/sales engineer team is only really viable for sales that are in the $75,000 plus, plus, plus region a year. You can read the classic essay by Joel Spolsky called Camels and Rubber Duckies. [Patrick notes: Still one of my favorite Joel on Software essays.  One of my bucket list goals is that someday folks cite individual essays of mine by name ten years after publication.  Maybe in a few more decades.] He says that basically there’s no software priced between $500 and $75,000.

Why is that at $500 you can convince a single person to put it on their credit card, $75,000 you can send out a sales rep and a support engineer to their organization and do the PowerPoint dance to get the 15 different decision makers on the same page. The interesting thing that’s happened in the 10 years since Joel wrote that essay, is that SaaS arrived, and the wonders of monthly billing in that you can actually get accounts with lifetime value between $500 and $75,000.

My understanding of it, is that after an account gets to maybe $80 a month in value to a $250 range, if you model it out as having a term-rate in the five percent or less region, then we’re talking about $1,500 to several thousand dollars of lifetime value. Then it suddenly starts to make a lot of sense to have somebody call them. Does that make sense to you?

Steli: Yeah. I do think that the volume frequency matters, so if you’re on the low end — let’s say the customer lifetime value that you have is, let’s say 2K, you can’t have a sales person call tens and tens of leads that don’t fall into that, to close one of them. You would have to have a high close rate and a high frequency rate of people that are in that bracket.

Everything that is above 5-10K is probably a more comfortable space in terms of customer lifetime value, so you want it to be in the few-hundred dollars a month range, ideally. But that dramatically varies on your market, your churn rate; like how long you actually are able to retain customers, how high is the volume of these leads that you’re getting.

All that needs a little bit of mathing and experimenting and exploring around, but typically I would say if you can estimate that a customer is worth a few thousand dollars, it’s definitely the right spot to try out inside sales and inbound sales, and see what magic you can work there.

Patrick: “Inside sales” is something that a lot of folks might not have heard before. Typically, there’s a distinction between inside sales and…I think it’s “outside” or “outbound” sales?

Steli: Outside/outbound. This is complicated, you’re right. There’s inbound and outbound sales. “Inbound” describes selling leads that are coming to you — signing up for webinars for your product trials, whatever it is. “Outbound” describing you cold calling, knocking on doors, going out to people proactively. That’s inbound and outbound.

Then there’s inside sales and field sales, “inside” being any sales person that doesn’t leave the building to do their job — so email, call, webinars or web conferencing. Then “field sales,” the people that actually have to get on a plane and fly to Boeing and spend a week there to make the deal happen, or the door-to-door sales guys, whatever that is.

Patrick: Inbound sales are probably where most of the SaaS companies, who might be listening to this, are getting it started with sales.

Steli: Yeah.

Patrick: Somebody’s come to the website. They’ve signed up for the free trial of the software, or they are on our email list. What is the next step for us, if we want to get started with inbound sales? I know that it’s easier than we think it is, but…

Steli: But it’s also harder.

Patrick: …to just hear somebody say it.

Steli: It is actually very easy. There’s two channels where you can communicate with somebody that comes to your website and signs up, either for your trial or your demo or your eBook, or whatever you do.

One is, if all you have is their email, you send them an email. The purpose of that email can be to learn more about them, qualify them further and sell them — although I would say that email is typically better for giving people information, maybe scheduling a call.

If you actually want to convince somebody to sell somebody on something, a phone call or in-person meeting are still a lot more richer environments, more successful environments, to make that happen. You could use an email to try to get on a call with somebody, or if you’re asking them for a phone number, you can pick up the phone and give them a damn call, which is something too many startups don’t do.

Patrick: Amen. Totally guilty of this myself, but it’s probably…in a good month I do maybe 10-15 calls regarding Appointment Reminder. If I was based out of the US and actually operating better — like if I was in sales and marketing mode for a week — I could very easily do 10-15 a day.

Steli: Most people that run a SaaS business and bootstrap or single-founder, their minds would be blown to even consider talking to 10 people. They’ve built the entire business in a way that prevents that interaction on that level to happen, because phone calls are seen as old-school, non-scalable.

Also, for people it’s a lot more comfortable to write their thoughts and have time to articulate that in writing. If rejection happens or something else happens, or they don’t hear back, it’s much more comfortable to have rejection happen in your Inbox than actually have it happen live, in real time, from another human being.

Patrick: Yeah. My first exposure to the distresses of being on the phone, I wasn’t in a sales job. I was a customer service representative at an office supply company, which you would use to buy things like paper or… staples.

Steli chuckles.

Patrick: Anyhow, I was the guy that you would call and say, “Hey, I want 400 pens,” and I would have to figure out what that actually was in the system, type up the order for you, and hit Go.

Occasionally, I would get phone calls about the fax orders. It’s not a sales job. It’s literally calling to follow up about an order someone has already placed. Maybe you said you wanted 400 pens, but what color do you want? What sort of a point? Or, “You said you wanted 400 black pens. Do you want 400 black pens like the BIC model, or do you want 400 pens of something that’s branded, or what?” I would give folks phone calls.

Often, if you call an office and say, “Hey, I’m Patrick McKenzie calling for — name of company here,” you immediately get, “We don’t want any,” and they slam the phone on you, and, man, I felt so bad when that happened.

Steli: Yeah.

Patrick: I actually got a bit of a thick skin about it for those two years, and then promptly lost that thick skin when I started a software business.

Steli: [laughs]

Patrick: Yeah, rejection is tough.

Constructively Dealing With Rejection

Steli: Yeah. Let’s talk about that a little bit, because I think that the whole point of rejection is probably one of the things that I see most common between sales and entrepreneurship in general, having to reprogram ourselves on how we respond to rejection. Because if you live your life in a way that tries to design for avoiding as much rejection as possible, there’s very little things you can do. Almost nothing in sales, and very little in entrepreneurship.

Here’s a couple of thoughts on the rejection piece, and then I want to give some, “How do you get started, and how should I call somebody who just signed up for a trial? What even do I tell them?” Let’s talk about those two things.

On the rejection piece, for whatever reason, we’ve all gotten here with whatever programming, social conditioning, our little bags of DNA, our character, whatever that is. Everybody dislikes rejection. There’s not a single person on earth, no matter how awesome they are, that likes to be rejected.

The question is, how can we figure out a way to deal with that rejection in a way that’s not too horrifying, too painful, too emotionally taxing? Early on, there are a couple of practical tips that I have, that are kind of super-hacks for our own brain, that are easy to do but can make a big difference.

One simple thing is to reprogram the scoreboard to, instead of focusing on the wins, understand that the losses are your stepping-stones towards your wins. We’re all SaaS people, conversion rates, metrics — so let’s say that you figure out that if you call 100 signups, that only 10 of them on average will actually want to speak to you, have a great conversation, and then end up buying the product.

That doesn’t seem that exciting. “I’ll have to call 100 people, and only 10 people will say yes.” Let’s say that the math works out, and that’s a good investment of your time, just as an exercise. Most people would focus on that. They would say, “Well, what I have to do is get 10 people to say yes every day.” They focus on the success.

You have a good day and bad days, and days don’t average out equally. Sometimes you have a good day and you get the first 10 calls, all of them say yes, they love it, and they buy from you, and you lean back and say, “All right, that’s it. I got my quota for today. I’ve got 10 wins. Let’s take the rest of the day off.”

Then you have another day where you have a bad day, and out of the 100 calls, nobody buys, and all of a sudden you’re off quota.

Instead of focusing on the 10 wins, what you can do is focus on the losses, and say, “I know that for every nine noes I get, I will get a yes.” I’m not trying to earn the success, I’m trying to work my way through the failure. Let’s say you put together a little scoreboard every day, and you make 90 little boxes. Every time somebody tells you no, you check off a box.

Patrick: I like this.

Steli: It gives you the satisfaction of progress, you check off boxes — that always feels good. Now all of a sudden, every time somebody says no to you, it’s not just a no, but it’s actually another check for your box, so you’re progressing your day.

If you focus on that, just going through that number of calls and that number of rejections, success just happens automagically, by itself. You don’t even have to keep track of it.

If you know your numbers better — if you actually knew how much revenue you would make per call — you could have a little box, and pennies, and every time somebody tells you no, you throw in two dollars into the box, and you know, “I earned another two bucks, because it brings me closer to a win that’s worth X thousands of dollars,” whatever it is.

If you use these little programs to focus on taking rejection for what it is, which is a stepping-stone towards your end goal. Then all of a sudden it’s important because you have to take all these steps to get to your end results, versus trying to avoid them and make big jumps to only have successes, only have people saying yes.

Patrick: Yeah. I think this morale management for the day-to-day grind of entrepreneurship is really important.

It comes up in a lot of circumstances too, not just sales — A/B testing, for example. A/B testing, if you’re doing it right, probably 75 percent of your tests close with a null result and you “learn nothing.” Neither a win nor a loss on the test. If the remaining quarter, half of them are a win, half of them are a loss, versus what you had before.

What I always tell people is, “You’re not learning nothing if you get a null result on the test. You learned on more thing that was not the best thing you could be focusing on right now.” If you’re getting no, it’s not just “no.” There’s a little bit of signal attached to the no, like “No, we’re not in the market for this,” or “No, I don’t have authority to buy this,” or “No, the price is too high.”

Then you can drill down into these later. If you’re always getting, “No, price.” “No, price.” “No, price,” then maybe you need to think on your pricing strategy, or the positioning of the software, to add more value.

Steli: Yeah.

Patrick: Although, people won’t be telling you, “No, price.” Charge more!

Steli: [laughs] Always double your prices.

Patrick: I got out my catch phrase for the day. We’re done. We can stop recording.

Steli: Yeah.

Patrick: We have a low-touch SaaS business. We have leads coming in.

Steli: Yeah. We ask for the phone number.

Patrick: We sent them an email. How do you ask for somebody’s phone number?

Steli: You can have it as part of the form — and we all know that means that conversions will go down — but in the early days I would recommend you to do it regardless of conversion going down or not, because those phone calls are going to be very educational. This is customer development.

You call people, and you actually learn from them. How did they find out about you? What do they like? What do they not like? What’s important to them? You get a real chance to interact with people and learn, beyond just the clicks on a website, beyond even when they send you an email.

In an email, I can just write words, but there’s a lot of context missing through tonality. I could write saying, “This is not for us right now.” Now, you don’t know anything about how exactly I mean that. Did I say [hostile tone] “This is not for us right now!” or did I say [casual tone] “Eh, this is not really for us right now.”

These two things point to different opportunities. One seems a lot more hostile, somebody that doesn’t want to be bothered. The other one seems a lot more friendly, maybe a little hesitant, even, about his own judgment. There’s different reactions which, in an email, you don’t know.

Patrick: Right, and since it’s a synchronous kind of contact, you can drill into that rejection right now.

Steli: Yeah.

Patrick: Is that, “This is not for us,” like “We will never be right for this,” or is that more of a timing thing? Did something happen at work? I can empathize with that — I run a small business, myself. Would it be better if I got in touch with you two weeks from now?

Steli: Exactly. Or even if you just say, “Oh, how come?” and the person says, “Well, your website promised X, but I found out your product does something totally different.” That’s valuable. Wow, if you hear that more than once, you know you’d better change the wording of the website.

Patrick: You’d better change the website!

Steli: Versus, if you only get two emails that say, “It’s not for us,” you have not really learned that much. There’s still a lot of assumption that needs to happen. You have to assume and interpret what that could mean.

Patrick: Particularly in less technical markets, I find that. I sell to office managers for a large portion of Appointment Reminder, and these are not naturally loquacious-on-the-Internet kind of people. They tend to write very short, clipped emails, and when I get cancellation reasons from them — which I ask for when folks cancel the trial — it’s often two to three words.

If they could write less than that, they would, but it bounces their castle if they don’t write at least 10 characters.

Steli: [laughs]

Patrick: Folks will write, “Didn’t work for us,” or “Too expensive,” or yadda-yadda. It’s like, “Wait. We’d love to have a deeper conversation about this.” Which, if I was on the phone with them we would, by the nature of that, be having a deeper conversation.

Steli: Yeah. In the early days, I would actually tell everybody to ask for a phone number, and don’t worry about the conversion rate so much. Then call these people, and have a conversation with them. Welcome them to the trial.

Patrick: OK, we’ve called folks. We’re welcoming them to the trial.

Steli: Yeah. Then you can do some very simple things. You can say, “I want to welcome you to the trail. I saw that you just signed up. I just wanted to hear, how did you hear about us? What do you want to get out of the trial? What’s your primary goal?

“I want to make sure that you get the most out of the trial. I want to make sure that this is going to be a success for you, that you’re going to get value out of the trial — out of the investment of time in our product.”

Then you have people tell you, “I heard about you from a friend,” or “I heard about you from this or that website.” That’s always good to know. Then they tell you, “Our situation is, we’re looking for a product and it needs to do this and this, so we wanted to check it out.”

Usually, the first bit of information you get is really valuable, but there’s so much more to dig into. We sell sales software, so they say, “We’re just ramping up our sales efforts, so we’re looking into systems.”

That’s obviously not enough information for me to really know who they are, understand if our product is a good fit, and see if I can point them in the right direction for them to get the value out of it and become a customer.

I would ask, “Tell me about it. What kind of sales do you guys do? How many sales people do you have? What are some of the challenges, some of the goals that you have? We’re going to dig into this to really understand your situation.”

This is not just about selling them. It might be that you find out, “Oh, wow” — within the first three minutes — “you should not be using my product. This will never work for you.”

This is a great opportunity to turn something negative around and do something positive, and tell somebody honestly, “Listen. After hearing what you’re telling me, you shouldn’t be using us. Our product is better for a different use case, but here. I’m going to point you in the right direction. I’m going to give you a recommendation for something else.”

Patrick: Yeah, I’ve had this. I’ve done this before, and it’s both the right thing to do — it buys goodwill with people — and you’ll be surprised how often folks will try to toss you a bone on that sort of thing. I had a customer, a prospect for Appointment Reminder. I was on a phone call with her. Let’s say that I largely sell to little fish and then trout, and she was like, “Yeah, I represent a whale. A big, big white whale.”

In the first three minutes it was like, “We don’t really whale-hunt here. But I happened to know there’s a well-regarded company that’s our main competitor. They go after whales, and that’s all they do. I know one guy at that company socially. Let me give you his direct number, and you can give him a call. I’m sure he can set you up with something.”

She was really happy about that. She’s in a medical profession, so she knows other people in the medical profession, and when her friends who are not whales say, “I called the big 800-pound gorilla and they didn’t even want to talk to me,” she’s like, “I know somebody who will take care of you,” and she sends them an email and copies me on it. It’s like, “Hey, meet Patrick. He’s the best guy in this. He will take care of you, blah, blah, blah.”

Telling her, “This is not going to work out. I’m not going to waste your time on this, I’m just going to get you a more successful resolution with my loyal competitor here…” Telling her no has raised my sales by like $300 a month, these days.

Steli: I’ve seen this work at so many different companies. People are just blown away when you tell them no. When you tell them, “You should not buy,” people are so positively surprised by that interaction that they’ll try to do something good for you. It’s crazy, sometimes people will not take that no for an answer.

They’ll say, “No, but I really think we qualify for this and I really want to buy this now from you.” You say, “Whoa, whoa, whoa. I’m trying to do what’s right for you,” and then they’ll try to convince you why they will qualify for the product in just a little bit of time.

Sometimes we tell people, “Hey, if you have less than X amount of leads a year, just use a whiteboard or a spreadsheet. You don’t need a CRM at that stage.”

Then they’ll challenge us on that and say, “Well, but we communicate a lot with our customers and we’re going to grow, and I want to use the right solution. You guys are awesome.” They’re going to fight you to buy your product. Sometimes we turn people down and then we see them just self-sign up, just put in the credit card and buy it regardless.

People are not used to that, and it will make a big mark. It will make a big difference — and it’s the right thing to do.

For a SaaS business anyway, you don’t want customer that are going to create a lot of support and then churn a few weeks after, because it’s not worth it.

Patrick: I think this is the fundamental thing that engineers do not get about sales. It’s not about just extracting moneys from people’s pockets unwillingly. That’s theft. That’s a great business model until you’re thrown in jail…

We’re doing value-creating businesses, and for a lot of markets, a lot of customers, they don’t naturally seek out stuff. The classical SaaS model, where it’s just low-touch and they have to generate all the forward motion in the relationship, doesn’t result in success for them, doesn’t result in success for their companies, doesn’t get them the best solution that’s out there on the market — so we need to nudge them in the direction of success a little bit.

That has, as a side effect, nudging a little bit more money towards your pocket, but it’s money that you’re getting for providing the value-creating service that, yeah, is the business we’re doing, and for creating the best outcome for them.

Oftentimes, the job of sales guy at a company isn’t so much…there’s the selling the person you’re talking to, but often you have to organize them a little bit about how to buy the product.

An example, something I did over email — and it’s something that I automated later — was somebody said, “I’m going to be the end user of Appointment Reminder.” They never used those words, but the “end user” is someone who’s actually pushing the keys and they input data.

“I’m going to use this. I’m the person who’s going to own the system, but my boss is the person who has the credit card, and my boss has said, ‘If you want to buy this software, I need to see the ROI for it.’” The office manager says, “I, not being a businessman myself, do not really understand this ROI thing, or how to calculate it. I Googled it. Wikipedia was kind of confusing. Can you calculate the ROI for me?”

I said, “Well, I am a businessman, and I love math. Sure, I would be happy to calculate the ROI for you.” That gets her over an internal objection. I’m not selling her. I’m basically selling her boss, by proxy, by giving her the ammunition she needs to make that sale to the boss. That’s kind of sales 201 — empowering people to be your champion internally.

How To Do Sales Without Feeling Like You’re “Doing Sales”

Steli: Yeah. Empowering champions internally to go through, to successfully navigate the internal sales process, to enable the organization to purchase your product.

I think, going back to that initial call, even if you’re like, “Well, I know nothing about sales…” You don’t need to. All you need to do is pick up the phone, call people, be nice to them. Say, “Hey, welcome.” “Welcome” is all it takes. “Welcome to our product. Welcome to the trial.” Then ask them what their goals, what their motivations, what their needs are, and try to really get to a level of understanding.

I think engineers are actually really good at that — better than the average person — of not just taking the first layer of information and being satisfied by the dramatic extrapolation of that that they make in their own mind, but actually asking, “What does that mean? What do you really mean by that? What do you guys really try to accomplish with this or that?” and get to a point where they didn’t just paint the outline, but they actually painted the entire picture for you.

Now, once you know who the customer is, what they need, what they want, what they’re trying to accomplish, what internal challenges they have, selling should be its easiest, enabling them to accomplish all these things with your product.

Telling them, “Well, you came to the right place. I’m happy to tell you, if you do X and Y, you’re going to get Y outcome, which is what you really want, what you really desire, and I can help you accomplish that. Here’s what we need to do to get that done.” That’s all it takes to be successful at sales. Or telling them, “Well, you came to the wrong place, but let me help you get there anyway.”

Patrick: In the happy case situation, where our product is a good fit for them, we’ve talked a little bit about, “OK, I understand” — by the way, echoing people’s words at them is a really effective communication technique in general, and works in sales as well.

Say, “Yeah, I understand that you’re really looking to decrease your no-share rate by adopting this software. I understand that you guys run a sales process which has 25 people in three time zones, and the management is getting crazy. I understand that…” whatever the pain point is.

“As it turns out, our software is actually a great fit for that. We have features X, Y, and Z, which will get you up and running pretty quickly, and I’m happy to assist you with doing that.”

Then the scary part is the engineer comes up to me, “Uh, there’s that closing thing?”

Cliff notes on every sales conversation ever — it’s like, “Conversation, conversation, conversation,” and then what we would call in marketing a call to action at the end. In sales, they have the thing but they call it the “call to close” instead. What is closing, and how do we do it?

Steli: It’s a great question. First of all, let me tell you if you ask for the close — which is basically asking the other party to become a customer, commit, give you the credit card number, whatever it is; the transactional point in which they become a customer.

If you ask them for that, if you proactively verbalize, “Do you want to become a customer? Do you want to purchase our product?” you’ve separated yourself already from the majority of the market, or even the majority of sales people that do “sales,” but are afraid of asking the question because they are afraid to hear the rejection.

There’s two simple ways to do it. One is just to ask for it. Let’s all do it together, “Do you want to become a customer of our product?”

Patrick: Do you want to become a customer of our product?

Steli: There you go.

Patrick: Wow. I think I must have said something like that for consulting engagements over the years. I think I’ve probably said it only twice for Appointment Reminder. It’s kind of crazy.

Steli: It’s crazy, right?

In certain cases where it’s clear that they’re not going to be ready to answer yet — it’s the first call, they tell you they have a 200-person team, and it’s a bigger customer, and you’ve just answered a couple of basic questions — they’re not yet there, to be able to say yes or no to that question.

What you ask instead, which is one of the most powerful questions you could ever ask, is, “What is it going to take for you to become a customer of ours?” It’s a very important question, especially for startups, especially when you’re early in the cycle.

Too many times I see founders talk to a bunch of “potential customers,” do their customer development — lean startup — and then they come back and they say, “Oh, I got all this great feedback, people loving this idea. They’re totally going to buy it.”

More often than not, just because I was nice to you doesn’t mean I have real buying intent. Just because I visited your site and liked an article doesn’t mean I’m going to purchase the software, so asking me, “Hey, what is it going to actually take for you to become a customer?” is going to do a couple of things.

Number one, if I have zero buying intent, I’m going to probably say it. Either I’m going to have a really weak answer to that like, “Eh, I don’t know” — that’s a red flag. How could you not know what it would take for you to buy? Or they say, “Well, I really like what you do, but we wouldn’t buy before 2018. Our budget is already allocated for the next few years.”

Again, you know, “Nice guy, but I shouldn’t probably waste my time on this.”

Patrick: Or one of the other classic things is, “Yeah, we don’t have budget. We’re a startup, too. We’re trying to get to a round of profitability. I just can’t justify $50 or $100 or whatever.”

You’re like, “Yeah, great. It was great talking to you.” I’m not going to work myself into a conniption if we don’t get the sale here.

Steli: Yeah. We’re not going to schedule three follow-up calls, each an hour, and send you 10 emails and case studies, to then realize what we could have learned in the first 20 minutes — that you are not in the market to purchase something.

Patrick: This process, by the way, is called “lead qualification.” You can do very automatic lead qualification, like lead scoring for example. SaaS companies typically will do two things. If, in the free trial, they’ve done X and Y and Z, then they have a higher score. If they’ve done nothing, then they have a lower score.

Or maybe demographic-based lead qualification, like if they work for Boeing a higher score for enterprise sales lead qualification. If they work for a flower shop, you’re probably not going to sell them a $100,000 software solution.

Anyhow, you can qualify stuff with a phone call, and then rather than feeding into some sort of magic state machine, just use your human intuition and your human brain, and take next steps appropriately.

Steli: Yeah. Important with that question you ask, “What would it take for you to become a customer?” is to actually follow up on that question until the virtual event happened, where they purchased.

Let’s say they say, “Well, I really like this. I will bring this back to my team and we’ll talk about it and see what they think.”

“Oh, interesting. What would happen if they actually like the initial outline of what you gave them? What would happen next?”

“Well, next we would probably schedule another call and have some more stakeholders participate and ask questions.”

“Cool. Let’s say I answer those questions to the satisfaction of all the stakeholders. What usually happens next?” You don’t just stop at some point. You actually continue asking, “What happens next?”

“Well, next you would have to talk to the legal department and go through a procurement process.”

Most people at some point instinctively want to just take that and run with it and go, “OK, cool. Thanks for all the information.” They hang up and they think they already know everything. Don’t. Fight that urge.

Ask, “Right, so we go through legal, we go through procurement. By the way, have you done this with any other provider that’s similar to us in the last one or two years, successfully?” That’s a good indicator that they actually…

Patrick: That is a great qualification question. You never want to be someone’s first SaaS provider. You also probably never want to be someone’s first consultant. Your life will be very difficult.

Steli: You don’t, so say, “Have you done this before, and what was the process like? Is there anything we can learn from that? OK, let’s say we do these things. What happens next?”

“Well, then you have to go and talk to my grandmother, then the palm reader…” until they say, “Yeah, then we’re in business.”

Cool. What you’ve accomplished now is a couple of things. Number one, you’ve seen if there’s any red flags in that process that you know will never work out. Number two, you mentally put them in the mind space you want them in — a future where they’re a customer. This is the kind of future you want them to be thinking about.

Patrick: They’re already visualizing that there exists a possible alternate universe in which they write you a check or give you a credit card.

Steli: Yeah. That’s a good thing.

Then, the third thing is, they’ve created together with you a roadmap of the buying process, so now you know everything it’s going to take to make that deal happen. Do you know how many times founders or sales people will come to me and they will say, “Next week we’re going to close this defining-moment deal. This is going to change our lives, and everything is ready, and I know it’s going to happen next week…”

Then the next week, it’s crickets. Silence, so I send them an email and say, “What happened with the deal? Did it close?”

They say, “Well, there was this thing that I didn’t anticipate. They actually also want me to go through the procurement department…” How could that be surprising? What that means is you didn’t do your job qualifying them, understanding the buying process — so every step of the way you’re surprised that there’s one more thing you have to do, and you get frustrated by these evil customers that want you to do these unreasonable things.

Patrick: If you could see me now, guys, I’m face-palming because I have been that guy.

Calibrating Your Expectations and Pipeline Management

Steli: Yeah, we all have. We all have been there. Nobody’s above that mistake. The question is, there’s a simple solution to that. You need to go through those steps. Ask somebody, “What will it take for you to become a customer?”

Have them tell you so you have a real understanding, “What will it take for me to close this customer? Am I willing to go through all these steps, invest all this time?” Have a realistic picture of what it’s going to take.

Or, if you think they’re already ready, and they love what you’re doing, just ask them a question. “Hey, it seems like it’s a great fit. You’re excited, I’m excited. I think this is really a good solution. Are you ready to become a customer today? Should I take your credit card? How are we going to do this?”

This is uncomfortable for folks, because it’s kind of confrontational. You might have to confront the other person, or be confronted by the person, saying “No,” or “I’m not ready,” or “I don’t think I’m going to buy.”

But the great thing about that is that it shouldn’t be about you winning everything and never being rejected. It should be about you learning as much as possible, and also about creating outcomes. Sales is a lot about just creating outcomes. Yes/no. Just build an outcome. “Maybe” is a deathtrap. “Maybe” doesn’t point in any direction or any timeframe. You know nothing, and it occupies mind space and mindshare.

Yes and no are equally good. They are a result. You can learn from it, you can check it off, you can put a number somewhere, and then you can move on in life. For entrepreneurs, it’s so important to be able to move forward and not have things that are in constant limbo, “We don’t know about this” space, which is a deathtrap.

Patrick: This is one of the fundamental things about pipeline management. Pipelines are to a sales process what a funnel is to a marketing process, where some amount of folks are in the tap.

With sales pipelines it’s like you have a certain number of stages that go through our customer’s typical buying process.

We have customers who are in any given stage in the buying process. We have 20 people who we have initial calls scheduled with. We have six people who we have follow-up calls scheduled with. We have three folks who we are under contract, two folks who we are providing services for, and then one person or firm service has been provided, we have cut them an invoice, we’re waiting on payment.

The job of the sales team — and the rest of the organization, really — is just pushing people from the left side of the pipeline to the right side of the pipeline. One of the reasons the pipeline thing is important is, if there’s a bubble at any stage in that process…

We’ve got folks who we’re having initial conversations with. We’ve got folks who we’re talking to the purchasing department. We’ve got folks who we’re providing the stuff for. We’ve got folks who our invoices are out.

We have no folks who we’re having follow-up conversations with right now. You can kind of figure that bubble is going to percolate towards the right side of the pipeline, and that sometime in the near future there’s going to be a month with no revenue in it, and that’s going to suck.

When you start to identify those bubbles early in the pipeline you’re like, “Oh, guys. Make an extra special effort to get those early conversations happening, to push people into…get a yes or get a no, but get stuff on the calendar for having the follow-up conversation so that we can push them through the rest of the pipeline.”

Steli: Yeah. If you manage your pipeline well, you kind of see the future, which is part of the beauty of SaaS anyway. With subscription revenue you can project what’s going to happen next month and the month after.

But the other thing is, one thing that I find beautiful about sales is that it really rewards people and processes that are results-driven, and it really punishes activity-driven people and processes. Too many times, I talk to people that will be like, “Well, we have all these great deals in the pipeline.”

I say, “Awesome. Tell me a little bit more about that.”

“Well, there’s this company, this company, this company.”

“Cool. How long have you been talking to them, and what are the next steps, and when do you foresee closing these customers — or not closing them?”

That’s when it breaks down and they’re like, “Well…” They’re so happy about creating conversations and having meetings and hearing from people that they like what they do, that they don’t want to move over to the uncomfortable part, which is actually creating the outcome, the yes or no.

They are very happy about the, “I have three logos I can put on a PowerPoint presentation and then say, ‘We’re in early conversations with these folks,’” rather than having just one — or no logo – and, “We’ve learned that this didn’t work, but we tried,” where we had a real result. They bought, they didn’t buy.

Sales really rewards outcome-driven activities, and managerial pipeline is all about, “Are things actually moving from left to right?” Because you can have thousands of things in every stage, but if nothing has moved, your business is dead. That’s it. You’re not getting any new customers.

Patrick: In addition to sale rewarding outcome-driven cultures, outcome-driven businesses, outcome-driven individuals, also traditionally sales guys stereotypically are smarter than the average bear with regards to numbers, but the numbers are typically tied up in, “What’s my commission going to be?”

But sales at companies which are very metrics-focused, where we know to a T that if we get 100 initial consultations, we’re going to get down to 20 meaningful conversations with decision-makers, which is going to result in five proposals that we sent out, and we’re going to close three of them…folks who have that level of understanding of how the math shakes out for the funnel, or for the sales pipeline, they do very well in life.

Since that’s copacetic with the engineering skillset that a lot of people have and the numerical inclinations of a lot of engineers…if you’re a product person, talking to people about their pain points and then saying, “The pain points which you have just articulated map up with some things we have made. These things we have made can make those pain points better…”

It’s not actually rocket science. This is something you can learn to do, and learn to be — knock on wood — a little less uncomfortable with, and you can often find out that you’re really darn good at it. I don’t do it enough for my software products, but in my consulting career pretty darn good at the sales…with the exception of the ones where it was just a total face-plant.

Like you said, that’s the cost of doing business. Face-planting is better than perpetually, “Will I, won’t I? Will I, won’t I win that engagement?” Get to no.

Steli: If you’re not face-planting once in a while, no matter how good or successful you are, you know that you’re not learning anything. You’re not pushing hard enough. You’re not trying things that are daring enough, because you’ve got comfortable, and you’re just operating within that comfort zone which is the borderline of your growth now. You can’t go beyond that.

No matter what you do, if you don’t get rejected once in a while, you know you’re in an unhealthy place. You’re in a place where not enough growth happens, because you’re confined within what you have accomplished in the past, and what you’re now good at.

Patrick: This reminds me of a conversation I had with one of my father’s buddies when I was six or seven. He was a lawyer. I had a vague idea that, “Lawyers take cases to trial.”

He said, “Yeah, I’m a very good lawyer.”

I said, “Oh, do you win all your cases?”

He said, “No, of course not. If I won all my cases, I’d be a very bad lawyer.”

This was very confusing to the seven-year-old me. I asked, “Why?”

He said, “Well, there’s this thing called making a deal before the case gets to trial, and if you’re winning all your cases, you’re making too many deals on cases that you would have won, so you should be a little more aggressive about taking stuff to trial.”

Similarly, if you’re winning all your sales conversations, something is going wrong either with the number of leads you’re pushing through the sales pipeline, or your lead qualification thing. It’s possible to win all of your sales conversations by only taking the folks who are deepest in your ecosystem. They’re your truest and best fans, totally the sweet spot for the app. It was an easy layup to get the sales, and you get all those easy layups.

But, you could maximize revenue for the business by going, “OK, what’s one ring out from that?” Maybe it isn’t someone who’s been reading my blog for five years. It’s someone who’s been reading my blog for five months.

You do sales, SaaS, so I assume you sell to a lot of other SaaS startups. You sell to startups selling to tech companies, or whatnot. Then at some point you realize, “We could also sell to startups selling to medical. That has new challenges. Let’s see if we win those deals, or let’s see why we lose those deals. We’ll feed that back into the marketing of the product, get into a place where we can win those, and take the lumps because we know we’re learning from them.”

Steli: Absolutely. First call, you pick up, you welcome people, you ask them a few questions to really understand them, and then you either ask them if they think they’re going to buy, if they’re ready to buy, or what it’s going to take to buy. If you do these things, it’s a perfect sales call. You’re 10 out of 10.

Patrick: …and you’re already better than 90 percent of the market. It’s insane.

Steli: Oh, yeah. You do that for a while, and maybe you want at some point to test what would happen if you don’t take their phone number in the form, but you actually email them and ask them for a call, and look at the numbers. But in the early days, I would always use that form.

Either way, if you have a SaaS business and you have a way to make more than just $10 a month on a user, using the phone as a way to onboard them, activate them, and close them, is going to be an amazing tool. If you don’t use that, you’re literally leaving thousands, millions…

Patrick: A lot of money on the table.

Steli: You’re losing a lot of money, leaving a lot of money on the table.

Patrick: Right. An additional thing there, by the way, relevant to your interests. If, like me, you’re pretty time constrained on the SaaS business, I specifically architected my business when I was early on, to never require sales calls. I was employed over in Japan, and didn’t want to do sales calls at 2:00 AM.

I still don’t want to do sales calls at 2:00 AM, but let’s say I can push myself to make five a week — not as many as the leads I’m getting. You can just choose to only call X percent, and then do scalable approaches on the remainder and see, “For the folks I talked to, did I close more than we closed on the folks that we don’t talk to?” If not, red flag on the play.

Figure out the sales process. If you closed more, then that’s either an argument with yourself or with the rest of the business for, “We should be focusing a little more of our attention on active selling to the rest of the folks,” or it’s an opportunity.

Atlassian does this. They have a sales team. They say they don’t have a sales team, but they have a sales team; people who call and get closes.

But if a medium-touch approach for them in a given month converts a higher percentage of trials than the low-touch approach — the totally scalable automated thing — they file bugs against the low-touch approach.

They say, “something has happened, such that our standard medium approach is answering more customer questions, resolving more customer objections, getting more customers successfully onboarded than the low-touch approach, which means the low-touch approach is broken. Fix it.”

Then they fix it until the numbers go back to parity again. Then they focus on that, because that’s the part of the business that they really enjoy/institutionally like.

Then a couple of months later it’s like, “OK, we’re going to pull 10 percent of the trials off the rack and give them a call and see what the conversion rate is. If it’s at parity with the low-touch group, that’s great. That’s where we want it to be. If it isn’t — if the sales reps are effective at doing their jobs — that’s a bummer.”

Steli: I love that. That’s a great hack, organizationally. That’s cool.

Patrick: I think that’s why they say they don’t really have sales teams. They do have a sales team…I love you guys, but you have a sales team. But maybe they think it’s not a permanent sales team. They’re bug scouts in the organization, who happen to do sales for a bit of that bug discovery process.

Anyhow, I think that wraps up our conversation on getting started with sales for SaaS folks.

You guys had a very interesting trajectory, and it’s one that I think resonates with a lot of people here. You had a Y Combinator-funded startup that was in kind of an unrelated space, and then you pivoted over to being sales consulting as a service. Then from that consulting business, you pivoted into the current product business, which is Close.io with the CRM.

Why Steli Shuttered A Very Successful Consultancy

Patrick: Can you talk a little bit about your consulting business? That was a pretty good business, right?

Steli: Yeah.

Patrick: Just hum a few bars for me on that one. How many people did it get up to, or yadda yadda?

Steli: We had probably all in all, in-house plus the people that work from other locations, 60, we were on trajectory to cross the three-digit very, very soon. We’re a multi-million dollar business that was growing really fast. Basically, what we did is we built what we called a secret sales lab in the heart of Silicon Valley, who we would work with Venturebeat startups that at least had a series A, and we’re doing B2B.

The vast majority, 80 percent of all customers were SaaS product. Many of them, products that you guys know, have bought.

We would either do sales consulting, what we would call sales exploration, help you figure out how to go from a few customers and some revenue to a model that’s both predictable and scalable, where you can just plug in salespeople and you know exactly what should come out of that.

We had these customers, it was a lot of consulting, helping them, exploring, testing different sales strategies, generating numbers and then looking at that and figuring out what the right model is for them, and then we had a few customers that were already in scale companies that are now about IPO and on the IPO track that would say, “Hey, we have already 50, 60 salespeople. We’re hiring as quickly as we can. There’s these 10 verticals we’ll not going to get to in the next two years, but we know there’s money.”

Patrick: Can we just write you a check and…?

Steli: Can we just write you a check, and send you the leads and you just close these deals for us? We’re these two schemed outsource skilling part and then the more early staged consulting part, and became experts when it comes to selling for startups and the unique challenges and unique approach that you’re going to have when you do that.

Patrick: One of the nice things about the Valley, and I’m a bootstrap guy, I think that’s what makes me happy. Every time I come out to the Valley, and I work physically in Palo Alto right now, it’s sort of an air here.

One of the things that causes the air stat, there’s an ecosystem around startups where you guys have a very, very successful business step. Professionally, I already said the word “millions.” That’s a lot of millions, figure after 60. You’re making millions a year, basically getting the outsource sales product for a lot of these folks or telling them how to set up their first sales department.

Similarly, there’s a lot of business in the ecosystem out here. There are shops, like say Pivotal in San Francisco, which provide various services to the ecosystem.  Somebody raises money, they need to make an app or they have an existing website, they need to make an iPhone app and Pivotal is like, “We can take care of that and it’ll only cost you $200,000″ or that sort of thing.

There’s something that I get told every time I come out here is that given my skill set with the marketing automation, could just hang out my shingles and the Patio 11 Marketing Automation Agency and I would have billings of $5 million within a year. That’s true. Not really where I want to go with my life, but it’s a nice card in the back pocket if my family’s ever starving in the snow.

There are a lot of businesses like that. It’s not just the meme about selling shovels in the gold rush. It’s not. It’s B2B services that’s the nature of most of the business in the economy if you get right down to it. You’re selling tomatoes to pizzerias.  [Patrick notes: I think every time the words "selling shovels in a gold rush" are mentioned engineers suffer, because we're socialized to believe that it is somehow disreputable.  Software is a gigantic industry which itself consumes a lot of software, for the obvious reason.  It is as valid a market as any other industry for B2B products, and is flush with cash.  Many people who deploy the shovels meme think that cash comes from venture capitalists, but despite the impression you might get from reading TechCrunch, most software is not bought by three guys in a dorm room with a $1.5 million check coming in but rather "boring" profitable companies who pay $1.5 million in payroll every two weeks.]

Software as a service companies have a very predictable…The reason this works is software as a service companies have a super predictable path from really intelligent sales guy to money. Just like their customers have a really predictable path from installing software as a service product, increase revenues by 20 percent, similarly for the other stuff.

Anyhow, it had a really successful consulting business, why don’t we still have a really successful consulting business? Can you talk about the journey that got you to Close.io?

Steli: That’s a great question. When we started, right from the get-go, there were two factors that played into our decision to actually build an internal product. Number one, we knew that in order to support all these different sales complaints for different customers to different verticals, there’s a lot of complexity involved. We knew that we would have to use software to manage all that.

Just selfishly, we hated all CRM systems and all “sales software” that was out there and thought, “No way are we going spend eight, nine hours a day using that kind of software. This is just going to make our lives suck.

We didn’t want to use anything that was out there and then two of my cofounders…We have three cofounders. I’m more the sales/business guy and the other two guys are product and engineering people.

Out of that lens and bias, we’re like, “Well, let’s just build our own thing and we’re going to make it exactly do what we want it to do.”

That was it, there was no real vision. We didn’t even know what that meant. We didn’t even know exactly what the product will look like. We just said, “Let’s just build something that does what we want.” Then, all right, what do we want?

We now have two customers after two weeks and we need to do this and this. Maybe it would be cool if you could just click a number and it calls it, so I don’t have to use a phone or something else. It does it in the software.

That’s how we got started. Then, as we started hiring and recruiting more and more people, we would use the software as a recruiting tool.

We would tell people, “Hey, we have this secret sauce, that if you do sales for another business you won’t have, and I’ll show it to you. You can clearly tell that we really care building products for sales people to be more successful.”

Patrick: You, the sales guy, should work with us. You’ll have access to the secret sauce, your job will suck less because there’s none of that using crappy software all day to do the job of a sales guy. It’s basically wall to wall calls and then recording the calls in the software.

The part of your job that is not the call sucks less. If this makes you more successful your sales guy there’s typically some sort of incentive structure there, this will directly impact the bottom line for you. It’s basically B2B sales to a single person.

Steli: Exactly. It helped us hire a lot of people, helped us make our sales people more successful, and then happier. Retain them all at a much higher rate than a typical sales organization will retain people.

Then what happened is that slowly but surely we had more and more campaigns with more and more sales people, and I know we’re the only CRM system or sales software company that literally had engineers sitting in a room next to sales people that were doing different kinds of sales.

Looking over their shoulders and going, “Why are you doing this? This makes no sense. Why do you have to click three? Why do you use this piece of paper all day long to make notes? Why can’t our software be better at that?” Fixing the problems, as well as have sales people turn around and be like, “That part of your software sucks, dude. I hate that this does this.” Iterate on it from a completely different perspective.

Patrick: This doesn’t happen nearly enough at companies, by the way, guys. Engineers embedded in a sales organization or embedded in a marketing organization. Believe me, if you can code your way out of a paper bag, for those of you who don’t run your own businesses yet, and just want to get the taste of coding to improve outcomes, walk into any other team in the company and say, “Can I watch what you do for a day?”

At the end of the day you’re going to have a notebook full of, “WTF! They do what with spreadsheets? That’s insane!” Man, was it back in the day, I was working with an SEO who was attempting to figure for some SEO-related reason, “I have a list of keywords in column A, I have list of keywords in Column B, and I’m going to figure out all the keywords that are in A and not in B.”

Every engineer in the room is like, “OK, that will take me two minutes.” This guy, college graduate, would literally spend several hours every day doing this manual keyword comparison. You can literally do this script.

We’re going to save you two hours every day forever in like five minutes. It’s going to be great. If wanted to it can also alphabetize them for you, it’s not that hard. But yeah. More product Devs, more product companies should go with the embed the product team in the entire organization and see what’s broken.

Steli: What’s broken?

Patrick: Yeah, build much better stuff. It’s also a great way to get at that.

Steli: We did that for a while, and then we actually started having a real product philosophy, and starting thinking this is how sales software should actually look like. Forget about everything else that’s out there, it’s really not helping anybody selling better.

This is what sales software looks like, and sales really is communications so it needs to be communications software. Let’s kill data entry because it sucks, and sales people are horrible at it, it produces a lot of bad data.

Let’s empower them, the people, to actually get all the answers they have through the software versus having to go to engineering and be like, “Well, I need this specialized list of all leads that have been called and emailed, but haven’t replied, but I don’t get all that data from my sales software so can you write a query in MySQL, and find all the data for me, and spend 30 minutes of your life doing that? Then I’ll come back tomorrow with another list?”

All the engineers went, “Well, why the hell is the software not answering the question? Why do I have to spend my time doing this manually?” Step by step we developed this philosophy and then the software got better, then it got a lot better.

Then all of a sudden our sales people would show their friends who in sales the software. Bragging about this is what we use for our job, and we would start getting emails or our sales people would come and say, “Hey, we could totally sell this software to this company. I showed it to them, they’re totally interested!”

I have to say that it would be cool to claim the credit and say, “Then I decided that as the CEO that this is the future of the business.” But it wasn’t. I actually resisted that a lot, because I was like we’re printing money over here, and this is actually a complex business to grow and I have a lot of things on my plate anyways. We’re going to get distracted by this, releasing the software as a product.

That external demand grew, and then the internal resistance started building. There was a small group of people internally that started lobbying like we should release the software. We should release the software. Let’s just launch the software! In every meeting, in every opportunity they were lobbying, hey the software, the software.

Those two voices from the outside and inside grew, and grew, and grew until I caved. Literally that’s what it was. It was no strategic decision making, literally I just went, “Well, fuck it. Let’s launch the software then, eventually.”

I thought that because the services business was big, and I thought that we knew that we had something special with the software. But I knew also, I’m a realist, so I knew this market is crowded as hell, it’s a very competitive market. We don’t have a ton of money to just spend on this experiment.

We have to have a small team work on it, so I thought it would take forever for the software to get anywhere near the services and consulting business. In January 2013 I said, “You know what? This is a small team of four people, you guys are the product team now. Go do whatever the hell you want. Launch it.” As an entrepreneur I like to say you’re almost always wrong with everything. I just get used to that. Once in a while, you’re actually happy you’re wrong, and this was one of those cases.

Where the software had a great first month, and then it had a great second month, then it had an even better third month, and it just grew, and grew, and grew at a really fast pace with very little resources. Then very quickly it outgrew the services business with a fraction of the cost.

At that point, or coming near to that point, it was long clear to us we have something that’s working way better than this other thing we had that was working, so we should start focusing more and more of our attention on the software versus the consulting business.

Patrick: Two things I want to drill into there. One was that, let me take the one that was more recent first, because I actually remember it. You mentioned that the software business was, the revenues were rapidly approaching the consulting business but at a lower cost.

That’s like the traditional margins in consulting are generally broadly speaking somewhere in the 20 to 40 percent range, give or take. The single biggest cost for the consulting company is the direct cost of the person who is doing the actual work that gets billed out to the client.

That cost is always going to be in there, always going to be the largest cost to the consulting company. It generally, there’s not much you can do to reduce it. You could hire less senior people, but then you get less senior results, and that’s not building a wonderful consulting company. On the flip-side, software service is huge upfront cost to develop it.

Then you push the go button and you start getting literally 90 plus percent margins on software, and a little less for the two of us because both of us have telephony embedded and there’s a hard cost associated with telephony, so we have non-zero cost of goods sold which means how much money you spend for a marginal customer to actually service them.

For many B2B SaaS businesses, it’s literally like our cost of goods sold is the strike account, so 2.9 percent plus 30 cents. Then the rest of the 500 bucks a month we just keep, then multiply that by 1,000 clients and life gets pretty good.

OK, you have the ridiculously successful business, you have the software business that you OK as an experiment, it wasn’t like, “Let’s dive two feet into that.” It’s just I’m going to break off a strike team to do the SaaS business, and oh, my God, it’s blowing up. We have one really successful business, we have a nascent business which looks like it has more legs than even the most successful business. How do you decide to make the transition? That’s not a no-risk transition.

The math of working a successful consultancy is that after you have a successful consultancy, you have a successful consultancy. FYI when I say that the margin for a consulting business is 20 to 40 percent, if you multiply 20 to 40 percent by the billings for a given year which you can extrapolate from them having 60 sales guys, that’s literally what they could pull out of the business every year with no work that they’re now additionally doing. But you decided to double down and go into a VC funded SaaS business trajectory which has substantially more execution risk.

Steli: Let me elaborate a little bit on this. I don’t want to come off too one dimensionally in that everything was just amazingly successful, and now how can use decide between amazing success and incredible success.

That was not our problem. It was not as simple as that. The consulting business was successful but it was also freaking hard. Painful. You had to manage, at some point we had to manage cash flow at a level that we had no clue what we were doing.

Patrick: It scares the heck out of you, yeah.

Steli: Also there’s these periods where you can’t keep up with the demand, then there’s periods in our business where there’s zero demand, like December for instance. The last two weeks of December, the first week of January, there’s no sales happening during that time.

All the customers you would close, we would close in the last quarter of the year. We would close at the start of the late of the second quarter of the year. You have certain bubbles where sales don’t happen as much, where selling isn’t as effective in B2B, you still have all the headcount. You still have all the employees who still get their salary.

Patrick: Their paychecks are due on the 15th and 25th of the month.

Steli: Every month, doesn’t matter what happens. Once you’re at the highest scale of revenue, you manage cash flows at a level where we were just not equipped to. We made some mistakes and that got us into really tough waters at times, and it just creates stress.

Patrick: Yes, cash flow stress is…I’m buddies with a lot of folks who run multimember consultancies and the single biggest stress factor probably, the real employees cost money. You’ve got to make their salaries every two weeks and the lifecycle of billings in consultancies typically does not line up with that.

It’s often for very successful companies like great team, 20 people working for it, best brand in the business, yadda, yadda, they don’t know whether they can make payroll four weeks from now. It’s kind of insane.

That happens in solo consultancies too. I had instances where it was like I had to get a particular engagement I had run up the cost of my wedding on prospecting trips to America, and then I was holding in the other hand an invoice for the same amount of money.

It was like, “OK, race. Does the credit card go over the limit first or does the invoice clear first?” Then that happened several times over a two year period. Much more stress than running SaaS businesses that were big for me.

Steli: That was a big part of it. There was a lot of stress involved in that business. There’s also as we were growing that stress became more painful. You had to deal with a lot more management issues, cultural issues, human resources, just keeping the entire thing afloat and running was just a very, very hard business.

That played a really big part. At the end of the day as an entrepreneur you only have so much time, you only have so many hours in the day, so many opportunities that you’re going to follow, you can’t do everything.

You have to make decisions on like, “Do I want to spend all my life chasing this opportunity or that?” When one business is literally pushing a little stone up a mountain and it gets bigger and bigger, but it gets harder and harder and more painful — and the other business is tipping the little stone down the mountain, and it just naturally gains more and more momentum — it’s clear where the opportunity…momentum is the signal that you should follow, as an entrepreneur.

For us, it was just clear. We loved our product. We loved the services business, but we also kind of were burned out, after a few of those crazy highs and lows. I think when we saw that software business take off at that pace, multiple things happened.

Number one, we were thinking, “OK, this is clearly something that could be a massive success, and has this natural momentum in the market, so we’d better focus on helping that become all it can be. We can’t just split our attention.”

There was also a certain level of relief, of saying, “Wow. What would a world look like, where all we do is software, and we don’t have to manage this crazy amount of overhead and crazy amount of cash flow, and get subscription revenue?” As you said, you add more customers. You don’t necessarily have to add more cost immediately.

Patrick: Often, more customers don’t translate into more work or more stress, either. It’s just, as long as the server is up, it’s equally up no matter whether there’s 100 people paying you a month, or 1,000 people paying you.

Steli: Yeah, exactly.

Not to say that any of these decisions were easy or super-clear to us, for a while there was this back-and-forth of thinking, “Well, should we hold onto both things?” I wanted to. Just emotionally, I would have liked holding onto both businesses.

But then as time goes by, it’s clearer and clearer that it’s irresponsible to try to do that, and all of a sudden you start wondering, “What could we actually do on the software side, if I didn’t spend 80 percent of my time managing the other business?”

You start feeling like you have two relationships where you’re equally irresponsible to both parties and don’t make the necessary investment in them to help them become really all they could be, so you have to make a choice and say, “I’m going to commit fully to one or the other. It’s unfair to both to try to hold onto both things.”

Once you have to make that decision, now you have to decide what do you do with all these employees? Which ones can actually transition over to people that are going to work on the software business, and what do you do with the amazing people that can’t?

That’s really why it’s so hard to let go, because you’re like, “Wow, we’ve built this amazing group of people and talent. We would never want to let them go, but we can’t also hold onto everybody. It makes no sense.”

Patrick: That’s also one of the not-so-hidden advantages of Silicon Valley which is, in a lot of other locales the surrounding ecosystem couldn’t exactly conveniently absorb 60 very well-trained SaaS sales guys. Where, in the Valley…I don’t know how you actually managed it, but I’m presuming 60 very trained, very effective sales guys could all get jobs within, what, a week?

Steli: Not all 60 were in-house. The team that was in-house was much smaller. We’re talking 25-30, so half of that. But all of these people got jobs in the Valley. A majority of them are directors of sales, VPs of sales of high-growth, amazing companies. A lot of them became managers or executives at companies that were our customers, naturally.

We made sure that everybody got an amazing opportunity, and used what they learned with our business to take the next step in their career, in many cases with companies they were doing sales for anyway.

Patrick: This is a fairly common trajectory in consulting, by the way. I know some folks in the audience might not know this, but employers often say, “We’ve gotten used to working with Bob over the last two years. He’s been instrumental in our blah, blah, blah efforts.”

For an ongoing consultancy, there’s often a discussion between the consultancy and the client like, “Can we” — I hate this word — “‘buy’ Bob from you? Or work out an arrangement where we can recruit him without violating your various covenants that are in place?”

Steli: Yeah, it happens a lot.

Patrick: Yeah, it’s great. If you can get your existing clients a satisfactory resolution, it’s like nothing changes about your business aside from, “Rather than cutting us a check and paying us half the money, you just hire on the guys who you had working on sales, directly. Now you’re their employer of record. Congrats.”

Steli: Yeah. I’m really proud of that transition, and the relationship with all of the people. Not only that all of them remained friends — all of them became customers. Even the ones that went to companies that weren’t using our software turned around the company to purchasing the software product from our side, so all of them are customers, all of them are friends, and we have really great relationships.

But again, the actual day I had to announce this and have one-on-one conversations, let people know that, “This is the direction of the business moving forward, and some of you will move with us and some won’t” — single hardest day of my life.

It sucked, and in that moment you don’t have the advantage of hindsight to know everything will work out well — and people don’t, so it’s a terrifying event for people. But I’m glad how everything turned out. It was still very difficult to do that.

Patrick: Yeah. I can barely imagine.

I think this is something entrepreneurs might not…I guess many of us have a pre-entrepreneurial career where we had the employee mindset — I certainly did — but I think entrepreneurs, we have our own little culture about stuff. We’re like, “Yeah, you get a company shot out from under you, that’s no problem.”

“Real people,” who have jobs and expect a paycheck every two weeks, getting separated from a company when they didn’t see that coming is a really big problem!

Steli: Yes.

Patrick: I think we’re like, “Oh yeah, fail quickly. We’re going to dissolve the company and start a new one, yadda, yadda.” We owe it to employees to find them…a “soft landing” is a term of art, but it’s a useful term of art.

Find them a transition plan that minimizes the stress for them because employment isn’t just a business relationship. It’s the one business relationship that’s sort of a sacred trust, too. You’ve got to take care of those folks. I’m really glad that you managed to do that in that forthright and mutually — tri-party mutually — successful manner.

I think this is probably running to the hour and a half that these podcasts usually run, so where can folks find out more about Close.io if they want to — aside from Close.io?

Steli: Close.io is a good way to get started. If you go to close.io/blog, when you go to our blog there’s a lot of sales content that people can read, and a lot of people seem to like it. People can just get in touch with me personally if they want to, if they want to chat sales, entrepreneurship, or anything else. Just steli@close.io. We do have an email course to no small part…

Patrick: Yup, Steli took my course on doing lifecycle emails.

Steli: Yeah.

Patrick: It worked out for you, right?

Steli: It worked out. I don’t know how many thousands we’re making more every month because of it, but it’s a lot, so we owe a lot to you.

Patrick: I’m going to write that down for a testimonial for the page. “I don’t know how many thousands we’re making from it, but it’s a lot.”  [Patrick notes: I should really do this.]

Steli: It’s a lot.

We have a startup sales email course for people that thought some other things were interesting and they want to learn more. Actually, you can learn both more about startup sales, and learn what I learned from Patrick, in terms of putting email courses together.

Patrick: Awesome. Thanks very much, and I’ll sign off for myself. I’m Patrick. I always love getting emails from people, so please drop me an email. It’s patrick@kalzumeus.com. Presumably that’s spelled, wherever you’re listening to this.

If for some reason you aren’t on my email list yet, you really should be on my email list. It’s at training.kalzumeus.com. Just give me your email address and we’ll send you stuff that you enjoy.

One announcement that is upcoming from me, I’ve been working on a conversion optimization course for the last several months, all about B2B SaaS businesses, getting them more trials, more sales, yadda, yadda. It will hopefully be functioning later in July.

If you look on the bottom of this podcast, there will be…I guess I’ll just give a Bitly link. Bitly/kalzumeuspodcastsconversion.  [Patrick notes: Unshortened link is here.]  Just click that, and you can get an announcement when that course launches. I’m hoping to get it done in July.  [Patrick notes: I've been working on it most days for the last several weeks, but unfortunately, launching in July is not realistic.  We're moving to Tokyo next week.  Sign up and you'll hear when it is ready.]

Thanks very much. It was an awesome conversation. I particularly like how we got into actual nuts and bolts of it for SaaS businesses but for the LTV in the 5K-10K range, because I’ve worked with companies that have started fits and spurts in sales. It’s really made a difference for the business.

Thanks so much for showing up, and for all you guys in the audience, hopefully we’ll have another one in another month or two, and we’ll see you next time.

Steli: Thank you so much. Bye, guys.

Patrick: All right. Bye, guys.

Kalzumeus Podcast Episode 7: Launching New Products

Keith and I recorded a new episode of the podcast last year, but we didn’t get around to releasing it.

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

What you’ll learn in this podcast:

  • How to pick a small, self-contained product, which is good to cut your teeth on as a dev-turned-entrepreneur.
  • How Keith extracted Summit Evergreen out of his consulting work (improving infoproduct businesses).
  • How to use concierge onboarding to increase conversions and decrease churn of SaaS businesses.
  • That it is possible to build a very successful consultancy without being quote-unquote Internet famous.
  • How to use Standard Operating Procedures documents to have employees do repetitive tasks without needing to actually automate them, while you’re still exploring for the best procedure for completing those repetitive tasks.

If You Want To Listen To It

MP3 Download (~115 minutes, ~85MB) : Right-click here and click Save As.

Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

Transcript: Launching New Products

Keith Perhac: We’re started.

Patrick McKenzie: Hello everybody and welcome to…What is this? The eighth episode of the Kalzumeus Podcast. [Patrick notes: There was an episode #7 in recording sequence, but due to some issues, we haven't gotten it ready yet.  It will retroactively become the 8th episode.]

Keith: Indeed it is.

Patrick: I’m Patrick McKenzie here again with my co‑host, Keith Perhac.

Keith: Hello, again.

CreditCard.js: A Nice Product, Both For Customers And The Founder

Patrick: Let’s see, we’ve got a fun day planned ahead of us. First thing we’re going to be talking about is Creditcard.js and that’s in eponymous creditcardjs.com.

Keith: That’s because that came out today, I believe, on Hacker News, which will be about two weeks from when we actually get this up. [laughs]  [Patrick notes: Actually recorded 8+ months ago.  Sorry -- life happened.]

Patrick: Predictably, just to give you folks an idea of what it is, it’s well executed CSS, JavaScript and HTML which does the standard static credit card form. But it does it well, such that when you start typing in a credit card number with a four, it knows that it’s a VISA and it does error correction and does the Luhn checking in real-time without having to submit it to your servers.

This is like every credit card form that you’ve ever coded in the last five years, except it’s done well without you having to work at it for three hours. It makes a very good self‑contained product, I feel. Something that can be built over the course of a few weeks, tuned to within an inch of its life, and then sold to people.

Because it’s sitting in the critical path on taking money from every website ever, it’s worth quite a bit of money relative to the amount of time I feel it would take to build, and can be sold to many people in parallel.

Keith: If you haven’t read the Hacker News commentary on it, or forgot about it, the community is pretty divided on it, and ironically enough, so are we.

Patrick: I think it’s a wonderful idea that’s going to make this guy tens of thousands of dollars, and Keith is like, “Oh, you could do that with open source in the weekend.

Keith: Yeah. I have to say, normally I am not on the side of open source will solve everything and I should be able to get it for free. I am more on the side of paying for it if it saves me time. This is especially apropos because I just launched my first SaaS product last Monday. This Monday, which we’ll be talking about in a little bit, I had to build the credit card form for that.

I am uniquely capable of saying, “OK, I know exactly how much time I spent in putting up my credit card.” That being said, the credit card JS right now, is $150.00 during their beta, and $250.00 after that. It’s one year of upgrades and unlimited use, is what I believe their licensing says.

Patrick: I think it said that the licensing is per-site.

Patrick: If you have 15 clients, you’re going to have 15 licenses. I think it’s rounding error next to the amount of money you typically put through a credit card form, and also next to the amount of time you’d spend in building that from scratch. I think I have probably been involved in 10 projects like that for consulting clients.

Conservatively, over those 10 projects, they have a $100,000 invested in their credit card forms.  If I could just take this off the shelf, drop it in and say, “All right, it’s going to cost a total of $1.5K and I’ll get to the more valuable AB tests” rather than having to re‑implement this from scratch every time, I would be doing that every time and all the time for consulting clients.

Keith: What we are talking about really is for a company or someone who does this all the time maybe it is a better investment. I actually would the opposite. If you were a consulting client, or if you are a consultant and you are doing this constantly it would be better to have your own solution instead of paying $250 for each client you install this for. If that’s billable to the client that’s something else.  [Patrick notes: Strongest. Possible. Disagreement.  He's talking crazy talk.]

The reason I say this is because like I said, about a week and a half ago, I built the credit card processing on my site and I needed, essentially what this does? What this does is it makes a really pretty form and it detects the card number like Apple site does, where you put in a 42 and it automatically says, “Oh, this is a Visa” or you type 34 and it says, “It’s an American Express.”

It formats it out nicely so it’s got the spacing right, the name on the card, the expiration date, the security code that has a little about html. Here is where you find your security code, if it’s an AmEx, here’s where you find it, if it’s a Visa, et cetera.

It’s very nice. Coding it from scratch would be absolutely horrible. If you were planning on coding it from scratch I highly recommend not, and buying this instead. The problem is I use Stripe. Stripe has a lot of great open source solutions that they don’t need Stripe to be running on. One of them is I believe they call it jQuery.payment or payment.jQuery or something like that.

Patrick: Google it.  [Patrick notes: I Googled it for you.  It was, indeed, jquery.payment.]

Keith: Yeah, Google it, Stripe Payments, it’s really easy. But it has all the same functionality for the JS. It does not have the pretty form which I think is really the crux of this argument.

Patrick: That’s what I generally want to buy, considering pretty is not a strong suit for me. But I do tend to disagree. Stripe’s jQuery payment thing: I like it. I’ve integrated it myself. I took my nice pretty form done by a designer and then ended up integrating the javascript myself, and it’s an hour’s spent of hooking up javascript events to HTML divs and whatever with that funky dollar syntax, and it doesn’t make me any money.

Keith: This is true.  If you run a business, you have to do a balancing act.  It took me two hours to reproduce creditcard.js on my site. An hour of that was finding the stripe payments processing code because I had never heard of it before.

Patrick: This is one of these times where he’s my best friend and I want to punch him in the face because his charge out rate is $500 an hour and he’s arguing about $150 to save him two hours. [laughs]

Keith: But it was a good learning experience for me. That’s another thing. If I was rushed, I’m not debating whether this is a good purchase or not. Really, I’m not.

Patrick: A punch in the face.

Keith: [laughs]

Patrick: Shall we move on to something else?

Keith: Yeah, let’s move on to something else.

Patrick: For those of you who haven’t already got credit cards up on your site or if you feel that the user experience is not optimal and you want to try AB testing or something to see if you catch more transactions, take a look at creditcard.js.

Keith: I will say. I will say 100 percent I’ll stand by that. Try out creditcard.js. I would A/B test it. A/B test it against your current one, against creditcard.js. They have a 30‑day money back guarantee. If you see your sales dropping or you don’t see improvements, tell them. “Hey look. It didn’t work. It didn’t work as advertised.”

Patrick: As one of the two resident A/B testing gurus I can’t say I’d pop this in an A/B test right away, because how many transactions would you need to be running a month to get statistically significant data there?

Keith: I have clients that could do it in a week. [laughs]

Patrick: Well, yeah.

Keith: I have small clients. I have four people clients that could do it in a week.

Patrick: Yes, but they do run tens of thousands of transactions, right?

Keith: Yeah, they do.

Patrick: If you got tens of thousands of transactions a week, totally pop this in an AB test. If you haven’t quite gotten to the level of tens of thousands of transactions a week, just put your finger to the wind. Take a look at their landing page and say “Is this not as good as what I have currently?” If it’s not as good don’t include it.

I’ve given this advice to a lot of my A/B testing clients like so.  Earlier on in the funnel when you have high volumes and have a relatively high conversion rates like to email submissions,for example, it’s easy to just find volume to do A/B testing. But at a certain firm size, like even in the say $10 to $50 million range A/B testing the credit card form can be kind of difficult just because you don’t have the massive volume on transactions.

Typically at my companies they would be doing high value transactions. Even at $10 million that might be only a thousand through 10,000 transactions which won’t be easy just to get to statistical significance.  It will take a, emperor, era, reign, age thing.

Patrick: What is the English word for that?

Keith: Era-century? Era, I think?

Patrick: No, like 平成、is what?  [Patrick notes: Sorry if you don't understand Japanese because this part of the conversation will be pretty unintelligible but we know what we're talking about.]

Keith: About 25 years right now?

Patrick: Yeah, I know that. Heisei is an example of what? I keep coming back to the words “imperial reign…”

Keith: Imperial era.

Patrick: Imperial era, that’s right. This is how we count years in Japan by the way. What emperor is reigning during the relative period of time and how many years. But, yeah, you won’t achieve statistical significance before we have a new emperor and every Japanese company has to update every payment form. That’s going to be a lot of fun work.

Keith: That’s a lot of chances for business.

Patrick: Apropos of nothing, a world created by programmers would have no dates, time zones, imperial reign things, all of it…

Keith: Or sales tax.

Patrick: Sales tax. These things just like burning with fire. Why did we ever come up with this [laughs] ?

Keith: It’s going to be interesting because as you know, next year our sales tax goes from five percent to eight percent. It’s an increase of three points. There’s a Japanese law that all prices have to written with sales tax included. Every single sign in the country will have to be reprinted.

Then one year later they’re going to be raising it to 10 percent and we’ll need to rewrite every sign again. [laughs] We said we weren’t going to get in on that.

Keith Discusses Summit Evergreen, His New Product

Patrick: Launch?

Keith: I’ve launched my first SaaS. Going well! It’s Summit Evergreen.

Patrick: You should give people the elevator pitch because I don’t think that you talked about it all that much on this podcast yet.

Keith: We have not. As you know I do consulting for a lot of clients. A lot of my clients are info‑product people. What is the name for the product? I can see you cringing right now behind your glasses or…

Keith: What do you prefer as the name?

Patrick: Productized consulting or even sometimes I refer to the form factor, like the e‑book or video courses. Anything sounds better to me than info product because info product pushes my Internet marketing neuroreceptors and they are not happy neuroreceptors.

Keith: I hate the word e‑book with a burning passion, so let’s do video course.

Patrick: OK, a video course.

Keith: Patrick put out his Lifecycle Email course which is amazing if you haven’t checked it out. I am completely unbiased in that. I do a lot of consulting for clients who do video courses or just pure text courses, mainly video. One of the things that is difficult to do, especially with a video course, is to provide value over a length of time. You can say, “Here’s my course.” They get it all. It’s like, “I paid $500 for this and it was done in a day and now I don’t know what I got for that $500. I have a lot of content, but I am not led through it.”

The idea is that you take your content, you have your video course, and it’s a real course. When you go to a community college, they don’t just give you all the books and say, “All right, we’re done.” It’s this back and forth between the teacher, the content, and you. It’s doled out over time. I think that’s one of the key parts of a video course. It’s the same as your Lifecycle Email course is that it’s doled out over time. It’s not, “Here’s everything. Go at it.” It’s first we do this and then let’s build on it.

Patrick: One of the problems with critically hitting people with a wall of case, or dropping five hours of video on somebody on one day, if you actually look at the analytics for who’s successfully watches and takes action on it. (Ultimately the goal for both parties on it is them taking action on it.)

As a gateway to them taking action on it, they need to actually watch the lesson. A lot of people watch the first hour. Less people watch the second hour. It trails off. The fifth hour, five to ten percent of the people who bought my course, actually watched the fifth hour, which is sort of unfortunate.

Keith: Another thing that I noticed when you have the entire course, interestingly enough I got access to the Lifecycle Email course all at once because Patrick was nice enough to skip me forward. [Patrick notes: Keith thinks that my course was dripped out to customers, but he's not actually correct.  It was all delivered at once.] One of the issues with it is that you tend to skip the things you think you already know.

It’s like, “Oh, I already know how to write a welcome email. I’m just going to skip that part.” That has a detrimental effect on both the customers feeling towards the course as well as their understanding of the course. Especially, if you build off things that you might have skipped, then they’re going to feel lost. That’s going to turn into churn.

Patrick: We might need to explain what churn means in this context. Just going back on for a second on that one, as a teacher and someone who has done one of these products before, sometimes a video that says on the tin that teaches you something you think you already might know might have a tactical implementation tips might have has wildly disparate value that people don’t always realize are there.

For example, I had consulting clients who are already sending dunning emails. Dunning emails are just emails which tell folks that they owe you money and attempt to collect it.  I won’t tell you the whole spiel now. There are good ways to write down done‑in emails. and there are bad ways to write done‑in emails.

There are a lot of clients or a lot of companies that sell SASS or some product that gets billed every month, will send out a done‑in email like, “You’re credit card failed, please update.” That will be the entire text of the email. There are better ways to do that which get higher rates of audience compliance. If you get customers to comply with the instructions to pay you money that’s worth staggering amounts of money on scale.

Keith: Yeah, exactly.

Patrick: People might skip that video because they think they’ve already implemented dunning emails. They think: “How hard is the dunning email? It is two sentences long.”  I have had consulting clients where I was in the building able to direct them through re‑implementing that and made them five or six figures for thirty minutes work on their emails. That’s unfortunate.

Back two steps, you mentioned that it helps decrease churn when you increase people’s perception of value and get them to consume more of the content that was in the video course. What do you mean by churn in that context? I think a lot of people are coming from it, “Wait. The business model is a one‑off sale. We don’t have churn in a one‑off sale.”

A Brief Note On The Challenges Of Infoproducts In Some Markets

[Patrick notes: Keith has extensive experience working with clients who sell B2C infoproducts in particular markets where, by nature of the type of customer, many customers experience buyer's remorse and attempt to cancel the purchase.  The following discussion is not quite so relevant if you e.g. sell books on Rails development or software.]

Keith: That’s a little dirty secret of “video course.” I put it in quotes, because you know what I wanted to say. At any sale on the Internet. A one‑time sale is not a one‑time sale as long as that a credit card was used for the purchase. The reason for that is, first of all, most video courses have a refund policy.

If people are not happy within that refund policy, say that’s thirty days, then they will refund. That’s what I mean by churn. In a refund, you’re losing money. You already gave out the course, they don’t like it. They’re refunding. Then you say, “Oh, I just won’t let them refund.” That causes another big issue which is…

Patrick: That’s something you never, ever, ever want to do.

Keith: Which is charge backs. OK, so the credit card company, how many days is a charge back now a days? 30 days?

Patrick: 180 days, Keith.

Keith: 180 all right. For 180 days after someone has purchased your product, they can go to their credit company and say, “I didn’t like this. I want a refund. It wasn’t me.”

Patrick: Anything that merchant did not live up to their claims on the website. You will almost invariably lose that charge back.

Keith: You will indeed. That charge back will not only take your money and they will charge you a hefty fee on top of that for trying to take someone’s money.

Patrick: I almost had one of these for the Bingo Card Creator. They’re annoying. It’s a cost of doing business. I understand this happens once or twice a year for reasons which are only somewhat in my control. You get the $30 for the product back. I just got assessed a $15 fee from the bank.

Keith: That $15 is from Stripe who is nice about it. Other processors will have $25 to up to $100.

Patrick: Yep, because it’s largely a manual process for chargebacks. They are not handled through APIs like Stripe is.

Keith: You want a refund policy. You don’t want to piss off your customers because they will hurt you more than it costs you to give them the free product. That’s what I mean by churn. You want people to be happy. You want people to find value from your product. Not only because you want to help people, which you should do, but also because it will financially hurt people if they are not happy with it.

Patrick: I should note that the base rate of refunds is wildly disparate depending on what the audience for the product is. For example, in the B2B case, refunds are very rare both for video courses, SaaS, virtually anything you sell to businesses. The refund rates are scandalously low. I think I had on order 250 sales of my course, and two refunds.

One of which they refunded so that they could buy the more expensive version instead, so net one refund. A baseline B2C rate of refunds, let’s see. Bingo Card Creator has a very high refund rate because I am very aggressive about offering customers refund to solve customer service issues. That’s on the order of 2.4 per cent in most years. Higher this year due to a PayPal fraud ring.

Keith: Video courses…Didn’t you have a higher one?

Patrick: Yeah. Especially as you get closer and closer into the dun-dun-dun Internet marketing space, the refund rates approach like the double digits range where if you are getting close to that, something is wrong.

Keith: Yeah. I think refunds are the dirty little secret. No one ever thinks about that when they are creating their product. “Oh I made a million dollars in sales this year.” Well, fifteen percent refunded. That is 15 percent of your revenue gone. [Patrick notes: Again, in most industries relevant to you guys, if you have a 15% refund rate that's a four alarm emergency for the business. This should never, ever, ever happen to you.]  You really have to care for your users. Going back to the topic at hand, that’s what a dripped course does and a dripped course.

A dripped course is a course that’s doled out over time from the time that the person purchases. This is a very common thing in video courses and what not. The problem is that there’s no real software that supports this right out of the box. Most people either build their own solution like Patrick did.

Patrick: Don’t do that by the way.

Keith: It’s really a pain in the ass honestly. The other thing is to do a launch and then drip it out manually, which is what they do when you use WordPress or what not. Essentially what happens is, on launch day, you say everyone’s buying on this day. Then, for the next, at the beginning of the week, I am going to launch the next week of content.

The problem with this is you can only do that once. If you want to sell it again, you got to do it again. What people end up doing is they make an e‑book, because e‑books are very easy to evergreen.  [Patrick notes: Keith is here using evergreen as a verb to mean "To sell in an ongoing fashion rather than as a one-off sales event."  Think more like selling books and less like selling movie tickets, although it is actually the case that sales for most books are, like movie tickets, highly front-loaded.  Still, in general, you can sell books outside of the "new release" window and its attendant publicity, but this doesn't happen to movie tickets.] They are very easy to make once and sell to everyone.

Keith: This is one of the interesting conversations that I had a multiple times on hacker news as well. How much do you consider an e‑book to be worth?

Patrick: I think that varies wildly depending on what’s in the e‑book. Let’s say hypothetically that e‑book is being sold to businesses and has something that will eventually increase their revenue or reduce their costs.

Keith: Let’s talk the highest cost an e‑book could probably get you for a business as a downloadable pdf.

Patrick: OK as a download a book pdf, I think you could definitely do things like Nathan Barry had done with higher tiers.

Keith: He puts things together with the e‑book.

Patrick: Just a flat downloaded pdf. I’m thinking somewhere in the $49 to $99 range.

Keith: Yeah exactly. How much is your life cycle email course?

Patrick: $497 or something rounded to $500.

Keith: Yeah. Do you think you could have sold that as e‑book for $500?

Patrick: I think it would be very difficult to convince people that it was worth $500 as an e‑book.

Keith: Actually, I do this with my consulting clients as well because many of them do the e‑books because it’s very easy to evergreen. They launch once and they forevermore say, go to my site, my shopping cart page, buy the e‑book, and then you’ll have it. Then they’re like and that’s worth $50‑$60. The problem is that’s worth $50‑$60, that’s great. You’re not going to sell a $2,000 or a $3,000, or even a $500 e‑book like that.

You can take similar content, add video, add downloads, add all these other extra things in there and drip it out over time to make it more valuable. That’s what the course does. That’s what my system does, Summit Evergreen.

Let’s you do is take your video course, take your audio course, take your written course, take your download, take your feedback, and drip it out over time in an evergreen fashion. Based on whenever a person purchases, they run through the whole course. Just like the course that Patrick wrote from scratch. How many months did that take you to build your courseware?

Patrick: I think it was, I want to say, two weeks. That’s like an engineer’s two weeks, so it’s probably really four weeks.

Keith: Four weeks?

Patrick: Yeah.

Keith: As a very good engineer, with the framework, and you would have done processing with Stripe before. You knew how to hook up their API. You used a lot of code from other places, yeah?

Patrick: Copy/pasted in the entire user model from Bingo Card Creator.

Keith: [laughs] So we’re really talking, if you have all the modules and everything, great, very easy to set up, four weeks of engineering time.

Patrick: It’s easily in the five figures of engineering time.

Keith: It’s a large project.

Patrick: That’s often a cash cost for a lot of Keith’s customers because these people who do training on the Internet do not necessarily have Ruby on Rails developers just flowing out of their ears. When Keith’s clients come to Keith, they pay Keith cash money to set up systems to sell this.

Keith: That’s one of the things that we’ve been doing. We’ve looked at the ways that people have marketed their video courses, ways that people need to look at their video courses, and not only the data. Patrick you say that you only have 250 customers.

I say “only” not with any derision, but with love. I have some clients that have 10,000, 20,000, 30,000 users running through theirs. What do you have for user analytics. Do you have anything?

Patrick: Nothing.

Keith: Exactly, you are not alone in this, this is another one of those dirty little secret like refunds. Once people buy the course, are they using it? Even if they don’t run a refund, did they use it? What did they like? What did they not like? What should I do for my next course?

Patrick: I’ve done ad hoc surveys after they bought it. Talked to them individually, and there’s a page I can go to in Wistia which will showhow many people watched a particular video, and if I do the math there at, I could figure x over 250 equals over 25 percent of the people or only 10 percent of the people watch this video so question mark.

I supposed that could tell me something. I haven’t spent any time or built any analytics software to help me do that in a more systematized manner.

Keith: I think that’s really important because you can learn a lot from not only are people watching but who’s watching it. We’ve done dives into our analytics. This is basis of what the software we built. OK, let’s look at people who are refunding. We’ve found out that 70 percent of the people who listed their occupation as “education” refunded. Now we have a…

Patrick: What are you proving? That teachers are terrible, terrible market?

Keith: [laughs] If only me had created some Bingo cards or something for middle aged teachers in the Midwest.

Patrick: If there’s anyone on this podcast who does not yet understand it, do not go after the education market. Please, save yourself a lot of time and pain.

Keith: [laughs] What I was saying with that was now we have a flag. Now, that customer has a flag. That client has a flag to know when an educational customer gets within that refund period, at about that three week market, they should send extra support emails. They have a little flag that says send an extra support email that says, “Hey is there anything that we can help you with?” That helps in reducing refunds a ton.

Patrick: I really love this mid-touch idea where it’s not high touch like an enterprise sales process where your first contact with the company is, “OK, I’m going to give the sales guy my phone number. He’s going to call me, invite me out to a steak dinner, and then attempt to sell me a $750,000 solution.”

It’s not low touch like Bingo Card Creator where my idealized interaction with the costumer is never talk to them at all. They just deal with the website and email, “Give me $25.95″ and I never learn their names.

Somewhere in the middle where customers are sufficiently engaged with the product or they’re savvy enough or whatever the combination of things is. They can get all the value out of the product without even needing me to touch, talk to you. That’s fine. They can do it. Then, there’s customers who might need a little prodding or handholding, can be offered that prodding or handholding, but at scale and at such manner it doesn’t require basically one to one use of the company’s time and the customer’s time.

Concierge Onboarding

Keith: This was a key word that we brought up a lot. I am going to skip ahead one and then come back to one. Patrick and I went to MicroConf Prague, or MicroConf Europe in Prague, what three weeks ago?

Patrick: Yeah.

Keith: What was one of the key words there that we keep saying?

Patrick: “Concierge onboarding.”

Keith: Concierge onboarding.

Patrick: OK, concierge is probably one of the most important word that I’ve learned or has come into fashion in the last year or so for selling software on the Internet. Mind if I take concierge for a little bit? Back in the olden days, where it was just high-touch sales and enterprises selling things to other enterprises for $100,000 and there was a sales guy involved, and steak dinners and fancy bottles of wine preceded invoices.

There was this thing that was called “professional services.”Professional service was basically consulting that you had to use to get the software to be in some state and functionality, but the company was very rarely interested in consulting as a profit center. It was you would sell someone $20,000 of consulting to enable an $80,000 license sale of software.

Concierge onboarding is taking the core of that idea and applying it to the SaaS model. Instead of $100,000 licenses, it’s $50 to $500 per month. What concierge onboarding is rather than someone coming to your website and saying “I want the Small Business plan. It costs $80/month. I interact with their automated onboarding process.

Click, click, click, I interact with their automated onboard email sequence. Click, click, click the thing, never talk to anybody, OK it’s thirty days later and I pay my $80 on my credit card.”

Keith: If you’re lucky.

Patrick: Yeah, if you’re lucky. Twenty five percent of them if you’re very, very good at it will pay the $80 on the credit card.

You affirmatively get in touch with somebody that is a prospect for your service. They’re a lead or a trial. They just signed up for the service. You say, “Hey. There’s some configuration or data import or learning curve associated to getting up and running on this. We want you to grease the skids, grease wheels, of that onboarding process for you.

For example, if it is an analytics product, you’re going to have paste some JavaScript into your website.  You might not be technical and that might be difficult for you. Tell you what, I will log into your website and do the copy pasting for you. You tell me your FTP username and password. I will get it done.”

In my case, Appointment Reminder  often  requires importing somebody’s contact data base into the appointment reminder system. There’s actually isn’t a system that takes an arbitrary data dump from any arbitrary patient or contact management system, converts it into an Excel file, and allows you to see arbitrary columns and import them into the data base.

Just tell people, “Look, get me any data file in any format that you can come up with, send it to me via email, I will figure out how to proxy it and import it into the system for you.”

On the assumption, that has been proven out in data, by the way, that OK, if someone comes in the door and says, “I want a $200 account.” Twenty five percent of them are going to actually convert into paying $200 a month and that’s happy. Seventy five percent of them who have their data imported into the system will actually convert into paying $200 a month.

That adds literally thousands of dollars to the lifetime value to move someone from the 25 percent chance of conversion to the 75 percent chance of conversion via importing.

Keith: Since there’s not that many people doing concierge right now. Once you have your data somewhere, it’s very hard to move out.

Patrick: Right, right. You don’t even have to use any Microsoft nastiness to make it difficult to get people’s data out of the system, you can just let friction work.

Keith: Right. [sarcasm]You can export all of your Google data, all your Facebook data to a nice, easy‑to‑understand Excel document. Then what the F are you going to do with that?[/sarcasm]

Patrick: If anybody ever wanted to leave the Appointment Reminder platform, I would be so happy to export them an Excel file of all the data they have in the system. Since nobody’s going to import that for them to free, that’s not really a competitive risk for me.

Keith: Right, exactly. The people who are going to import that for free are people who are directly your competitors.

Patrick: Or, to phrase it the other way, if someone gets their data from one of the competing appointment reminder platforms or one of the complimentary patient management platforms I will be happy to walk over any sort of engineering issue to get that data into my system just to make it easy for them to get up and running.

Keith: Exactly, exactly. Remember, your competition is not just your competition. You’re their competition. The better services you can get in getting their data into your system, the better you are.

Patrick: I feel like we’re kind of rat‑holing on that import thing.  Back to concierge on‑boarding. I’ve seen companies that have successfully implemented it across their entire range of accounts.

One thing you can do just to get a baseline for how much that’s is going to cost you in terms of founder time or customer support team time or customer success advocate time or whatever you want to call it.  Offer for a week to a small selection of people who are on the higher value plans.

“We saw you signed up for the higher value plan.”  Don’t actually call it that. “Thanks for signing up for the office plan of the software. As a special benefit to you, I’d like to make it as easy as possible for you to get up and running. Why don’t we spend an hour on Skype to walk you through it?” That’s what Brandon Dunn does.

“Or can I help you with the data import? Just send me the stuff I’ll take care of it.” You do that five times, 10 times, figure out what your average cost of doing it is, and then run the numbers. What percent increase in conversion or percent decrease in churn rate do you need to justify doing that for all the customers on the higher tier plans?

You can offer it as an explicit benefit on the pricing page. Let’s say Appointment Reminder is priced based on how many appointments you use per month, and it’s the primary axis of segmentation between customer types. You’ve got to figure that some of the doctors who are on the $29 a month plan would be happy to pay more money if it was less painful for them to use.

Importing things manually by retyping is painful. I might say, “If you’re on a plan at least one level higher like the $79 plan we’ll take care of that importing stuff for you.” The doctor might say, “I only run enough appointments a month to do the $29 plan, but I’ll bump up to the $79 plan and not have to have my office manager lose her fingers retyping our customer data.”

That gets $50 a month times average customer lifetime of two years. That’s an extra $1,000 in my pocket just for offering what is, from my perspective, perhaps 15 to 20 minutes of scripting.

Keith: Same with Summit Evergreen. We’re concierge on‑boarding everyone, especially in the first trial, right now. Most of the people who are starting off at this not only didn’t have an idea, they already have a product somewhere. They have it on WordPress, they have it on…who else is really big right now?

They write their own systems, et cetera. I have a lot of people who have all their data in GitHub and Markdown and they process it themselves. We’ll say, “We’ll take your data, we import it into the database. You have a theme? We’ll help you convert your theme and import it into the system, and you’re up and running in a couple of days.”

Once you’re up and running, it’s so much easier to stay in that system, and it’s so much easier to get what you want to do done instead of spending all your time, like you say, wearing your fingers down to the bone reproducing what you already have.

Patrick: This is something that’s really important for basically any system where you’re trying to convince someone from moving off a working system they already have. Eventually, I think Keith will be moving into building this sort of system or selling this sort of system to people who it’s their first rodeo at the products on the Internet thing.

People who, in general, for selling business tools, the people who are easiest to convince to start using something and who have the highest budgets for it are not people who it’s their first rodeo. [Patrick notes: This is important, guys!] They already have a working system. It has some sort of disadvantage associated with it.

You convince them to move to your system, and then start charging them money for it and learning what your system needs to do to grow into the other under‑served segments of the audience.

Great example of that: Rob Walling recently launched Drip, which is a life cycle email/drip marketing management tool. I’ve been building drip marketing systems for years. Many of my clients would be on something like MailChimp. There’s pluses and minuses for using MailChimp for drip marketing. We’ll just leave that out there.

If you go to a J. Random Client and say, “You should switch to this new guy’s system,” all of them are going to tell you, “We have something that kind of works right now. We might have a bit of dissatisfaction with it, but it cost us $10,000 to get it up and running the first time and, honestly, nobody here has enough time to spend a week rewriting it for your tool.”

What Rob Walling will do is say, “If you will point us at a series of blog posts or an existing email campaign, we will screen‑scrape with our eyeballs everything out of that, get it up and running in our system, and then all you have to do is turn the key on your site. Re‑target your form from submit to MailChimp to submit to the Drip thing. Then, boom, you’re live on us. No work required on your part, hardly.”

Then the inertia works in his favor rather than working against him. “I’m up and running on Drip now, why would I use anything else?”

Keith: Pains of changing are really things you cannot discount. Once someone’s on something, the inertia to stay on that system is very strong. Even if you have overcome that inertia to we’re going to switch to the new system and there’s a bump on the road then the whole thing can come crumbling down.

We’re actually on MailChimp right now. Love MailChimp. We have more experience with AWeber. We’re going to move our [Patrick notes: heavily NDAed] number of people from MailChimp over into AWeber, and they have a nice import feature. We decided before we move everyone over we’re going to test this once. Good thing we did because it will send a confirm email to every single person on that list that has already opted in.

They have to reconfirm their email address to get into AWeber. We were all ready, we bought the account, we had everything. At that point, we were like this is a bump. We could probably call support and deal with it, but MailChimp is good. They’ve treated us well. We’ll just stay with that.

Patrick: That’s not just a bump, by the way.

Keith: That’s a pretty big bump. [laughs]

Patrick: I have an idea of what client he’s talking about.

Keith: No, it was me.

Patrick: That was you?

Keith: That was Summit Evergreen, yeah.

Patrick: Figure if you ask for a reconfirmation, unless your list is incredibly hanging on your every word, you’re probably going to lose between 60 and 80 percent of them.

Keith: Oh God, that’s a low‑ball.

Patrick: I think I would lose 60 percent on my list if I asked them to reconfirm their email addresses today given that about 50 percent of them open every email. I might get 80 percent compliance on the yes, I want to continue getting email from you.  [Patrick notes: 40% is thus calculated via Bayes theorem, which is a college-level way to say "3rd grade multiplication."]

Not to brag, but I think I have higher than the average emailer kind of loyalty for my list.

Keith: On the other hand, it’s not just loyalty. You’ve already been on a list. This is kind of going rat‑hole, but I just want to say this really quick. You’ve been on a list and they send you a reconfirm. First of all, you think maybe this is spam. Maybe you just trash it. Maybe you don’t open it. Maybe you email Patrick and say, “Hey, I got a reconfirm,” which I’ve gotten before.

I’ve had people email me that have been moved over to a new list and said, “Hey, I’m already confirmed, but I’m getting a reconfirm. Apparently someone’s trying to spam me from your address.” You just created so many support handles and support issues.

Patrick: It’s possible that someone has affirmatively moved your email from Google’s new promotions tab into their main inbox because they want to see it every time, but the reconfirm notice goes into the promotions tab and they don’t see that and suddenly they don’t get an email anymore. There’s just lots and lots of issues.

That’s one of the reasons why email marketing tends towards stasis. After you have a system that’s working, you don’t want to nudge it. Sort of like doing a DevOps.

Keith: Oh, God, yes.

Patrick: If you’ve ever gotten a particular version of Ubuntu running on your server, never upgrade it ever.

Keith: There’s a reason that I still have sites running on Slicehost generation one servers now owned by Rackspace…

Patrick: Obviously, you have to update your kernel everyone once in a while or there are going to be security vulnerabilities, and I understand that. I Just know, the last time I did the kernel update on Rackspace I had six and a half hours of downtime.

Keith: Exactly. I think that’s good about concierge servicing.

Patrick: That’s concierge stuff. Concierge is a tactic Keith is using for Summit Evergreen. Let’s talk a little bit more about that topic because there’s some interesting things that people who are doing their first SaaS business might benefit from.

Customer development is a catch‑word in the industry. I like Keith’s thing here for doing customer development. Basically, Summit Evergreen is an extraction out of his wildly successful consulting practice.

It’s not like the typical thing where I think I’m going to make schedule management for massage therapists, and I have not ever run a massage therapy business or whatnot so I don’t know if there’s a market for that yet.

In customer development, hopefully you would go out to the massage therapists and ask, “What do you use for schedule management? Do you have a burning schedule management problem in your business?” prior to building a solution and attempting to sell it to them.

Otherwise, you’re going to find that you make a solution that targets a problem that nobody has. Keith knows people who had businesses who sell meaningful amounts of money on these online courses have problems with the online course management.

They paid him previously meaningful amounts of money. Like meaningful amounts of money in a consulting sense rather than a $50 to $200 a month sense ‑‑ to solve these problems.

Are you comfortable saying what an average invoice is for somebody, one of the clients doing this?

Keith: I am, unfortunately, not.

Patrick: Let me pick a number out of thin air from my consulting experience as a ballpark number for having a high‑level consultant work for your business. Let’s say it’s $40,000 a project. If you have a successful consulting practice and you’ve been selling some certain segment of business, $40,000 services to get that aspect of their business better, then you know there must be someone who has at least enough burning desire to fix that problem such that they’re willing to pay for a software as a service offering if that software as a service offering is some percentage as good as having your expertise in the business for one week or two weeks or however you schedule your consulting engagement.

It’s highly unlikely that Keith is going to go to market now with Summit Evergreen, which is priced at whatever.

Tiered Pricing For SaaS and Infoproducts

Keith: Starting at 99.

Patrick: Starting at 99. What’s your pricing model for this?

Keith: 99, 250, and 500, I believe.

Patrick: What’s the pricing axis for that?

Keith: How do you mean?

Patrick: What determines whether I pay $99 or I pay $500, aside from the names of the plans? Naming plans are really, really important.

Keith: It’s all the names of the plan. No, I’m kidding. [laughs]

Patrick: I’ve honestly seen companies like that. No lie, guys. Seriously just putting the name “Enterprise” on something makes it more valuable than having the name “Hobbyist.” Can I tell my anecdote that I always tell about this?

Keith: Please.

Patrick: When I was working at a Japanese company, we needed to use Crazy Egg for something. Crazy Egg, shows you where you’re clicking on the website or where your customers are clicking on the website. I was the engineer in charge of this project. I ran the numbers.

We needed the hobbyist plan of Crazy Egg for nine dollars a month. I submitted an expense authorization form to my boss saying we needed the hobbyist version of Crazy Egg. It’s nine dollars a month which is about 1,000 yen.

My boss opens up the Crazy Egg page, scratches out hobbyist, writes enterprise, scratches out nine dollars, writes down $500 or whatever the equivalent in yen is, returns the form to me for re‑authorization so he can send it to his boss.

I said, “Boss, boss! We don’t need to spend $500 a month. We only need to spend nine. I’ve run the numbers. I’m very sure that we’ll have plenty of headroom under that.”

He says, “F if I’m going to my superior with the word ‘hobbyist’ on it.” It was worth $490 extra a month just to save face for an interaction between two people at this company which would have been over in less than five seconds.

Keith: This is one of the core marketing concepts that, surprisingly, a lot of people doing video courses do not get which is tiered pricing.

Patrick: SaaS companies don’t get this either, by the way.

Keith: It’s amazing. It’s absolutely amazing. At any pricing point, there is someone who will or will not pay it based on that. The idea is that you have a price point for whatever someone is willing to pay. If they’re only willing to pay $100, you have a $100 plan.

This, of course, you don’t want to have a five dollar plan. If someone is willing to pay $500 to $1,000 you better have a plan for them. Otherwise, they’re going to be on that $50 plan and you’re going to be out $900.

Patrick: Right. In the economics literature, there’s words for this kind of stuff that we’re just beating around the bush here. “Customer surplus” is the difference between what someone is willing to pay and what you actually make them pay.

Let’s say the value to my business of adopting this technology would be $1,000 so I’m willing to pay up to $1,000 to adopt that. Let’s say it’s $2,000. I have a 50 percent discount rate. I’m willing to pay up to $1,000. You charge me 50. That means I just received $950 in customer surplus from you.

One tactic to capture the customer surplus is called price discrimination — charging people different prices. Price discrimination in the classical market is sort of difficult because you have to offer…this isn’t a legal requirement or anything. Just operationally, it’s difficult to offer people the same product at different prices in such a way that you can maximally discriminate on their propensity.

SaaS does that by doing the nice, traditional, three to five column SaaS pricing tier thing and thinking really, really carefully about what’s in those three to five columns. Knock on wood, aspirationally, you think really, really carefully. The actual practice of a lot of SaaS companies is what a junior engineer threw up three years ago and no one’s touched.

Keith: This is really sad.

Patrick: On the plus side, if you ever work in a SaaS company, take a look at that pricing page. Do one to two days of really deep thinking. Every element on that page is should get asked: “Whose perception of the pricing offering is it supposed to modify and how?” Make a new version and test it. You can often add 25 percent plus to the enterprise value of the company for two days of work.

BTW, there are a lot of people who charge a lot of money for pricing advice just because the leverage on it is absolutely astounding.

Keith: If you improve someone’s pricing page and they improve their end of year sales that’s worth however much money they made that year because they’ll make it again next year and the year after that.

Patrick: It’s not just the bottom line. The leverage doesn’t extend just to the bottom line, it’s to the enterprise value of the company. [Patrick notes: If your company is valued at, say, 5X sales, and a change to the pricing page causes sales to go from $40 million to $50 million, that change isn't worth $10 million, it is worth $50 million.  Or at least that's the number to claim if you're a consultant trying to justify your rates.] It’s absolutely insane.

Keith: Which is why, actually, our tiers…you asked what our axis is. Our main axis is the number of customers. Since it’s Evergreen, it’s not the overall number of customers, it’s customer per month. If you got 200 new customers this month then you will probably want to buy this tier. If you’re expecting 500 new customers a month, you’ll want this tier, et cetera.

Patrick: This is one of the good patterns for both SaaS pricing and info product, video course pricing, too. Align the price with customer success. It’s one of the reasons people like micro metering models. I generally hate micro metering models for pricing most things, unless it’s basically a purely transactional thing like PayPal or Stripe or whatever where you’re getting a percentage of every transaction.

The one good thing that you can say about those is that they scale pretty directly with customer success. If someone sells $100,000 of stuff through Stripe they pay $3,000 or whatever in Stripe fees. If they sell a million dollars it goes up to 30,000. Stripe captures some percentage of the upside is their business grows and becomes more successful based on the Stripe platform.

Sometimes, SaaS are priced in a way that does not necessarily align them with customer success. That’s often unfortunate. As an example, I don’t know if they would appreciate me telling the name of it but there was a company I was involved with, and they sell to developers. One of their pricing axes was how many repositories we have.

The count of repositories in your organization is a very imperfect proxy for your business success. I don’t know if this is actually true, but the word on the street is that Google has exactly one repository stored in Perforce or something ‑‑ one repository across an organization that makes like $100 billion a year.

There’s a lot of two-man Ruby on Rails consultancies that have 100 repositories just because Ruby on Rails and the Git model encourages you to have a repository for everything you do.

If you’re thinking of charging J. Random Two Person Ruby on Rails consultancy orders of magnitude more than you would charge at Google for a product that is approximately the same value proposition, your pricing might need a little tweaking.

Keith: This is one of the advantages, I think, that Bit Bucket has over GitHub because GitHub, for their private repositories, does what you’re saying. I’m almost positive you’re not referring to GitHub in that.

Patrick: No.

Keith: They do, do that. They’re competitive pricing. You get five private repos for five dollars or something. It’s nothing. Like you said, I have 50 repos sitting around, and I want them private because either they’re client stuff or they’re small things. I hope that’s a yawn and not you viewing me in disgust. Good. [laughs]

That’s one of the things I like about Bit Bucket. Bit Bucket’s pricing model for private repos is not on the number of repos, it’s the number of contributors you have to that repo. If you were doing a project where it’s just you then, yeah, it’s just free storage.

If you’re doing any business and you have more than 5 to 10 people in a repo, then they’re going to charge you for it.

Patrick: I really like scaling on team size because team size, again, it’s a imperfect approximation for the value received from a given product. It’s a really good approximation of ability to pay simply because somebody who has 10 employees in the company, no matter what their job title is, no matter what their salary is, if they have 10 employees then the company must be spending at least $20,000 a month on something.

Therefore, kicking your price up from $50 to $250, no needle at the company, changes as a result of that.  But when you 5X your prices it very much makes a difference at your company. I don’t even think it’s on our pricing page, but Appointment Reminder will kick you in from the $29.00 bucket to the $200.00 bucket if you have. I don’t know what the number is off the top of my head ‑‑ it’s like three employees or five employees or what not.

I’ve never had a single complaint about that.

Keith: And Atlassian is great, because that’s their whole marketing for the on demand service, and their normal service. They have the 10 for 10. Ten dollars a month for any product for up to 10 users. It’s great for small companies. I have exactly 10 people, actually, working for me. I have 10 people. I have six or seven of their products now, so I’m not paying $10.00 unfortunately.

As my business grows, as I get more people in my business, and I have the money to pay their salary, of course I’m going to move to the next level in Atlassian. Because first of all, they’ve been really good to me up until now. Second of all, all my data for the last five years is in there.

I’m not going to move to Red Mine, or what not, and move five years of customer data, and everything into that new system.

Patrick: It’s funny because I assume that Atlassian probably has an export feature, and…

Keith: Oh yes they do. Very good.

Patrick: …They don’t try to lock you in, or anything. It’s just the nature of all businesses. Like we were talking earlier, after you have a working system that impetus is in favor of working in things that actually matter in the business, and not twiddling around with trying to move to a different software solution, and save, what is from the business perspective, a minuscule amount of money.

Keith: The pain point has to be very high before you are willing to switch over. Actually I did just switch over one of my systems, which we’ll talk about in a bit if we have time.

Patrick: By the way, for those of you who are thinking of doing a SaaS right now, so if you’re going to follow our advice, and target a SaaS that is targeted to business, or launch a SaaS that is targeted to businesses, that last bit we just said about there are huge switching costs involved in doing anything, so if there isn’t a lot of pain you wouldn’t do the switch should inform your idea of what should make for a SaaS.

If you are talking to potential customers, and the idea, the pain point that you’re going to target is not one of the top two most pressing issues in their life right now, don’t do that. Do one of the top two things. As a business, I’m a very busy guy. I have run four products. I have thousands of customers and off ‑ag0ain employees. Things are going on. And I have way, way too little time to deal with it all.

If you’re not on my top two issue list, I’m not going to buy your thing. I could tell you, “Oh, that’s nice. It sounds like a great idea. The UI is beautiful. I love it. I might even implement it someday when I get a moment.” But the truth is, I never get a moment. I very rarely have time to get things that are lower on the priority stacks than the top two things.

So if you were trying to sell to me or to the generalized class of small business owners who I kind of represent, sell solutions to the top two problems. I wonder what my top two problems are.

Keith: I can tell you right off the top of my head what mine are ‑‑ billing and product management.

Patrick: Mine are probably getting more customers at scale for Appointment Reminder.

Keith: [laughs]

Patrick: Seriously. Someone out there will eventually crack the Da Vinci code of getting scalable customer acquisition for SaaS businesses. And that person is going to be a billionaire.

Keith: This is another thing. So you say your top two. Let’s take me for example, with my billing and project management, and top two pain points. Those are my top two. However, if someone had a SaaS and it’s like scalably increase your business, then that would be number one, right there.

Patrick: To the magic money wand. Please wave the magic money wand for me.

Keith: Exactly. If there is something that I can pay money to, and the return on actual money is greater than the amount of money I am paying, then it’s a no‑brainer. I think we had this conversation one time. Maybe it was just you and me.

We were talking about the price of accountants, and there was a very expensive accountant that we were talking about, and it saved someone a very large amount of money ‑‑ about 20K. Let’s just throw out a number.

Patrick: I’ll put actual numbers. I thought I owed the IRS $14,000. My accountant charged me $5,000 to do my taxes for the year, which is on the high side for accountants, was able to reduce that $14,000 bill to, I kid you not, 11 bucks.

Just because he had comprehensive knowledge of the US‑Japan Social Security Totalization Agreement and the US‑Japan Technical Implementation Notes for the US‑Japan tax treaty.

Keith: Apparently you were also overpaying for the last three years as well.

Patrick: Yeah. You probably could get me that money back too. You just haven’t done that yet.

Keith: After hearing this story…I have a slightly expensive accountant ‑‑ not that expensive. But people in Japan, especially in this area, who are very thrifty, would keep saying, “Why are you paying that much for an accountant?” I’m like, “Because he makes me more than I am paying. He saves me more money on my taxes than I am paying him. Therefore I am happy.”

Patrick: Right.

Keith: And a huge amount of stress at the same time.

Patrick: Oh God. I had to do taxes and those of you who’ve done taxes know that it’s like pulling teeth, and it gets harder every year for me, because my business gets increasingly complex. And b) there was the stress of knowing, “OK, there’s some way to optimize this.

“And I’m not sure what it is. Every minute that I spend optimizing my taxes is a minute that I don’t spend optimizing duh, duh, duh, increasing the number of accounts on Appointment Reminder’” which rationally should be the only thing I work on aside from all the other things I have to work on.

Keith: To pull back real quick, the number one thing you should be focusing on is things that make people money. That’s the number one thing that people will buy. If your service can make someone money, they will buy it. The number two one is, hitting those top two pain points. What are the things that people hate doing in their business or in their personal life?

I say business because B2B prints money. B2C is really F’ing hard. What are the two pain points that you can solve easily? And push for that.

Patrick: Not to beat on the anti‑B2C drum again, but to beat on the anti‑B2C drum again…

Keith: [laughs]

Patrick: With the amount of money flowing around in the venture capital world right now and also the likes of Facebook, Apple, Google, etc., who are basically driving the cost of software down to zero because it’s a complementary good for their various ecosystems that allow them to print money, I don’t think that there’s really great opportunities for small businesses to do quite so well in B2C software anymore.

There was a thriving Mac market of $30 softwares a couple years ago…

Keith: Nothing.

Patrick: …Back in the post‑shareware days, and now, even though the market is probably expanding due to the presence of app stores and whatnot, Apple has basically designed the mechanics of the app stores to encourage churn and encourage the pricing to go to zero.

Keith: You have to sell quantity.

Patrick: Because the happiest outcome in the world for Apple is there’s an app for everything and none of them cost more than 99 cents. That will allow us to sell a lot of our $600 iPhones.

Keith: Exactly. They just released Pages, Numbers, and whatever the other one is, not word. I wish it was word. No, that’s pages. I don’t know. Keynote. Keynote. For free. The latest version of Mac OSX is free. Windows is now five dollars or something like that? I don’t know if that was a limited time or not, but I think the upgrade to Windows eight was five dollars, if I remember correctly.

Patrick: Was this in one of Joel Spolsky’s strategy letters, where he’s like, “Commoditize your complements”?

Keith: Yeah.

Patrick: This is totally coming true in the software business. The big platform companies have decided, “OK. Software is now a complementary good to the service that we offer.” With Facebook, it’s the social graph. With Google, it’s controlling navigation on the Internet/advertising.

With Apple, it’s the hardware. They want to make the software experience…people say, “Oh yeah, we have a developer community. We want them to build wonderful businesses on our platform.” But they want you to build wonderful businesses by pinching your margins to the absolute bone.

Similarly, while your margins are getting pinched to the absolute bone, you’re going to be competing with people who are venture‑funded based on the huge size and growth opportunities on these platforms, who are capable of having negative margins, just because they have made money behind them.

There was a photo‑sharing startup that recently got shuttered.

Keith: Everpix.

Patrick: Everpix, yeah. They spent two million dollars to make a hundred thousand dollars. So many parts of that story make me kind of sad. One is that by all accounts, their service was actually really useful and people loved it.

But it would have been an awesomely successful business making $30,000 a month or whatever. If it was a solo founder who had built it up as a labor of love by himself and then was getting to a point of significant success, where at $30,000 you’ve covered the day job, you have a legitimate business. You’d start reinvesting into it by hiring people ‑‑ one person at a time, and then slowly ramping up.

Due to the “throw gas on the barbie” venture capital model, they had seven full‑time employees. The payroll cost was on the order was like two million dollars over a two‑year period.

It’s very hard to make the math of, “I’ll pay my employees two million dollars and take in $200,000 of revenue work out overtime.” They didn’t have the hockeystick growth curve that would convince the VCs to stake them with another four million in the hopes that they eventually got to a hundred times where they were.

Keith: I do want to put some numbers in perspective. Two million for seven people sounds like a ton of money. Over two years, it’s still 140k per person per year. It’s definitely not anything close to bootstrapping, but it’s not like they were blowing money on their employees.

Patrick: Right. Yeah. They were probably taking below‑market costs in San Francisco. There’s a breakdown of their numbers that we’ll link to in the show notes, but their payroll costs were so much…If you compare their total payroll cost number to their total salary number, it’s pretty clear that they were not getting the “standard benefits package” you would expect as a white‑collar worker.

Keith: In the San Francisco area?

Patrick: Right. They’re getting below‑market salaries. Presumably, any one of the employees of that company could have worked at, without loss of generality, Google or Facebook and gotten the famous free food, and free massages, and paid health care for you and your family, all those other things that you typically get if you’re working as an engineer.

It’s not that they were setting money on fire for salaries, it’s just that venture capital allowed them to grow the team heavily in advance of where the business was. That gamble did not quite work out.

Keith: Right. Exactly.

Patrick: It burns two million dollars of venture capital guys’ money. I’m not really concerned about that because you pay your money and you take your chances, when you’re an accredited investor.

Keith: But when you’re bootstrapped, especially like us…

Patrick: Right.

Keith: …I don’t have seven million to burn. [laughs]

Patrick: Right. Getting back to the point of where you guys as small businesses might be, if you have a venture capital funded competitor in the market, like let’s say you were in the Everpix space, today might be happy for you, actually, because you have the option to go swoop in and rescue 30,000 customers from, “Hey, your service is getting turned off? Maybe you should use us instead.”

But the two years prior to this, it’s like, “Well, there’s this beautiful, well‑designed app which has seven full‑time employees worth of effort expended into it, and it can afford to outspend me 10 to 1 on customer acquisition, because they don’t have to be profitable at it.” That’s not a happy place to be. So don’t do B2B

Keith: Sorry.

[laughter]

Patrick: Do do B2B.

Keith: Do not do B2C.

Patrick: Don’t do B2C where you’ll be competing with people who can afford to lose money on every sale and make it up on volume or, at least, will until a Series A Crunch kills their company. I don’t want to rub it in the nose of these guys. I’m sure they are great people and…

[crosstalk]

Keith: No. I think they are great people. I think it just was not really shitty luck, but just shitty circumstances for them.

Patrick: Yeah.

Keith: They did have a great product, by the way.

Patrick: It’s the mob. Venture capital, nine companies out of every 10 companies are going to fail. But, if you invest enough of them, eventually you invest in Facebook or Google ‑‑ which is a great outcome if you have a very large portfolio. Perhaps less of a great outcome if you’re confined to any one company.

Keith: Exactly.

Patrick: People often ask me about it — man, this is a tangent — It’s my first job in the industry. Should I get a job at a funded startup or should I get a job at Google, or Facebook, or whatever? Or should I do the solo bootstrapper thing, or should I get a job as programmer at a non‑technical company?”

Keith: That’s a…

[laughter]

Keith: …Hard question.

Patrick: That’s a hard question.

Patrick: We should do an episode about that. I’m going to table that discussion for a while…

Keith: Yeah, let’s do that.

Patrick: …Because it will make this podcast go six hours long.

[laughter]

Patrick: What was next on the agenda?

Patrick’s Upcoming Course On Conversion Optimization

Keith: I think we were going to talk about what is following up the Lifecycle Email course.

Patrick: Yeah. Originally, I announced I was going to launch it in August. Then stuff happened. I have a health issue. I might talk about that later. But it didn’t happen. Knock on wood. End of November/early December in July, I hope to launch a video course, similar in character to the Lifecycle Emails product, talking about conversion optimization and A/B testing for software companies.

This is something I did a lot of work on in my consulting days. As we’ve mentioned previously, I’ve quit consulting, but people continued coming back to me and saying, “Hey, what would you do at our page like quickly, not just to increase sales of the product or to increase the number of trials we had on a monthly basis?”

I think that’s something that I can probably have some fairly decent advice about. I do it informally for friends still and have racked up some very fun anecdotes they’re going to let me share publicly. I’m going to productize that and see where it goes. Then, probably, pitch it at the price points roughly similar to the Lifecycle Email course. I guess I don’t want to talk about too much of the plans there because I do need to have some reason for you guys to come to the landing page.  [Patrick notes: You can pre-order the course here.]

[laughter]

Patrick: I’m not trying to sell you stuff, but I am trying to sell you stuff. But I’m only trying to sell two percent of you stuff. The funny thing about courses like this and whatnot it’s like, “OK. There is,” whatever is in 8,000 people on my email list 1,000 of you opted in for dedicated emails about this product and this topic in specific. Nowhere near 8,000 or probably even 1,000 folks are going to buy it.

I want to produce as much value as possible for everybody in the audience, with the knowledge that I want to spike the value creation with regards to, say, 50 to 500 of the audience who are going to whip out the company credit card and put down that 500 buck, or 2,000 bucks, or whatever it is that it eventually gets priced at.

Keith: This is a great topic for our next podcast, if our next podcast is not what we had just talked about, which is the idea of ‑‑ Nathan Berry talk about this a lot ‑‑ marketing by telling everything you know, teaching everything you know.

I think we’ve touched on this before. Not even marketing. Just tell people everything and be very open with what you do.

[crosstalk]

Patrick: I don’t know about everything, honestly.

Keith: Maybe not everything, but…

[crosstalk]

Patrick: I was a “let it all hang out” guy back in the early, early days of being a card creator. As I’m older and wiser now, there are some little aspects I would put on these “totally one hundred percent radically transparent and give everyone access to your QuickBook files.”

Keith: I was thinking more of knowledge instead of hard numbers.

Patrick: Knowledge, I don’t know. Isn’t it like some sort of picture book, storybook, written by hippies about…

Keith: [laughs]

Patrick: Have any of you ever read this book where there’s the Warm Fuzzies and the Cold Pricklies. You give Warm Fuzzies to people and, “Wow, you give a Warm Fuzzy to someone, and you magically get a Warm Fuzzy yourself.” Cold Pricklies, they don’t work like that.

Keith: That sounds really familiar. I don’t think I’ve read it, but…

Patrick: I really think there is actually some hippie book that says this.

Keith: [laughs]

Patrick: Teaching people things in the B to B context is like a Warm Fuzzy generator. You do not lose stuff by having your information out there. I’ve had consulting clients, where I was doing a presentation internally at a consulting client. They said, “We would like to take this on behalf of the people at our company who are currently not at this presentation. We’re sensitive to your desire to not cannibalize the value of your advice, so we won’t tape it if you’re not OK with us taping it.”

I appreciate that. That’s very thoughtful of you. From my business perspective, not only do I want you to tape it and show it to everyone in the company, but also, if it’s OK with you, let’s tape it and put it online. Let’s get it in front of 100,000 people. Nothing about my business is going to get worse if it gets publicized that this is the advice that I would give your company.

Keith: We should definitely go into that in detail. There’s a ton that we can go into with that.

Patrick: Next podcast then.

Keith: Next podcast. One of the things that I want to mention, going back to the A/B testing course, your next course that you’re putting out. I launched my product on Monday. I’ve been doing this, very similar consulting as you, for three years now, so conversion consulting, OK this page doesn’t work right, this is how we need to structure things to funnel.

Patrick: Can I time out here for a second, by the way. Keith and I ran consulting businesses which had different core client bases but very similar levels of sophistication involved and the advice that we would give clients. We had roughly similar price points — within an order of magnitude within each other.

Roughly similar geographic distribution of customers, Japan, the United States, wherever the work found us.

One thing that was not the same about Keith’s and I’s business was that I have an “Internet profile” and Keith a little less of an “Internet profile.”

Keith: That’s an understatement.

Patrick: I just wanted to throw this out there. OK, I am looking at Keith here and can I name a number at Keith. Keith is looking at me with a look that says “don’t name numbers.” Let’s just say his business is bigger than mine by a lot. There are a lot of people who tell me that “Consulting is great if you’re Internet famous like you are. You cannot be high in consulting unless you’re Internet famous.” You have been disproven by counter-example here.

Keith: I have no English website. The new product that I have is all in English. For my consulting, I have no English website. My only website is in Japanese and I will promise you the majority of my clients are not Japanese nor can they read Japanese.

Patrick: The primary customer acquisition channel was, “Oh, did you get your job on oDesk?”

Keith: No, that was not oDesk.

Patrick: Correct, it’s actually doing a really good job with clients and getting referrals by word of mouth. You don’t need 100 million clients to build a very nice consultancy for yourself.

Keith: Exactly. What I was going to get into there is I launched my first product. The blinders you get when launching your first product is absolutely crazy. It’s very…I don’t want to say it’s easy. I am used to going into other people’s systems, into other people’s sales funnels, and saying, “OK, here are your main bottlenecks.”

Then, one of the reasons is that I am not super close to that funnel. I haven’t been working in it for three years, five years, so the thorns stick out like you wouldn’t believe. We have been working on this product two years now.

When you’ve been working on it as long as that, you notice that the thorns don’t seem so thorny. I am looking at my own conversion pages. These are totally not optimized. I should really get a consult to come and look at these.

Patrick: You guys laugh. You get the equivalent of banner blindness when you’re working on your own products. I was once working with consulting client. We were looking at the sign up page or something and I said, “the decision X, Y, and Z that you’re making on this sign up page are clearly suboptimal. Let’s do something about that.” They’re like, “I copy pasted that from a Appointment Reminder.” I was like, “What. No, you didn’t.” I looked at the Appointment Reminder. “Oh God, you did. What idiot was in charge of this website?”

Keith: Yeah, it’s pretty amazing. A lot of my clients are really savvy, really smart people. It is amazing because the mistakes that really smart people can make with their own product, because they are so entrenched in it, are just mind blowing.

Patrick: Or there’s so much going in the business, we don’t make optimal decisions about where we spend our limited pool of resources. If I am running a business, so if you were Homunculus economicus, the rational decision maker. If you were Skynet, just decide I have 100 points of resources amongst all the aspects of the business.

You would distribute them at points of maximum leverage for the business. That would mean that everybody’s business would be 99.95 percent spent conversion optimization on their sign up page and .05 doing everything else.

All my consulting clients gave me the death glare there. All of them disagree on me on that. OK, I’ve got my little own take on things. None of us distribute our resources rationally.

Instead, we do the stuff that makes us feel good. Stuff that we think are important, but isn’t important. The day to day grind it out of the business where it’s not urgent but it has to be done anyhow, like responding to emails from people who couldn’t figure out how to click confirm in the email lists.

Doing stupid business administration stuff which we should outsource but we haven’t figured out how to outsource exactly. Bookkeeping for me until I got a bookkeeper.

Stupid wastes of time that chewed up two days of my life, I lost my wallet and so because I have not yet delegated to my relationship to the bank to anyone else, I had to call thirteen banks and say, please reissue my credit cards. Now, after they get reissued over the next week to two weeks, I will have to re‑type them into 50 systems. That’s not going to be the core source of growth for any of my businesses this year, but that happened.

[laughter]

Keith: Something derailed it.

Patrick: Sometimes its controllable, I’ve spent lots of times this year, something that I did and I’ve should have known that it wouldn’t have been worth nearly as much as working on conversion optimization. For example, in building my own drip course delivery system, like Keith was talking about, I scratch coded that in Ruby on Rails. Somebody approached me, Ryan Delk, from Gumroad, asked about maybe using Gumroad for it.

This is funny because it’s something that I would have posted it on Hacker News, but since I said it in real life and didn’t immediately download myself. I actually said it, “Oh well, you charge five percent of the sale and I don’t think it’s worth five percent of the sale.” Instead I am going to spend weeks of my time implementing them from scratch, and ruby on rails, and doing half a good a job as you guys could do it. Conversion rate optimization.  The Gumroad purchasing experience is so good.

Keith: It’s the best purchasing experience that I have ever had online. I have been looking at Meteor. Sasha Grief made a Discover Meteor online course which is great. I went to buy it. The checkout experience was so nice that I emailed Sasha and said that was the best checkout experience of my life. That is how good Gumroad it. It is amazing.

Patrick: They are more like towards Amazon. Amazon has I don’t even know how many hundreds of millions of dollars of time invested into making the checkout experience, making shopping actually fun.

Keith: I think Gumroad’s checkout experience is easier than Amazon.

Patrick: I think it’s quite easier than Amazon. On the scale that people would probably use, Amazon, easy to check out with. They remember your credit card. They do all the “obvious” UX tricks that are not obvious at all. Then, there are a lot of businesses that you do business with where it’s, “Oh my God what idiot made these decisions.” It’s some junior engineer because they don’t have a UX guy on staff and they don’t care about it.

There was a hotel. I was trying to give them $4,000 towards a hotel stay. They wouldn’t take my $4,000 because they said, “you’re credit card is invalid,” I swear I retyped that thing 15 times. I finally figured out by, I kid you not, manually inspecting the F’ing JavaScript that that the thing that’s making my credit card invalid was putting spaces in between the four digits, digit groupings, on credit cards.

Keith: Was it a Japanese company?

Patrick: No, it was an American company. It was a multi‑billion dollar American company. I wanted to take my laptop and throw it out their window because of…”Do you hate your customers?”

Keith: It’s such a solvable problem.

Patrick: I think I should call them out. Starwood Hotels.

Keith: Really, I hear great things about them all the time, but not their online service.

Patrick: Apparently, the reason why I use Starwood Hotels is a mutual friend of Keith and I said, “Oh, they’ve got the best credit card/reward perk thing ever.”

Keith: And they do, they really do. They have a great perk system.

Patrick: I did lose the credit card. Hopefully it will get reissued eventually and Amex gets me the new card. The website [moans] .

Keith: Jale, that was actually a bad day. They have not realized that there’s a space between my first and middle name and inserting that space will not pull out.

Patrick: Oh, don’t get me started about names.

Keith: We’ve done this I suppose a couple of times.

Patrick: I have the entire list of 40 falsehoods programmers believe about names. It bit me again when I was getting my credit card reissued. I will go on a little rant here about life, the universe, and everything. I think we’re living in this a dystopian cyberpunk future already. We’ve don’t realize it yet because our lives are pretty much livable these days. If you don’t live in “the system,” you’re just totally F’ing screwed.

This doesn’t just affect just middle class Americans or Japanese people that often because we’re middle class. By definition, we are in the system. If you’re not in the system: welcome to Kafka. It’s so bad.

I had a bank. The bank could not accept my report of losing my credit card which was in the wallet that I lost without photo identification from me, which was also in the wallet that I lost. This is despite me being customer of the bank for 10 years.

The manager knows me by name. “I am sorry Mr. McKenzie.It’s just procedure. I can’t take this down unless you show me your card to let me that you are the same person who has been coming here in the last 10 years.” This is Japan by the way, where there are only two white people in this town. It’s either Keith or I.

Keith: People still mistake us.

Patrick: He has a beard. I don’t. Whatever, all white people look alike to us. This topic almost makes me feel Marxist. None of the people who are doing scholarly literature on it, the differences between classes, would be surprised in the least by, “Poor people don’t have photo identification on them all the time, necessarily. Upper and middle class people do.”

Middle class people don’t see that you needing photo identification to vote as a big imposition. People who are not as acculturated into the middle class might see that as an imposition. If you get broken out of the comfort zone for you, you realize how totally non-fault tolerant a lot of the systems are right now, like losing your identification makes systems is a very non-fault tolerant. Systems we designed, too.

I don’t want to sound like a Marxist act now. We can say The System with capital letters as something that is controlled by other people and that we are not responsible.

Keith: No, no.

Patrick: As programmers, we are responsible for this kind of user experience in our own stuff. As programmers, we often think that we understand what email addresses we use, what user names we typically use, what email address and password we use to sign up for a typical website. This is a highly questionable assumption for many user populations.

I will bet you that if you don’t remember the email address that you used to sign up to your own website that the experience you get is totally sucky. Just try that. Pretend I don’t remember what my email address is. What’s the recovery path for that?

For a lot of services, there is no recovery path. You go to the website, you type in the email address and password you think you used. It tells you “One of those two things is wrong. I’m not going to tell you which.” You can type stuff into that thing all day and it will not help you.

Then you go to the password recovery form and type in your email. Often, for spurious security reasons, the password recovery form will not tell you whether the email you typed in is actually an email that they have on file. Which ‑‑ by the way ‑‑ I want to punch in the face anybody at your company who made that security decision.

The reason being if I type in my email address into the password recovery form and you tell me yes, you got the email right, the email is on the way to do the password recovery. Yes, that does disclose the existence of that email address being in your database, which could leak that to an attacker.

On the other hand, if you only allow an email being in your database once, the fact that someone can use your sign‑up form and see whether the email has been used already leaks the same information. It’s just pure spite and hatred for your customers that you don’t tell them that email address is wrong or that email address is right when doing logins or password recovery.

Keith: I had a system. I can’t remember where it was. I went to get my password because I had forgotten it. I seemed to remember which email address it was. I put in my email address. It says, “We found your email address, it’s on the way.” Wait 5 minutes, 10 minutes, 20 minutes. It’s still not there.

I put in another email address that is very similar but I know is completely bogus. It said, ‘Your email is on the way.’ Whatever you put in, for security reasons, it would tell you that the email is on the way.

Patrick: I’ve been involved in systems like that before. A well‑implemented system, if you’re 100% convinced you want to do this into this, will send you an email regardless of whether you’re email is in the system or not. If your email wasn’t in the system, you wrote it correctly, it would say, ‘We’re sorry, we didn’t have any information on you.’

I was told by a security officer this is a great trade‑off. It doesn’t disclose the existence prior to proving they control the email account. After they’ve proven they control the email account, it’s not a totally horrible user experience.

It is a totally horrible user experience because you have to wait five minutes for the email to show up and then they check it. It’s like “your princess is in another castle.”

Keith: Especially with Gmail and G Apps supporting the plus. I have tons and tons of email addresses that all go to the same place, one for each system, in fact.

Patrick: I have a dirty confession to make about the plus and whatnot. If you actually read the RFCs for what pluses are supposed to be used for, it’s pretty much just for convenience for the user. I have a lot of people who might be listening to this podcast. If you think I’m talking about you, it’s not you, it’s someone else that’s listening to the podcast.

They think they’re very smart and sign up with my name plus Kalzumeus at Gmail.com to be able to filter it out if I ever start spamming them. When you try to log in to this system, you forget that you used the plus Kalzumeus and so your email address would not actually be in the system.

What I do is my log in form checks both foo@example.com and foo+kalzumeus@example.com.

Keith: It takes out the plus first?

Patrick: Right. It takes out the plus first, tests for the existence. If you provide the plus on the log in form, which no one remembers to do, it will do what you expect it to. That saves them. I have a running counter on my dashboard. The title about it is “Hacker News Users Who Thought They Were Smarter than They Actually Are.” Currently 47.

Keith: That is going into my software. That is the next feature I am pushing live. That is going in front of building fixes. [laughs]

Patrick: That’s users acting against their own interests. As programmers, we often act against our users’ interests by making processes which are not fault-tolerant for our business.

Keith: It’s amazing. It’s the same thing with blinders. If someone had written on Hacker News that I was doing this, people would jump on him that he was raw meat and they were a bunch of hyenas, honestly.

Patrick: I don’t know. I think if someone said, “I have a security rationale for this,” that would get a lot of thumbs up for them.

Keith: I think it would be very split. The point I’m saying is people are much more critical and much more able to be critical about other people’s mistakes than their own. That’s not out of spite or purposely, it’s just the blinders issue.

Patrick: The ability to consider an issue in isolation gives you a much higher resolution into the intricacies of the problems associated with it than when you’re seeing the entire freaking system at once. When you have a system that has 40,000 lines of code, your password recovery function doesn’t jump at you as the one thing that you should be working on right now.

Especially for B2B SaaS where the lifetime value of customers is, at any given point, in thousands of dollars in terms of future revenue for them. Not having someone cancel their account because they can’t figure out how to log into your system is sort of a win.

I would encourage you to make that interaction not totally suck.

Keith: Harping on the forgotten password thing, this is very interesting. I always thought who uses Forgot Password. I have all my passwords stored in Chrome or Key Pass or Last Pass or whatever.

Patrick: This is another one of those inabilities to empathize with the user.

Keith: Yes. I thought this until a couple of years ago when I was watching the logs because we were doing some purchasing testing or something. As I’m watching the logs over maybe a 20 minute span, I could see people — so‑and‑so requested password, so‑and‑so requested password, so‑and‑so requested password.

How many people are forgetting their effing password? It obviously was real users. It wasn’t going at a high rate. The usernames were completely different. People were requesting their passwords. People forget their passwords like you wouldn’t believe.

Patrick: There’s honestly some users for whom passwords, they’re done with that nonsense. They just jam on the keyboard and then every time their session gets timed out they request a password again. I’ve seen that usability report.

There was actually an open source project that was supposed to support that as your primary access tool for websites where every time you wanted a new session you would have to click a link on your email. I don’t think they got any traction. It’s not crazy.

Keith: It’s not crazy. It’s obnoxious but not crazy.

Patrick: Close to crazy.

Keith: We’re not going there.

Patrick: Not going to rat‑hole. This is the talking about making money for software business. This is not the rat‑holing about little, tiny implementation details podcast.

Keith: We’ve gone an hour and a half. We want to cut here or we have three more topics? Two more topics.

What We Learned At Microconf (In 2013)

Patrick: I would love to talk a little more about stuff we learned at MicroConf.

Keith: I would, too.

Patrick: We talked about concierge. That’s the big one.

Keith: I took, I shit you not, 13 pages of notes in the first day. It was a two day course, three day conference?

Patrick: Two day conference.

Keith: Two day conference. I have an F‑ton of notes. I’m flipping through them now. Is there anything that went out to you at front?

Patrick: I have vague memories of MicroConf here, partly because it was similar to me as the one I attended in Vegas so a lot of stuff is it’s interesting but I’ve heard it once. The stand‑out talk, for me, was probably Rob Walling going into what he did to 10x his business.  [Patrick notes: Rob's talk was videoed and is available here.  Also, you should come to MicroConf if you are at all interested in bootstrapped software businesses.]

He bought a business called HitTail . It was at 1X of revenue. I’m not sure he would be happy with me mentioning the 1X out loud so just say some certain amount of revenue.

Over the course of the next 12 months, he went into a build up the product, learn about the marketing approaches, and then scale the marketing approaches series of three steps that he goes into in a lot of detail to increase the amount of revenue the product was making by a factor of 10.

It’s a kick in the pants for me because I think that would be an awesome process to go through with Appointment Reminder in the next 12 months given that I’ve pussyfooted around for the last three years or so. Also, a lot of stuff is very applicable for every Software as a Service business.

Finding out paid channels which actually work for customer acquisition for you. You test six of them, only two work. Then the two that work you throw money on them until they’re not profitable anymore at the margin. There general rule of thumb in Software as a Service that we don’t grow up knowing that you’re told at some point and find to be true is that you want to spend one‑third of your lifetime value on paid customer acquisition when you can get that, which requires you to know what your lifetime value is. There’s a fairly easy formula for that.

Your easy LTV formula: The amount of money you charge per month divided by your churn rate. That’s it. There are hardly formulas that you can talk to a CPA and learn things about like the time value of money and the discount rate and what that would do to it. Don’t need calculus, just do this simple division.

If your plan costs $50 per month, five percent of customers turn every month, that means 50 times 20 is $1,000. Your lifetime value is $1,000. Done! Spend in the $300 range to acquire a new customer. That’s typically something that you want to do.

If you spend $800 to acquire a new customer, it takes forever to get payback on that and you will have a cash flow deficit in your SaaS business. There are ways to get beyond a cash flow deficit in the SaaS business, but they’re very stress‑inducing and they make your business very, very risky.

You don’t have an iron‑plated guarantee from God that the five turn rate is going to be maintained over the course of the next 20 months. You generally don’t want to take that level of risk in a business. If you’re only spending a third upfront there is less risk involved there.

Keith: My biggest takeaway from MicroConf. I will be flat‑out honest. I am not what you would call a businessman. [Patrick notes: Hah. Yeah, we're both totally unqualified for the jobs we do every day.] I am a designer and developer who, I think, is very good at finding holes in things. I find holes in funnels, I find holes in conversion, I find good technical solutions to solve business problems.

Managing a business such as how to make sure that everyone’s working on the right thing, make sure that people are up‑to‑task is not my strong point.

Patrick: Keith and I are both similar in this regard. Hackers in the PG sense, we like complicated systems and finding the ways they break and then breaking them to our advantage. Whereas, the mechanics of running a business is something that we just got decently good at for both of us, mostly out of having to.

Also, the fact that if you look at what you want to get from life, the universe, and everything, or from your career, this little, itty bitty slice of your life…maybe you want more time.  The Foolish Adventure guy (Tim) has a great phrase for it: time, income, and mobility are three things you could potentially want to get from a career.

Time, we are both family men. We like having free time with our wives and, in Keith’s case, Keith’s little girls. Income, reasons to have it are fairly obvious. Mobility, like running your business out of Japan rather than running it out of San Francisco or New York or any of the other big tech hubs. We could potentially run our businesses from anywhere our laptops are.

In terms of getting those things out of your career, there is a bunch of levers that you can hit. Both of us, I was a programmer back in the day and Keith was a designer back in the day, that’s one lever you can push, and you will get a certain amount of benefits of working from pushing that lever very well.

There is an asymptote that you approach as you level up as a programmer, I’m going to learn Ruby on Rails in addition to learning Java, and I’m going to become the best darn Ruby on Rails programmer I could possibly be. Don’t get me wrong, that is a very successful career path for a lot of people.

There are a lot of folks who are uncomplicated programmers. They just program up to instructions that were given to them. They work for Google for 50 or whatever hours per week and get paid very well for doing that and love their jobs and lives, et cetera.

Keith: You do have to look at it like that. You say they’re told what to program. They could want to be a system designer at Google. It’s still the same thing. There’s a very different thing between yes, I want to work at the best of my field or I want to take that out and grow my own business. That’s the crux.

Patrick: Right. The trick for both of us is we took some level of ability with our “core skills,” the stuff our employers were paying us for back in the day, and then drizzled on a wee, little bit of the minimum viable businessman on top of the core skills. I use the word ROFLstomp when other people do it. I’m not sure I’m comfortable saying we ROFLstomped. Let’s go.  We ROFLstomped capitalism, basically.

Keith: Honestly, if you had said three years ago, five years ago that we’d be in this position, I would have laughed like you wouldn’t believe.

Patrick: When was three years ago? 2010. January 2010 I think both of us put together maybe $5,000 a month at our jobs, our Japanese salaryman jobs.

Keith: Together? Yeah.

Patrick: If you had balled the two of us together, $5,000 a month at a Japanese salaryman job probably working 70 plus hours a week each.

Keith: Something like that, yeah.

Patrick: Pretty miserable. I was very, very miserable. Keith was…

Keith: I was having days that were less miserable than others, but not many.

Patrick: Don’t become a Japanese salary man. We’ll talk about Japan, the universe, and everything in another version of the podcast.

Keith: Later.

Patrick: Don’t become a Japanese salaryman. Our careers had a fairly nice trajectory over the last three years, largely from this combination of the core skills we bring to the table and increasing that core skill set and then marrying it to the understanding of business and running things on top of it.

Even without necessarily being Harvard MBA levels of adjusting capitalization tables and whatever they teach you to do at Harvard MBA.

Keith: We have no idea what they teach you at Harvard MBA.

I won’t say that’s holding back our business because obviously not, but it is holding back growth in some aspects because I don’t know how to manage people other than the standard this is how I would like to be managed and this is how I managed my development teams in the past.

The idea of managing an entire company where I’m managing not only projects with the developers but also how’s billing going, how’s payroll going. Have you talked to the accountant about reducing our taxes somehow?

Patrick: This is one reason I still don’t have employees, just because I’m not ready for that level of responsibility. All my friends who have gone to multi‑member consultancies — Keith being one of these — say you get 10 employees together and suddenly you’re responsible for $100,000 every two weeks to make payroll.

If you do not make payroll, people’s families starve. Not going to do it. Not ready to do that yet.

Keith: Exactly. Actually, at my old job they offered to put me as vice president of the company, and I said, “I am not willing to do that because I do not want the success of this company on my shoulders. I would rather go out on my own and do it.” I think I’ve done fairly well.

Anyway, going back to what we wanted to talk about with MicroConf. I feel so bad about this because I forget the two of their names. The TropicalMBA guys. I think it was Dan and…

Patrick: Dan and Ian.

Keith: Dan and Ian, thank you.

Patrick: From formerly the Lifestyle Business Podcast. Now it’s called Tropical MBA Podcast. Very good podcast, by the way.

Keith: They were amazing. Everyone was amazing, but they spoke closest to me because they were talking about growing a business.

Patrick: Can you believe that was their first speaking gig ever?

Keith: Really? No, I did not know that. It was amazingly good. They were just talking about how to structure your business so that you don’t have to deal with minutia. They gave an example that really hit home to me. Steve Jobs, complete control freak, as much of an anal control freak as I am, no one eclipses Steve Jobs. Anyone who has worked with him, anyone who has read anything about him would probably agree with that. How does someone with that level of detail into everything be able to control a company with how many thousands of people? 5,000, 10,000. I don’t even know.

Patrick: Apple has X tens of thousands of employees. A lot of them are retail workers in the US now, but there’s let’s say 10,000 engineers and knowledge workers at Apple.

Keith: Let’s just say 10,000.

Patrick: 10,000 knowledge workers.

Keith: How would someone with that amount of microscopic detail‑orientedness be able to manage that? It’s obvious. He doesn’t manage it. How would things get done to his specifications? The answer is that ‑‑ and what Dan and Ian said ‑‑ is he only interacted with I think it was seven people in that entire company. Out of 10,000 knowledge workers, he interacted with seven people.

Those seven people were essentially extensions of him. They were close to him. They understood how he thought. They understood what needed to be done to move the company forward in his vision or in the company’s vision.

Dan and Ian called those types of folks lynchpin employees, essentially people that you can delegate an entire section to, an entire job to, who are able to think on their own for their own stuff and move the company forward in a solid, single direction.

That spoke miles to me because it is so difficult to find people like that, both who you can trust almost implicitly and who can be given the managerial task of managing another 1,000 people with their own lynchpin employees.

Patrick: And who also want to be employees. One of the problems I’ve heard about on the grapevine, as it were, is that the kind of people that do really well at a) I need a combination of the responsibility to bring this project in without much management from above and b) I also have to be expert enough to manage the people below you and think on your feet and whatnot.

Those kind of people exist. They’re called entrepreneurs. They start companies and they often don’t aspire to being the number three guy in charge of server architecture at a tech company.

Keith: Exactly. Exactly.

Patrick: Figuring out how to identify, groom, and hire those folks is a useful skill to have if you are trying to build up a large company. It wouldn’t be too useful for me.

Keith: That was my main point.

Patrick: That was your takeaway from Dan and Ian’s. The one I got from it was having repeatable processes for just about everything in the company.

Keith: Yes. They call them SODs. In my business, we always call them SOPs ‑‑ standard operation procedures.

Patrick: This is something I pulled off their podcast, actually, a couple months ago. It made my life much, much easier because it allowed me to get one task that’s recurring and obnoxious off my plate. Shoot. Broke a rule from my SOP. I should have never called customer support “obnoxious.”

I love my customers. I love my customers.

I have been supporting Bingo Card Creator as literally the only person who had ever sent an email with regards to Bingo Card Creator from July 1st, 2006 to approximately July 1st, 2013. That is eight years of handling all the customer support load.

Keith: I want to make a quick disconnect. Patrick always talks about how he always talks about emailing the support and it’s like the Blue Google or the Green Google, ha, ha. There’s a $40,000 a week consultant [Patrick notes: Nah, my last rate prior to the recording of this podcast was only $30k.] answering emails from 50 or 60 year‑old elementary school teachers, who don’t understand what the Blue Google or the Green Google is. I just want to throw that out there real quick.

Patrick: It wasn’t a huge amount of time, but it was meaning it to be shackled to a machine every day to answer the email within my not quite promised, but want to get to emails within 24 hours generally, or 24 business hours. Stopped doing email on weekends, so it was one of the best decisions ever.

If you send an email during the middle of the workweek, I want to have a response to you the next day, your time, in the workweek. That’s my desired level of service for this product.

In 8 years, I probably answered 10,000 emails about Bingo Card Creator, which means literally hundreds of times that I’ve explained to someone how to reconfigure a printer, or how to use the, “I forgot my password button,” or, dot‑dot‑dot. Dealing with the technical support issues of the largely nontechnical customer base with the product, which, while it’s been improved over the years, is not the world’s easiest to use.

My skills do not generally reside in making wonderful, easy‑to‑use products. Yes, I’m done with that! The way I’m done with that is, I have a standard operating procedure document, which is two pages long. The first page is a statement of principles for the company.

My principle is that, and I joke about it, but I genuinely do love my customers. I got into the business in the first place because I have awesome respect for teachers, and want to make their lives easier, yadda, yadda. I would always rather satisfy a customer rather than having their money if those two ever come into conflict.

I have a hair‑trigger on the refund button. If they say a minor issue caused them to miss the class periods that they wanted to do the event in, I’m very sorry for that. I’ll very happily refund them for that.

So my SOP just states my 12 principals, I have a roughly general nature about that. The second page of the document was, “Here are my top 10 customer support issues that I’ve dealt with for the last eight years.”

I gave these to my virtual assistant who I hired through Pepper. It’s named after Pepper Potts, by the way. don’t tell Marvel that or there’ll be a hammer of Thor dropped on their heads.

Anyhow, I gave it to my virtual assistant, and said, “OK, here are the general principles I run my business by. Here are 10 specific issue that customers often come to me about, and here’s Snappy which is the system I use for ticketing.” It’s a very good way to have a lightweight, low ceremony way to share an inbox, basically.

“You are now tier one customer support, which means if someone has an issue, that you are the first point of contact. If it’s one of these 10 issues, deal with it according to the rules I’ve set out here.”

“If it’s something like they need a refund, then tell them, “Look, Patrick will process you a refund within the day,” and here are a couple of words to say that.” But one of my principles is, “We do not copy‑paste stuff. We are humans talking to humans,” because I’m very big on that.

I gave it to my virtual assistant. I said, “OK, this document is a living document. If we discover that there is an eleventh most common customer issue that you can deal with using our tools, or we can build you a new tool to deal with, we’ll add that to the document such that the business grows over time and that this can be…If I need to get a different virtual assistant or a different employee doing this in the future, we can have them start where you left off.”

Then, for the first couple of weeks, I sat in when she was doing these tickets. She would write the response to the customer and then I would take a look at the response she had written, and say, “OK, Sugar.” [Patrick notes: For avoidance of doubt, that is her name.]

“Sugar, thanks for writing this response to the customer. I have a bit of feedback for you on how to handle this situation in the future. Great job.”

Then, after that, it was just passive monitoring for her. “OK, Sugar is pretty much keeping it up.”

After that it’s no monitoring. I don’t even know how many tickets we’ve dealt with this week. Honestly, unless something happens, I don’t care because she’s perfectly capable of handling that by herself. Apparently, she rather likes it. The money works out very well for her and very well for me, so yay.

I now went down from maybe 20‑30 issues on Bingo Card Creator per a week to 2‑3, which also means that I can afford to often not check email for a day because, probabilistically, there will be no email that got past Sugar, which is nice. This is something that I’m now thinking of, “OK. What other stuff can I systemize in my business?”

Keith: It’s interesting. As a consultant, there’s a lot of the day‑to‑day stuff that can be systemized. Dan and Ian gave the same thing where they said…They were posting a blog post or something. There was some part of the business where they were like, “Only I can do it.”

They had a consultant come in, who was good at writing up these SODs. He says, “Well, there’s 12 steps. You can replace this entire thing, all your thinking, in 12 steps.” He wrote out the SOD, and he says, “Give this to anyone, and they can reproduce exactly what you were doing.”

Patrick: Yeah. This is a cycle I have gone through with a lot of people. In the beginning, for any sort of new operation our company is doing, it’s just you throwing stuff at the wall and seeing what sticks, using your magic entrepreneurial powers of deduction. Then, after you figure out what sticks, you describe some theory of why that works or some process of how it works.

You operate on the process and see if the process still works without you using constant levels of supervision or decisionmaking authority on it like, “Is the process at least as good as me?” If the process works, then you have options of giving that process to another person or maybe totally automating the process.

Keith: Exactly.

Patrick: Then, you move on to a different high‑leverage area of the business, and throw stuff at the wall, and see what sticks.

Keith: Like you said with Pepper, ‑‑ Pepper and Sugar, I love that. [laughs]

The documents are living. This isn’t something like, “Now that I have said it, we can never change it. This has to be the way it works.” If things aren’t working with the person who’s in charge of it or they know of a better way, then you change it.

Patrick: Yeah.

Keith: You find the better way to do it.

Patrick: This is one of the nice things about not rushing to automate things.

Patrick: I’m a software guy myself. I know we love automating stuff. There’s a lot of issues where it’s like, “OK. My first inclination for how to…” What’s an actual thing that I would think should be automated?

Keith: How about updating ‑‑ this is something I do a lot ‑‑ a registration page for a once‑a‑month webinar?

Patrick: OK, that sounds great. Let’s make a data description language or a DSL, a domain specific language, for generating a one‑time webinar pages which we will all add a cronjob to automatically update this thing, yadda, yadda, yadda. Wait, wait, wait. We’re going to spend 10 hours of work, which we could be doing optimizing landing things and whatnots.

[crosstalk]

Keith: Optimizing so many of your pages.

Patrick: The high‑leverage stuff in the business. Instead, we’re throwing it into automating this thing that really doesn’t take all that much time or require all that much brain effort. Rather than doing that, we’ll just describe the process for doing it, then hand it off to somebody who has much less pressing demands on their time than we have.

Then, if we need to change that procedure, it’s as simple as changing our minds and changing the document.

Keith: Instead of rewriting code.

Patrick: Without us having to rewrite code. I default to not rewriting code because code, after you’ve written it, it’s nice that it keeps executing for forever. The downside is it keeps executing for forever. You need to maintain it.

There’s going to be some sort of technical debt that you built into it. You’re going to need to make sure that system stays running for the rest of your life and the security patches, yadda, yadda, yadda. There’s definitely times to write code. Don’t get me wrong. We’re both from in software business, but I try it with people first.

That’s another reason it counts to do concierge onboarding, by the way.

Keith: Exactly. It’s like, “What is the amount of time it would take for you to create an import function, or to create guiders, or all that? And what is the amount of cost it would take for one of your support staff to just take half an hour to walk everyone through?”

Patrick: Or, in the early days of a product, if you’re not sure, “Should my concierge onboarding be me hand‑holding them for an hour through the entire setup process? Should I do the setup process by myself? Should I just ask for their data and import that for them? Should it be me doing a guided tour through only the demo of the product but not actually using their data? Dot‑dot‑dot…What is the optimal way to get people through this funnel?”

In the early phases of the product, building those things out in parallel would be a whole lot of engineering expense, whereas just trying it, like, “OK, I’m going to take five customers and do them through my first idea. I’ll take five customers, do them through my second idea, take five customers, do them through my third idea,” and see quantitatively and qualitatively, was the experience useful for the customers? Did they understand what was going on?

Does it seem to be working for me? And then for the stuff that is working, invest in automating that or making tools to semi‑automate it. The mid‑touch. Oh, I love the mid‑touch.

Keith: The mid‑touch. Yeah.

Patrick: I think we’re coming up on almost two hours.

Keith: We’re two hours in right now.

Patrick: That seems to be a good point to cut it off.

Keith: If you’ve stayed with us this long, we applaud you.

[applause]

Keith: That was not canned clapping, by the way. That was actually us clapping.

Patrick: We are still the lowest‑ranked podcast on the Internet with our regular every three months or so release cycle.

Keith: We’ve been doing this for about two years now and I think we’re on episode eight.

Patrick: Yeah. There’ve been some less‑official ones in the middle there, but yeah…

Keith: Yeah.

Patrick: …Episode eight or so. Anyhow, thanks very much for sticking with us, guys. We’ll see you next time, same bat space, same bat channel. You can check out Keith’s product, Summit Evergreen at summitevergreen.com.

Keith: Yup.

Patrick: My email list is at training.kalzumeus.com. Good stuff coming to that in the near future, including about my new product launch, which will, knock on wood, happen at the end of November, early December [Patrick notes: July!  Seriously, and sorry for the delay.  Health issues happened.]

Patrick: Thanks very much. Thanks very much for sharing your time with us and we’ll see you next time.

Keith: All right. Have a good day. Cheers.

Conversion Optimization in Practice: Baconbiz 2013 Presentation

I’m preparing for the BaconBiz conference as we speak.

Brief plug: BaconBiz is one of my two favorite conferences for small software/etc companies (roughly similar to mine), the other being Microconf.  You’re too late to get a ticket for 2014, since they’re sold out, but I’d highly advise coming to it if you have the opportunity in the future, if this sort of stuff interests you. You can sign up to get a reminder email about it for next year.

My talk at BaconBiz 2013 was all about conversion optimization for SaaS companies.  Most of the time when I do a talk like this I end up talking either in generalities or about one of my own products, since consulting clients very rarely let me spill all of the beans.  This time, though, Amy and Thomas of Freckle let me walk through, effectively, a mini-consulting engagement with the deliverables crammed into 30 minutes.

Amy and Thomas subsequently made changes to the Freckle marketing site partly informed by the advice in this presentation.  Ask Amy how that worked out, but suffice it to say the improvement pays for an awful lot of bacon.  My quick eyeball on their numbers is that Freckle has grown monthly recurring revenue by more than 20% since the redesign, which I would partly attribute to organic growth and partly to the redesign.  (Incidentally: I think their hybrid “standard SaaS”/long-copy page is a style which more SaaS companies should experiment with.)

Brief plug the 2nd: If you’d like to get some free advice from me about conversion optimization for SaaS companies, and also hear when my course on that topic finally ships, you can get that here.  Expect about two emails a week for the next few weeks.  (Aside: About 10k people separately get an update once or twice a month about eclectic topics about making and selling software.  If that is interesting to you, get it here.)

What You’ll Get Out Of This Talk

  • Practical advice for conversion optimization at a SaaS business.
  • Examples of front-page H1 copy to help you beat your main business adversary: the back button.
  • How to redesign a pricing page to continue the sales conversation and overcome customer objections.

As usual for talks, I’ve had it transcribed, which you can find below the video and slides.  Hat tip to CastingWords.  I just discovered you can give them a e.g. Vimeo URL and they’ll slurp the audio out of it, which saved me from doing my usual hack around not having a usable MP3 file, which was to push Play on my computer and then record the audio output.

Conversion Optimization in Practice (Video)

Conversion Optimization in Practice (Slides)

Conversion Optimization in Practice (transcript)

[music]

Amy Hoy:  Has everyone heard of “Bingo Card Creator“?

Audience:  Yes.

Amy Hoy:  OK, great.

Patrick McKenzie:  No.

[laughter]

Amy Hoy:  For the few of you who did not raise your hand and go, “Yeah,” this is Patrick McKenzie, who came from Japan to be here with us today ‑‑ and also his friend’s wedding which must not have had anything to do with it ‑‑ who started his independent software selling career with a bingo card creating tool for teachers.

Because that was such a tough market, he became an absolute wiz at SEO, automatic content marketing, all aboveboard types of stuff, and conversion optimization. Now he’s using that to help all kinds of other people also earn more money, including himself.

What was the quote that you had about your lifecycle emails that someone said how much did one email make them?

Patrick:  There are a few different quotes I could give there. One company used not my lifecycle email course, but the marketing material for the lifecycle email course, forwarded it to his director of biz dev, and the biz dev guy closed a $500,000 sale two days later.

Amy Hoy:  From the free content you gave away to promote your course?

Patrick:  From the sales pitch, yeah.

Amy Hoy:  That should give you an idea of the expertise this man presents. Give a warm welcome to Patrick McKenzie please.

[applause]

Amy Hoy:  Thank you.

Patrick:  Hideho everybody. Thanks for having me. I want to start with the question, “Why are we here?” There are a lot of ways we can interpret that question. There’s the classical theological one, but I only have 40 minutes, and I’m not going to rewrite the previous 2,000 years of western civilization in that time, so we’ll go to two smaller reasons. One, is what incredibly unlikely series of happy events happened such that I am able to come here today?

I want to give a shout out to a gentleman named Brian Plexico. Have any of you ever heard of him? Brian Plexico, back in 2006, released a skeet‑shooting score application that none of you have ever heard of. It required you to take a laptop out to a…Where do people do skeet shooting? I don’t know. It’s illegal in my country…out to the range.

You take your laptop out. You project things that look like birds, then project things that look like bullets towards the birds, and if they hit the things that look like birds, you get points. Apparently it’s difficult for people to count on one hand and shoot shotguns on the other, so they needed skeet‑shooting scoring software.

Brian Plexico released this skeet‑shooting scoring software. He sold $2000 of it, which the world did not long note or remember, but Brian Plexico wrote a blog post about this that I read in 2006.

This was the first time it pinged onto my consciousness that wow, you could actually run a software business as a side thing, not have to quit your job, not have to go to the Valley and get venture capital, and not have to be the super uber‑genius that Joel Spolsky is.  (I’d been reading his blog for a while.)

A real normal person, just like you, could do this. So why do I come all the way from Japan to BaconBiz to talk to all of you guys? Because I feel indebted to that one blog post, and also because I think that we can all help each other realize that this is an achievable thing. Amy builds me up as some sort of Internet celebrity, or genius, and I won’t lie, I am kind of intelligent but this is…

[laughter]

Amy Hoy:  Humble too.

Patrick:  Right. This is absolutely something that all of you guys can be doing. I think there’s two audiences in this talk, well, one audience, but there’s people at different stages of your business career inside of it. Some of you might not have launched your product yet. Some of you have businesses at varying levels of success and are looking for what gets you to the next level.

We’re going to start the talk with a bit of the background of my business to give you guys who think that if you haven’t launched yet, you might not think you can do this, to tell you that you absolutely can. We’ll go into the practical stuff for those of you who have businesses that you can turn around and use in your businesses tomorrow.

Most of it’s going to be specific to SaaS businesses, because that’s really where my heart and soul is, but for the info product stuff, we had that talk earlier, and we might talk later about it in that little interview thing.

Anyhow, if you want to follow on your phones that you aren’t using, it’s #baconbiz on Twitter.

Bingo Card Creator. Who knew, right? Bingo Card Creator has several hundred thousand users, largely gathered out of the United States, three million or so elementary school teachers.

I’ve gotten several thousand paying customers over the years, and it all started with a one thousand line of code Java Swing app back in 2006 that I put together in seven days of work, and a budget of $60, of which I spent $56.83.  [Patrick notes: I think it was actually $57.83.  Ack, the tyranny of arbitrarily precise approximations!]

Largest single line item on the budget was faxing a contract to eCelerate in America. The 7‑Eleven charged me $17 for that. If any of you are thinking that you don’t have enough money to start a business, you totally do, but if I was going to redo it again, I would spend a little bit more money on getting a professional web design, rather than trying to hack it together myself. That’s neither here nor there.

The reason I want to talk about Bingo Card Creator very briefly is to show that I absolutely did not start out as overwhelming Superman. You can see this is my…Is this the red button, green button? Green button does not flash onscreen. All right.

[laughter]

Patrick:  [laughs] Laser pointer view 1.0. You can see salaries in Japan are not so awesome.  [Patrick notes: The algorithm for most businesses near Nagoya for full-time engineers works out to, essentially, $100 of salary per year of age per month.  Thus, if you’re 30, you can expect a salary of roughly $36,000 a year, plus the usual white collar perk suite.  This is slightly complicated by the fact that Japanese salarymen often receive biannual bonuses of approximately 1.5 times their monthly salary, but that’s immaterial relative to the difference between Japanese pay scales and e.g. Silicon Valley (or Chicago) ones.]

The first year of Bingo Card Creator, I was planning on eventually selling as much as $200 a month. I blew through that thing in the first month, but it basically did not move the needle at all.

I just started trying things out. I learned about A/B testing. I learned about search engine optimization. I learned about AdWords. Over the years, as a part time, little five‑hour‑a‑week hobby, I had to quit World of Warcraft to run this hobby. I used to run a raid guild of 60 members or so, which is the largest enterprise I’ve ever been in charge of.

[laughter]

Patrick:  It was a whole lot more work for much worse loot, let me tell you. [Patrick notes: After approximately 3 years of 20 hours per week I think my main WoW character would have been worth about $2,000 on the open market.  Don’t go into video games for the money, kiddos.]

[laughter]

Patrick:  I just gradually grew it to the point…Some time in here, my day job transitioned from a very cushy job at a prefectural technology incubator…where I was expected to translate English for people who never needed English translations done, so I spent a lot of time reading on the Internet…to working as a Japanese salaryman, which means that the company owns you body and soul and you spend 12 to 16 hours a day, crash overnight, and then do it again the next day.

I was really not feeling it. Then about 2009‑ish, I had a big insight one day. I had spent something like 19 hours at the office. I got out of the office at 2:00 AM, ate dinner at the all night Denny’s. I checked my email, because Bingo Card Creator emails could happen at any time, on my Kindle because we didn’t have iPads back in those days.

I went to sleep for five hours, woke up the next morning and checked my email again prior to heading out to the office for another 7:30 meeting the following day. I realized that I made more while sleeping with Bingo Card Creator than I had at the 19 hour day at the office, even counting overtime.

I was, “Why am I still in this day job anymore?” I couldn’t come up with any good reason for that, so I quit.

What happened since then? In 2010 I launched a new product called Appointment Reminder. I made one big mistake about this, which I want to tell you all about.

Everybody knows Peldi, right, the gentleman behind Balsamiq Mockups? Peldi and I have been Internet buddies for a while. I knew him before he was Internet famous, and he knew me before I was Internet famous. I told him about my idea for Appointment Reminder which makes appointment‑reminding phone calls and SMS messages and emails to the clients of professional services businesses.

He said, “Is it your passion in life to optimize the scheduling of small doctors’ offices?” I said, “Oh, heck no, but it’s going to be a great business.” He’s, “Dude, stop now, stop now. Do not go forward. You will get bored, and this will be much harder than it needs to be.”

I did not listen to Peldi. I encourage you all to listen to Peldi.

[laughter]

Patrick:  Find a community. Find a problem space. Find an industry that you are really passionate about. We just discussed this in 4 minutes and 14 seconds, several years here, but if I had not been enthralled with a certain aspect of the business, that’s a lot of time.

I’ve been doing this for eight years now. If you get bored of it, then the business dies effectively. Pick something that you can really sink your teeth into. The thing I sunk my teeth into in Bingo Card Creator, I used to be a teacher. I love teaching. I love helping teachers, but it is not my passion in life.

The thing I became passionate about with Bingo Card Creator was the mechanics of optimizing the business. That’s what we’re going to be talking about a little later today. Find something you can be passionate about. I really recommend it.

Since quitting the day job…by the way, I don’t show Appointment Reminder numbers on these graphs just because I nurse “maybe I will, maybe I won’t” ideas of someday taking investment for Appointment Reminder and it’s better to keep it under your belt. That’s not English, is it? Sorry, I’m from Japan.

[laughter]

Patrick:  Anyhow, Bingo Card Creator grew while I was still at the day job. After I quit the day job, people who had heard of me on the Internet, because I had been blogging over this entire course of time, said, “Hey, all that stuff that you’ve learned about marketing software products for Bingo Card Creator seems to be pretty generalizable. Why don’t you try it with our products?”

Joel Spolsky memorably said, “Oh, Patrick’s become something of an SEO guru, learning about bingo cards. Now that he’s applying it to a product that isn’t totally bullshit, it will be pretty useful.”

[laughter]

Patrick:  Soft spoken as always, right? I did a little work for Fog Creek, and that seems to have worked out for both parties. I did consulting work for a few other well‑renowned software companies and the WildBits folks among them. Anyhow, I had a few pretty good years of it. 2012 was the best year of my life for one major reason. I got married to Ruriko McKenzie over there.

[applause]

Patrick:  This is a totally self‑indulgent slide, because that is the best I will ever look.

[laughter]

Patrick:  I always want to take a minute out of speeches like this, especially I think it will connect to this audience as bootstrappers. One of the reasons we get into this versus doing the corporate wage slave job or trying to go to Silicon Valley and roll the dice is that we want to be able to construct the life we want to be living.

Your business will be important to your life. Your career will be important to your life, but it isn’t nearly as important as the rest of your life, as your family, your friends, being involved with your community, et cetera. Definitely do keep a balance there and remember that it’s a means to the end. It isn’t the end itself.

The more boring part about 2012 was, while I took three months off of work and did nothing but answer emails once every three days or so to plot the wedding things because when you do weddings in two continents it’s kind of blech.

If you have to do that, you have to do that. But if you don’t have to do that, I strongly suggest not doing it. [laughs] I took three months off work. I stopped development, stopped answering requests for proposals. I stopped anything other than routine email support and sales exploded.

Why? There is “a season to sow and a season to reap.” The previous years I had been sowing automated systems that worked without my involvement. In 2012 they started clicking together through some efforts of my own but mostly just natural growth. We’ll talk a little about them later.

2012, pretty good. By the way, not the main focus of this point, but you can see the main ingredient in the revenue mix last year of these three products was the consulting. My current revenue for consulting in 2013 is zero dollars. I quit it recently.

Ask me why later, but at the party when I’m not on camera, because the consulting client that drove me out of consulting has a legal department which is better funded than the North Korean military and twice as vicious.

[laughter]

Patrick:  I think there are three stages for a bootstrapping business. Some of you are probably in all of them right now. There’s the stage where you don’t have a product or customers yet. You don’t really have an audience. You might not even have an idea of where you want to take it.

Then there’s the point where you’ve got a product, you’ve got some customers, but it isn’t quite hitting your financial goals yet. If a goal in your own business is to quit the day job and transition into your product full time, you might be getting, say, $2,000 a month of sales. If that’s not enough for you to live on, you want to get it to the next stage.

Then the third stage of a bootstrapping business is where it’s achieving all of your financial goals and the big question for you is, “Where do we take it from here?” My advice is largely going to be specific to the people who are in stages two or three.

If you don’t have a product yet, don’t worry anything about A/B testing. Don’t worry anything about conversion optimization. Your only two tasks are to talk to customers and produce something for them.

If you don’t have 3,000 visitors a month, I will tell you, your entire A/B testing strategy is throw out everything you ever read about A/B testing. Don’t even bother reading blog posts about it. Talk to customers. Ship stuff to them. Sell it one copy at a time until your teaching and your email lists and your publishing content have gotten you to 3,000 visitors a month of recurring traffic. Otherwise it’s just a waste of your time.

For folks like the WildBits, with large amounts of traffic or even folks who just have modest amounts of traffic, you can get a couple hundred visitors to routinely come to a blog post, then you can start thinking about your conversion optimization strategy.

I was going to talk in very hand‑wavy ways about, “You should improve your calls to action and then you can improve the colors of your buttons and whatnot.” But I’ve been at the presentation a lot before whether it’s delivered by myself or other people, and it feels boring without an actual business to focus on.

I’ve presented on my business probably about 30 times over the years, and, honestly, I’ve said almost everything I’ve ever cared to say about Bingo Cards. I thought I’d pick another business and show you what we would do with that business to optimize it for them.

Amy and Thomas were graceful enough to volunteer Freckle, so we’re going to be using Freckle as a way to dive into the meat and nitty‑gritty of optimization. What are we optimizing for? We’re optimizing for a formula which I miscopied. Sorry.

[laughter]

The Fundamental SaaS Equation

Patrick:  This is the fundamental SaaS equation. Traffic, your revenue, your profits, whatever you want, but the main driver for the business is the sum over any space you want to think of, like over all the customers, over all the marketing channels, over all the whatever.

The amount of traffic you get times your conversion rate through your funnel times…This is the bad part…your average revenue per user, which means what you charge the average person on a given period of time. I wrote one minus churn here. It’s actually one minus survivorship which equals churn. You can copy down that one if you need to.

The agony and ecstasy of running SaaS businesses is, if you can easily manipulate traffic, that excuses everything else. If you are really good at search engine optimization, you need absolutely no other skills to successfully run a SaaS business, as Bingo Card Creator might prove.

That one is really hard to explain, so we’re going to be talking more about the conversion rates and the other aspects here, a little less about churn in this presentation. Unfortunately, conversion rate, while it is easily within all of your capabilities to optimize, it takes a couple months to see the results from.

There is something that you can do to average revenue per user which tends to produce easy and obvious results, so I have to put it in every presentation. It is “Charge more.”

When I was flying from Nagoya to Philadelphia…to Detroit, there was an intermediary stop…my iPhone ran out of batteries. I told my wife, Ruriko, “My iPhone is out of batteries.” She looks over at me and she’s, “You should charge more.”

[laughter]

Patrick:  [laughs] Man, I’m a broken record on this one, but I’m a broken record because it works so well. This is the launch pricing for Appointment Reminder. It launched at $9, $29, $79, and an enterprise plan which was basically “Call me,” because I couldn’t actually provision that account.

I changed that later to $29, $79, $199. I got rid of the $9 plan, because, like we talked about earlier, your lowest paying customers are pathological. They have higher churn rates. They have unreasonable expectations for your product.

No lie, I had a dental office which was on the $9 plan which asked me to cut them a refund check because they hadn’t used 60 percent of their quota. So I could please send the dental office a check for $5.40.

I asked the office manager, “Has the dentist ever written a check for $5.40 to anyone for any reason if they were unsatisfied with their teeth?” She was, “No, that’s crazy.” I was, “Yes, that is, indeed, crazy.”

[laughter]

Patrick:  I no longer solicit the business of anyone who wants to pay $9. Something that I was routinely hearing when I was at the $79, $79 corresponded to 300 appointments a month. A lot of people said, “Wow, it only goes up to 300 appointments a month. It can’t possibly handle 500 appointments a month,” which is the way non‑software people think of software.

Everyone else in the room is, “That’s clearly a variable he has hard coded somewhere. He can bump it up to any number he wants less than like a million without changing anything else.” You are correct, but you think in a way that non‑software people don’t think.

Just adding the $200 option that went up to $1,000 did this to my revenue. Here’s the month before I added it. Here’s the month where I added it. Here’s the month after. This is arbitrarily scaled to $1 equals my revenue back in May of 2011.

It added basically two full increments of my revenue with just that one change. That was in a two month period where I was doing literally no other work, because it was during my wedding/honeymoon. I was not even checking my email that month.

My designer just pushed that to the page, and then, bam, revenue exploded. It even exploded because…Actually, August 2012 was the purge of August. I went through my accounts and closed the account of anybody who hadn’t actually used the system in a year because I hate taking money from people who aren’t getting value from things. It lopped off 25 percent of the accounts.

By the way, non‑use of SaaS services is a real thing. Any of you who run SaaS companies are going to have to deal with how you want to treat that. My thought was, “I’ll close the accounts and then reinstate them if anyone complains.”

Surprisingly, some people did complain. “Whoa, dude, why did you go closing my account like that?” “Because you hadn’t logged in in 16 months.” “Well, I was getting around to it.”

[laughter]

Conversion Optimization for Freckle

Patrick:  We’re going to do the 25‑minute consulting engagement for Amy and Thomas’ Freckle product. Time tracking used to focus on freelancers. These days it’s focusing more on firms.

Amy Hoy:  You could run over time.

[laughter]

Amy Hoy:  Free consulting. Keep talking.

[laughter]

Amy Hoy:  Yes, but also I’ve been his friend today. We love you. Keep talking.

[laughter]

Patrick:  The first thing we do prior to digging into what we can optimize is to get a clear sense of what the funnel is for the business. The funnel for their business is the same as the funnel for virtually every other SaaS business.

There’s some notion of getting the prospects into the free trial, “pre‑signup stuff” we often call it, getting the trialers onboarded into the product, which means getting them to the point where they have successfully used the core interaction once. For Freckle, they’ve actually logged time at least once.

Getting a trialer, they’re not just onboarded, they’re engaged with the product, where they’re actually getting value out of it in their day‑to‑day business life. For Freckle that means they have transitioned their sole source of truth for time tracking into Freckle, and then turning those trialers into customers.

Everybody knows what funnel means, right? There’s some big pool of prospects at the top and then, as each step goes on, you’ve got less and less people that survive through the funnel. Then you get some happy event at the bottom called conversion.

Each of those stages in the funnel is actually a little funnel in isolation. The pre‑signup step, where people are not in the free trial yet, there’s multiple stages that they can go. They can go to the front page, look at the plans page, and then go to the signup for the free trial page. Only if they click through that are they in the trial so there are funnels within funnels.

We’re going to be looking at those funnels within funnels in a bit of granular detail. Why do we do this analysis of what the funnels are like prior to digging in and getting started working? Because if you don’t, you can waste your time doing stupid things.

Here’s a thing which is stupid in Freckle’s instance but will work for a lot of B2B companies. I do it with almost every B2B SaaS company. There’s a point in the B2B SaaS where, after you’ve signed up for the free trial, you have to invite your team into using the product.

Typically B2B SaaS, there’s some sort of collaborative thing involved, and it gets more useful the more people you have using it. If you don’t invite your team into it, it’s highly likely that you’ll stop using it at the end of the month.

You have to be careful about the copywriting for sending out an invitation. If you have copywriting like, “You’re invited to Freckle,” that seems, from the perspective of an engineer working at the company, if they just get an invitation out of the blue saying “You’re invited to use Freckle,” they’re like, “Well, that doesn’t mean anything to me,” and just delete it.

But if you said, “Your boss, Bob, requests that you use Freckle for time tracking,” then they’re going to feel, “Oh, I sort of have a social obligation towards the guy who signs my paychecks to actually do what he tells me to on a fairly frequent basis. So I’m actually going to click the signup link and start using Freckle.”

That’s an easy, automatic win for almost every B2B SaaS company. I was about to say, “Amy and Thomas, you should get on implementing that right now.” Then I asked Thomas, “How many people who receive this email don’t actually act on it?”

That wasn’t a number we tracked anywhere, but we ran some arbitrary SQL queries, and it turns out the answer is 1.5 percent. 98.5 percent of the people who get this email actually sign into Freckle and use it so trying to optimize that number is a total waste of time. Versus we can look at other places where 30 percent of the people are going through the funnel and try to get that 30 up to 40.

Since things are multiplicatively effective, that’s like raising the revenue growth rate by 33 percent rather than trying to, “Oh, God, we’re going to work for weeks and craft the best invitation email ever and get 98.57 percent to survive through that step.” Don’t waste your time. Look at the numbers first.

Here’s the pre‑trial signup flow for Freckle. You go to the home page. It’s nice. It’s pretty. It sends you to the pricing page. You pick which plan you like. You put in your details. As soon as you hit “Go,” which is somewhere off the bottom off the screen here, you have a Freckle account.

Everybody probably has a very similar thing. This is quite standard in the SaaS industry. We’re going to dig into each of these steps and see what we can do better. When we look at the numbers, these numbers, by the way, are from KISSmetrics. I like KISSmetrics.

It’s a bit on the expensive side for bootstrappers who don’t have revenue yet. You can do it all with arbitrary SQL queries or MS Excel if you want to. But it produces nice, beautiful graphs that I can use in presentations, so I always suggest it.

Of people who visit the home page, only about 15 percent or so get to viewing the plans page. That’s a very low number relative to many other companies I’ve worked with. Improving that, as long as we get the same caliber of customer to get to the plans page, is pretty much an automatic win for Freckle.

Even if we double it, that doesn’t necessarily double sales. Just getting people to the plans page doesn’t move the needle at the business, but, in general, things that get people longer in funnel will tend to have some sort of increase later down the line, in general. There’s exceptions.

Just to give you a comparable for this, by the way, Appointment Reminder, I filed the serial numbers off, but 38 percent of the people who go to the home page actually get to the plans page. The main reason is different design things that we do. I’m going to go into what Freckle does design‑wise that I would do differently.

If they were to move their “View the plan page” conversion up to where mine is, it’s a 250 percent difference, my guesstimate from finger‑to‑the‑wind of having done this at a few companies, is that probably increases their sales growth rate by between 20 percent and 100 percent, which is, obviously, very worthwhile to do.

Amy Hoy:  Understatement. You’re a master of understatement, but that’s the most understatementy understatement…

[laughter]

Patrick:  I went into one company once and was reporting to their CEO. “I thought I was going to increase gross revenues by 100 percent. I’m sorry. I failed.” He was, “Define failure.” “I only increased gross revenue by 15 percent.” [laughs] He schooled me on the way business actually works, because that’s normally what they do in a year.

[laughter]

Patrick:  Anyhow, we’re going to look at the front page and see what we can do about the front page such that we get more people onto the plans page. We’re going to pick high value targets.

What is a high value target? It’s something that a lot of people see and they interact with and it’s likely to influence their decision on whether to go to the next page or not.

For example, what is not a high value target? There’s some wonderful copy down here, but we know nobody reads on the Internet. That’s not actually true, but statistically speaking, only 20 percent of the audience or less is going to actually read everything on this page.

If they’re making the decision after five seconds to hit the back button and not go onto the plans page, it’s probably not because they didn’t love this line “Kiss configuration goodbye” that’s down here in normal font way down on the page.

They’re probably responding, overwhelmingly, to the headline, H1 here, to this image, and to the actual mechanism for getting to the plan age. We’re going to go through those, in turn and see what we can do. At this point some people might say, “OK, we can A/B test headers against each other,” and just start. “Give me two sentences. We’ll throw them out there and see which one wins.”

I don’t love doing that, because that’s a great way to chase down a rabbit hole. Before you start throwing things at the wall, you should try to get into the head, build a mental model of the mind of your prospective customer and figure out, “I’m trying to put myself in your shoes. Why aren’t you giving us the time of day to at least see how much it costs or see what the plans are like”?

Maybe my hypothesis is that you don’t understand what Freckle is. You don’t understand Freckle is time tracking. Why might you think that? Because “Goodbye Administrivia” doesn’t necessarily tell you in the first 10 seconds you’re looking at it that it’s time tracking.

If that was the problem, if Amy was hearing that sort of feedback from customers or she was shoulder surfing people and they clicked back and she said, “Pst, pst, why?” “I don’t really know if this is for me. I don’t know what it does,” then what would we do headline‑wise to address that?

Here’s some we could test. We’d probably test them against each other using A/B testing or something. “Online time tracking with Freckle.” It’s simple. It’s to the point. It’s very obvious what it does then.

You’ll find that “simple, to the point, and obvious” beats the heck out of more florid copy.

Goodbye administrivia sounds like something that a director of marketing might really love. The director of marketing gets ROFLstomped by 17 year olds with a decent senses of the English language a lot in my experience.

Also you note that one has pretty nice SEO benefits. If you have online time tracking in the H1, you’re much more likely to rank for online time tracking. That might or might not be effective for your business. It probably wouldn’t move the needle at Freckle, to be honest.

Their primary customer acquisition strategy is people who come into the Amy/Thomas ecosystem and then, at some point, they look for Freckle by name because they’ve heard such great things about it. Another thing you could offer, frictionless time tracking, which both says what it does, time tracking, and gives them something to catch their attention with.

If I say that it’s frictionless or any other very descriptive adjective that gets your mind thinking, you start to think of all the painful things that you have done in time tracking in the past, how it’s a waste of your time, boring drudge work.

You might be intrigued enough to think, “Frictionless, why is it frictionless,” and then actually read the rest of the page where they tell you. Here’s another thing, “Time tracking with 42 percent less suck.”

Apparently in all of the classical marketing texts that are taught at colleges, they tell you to beat the heck out of any sort of personality that you put in your advertising copy. Unfortunately, [laughs] that doesn’t work very well.

I ran a World of Warcraft guild for a couple of years. I’m a geek. I own it. I often talk like a semi‑immature geek when I write copy, because it generally tends to connect with my audience.

Find out what works for your audience, whether it’s informal diction or the more classical stylings of a Harvard‑educated professional or whatever works for you. Try to get that feeling for the company, the vibe, your voice, off early and often in the copy.

By the way, if I just told you this product is more effective than the time tracking you’re using right now, your perception of how credible that claim is is probably less than if I told you, “It’s 42 percent less suck,” because numbers, for some reason, are trusted more than claims that don’t have numbers about them.

If you think about this for five seconds you might think, “Wait, wait, there’s no objective measurement for how many units of suck a time tracking tool might have.”

[laughter]

Patrick:  You can even play with that in your copy like asterisk, a “according to our Mom”, whatever. If you surveyed people with the before and after, their perceived trust would go up with the “suck” headline. That’s a thing you should always keep in mind about numbers.

Another thing about numbers, for some reason, numbers that are not round, not 10 percents or 5 percents or 25 percents, but like 43 percent are perceived as more credible than numbers that are rounded.

It’s like, “Oh, if you know how to understand a rounding function on your calculator, you must be an evil, educated scientist trying to trick me. But if you just pick a number out of thin air and end it with a seven, then clearly you’re on my side.” I don’t know why that works, but all the marketers will tell you that it works.

Don’t make up numbers out of thin air if they’re going to be consequential numbers, but if you do have a number that you can say, “People who use our tool spend 47 percent less man‑hours on this task,” don’t round that to 50. It’s against your interests, even though 50 percent sounds like more in isolation.

What else could be going wrong with the headline? Maybe the problem isn’t the customer doesn’t know what Freckle is. They just don’t understand what Freckle does for them. “Time tracking, I get it. I do time tracking. I don’t know if I spend the next week of my life learning how to use your tool, how doing time tracking with Freckle makes my business better than it is right now.”

If that’s our hypothesis, what do we tell the customer? Early, at the very tip of our relationship with them in the H1, that they should be giving Freckle the time of day. One option.

Bill more hours in less time. There are always two benefits that you can sell to any business you’re selling to, and, by the way, sell to businesses, not to, say, teachers because teachers have no money and have very unreasonable expectations. Businesses have lots of money and very reasonable expectations.

Businesses have one reasonable expectation in particular. It’s anything that increases their revenue or reduces their cost, they’re happy to pay money for. If you can credibly promise that you are going to increase their revenue or reduce their cost, the sale is almost already made.

If you are, say, a consultancy and you have to do time tracking because you bill your clients on an hourly basis, bill more hours with less time.

That’s a direct correlation to revenue for the consultancy. That’s a win for them. You have a direct correlation to revenue to reduced costs in your business. Put that front and center.

Earn more money freelancing with less pain. Again, we’re targeting the money thing. We’re getting people to select here. This, actually, is a selection that’s a bit against their interests because they’re trying to move from freelances to multi‑member firms who can afford to pay more, but just throwing this out there as an idea.

“You earn more money as a freelancer…”  If you are a freelancer, this sort of phrasing lights up your snyapses with: “Oh, I’m a freelancer. The rest of this might be relevant to me. I’ll actually read the copy.”

“Less painful?” Honestly, that’s a little overused these days.

A lot of people say their software “It’s less painful and easy to use.” It’s been overused to the point of death now that we’re no longer all using MS Office and every SaaS company says, “We are easier to use than MS Excel.”

The smallest little clap, guys.

It’s a benefit that you could potentially offer to them.

Here’s something. One of the things I love about SaaS businesses is after you’ve run it for a little while you have more data on your users than the Orwellian Minitrue. You can use that data to help out your own businesses. For example, in my business I had to increase people’s no‑show rate. I have a very good idea of how much I need to increase their no‑show rate by.

Without telling any sort of lie whatsoever, you can credibly claim something in your H1 saying, “Bill 15 more hours next month.” Again, it’s a number, it sounds like a credible claim to the reader. If it sounds like an incredible claim, you can justify it in the first paragraph.

“Our customers tell us they bill 15 more hours the month after they start using Freckle, because they rescue time.” How do they rescue time, because right now you’re not charging all of the time you actually work and move into your sales copy. We’ll go into more thoughts along that line later.

“I understand what Freckle is. I understand why someone might want to use Freckle, but I don’t know why I, in particular, would want to use Freckle. How does this connect to me?” Ramit Sethi has an awesome quote. He says, “We’re living in a world of infinite choices right now.” In a world of infinite choices, if something isn’t made exactly for me, then I’m gone.

In a world of infinite choices with 42 different time‑tracking tools you could try, why would Freckle be the best time‑tracking tool for me specifically. How do you connect to them on a very visceral, emotional level early?

Headline like “Too much free in your freelancing,” Then you can use a subhead like, “Freckle helps you actually bill every hour you actually work.”

You know there are freelancers in the audience who think, “Oh man, there was that 42 minute conversation that I had with Dave last week, but it never made it onto the sheet. If it never makes it onto the sheet, it never makes it onto the invoice, and if it never makes it onto the invoice, I don’t get paid.”

That sort of time recap happens all the time in my business. That’s noxious, and I’m losing money because of it. So we connect to them on that emotional level about this thing they’re missing.

Another option. “Freelancers and firms find Freckle fabulous.” I know alliteration is discouraged after about sixth grade or so, because everyone is, “Oh, sixth graders use that technique.”

But if you look at the data, people use this technique because it tends to draw attention really well. If you want, you can put a lampshade on it. For example, as a subhead: “Time tracking doesn’t start with an F? Dang, we had something good going there.”

Carry on with the jokey, kind of semi‑informal copy with the rest of your marketing materials or sales copy. We’re not exactly proposing marriage with the headline. We’re just trying to get them to not click the back button.

I think Paul Graham said that “The biggest enemy is never another startup.” It’s very rarely another company. Generally the biggest enemy of every company is the back button. Again, in a world of infinite choices, I need to make early and often the case for paying more attention to you.

Another way to get people to qualify it for themselves, “Do you bill at least $25 an hour?” Put any number you want in there. The people who do will be like, “Oh, yeah, that’s exactly for me.” The people who don’t might be a little defensive about that. “What, I’m not good enough for your thing just because my billed rate is $24 an hour?”

It will get them reading, and then you can make a ROI focused calculation on why they should start using your thing, which they actually do on the pricing page, which I think is a very good tactic.

That’s all we’re going to talk about with the H1 here, but I hope you’ve gotten some ideas that you can apply to your own businesses.

Amy and Thomas do many things very right in Freckle. The design of the front page, not one of them. Fair?

Amy Hoy: Fair.

Patrick:  If you remember back…looking at the design of the front page here…If you click this, all of the color that is not pink, you get taken to a product tour.

The product tour is actually a video. There’s some very catchy music. I encourage you to all watch the video. The catchy music is catchy, and it shows off the various features of Freckle. But it doesn’t really make a case for buying Freckle. The video is like, [sings] “Da, da, catchy music stops,” and this is the screen it stops on.

We’re smiling at Amy’s wonderful mug, and we don’t know how to go forward in our relationship with Freckle at all.

I went to Thomas and I’m like, “Was there an encoding problem? Where’s the rest of the video?” My expectation is that videos stop with a call to action or they stop with some notion of what I should do next, and it just didn’t.

My guess is that a lot of people are clicking on that very visually engaging element on the front. They go to the tour. They play the video or they don’t play the video because they can’t play the video at work or whatever, and then, boom, that’s the end of the relationship. They hit the back button, and they’re gone.

We wouldn’t do it that way. You should generally avoid poking holes in the funnel. Give people…Always give them a clear next step that you want them to take in the relationship. On the front page, the clear next step is ideally you would send them directly to a plans page, but if you want to send them to the tour, make sure the tour transitions directly into a signup afterwards.

If they’re not ready for the signup, transition them to an email newsletter. Get them within your ecosystem such that you can get in touch with them rather than losing them to the demon back button. The convergent element on the front page is this big pink arrow.

The first three times I looked at this page I thought there was actually no button to go to plans and pricing, because the arrow looked like a visual kind of filigree rather than anything I could actually click on. Many things about this arrow are wrong, the placement of it, the color of it, the shape of it, and probably the call to action, “See plans and pricing.”

Nobody woke up this morning and was, “Do you know what I want to do today? I’m going to work, and I’m going to see plans and pricing.”

[laughter]

Patrick:  Let’s talk about how we can make that button a little better. First, buttons should look like buttons. When I was doing this slide, I looked at my buttons and was like, “Oh, my buttons are terrible, but at least they look like buttons.”

This is a test you can do with any website you ever make. Put on a blur filter in Photoshop or whatever you use. I use Paint.net. See if you can still find the buttons on it, what’s clickable. You can find them here. It must be these rectangular looking things.

We’re socialized to think that rectangular things that have high‑color contrast with surrounding regions must be buttons and must be clickable.

Be nice to your users, too. Some users who might not be quite so familiar with the Internet might not know that that is a thing yet. They might click on things like, “Oh, pretty lady. Click on pretty lady.”

[laughter]

Patrick:  We can infer something about their state of mind from, “Click on pretty lady.” They didn’t click on pretty lady because they love hearing the mouse‑click sound. They wanted more information about how they can be like the pretty lady who is succeeding with Appointment Reminder. I just dropped them to the plans page anyhow.

[laughter]

Patrick:  No lie, that actually works. [laughs] If you put on the motion‑blur test, can you find the button on this page? My first thought for the button would be this big blue thing. You might click on the big blue thing and then get taken into the tour which does not advance your relationship with Freckle, the product. You totally missed the pink bar.

Make your buttons big and easy to click.

[laughter]

Patrick:  Somebody with a limited familiarity with the English language told me in 2007 “Patrick always goes for the big orange pancake buttons.” I love that, because I always do go for the big orange pancake buttons, because they work so well.

[Patrick notes: Example of Big Orange Pancake Buttons:

]

Generally a big button looks like a button, nice and easy to click, and good on the copywriting. Let’s talk about button copywriting.

There’s a formula for buttons. It works for almost everybody. I encourage you to use it any time you’ve got an action. Ready? It is verb plus benefit plus, if you’ve got the space for it, some mention of immediacy.

I’ll show you examples of that. “Get started now.” Classics are classics for a reason. A lot of people use things like, “Create account” or “Sign up now” or whatnot for the button. “Get started now” promises value rather than pain. They’re going to get started on whatever they’ve learned from the rest of your website is presumably a valuable activity for them.

If you focus on the account or the signup, you’re focusing on the fact that, “Yeah, charge your money now. Give us money now or get into this bureaucratic relationship that you don’t perceive as value‑added yet.” Ignore that part of the offering and focus on what they’re getting out of it rather than what you’re getting out of it.

“Start tracking your time now.” That’s very benefits focused.

“If you’re not tracking your time, start.” This only really works if they know they have a problem with it. Do what’s appropriate for your audience and, again, test the heck out of this.

“Try Freckle for free.” Free is kind of a magic word in marketing. It works very well on button copy. If you have a free trial, don’t hide the fact that you have a free trial. That sounds obvious, but a lot of people do it. I occasionally got emails for years saying, “Hey, can I try that for free”? That’s what the big “Try now” button is on the home page. “It didn’t say ‘free.’” I’m like, “It’s been free for the…”

You aren’t telepathic. That is not how things work. Make it very clear to your customers when you have a free trial or something, that is indeed the offer. Start tracking your time. There’s no reason that, just because you have to have a nice snappy copy for the button, that you can’t have some sort of elaboration nearby it.

That sort of elaboration is called microcopy. 37Signals often doesn’t mean a hand drawn front where they put the little arrow and say, “It takes only 60 seconds” or something. You can do it however you like. Since I have no graphical skills and my handwriting looks like chicken‑scratch, I usually just put it directly under the button in a small restrained font.

The microcopy for this button might be, “No, really, if you use Freckle you will actually track your time. 45 percent of our customers tell us that Freckle was the first thing that actually got them to start using it.” Maybe give them a little bit of elaboration if they want to do it. People will say, “Oh, credible claim. I will click this button to see the next page.”

Let’s talk about the plans and pricing page. I know we all have one of these. I would encourage you, when you’re talking about it to customers, not to call it “The Plans and Pricing Page.” Plans and pricing does not make sales.

If this page was an employee of the company, he’d be one of your most important employees. He’s the sales manager that is bringing, if you are doing a pure SMB business, 100 percent of the sales. This guy would be getting a massive commission.

Make sure when you’re designing this page you treat it like the important business‑lifting page that it is, which means important in terms of what you refer to it elsewhere on the sight, important in terms of how much time you spend optimizing it, important in terms of how much time you spend testing it.

“Try Freckle for free,” totally good in terms of an H1 for it. Although, if you didn’t remember from the front page that Freckle did time tracking, you would find that information nowhere here. If you didn’t’ remember any of the sales points for Freckle from the front page, you would find none of them here. It’s totally feature‑focused. Features don’t sell software. Benefits sell software so put the benefits on this page as well.

See these little buttons? These are obviously the buttons we want people to be clicking on to sign up. Again, you don’t want to use the word “sign up,” because signup is, “Oh, bureaucratic stuff. Am I going to get charged for this right away?”

Many customers have a very interesting understanding of how the world works. All of us who have used SaaS before understand that we’re going to click the signup button and there’s going to be a page where you get a little time to think about it, type in our credit card number, and then hit “go.” As long as we don’t hit go, nothing happens.

Many of your customers don’t have that background knowledge. They think as soon as they click “Sign up,” a lawyer is going to show up at their door with an invoice that they have to pay. Ease them into that transition if they need to be eased into it by telling them, “Yes, there is value behind this button, not immediate pain with a lawyer hounding you down for collection calls.”

Here’s a good all‑purpose button to use. “Start with this plan.” Starting is something they want to do right now. Also, remember the “Kill Objections” talk from earlier? I like that. Here’s one objection somebody could have. “I don’t know what plan to pick.”

Make that either. Totally remove the choice. One thing Wildbit did recently was had one plan that you start with and they’ll pick one for you later. Or, “Start with this plan.” You can get started with any of the plans, and it’s a reversible choice that has no consequences. If you decide you want a different one three days later, great, wonderful. You can explain that with copy and very, very succinctly.

Another problem with this page, analysis paralysis. There are five different signup buttons I’ve got here. As the, perhaps, user who is not as acquainted with this product as Amy, I don’t understand which one is the best choice for me. Because I do not have that SaaS background, I might think this is a consequential choice that I have to get right or my relationship with Freckle is ruined.

In lieu of picking a choice that might be wrong, I might decide to choose nothing and just go to the back button. To get somebody over that hump, what do we do? One thing we could do is present less choices. You can have all the choices available. Just show a few of them.

What I did here…This is a pre‑existing page, I just did a little bit of tweaking to it. I just show their most expensive plan, their most popular plan, which is the freelancer one that’s low and then a medium plan that covers most of their clients. If you wanted, you could put a little text thing in here. “Were those plans not right for you? We have other ones. Click here.”

The overwhelming majority of people will not actually click that, but it will give you an option. Another thing you can do is if people get in touch with you via email, “Yeah, I didn’t see one that worked for us,” just give them a link straight to the right sign‑in page. Say, “Sorry, we’re testing stuff. We’re a small company.” Nobody ever gets mad at that.

I’m leaning on this too much.

Another thing this pricing page does not so wonderfully is the right‑hand bar. Take a look at the right‑hand bar. You’re going to get five seconds. One, two, three, four, five. Can anyone tell me anything that was on the right‑hand bar?

Male Audience Member 1:  “Don’t forget every plan.”

Patrick:  Was that on the right‑hand bar?

Man 1:  Yeah.

[crosstalk]

Patrick:  OK, “Don’t forget every plan.” There was a big list of features, and none of them mattered to anybody here. You don’t recall any of them. They don’t help drive that decision, “Do I proceed to the account screen button or not?”

In general, less is more. Rather than a feature list, stomp the heck out of your most common objections.

Objection, “What if I don’t like it?” Answer, “We have a money‑back guarantee. We don’t want your money if you’re not totally thrilled with this product. We’ve never accepted a penny from someone who wasn’t satisfied.”

Objection, “Can I trust you? I’m going to be putting my data in this. It’s data that my company relies on. What happens if you are a fly‑by‑night Internet thing”? “We’re not a fly‑by‑night Internet thing. We’ve been doing this for years. We have 6,000 happy customers including the likes of ‘logo, logo, logo.’”

Objection, “Is it worth the cost?” “Yes, you’ll receive easy, obvious ROI, and if you don’t, we’ll give you your money back.” You can link in an ROI calculation which they have elsewhere on the page. Say something from your user’s experience, like “Most of our users on the medium plan charge more than 300 times what the medium plan costs,” which is probably accurate.

Objection, “Will my team use it?” No. If I’m somebody in a business and I need to bring my team onto something, it is not just a software problem you’re solving for me. There’s also a social problem of onboarding my team and getting them to change the way they currently do things and adopt this thing and if they don’t, I can’t use it.

You should say something like, “Your team will love this.” You can even pull out stats that you have from the product like, “98.5 percent of team members who start using Freckle actually start using it. Why? Because the experience is awesome. Let us tell you more.” Give them a link that most people won’t click.

The next and last page in the pre‑signup funnel is the signup screen itself. How many people have mocked this up once in Ruby on Rails or whatever their thing of choice is, and as soon as you tested the stripe integration you can actually charge the credit card? That is the last thing that you have ever done with this page.

I see hands going up timidly. You are not alone. [laughs] I was looking at this like, “I’m going to compare and contrast my page with Amy’s and show what I’m doing better.” I’m making the same bloody mistakes!

[laughter]

Female Audience Member 2:  Yay!

[laughter]

Patrick:  Again, we’ve got whiteness over here. We’re not making any sale for Freckle on this page. Continue telling them, “Here are your objections. I’m stomping all over your objections.” Anything that is on the page that does not stomp on an objection does not need to be on this page.

For example, “You will receive an email receipt each time your credit card is charged. We do not accept other forms of payment like PayPal, IPOs, or check…POs or checks.” They probably don’t accept IPOs either.

[laughter]

Patrick:  Does that need to be on this page? Is it going to make a sale for this? No. It might prevent an email once in a blue moon to the customer support team, but answering emails is cheap, so get rid of that.

“Enter password again.” Is somebody’s objection to adopting Freckle, “I think I might type in my password wrong. I’m kind of scared about that.”

No customer in the entire world thinks that, so never ask for a password confirmation. If they get it wrong, they can click the easy “Resend password” feature that you’ve all implemented.

Other than that, much of it is pretty good. That’s just the first free sign‑up funnel. We could talk in a lot of detail about other funnels, but unfortunately I can’t be here for the entire day. I would encourage you to look at one thing that Freckle does really well. It’s their first run experience, also called the onboarding process, where they’re taking a user, they’ve just signed up for the free trial.

It’s like, “OK, here’s what we do, and here’s why it matters.” Freckle does a really good job at explaining “Here’s what we do.” They walk you through, “Here’s how you can track time in it. It’s very easy. The UI is wonderful. You’ll love it. It’s very quick to use.”

They actually have you push buttons and see the results in the UI. That’s called an in‑application tour. I really recommend them, they work very well for me and my customers. Unfortunately, Freckle doesn’t tie that to the next step, which is after showing what you do, tell them explicitly in the tour while you’re guiding them why it matters to them.

This is something that, if you’ve ever taught before, you’ll realize this. When you’re in teacher‑student mode with someone, and you’re guiding them, maybe hunched over the laptop, or whatever it is, they tend to trust anything you tell them in teacher‑student mode, because that is our default method of interaction with teachers.

After you’re teaching them about the things that you certainly know, like what buttons to push on your interface, you should tell them what changes it’s going to make in their business as a result of that.

When they’re in that teacher‑student interaction with you, they are more likely to trust that representation than the exact same representation made by the exact same people, but on the marketing site. One of my consulting clients phrased it as, “People always trust engineers more than marketers and salesmen.” Who knew?

So that’s that. Take a run through that if you want to see how it works.

Many of the better‑put‑together SaaS companies…I have one these days, Fog Creek has one these days that I wrote. I think 37Signals probably has one. Take a look at it. For those of you who are doing B2B SaaS, one little micro‑tip for tours.

At the end of a tour, always ask people explicitly, we’re always giving them the next step of their relationship to us, and to B2B SaaS, the next step of your relationship, after you’ve figured out how to use the product, is almost always onboarding your team.

Explicitly ask to get their team members on there. Why? They’ll typically churn if they don’t have their data into the system, and making actual changes to the business within the first month, in many cases testing your business, because this isn’t the law of nature.

In many cases, the best way to get their data in the system is to get their other team members into the system, because often SaaS is bought by somebody in the organization, but used by other people.

Get the people who matter to the use of it into the system. Makes it much more likely that the data will come in, and then you’ll actually get that sale. If it’s just the team leader, who doesn’t actually do time tracking, sets up a Freckle account, and then he forgets to tell his team, or he doesn’t know how to tell them how to log into Freckle, because he might not be a very technical person to begin with, then they probably don’t get that sale at the end of month.

If on the other hand they’re, “Great, you got their account, copy/paste in a list of all of the email addresses of your team members, and we’ll send them invite codes right now,” then that is much more likely to get done.

We could talk about consulting clients here, they might not appreciate that. I’ll say this, a consulting client, you’ve all heard of them, implemented the copy/paste in email thing, and tied up to the end of their tour, and the change to the business from that one afternoon of coding exceeded the change to the business of entire years of their entire team working on the product.

It’s not an obvious change, but it’s an easy change for you to make. You should probably make it if you run a SaaS business. Explicitly ask to onboard the team.

Here’s my contact information. Again, I owe a deep debt of gratitude to other people who have helped me get my business to where it is.

I love talking to people. If you ever have a question about anything, and want to run the idea past me, please drop me an email.  [Patrick notes: Seriously.  My main email address is patrick at the domain you're reading.] I can’t promise a response back to all of them, but you’ll never offend me or anything. Thanks very much.

Postscript

If the above was interesting to you, you can get a one-month free mini-course from me on conversion optimization or get my thoughts on making and selling software in your inbox approximately once every week or two.  (And yeah, I know, I know, I haven’t written anything to you guys in a month or three.  Working on it!)

What Heartbleed Can Teach The OSS Community About Marketing

If you’re a technologist and you’re not living under a rock, you’ve heard about Heartbleed, which is a Severity: Apocalyptic bug in the extraordinarily widely deployed OpenSSL software.  Heartbleed lets anyone capable of finding a command line read encryption keys, passwords, and other private data out of affected systems.  If you don’t remember addressing this in the last 48 hours close this window immediately and get to work.

Now that we’re past the immediate panic phase, though, I want to share some lessons learned.  Security experts can tell you more than I can about what it means for good C coding practices in high-criticality security libraries.  I want to take a moment to point at the marketing aspects of it: how the knowledge about Heartbleed managed to spread within a day and move, literally, hundreds of thousands of people to remediate the problem.

Heartbleed is much better marketed than typical for the OSS community, principally because it has a name, a logo, and a dedicated web presence.

What’s In A Name

Remember CVE-2013-0156?  Man, those were dark days, right?

Of course you don’t remember CVE-2013-0156.

The security community refers to vulnerabilities by numbers, not names.  This does have some advantages, like precision and the ability to Google them and get meaningful results all of the time, but it makes it very difficult for actual humans to communicate about the issues.

CVE-2013-0156 was the Rails YAML deserialization vulnerability.  “Oh!  I remember that one!”, said the technologists in the room.  Your bosses don’t.  Your bosses / stakeholders / customers / family / etc also cannot immediately understand, on hearing the words “Rails YAML deserialization vulnerability”, that large portions of the Internet nearly died in fire.  After I wrote a post about that vulnerability I was told for weeks by frustrated technologists about e.g. VPs nixing remediation efforts due to not understanding how critical it was.  That’s a failure of marketing.

Compare “Heartbleed” to CVE-2014-0160, which is apparently the official classification for the bug.  (I say “apparently” because I cannot bring myself to care enough to spend a minute verifying that.)  Crikey, what a great name that is.

  • It references the factual underlying technical reality of the vulnerability, which is data leakage during a heartbeat protocol.
  • It is very emotionally evocative.  Think of your associations — “my heart bleeds for you”, the Sacred Heart and associated iconography, etc.
  • It sounds serious and/or fatal.

Geeks sometimes do not like when technical facts are described in emotionally evocative fashion.  I would agree if it were for the purpose of distortion, but “If you use OpenSSL 1.0.1a-f you could be leaking server memory” actually is serious and/or fatal, so describing it as such has the benefit of making people seek immediate resolution, which should be our goal as technologists.

Unique names (and “Heartbleed” is unique, given that you’d be hard pressed to find any mention of it which predates the vulnerability) are useful for communicating shared concepts between people.  My Twitter stream for the last few days is people sensibly discussing e.g. “Don’t forget, you can be heartbled in a client context”, “How do you fix Heartbleed on Ubuntu?”  “Depends — older versions aren’t vulnerable, newer versions can just apt-get update & upgrade”  “Thanks!”

This is a substantial improvement on conversations I’ve had about previous vulnerabilities, where you often end up discussing, e.g., “the Rails bug.”  Which one?  You know, THE bug.  Wait THE bug or the other bug?  The YAML bug.  Wait wait the YAML bug in the XML handling or the class of bugs caused by YAML deserialization?  Man, would that have been an easier month if we had all been talking about DeserialKiller.

Names which don’t involve arcane trivia like “OpenSSL 1.0.1g” are also easy to communicate with non-technical stakeholders.  If you had a launch yesterday, and you were forced to choose between making the launch date and fixing Heartbleed, you absolutely should have scrubbed the launch.  We were all racing against for loops and the prize for 2nd place was “Our customers’ security gets horribly abused.”  To actually scrub the launch, you might need to convince e.g. a manager that despite the company having dropped $100k on a splashy ad campaign, Heartbleed was priority #1.  The image of your lifeblood dripping out was more likely to successfully accomplish that than a CVE number.

Clear Communication

The Heartbleed announcement should be taught in Technical Writing courses.  It is masterful communication.  Let me quickly excerpt the first three paragraphs:

The Heartbleed Bug is a serious vulnerability in the popular OpenSSL cryptographic software library. This weakness allows stealing the information protected, under normal conditions, by the SSL/TLS encryption used to secure the Internet. SSL/TLS provides communication security and privacy over the Internet for applications such as web, email, instant messaging (IM) and some virtual private networks (VPNs).

The Heartbleed bug allows anyone on the Internet to read the memory of the systems protected by the vulnerable versions of the OpenSSL software. This compromises the secret keys used to identify the service providers and to encrypt the traffic, the names and passwords of the users and the actual content. This allows attackers to eavesdrop on communications, steal data directly from the services and users and to impersonate services and users.

What leaks in practice?

We have tested some of our own services from attacker’s perspective. We attacked ourselves from outside, without leaving a trace. Without using any privileged information or credentials we were able steal from ourselves the secret keys used for our X.509 certificates, user names and passwords, instant messages, emails and business critical documents and communication.

That is tight, precise, hard-hitting writing, of the sort which we normally associate with journalists rather than cryptographers or software engineers.  It is both technically accurate and yet comprehensible if you are not a technologist.  It doesn’t bury the lede about severity: “popular $MUMBOJUMBO software library” “allows stealing the information protected” on your “web, email, IM, and virtual private networks” “without leaving a trace” including “user names and passwords, instant messages, emails, and business critical documents and communication.”

The website goes on to provide technical details and remediation advice, but you can already tell your boss “I can’t do that today, boss.  We have to respond to heartbleed.com.”  If he spends even 30 seconds glancing at that executive summary he’ll say “Crikey.  Yep, you do.”  I particularly liked the recognition that most remediation of Heartbleed would be done by businesses, which is probably why the writer focused on “business critical documents” rather than the more anodyne “data.”  Data gets weighed by the gigabyte but business critical documents spur immediate action when threatened.

The Benefits Of A Dedicated Web Presence

I often tell OSS practitioners to use dedicated web presences for projects they consider important, as opposed to dangling them off of (without loss of generality) Github.  Why?

People will generally try to link to something to describe a project / vulnerability / etc, and having an easy and obviously linkable canonical description is both best for clarity and best for your own personal interests as the project/etc creator.  Heartbleed.com is the canonical explanation of Heartbleed, both because people trust $8.95 domain names and because it was first published, came with a design/logo and comprehensive information, and is suitably authoritative in character.

Compare it to the best canonical reference you can find about CVE-2013-0156.  That would be an archived copy of a plain-text email, hosted on Google Groups.  It isn’t particularly attention grabbing, doesn’t really scream “citable” to either a technical or non-technical audience, and is optimized for a fairly narrow strand of practitioners rather than the much larger audience of people who should have cared about CVE-2013-0156.

Visual Identity Is Important

The Heartbleed logo is probably one of the highest ROI uses of ~$200 in the history of software security.  (I don’t actually know whether they got it done for $200, but that is about what I paid the last time I had a logo done for an OSS project.)

Heartbleed Logo

I saw some kvetching on Twitter to the effect that the logo designer heard about Heartbleed before the distribution maintainers at e.g. Ubuntu and RedHat did.  This kvetching is wrongheaded, because the logo designer only needed the instruction “We have a project named Heartbleed.  Come up with a logo which says serious danger.”  rather than “Apropos of nothing, mostly non-technical logo designer, the heartbeat protocol in OpenSSL 1.0.1a through 1.0.1f has been fubared for 2 years now.  Don’t tell the Ubuntu guys though, we’re trying to keep it a secret!”

(I am, for what it is worth, absolutely agnostic on who should have preferential access to information of upcoming vulnerabilities with regards to a particular project.  This strikes me as something which should be bought from maintainers/security researchers if you care about it, but I’m only weakly committed to that.)

Why spend the extra money for a logo?  Because it suggests professionalism and dedicated effort, because it will be used exhaustively in media coverage of the vulnerability, because it further deepens the branding association of the vulnerability, the name, the logo, and the canonical web presence, and because it also suggests danger.  Is it the best logo in the history?  No.  This one won’t win design awards.  But it certainly does the job with aplomb.

OSS projects often don’t have logos or, ahem, do not devote to them the level of technical excellence that they devote to their products.  I will refrain from pulling in examples here to make my point.

Marketing Helps Accomplish Legitimate Goals

There exists a huge cultural undercurrent in the OSS community which suggests that marketing is something that vaguely disreputable Other People do which is opposed to all that is Good And Right With The World, like say open source software.  Marketing is just a tool, and it can be used in the cause of truth and justice, too.

As technologists, the Heartbleed vulnerability posed an instant coordination problem.  We literally had to convince hundreds of thousands of people to take action immediately.  The consequences for not taking action immediately were going to be disastrous.  They were not limited to “mere” violations of computer security, but would have had dire economic and social consequences in the real world.  Livelihoods (and, likely, lives) were at stake.

Given the importance of this, we owe the world as responsible professionals to not just produce the engineering artifacts which will correct the problem, but to advocate for their immediate adoption successfully.  If we get an A for Good Effort but do not actually achieve adoption because we stick to our usual “Put up an obtuse notice on a server in the middle of nowhere” game plan, the adversaries win.  The engineering reality of their compromises cannot be thwarted by effort or the feeling of self-righteousness we get by not getting our hands dirty with marketing, it can only be thwarted by successfully patched systems.

This makes marketing an engineering discipline.  We have to get good at it, or we will fail ourselves, our stakeholders, our community, and the wider world.

More OSS marketing like Heartbleed, please.

What I Would Do If I Ran Tarsnap

Tarsnap is the world’s best secure online backup service.  It’s run by Colin Percival, Security Officer Emeritus at FreeBSD, a truly gifted cryptographer and programmer.  I use it extensively in my company, recommend it to clients doing Serious Business (TM) all the time, and love seeing it successful.

It’s because I am such a fan of Tarsnap and Colin that it frustrates me to death.  Colin is not a great engineer who is bad at business and thus compromising the financial rewards he could get from running his software company.  No, Colin is in fact a great engineer who is so bad at business that it actively is compromising his engineering objectives.  (About which, more later.)  He’s got a gleeful masochistic streak about it, too, so much so that Thomas Ptacek and I have been promising for years to do an intervention.  That sentiment boiled over for me recently (why?), so I took a day off of working on my business and spent it on Colin’s instead.

After getting Colin’s permission and blessing for giving him no-longer-unsolicited advice, I did a workup of my Fantasy Tarsnap.  It uses no non-public information about Tarsnap.  (Ordinarily if I were consulting I wouldn’t be black boxing the business, but Tarsnap has unique privacy concerns and, honestly, one doesn’t need to see Colin’s P&L to identify some of the problems.)  This post is going to step through what I’d do with Tarsnap’s positioning, product, pricing, messaging, and marketing site.  It’s modestly deferential to my mental model of Colin — like any good consultant, I recommend improvements that I think the client will accept rather than potential improvements the client will immediately circular file because they compromise core principles.

Let me restate again, before we get started, that I am going to criticize Tarsnap repeatedly, in the good-faith effort to improve it, at Colin’s explicit behest.  I normally wouldn’t be nearly as vocally critical about anything created by a fellow small entrepreneur, but I know Colin, I want Tarsnap to win, and he wanted my honest opinions.

What’s Wrong With Tarsnap Currently?

Tarsnap (the software) is a very serious backup product which is designed to be used by serious people who are seriously concerned about the security and availability of their data.  It has OSS peer-reviewed software written by a world-renowned expert in the problem domain.  You think your backup software is written by a genius?  Did they win a Putnam?  Colin won the Putnam.  Tarsnap is used at places like Stripe to store wildly sensitive financial information.

Tarsnap (the business) is run with less seriousness than a 6 year old’s first lemonade stand.

That’s a pretty robust accusation.  I could point to numerous pieces of evidence — the fact that it is priced in picodollars (“What?”  Oh, don’t worry, we will come back to the picodollars), or the fact that for years it required you to check a box certifying that you were not a Canadian because Colin (who lives in Canada) thought sales taxes were too burdensome to file (thankfully fixed these days), but let me give you one FAQ item which is the problem in a nutshell.

Q: What happens when my account runs out of money?

A: You will be sent an email when your account balance falls below 7 days worth of storage costs warning you that you should probably add more money to your account soon. If your account balance falls below zero, you will lose access to Tarsnap, an email will be sent to inform you of this, and a 7 day countdown will start; if your account balance is still below zero after 7 days, it will be deleted along with the data you have stored.

Yes folks, Tarsnap — “backups for the truly paranoid” — will in fact rm -rf your backups if you fail to respond to two emails.

Guess how I found out about this?

I use Tarsnap to back up the databases for Appointment Reminder.  Appointment Reminder has hundreds of clients, including hospitals, who pay it an awful lot of money to not lose their data.  I aspire to manage Appointment Reminder like it is an actual business.  It has all the accoutrements of real businesses, like contracts which obligate me not to lose data, regulations which expose me to hundreds of thousands of dollars of liability if I lose data, insurance policies which cost me thousands of dollars a year to insure the data, and multiple technical mechanisms to avoid losing data.

One of those mechanisms was Tarsnap.  Tarsnap is a pre-paid service (about which, more later), so I had pre-paid for my expected usage for a year.  I tested my backups routinely, found they worked, and everything was going well.

Fast forward to two weeks ago, when idle curiosity prompted by an HN thread caused my to check my Tarsnap balance.  I assumed I had roughly six months remaining of Tarsnap.  In fact, I had 9 days.  (Why the discrepancy?  We’ll talk about it later, I am not good at forecasting how many bytes of storage I’ll need after compression 12 months from now, a flaw I share with all humans.)  I was two days away from receiving an email from Tarsnap “Your account is running a little low” warning.  Seven days after that my account would have run down to zero and Tarsnap would have started a 7 day shot clock.  If I didn’t deposit more money prior to that shot clock running out, all my backups would have been unrecoverably deleted.

I am, in fact, days away from going on a business trip internationally, which previous experience suggests is a great way for me to miss lots of emails.  This is pretty routine for me.  Not routine?  Getting all of my backups deleted.

Getting all of my backups deleted (forgive me for belaboring that but it is a fairly serious problem in a backup service) would be suboptimal, so I figured there must be a way to put a credit card on file so that Colin can just charge me however many picodollars it costs to not delete all the backups that I’d get sued for losing, right?

Quoth the Colin:

But if you’re saying I should have a mechanism for automatically re-billing credit cards when a Tarsnap account balance gets low — yes, that’s on my to-do list.

Lemonade stands which have been in business for 5 years have the take-money-for-lemonade problem pretty much licked, and when they have occasional lemonade-for-money transactional issues, the lemonade does not retroactively turn into poison.  But Tarsnap has been running for 5 years, and that’s where it’s at.

The darkly comic thing about this is I might even be wrong.  It’s possible Colin is, in fact, not accurately stating his own policies. It is possible that, as a statement about engineering reality, the backups are actually retained after the shot clock expires e.g. until Colin personally authorizes their deletion after receiving customer authorization to do so.  But even if this were true, the fact that I — the customer — am suddenly wondering whether Tarsnap — the robust built-for-paranoids backup provider — will periodically shoot all my backups in the head just to keep things interesting makes choosing Tarsnap a more difficult decision than it needed to be.  (If Colin does, in fact, exercise discretion about shooting backups in the head, that should be post-haste added to the site.  If he doesn’t and there is in fact a heartless cronjob deleting people’s backups if they miss two emails that should be fixed immediately.)

Positioning Tarsnap Away From “Paranoia” And Towards “Seriousness”

Let’s talk positioning.

You may have heard of the terms B2B and B2C.  Tarsnap communicates as if it were a G2G product — geek 2 geek.

How does Tarsnap communicate that its G2G?  Let me quickly screengrab the UI for Tarsnap:

15 6 * * * /usr/local/bin/tarsnap -c -f database_backups_`date +\%Y-\%m-\%d` /backups/ /var/lib/redis && curl https://nosnch.in/redacted-for-mild-sensitivity &> /dev/null

I’m not exaggerating in the slightest.  That’s literally pulled out of my crontab, and it is far and away the core use case for the product.

Other things you could point to in describing Tarsnap’s current positioning are its web design (please understand that when I say “It looks like it was designed by a programmer in a text editor” that is not intended as an insult it is instead intended as a literal description of its primary design influence), the picodollar pricing, and numerous places where the product drips with “If you aren’t a crusty Unix sysadmin then GTFO.”

Example: Suppose you’re using Tarsnap for the first time and want to know how to do a core activity like, say, making a daily backup of your database.  That’s the need which motivated that command line soup above.  What does the Tarsnap Getting Started guide tell you to do?

If you’ve ever used the UNIX tar utility, you’ll probably be able to go from here on your own…

If you actually aren’t a master of the UNIX tar utility, don’t worry, there’s a man page available.  (It won’t actually help you accomplish your goal, because you are not a crusty UNIX sysadmin.)

This positioning has the benefit of being pretty clear — you will, indeed, quickly get the point and not use Tarsnap if you are not a crusty UNIX sysadmin — but it is actively harmful for Tarsnap.  Many people who would benefit most from Tarsnap cannot use it in its current state, and many people who could use it will not be allowed to because Tarsnap actively discourages other stakeholders from taking it seriously.

How would I position Tarsnap?

Current strap line: Online backups for the truly paranoid

Revised strap line: Online backups for servers of serious professionals

What does Tarsnap uniquely offer as a backup product?  Why would you use it instead of using Dropbox, SpiderOak, Backblaze, a USB key, or a custom-rolled set of shell scripts coded by your local UNIX sysadmin?

Tarsnap is currently defined by what it doesn’t have: no Windows client.  No UI.  Essentially no guidance about how to use it to successfully implement backups in your organization.

Tarsnap should instead focus on its strengths:

Tarsnap is for backing up servers, not for backing up personal machines.  It is a pure B2B product.  We’ll keep prosumer entry points around mainly because I think Colin will go nuclear if I suggest otherwise, but we’re going to start talking about business, catering to the needs of businesses, and optimizing the pieces of the service “around” the product for the needs of businesses.  We’ll still be pretty darn geeky, but treat the geek as our interface to the business which signs their paychecks and pays for Tarsnap, rather than as the sole customer.

Why should Tarsnap focus on backing up servers rather than even attempting to keep regular consumers in scope?

  • The average consumer is increasingly multi-device, and Tarsnap absolutely sucks for their core use case currently.  They want photos from their iPhone to work on their Windows PC.  They have an Android and a Macbook.  They have multiple computers at use simultaneously in their family.  Tarsnap is absolutely unusable for all of these needs.  These needs are also increasingly well-served by companies which have B2C written into their DNA and hundreds of millions of dollars to spend on UXes which meet the needs of the average consumer.  Colin has neither the resources nor the temperament to start creating compelling mobile apps, which are both six figures and table stakes for the consumer market right now.
  • Tarsnap’s CLI is built on the UNIX philosophy of teeny-tiny-program-that-composes-well.  It’s very well suited to backing up infrastructure, where e.g. lack of a GUI would cripple it for backing up data on workstations.  (We’ll ignore the lack of a Windows client, on the theory that UNIX has either won the server war or come close enough such that durably committing to the UNIX ecosystem leaves Tarsnap with plenty of customers and challenges to work on.)
  • Data on servers is disproportionately valuable and valuable data is disproportionately on servers.  Consumers like to say that their baby photos are priceless.  Horsepuckey.  Nobody rushes into burning houses for their baby photos.  Empirically, customers are not willing to spend more than $5 to $10 a month on backup, and that number is trending to zero as a result of rabid competition from people who are trying to create ecosystemic lock-in.  Businesses, on the other hand, are capable of rationally valuing data and routinely take actions which suggest they are actually doing this.  For example, they pay actual money to insure data, just like they buy insurance on other valuable business assets.  (Appointment Reminder, a fairly small business, spends thousands of dollars a year on insurance.)  They hire professionals to look after their data, and they pay those professionals professional wages.  They have policies about data, and while geeks might treat those policies as a joke, they are routinely enforced and improved upon.

An immediate consequence of focusing Tarsnap on servers is that its customers are now presumably businesses.  (There exist geeks who run servers with hobby projects, but they don’t have serious backup needs.  Have they taken minimum sane steps with regards to their hobby projects like spending hours to investigate backup strategies, incorporating to limit their liability, purchasing insurance, hiring professionals to advise them on their backup strategies, etc?  No?  Then their revealed preference is that they don’t care all that much if they lose all their hobby data.)

How do we talk to the professionals at businesses?  First, we can keep our secret geek handshakes, but we also start recognizing that most businesses which are serious about their data security will have more than one person in the loop on any decision about backup software.  Why?  Because having something as important as the security of their data come down to just one person is, in itself, a sign that you are not serious.  No sophisticated business lets any single person control all the finances for the company, for example, because that is an invitation to disaster.  We also recognize that these additional parties may not be geeks like the person who will be physically operating Tarsnap, so we’re going to optimize for their preferences as well as the geeks’.

What does this mean?

We decide to look the part of “a serious business that you can rely on.”  Tarsnap.com is getting a new coat of paint (see below) such that, if you fire your boss an email and say “Hey boss, I think I want to entrust all of our careers to these guys”, your boss doesn’t nix that idea before Malcom Gladwell can say blink.

We start arming our would-be-customer geeks to convince potentially non-technical stakeholders that Tarsnap is the correct decision for their business’ backup needs.  This means that, in addition to the geek-focused FAQ pages, we create a page which will informally be labeled Convince Your Boss.  Many conventions which geeks would be interested in, for example, let their would-be attendees print letters to their bosses justifying the trip in boss-speak (ROI, skills gained as a result of a training expenditure, etc).  I sort of like Opticon’s take on this.  Tarsnap will similarly create a single URL where we’ll quickly hit the concerns non-technical stakeholders would have about a backup solution: reliability, security, compliance, cost, etc.  This page would literally be 1/5th the size of this blog post or less and take less than an hour to write, and would probably double Tarsnap’s sales by itself.  The page will not mention command line interfaces, tar flags, crontabs, or picodollars.

We speak our customers’ language(s).  This doesn’t mean that we have to suppress Colin’s/Tarsnap’s nature as a product created by technologists and for technologists.  It just means that we explicitly recognize that there are times to talk tar flags and there are times to talk in a high-level overview about legitimate security concerns, and we try not to codeshift so rapidly as to confuse people.

We burn the picodollar pricing model.  With fire.  It’s fundamentally unserious.  (Ditto Bitcoin, the availability of which is currently Tarsnap’s view of the #1 most important they could be telling customers, rather than boring news like “Tarsnap is used by Stripe” or “Tarsnap hasn’t lost a byte of customers’ data in history.”)

Pricing Tarsnap Such That People Who Would Benefit From It Can Actually Buy It

Tarsnap’s current pricing model is:

Tarsnap works on a prepaid model based on actual usage.

Storage: 250 picodollars / byte-month
($0.25 / GB-month)
Bandwidth: 250 picodollars / byte
($0.25 / GB)

These prices are based on the actual number of bytes stored and the actual number of bytes of bandwidth used — after compression and data deduplication. This makes Tarsnap ideal for daily backups — many users have hundreds of archives adding up to several terabytes, but pay less than $10/month.

Colin, like many technologists, is of the opinion that metered pricing is predictable, transparent, and fair.  Metered pricing is none of predictable, transparent, or fair.

Quick question for you, dear reader: What would you pay for using Tarsnap to back up your most important data?

You don’t know.  That’s not a question, it’s a bloody fact.  It is flatly impossible for any human being to mentally predict compression and data duplication.  Even without compression and data duplication, very few people have a good understanding of how much data they have at any given time, because machines measure data in bytes but people measure data in abstractions.

My abstraction for how much data I have is “One MySQL database and one Redis database containing records on tens of thousands of people on behalf of hundreds of customers.  That data is worth hundreds of thousands of dollars to me.”  I have no bloody clue how large it is in bytes, and — accordingly — had to both measure that and then do Excel modeling (factoring in expected rate of growth, compression ratios, deduplication, etc etc) to guess what Tarsnap would cost me in the first year.  (Why not just say “It’s a lot less than $1,000 so I’ll give Colin $1,000 and revisit later?”  Because I have two countries’ tax agencies to deal with and my life gets really complicated if I pre-pay for services for more than a year.)

I screwed up the Excel modeling because, while I correctly modeled the effect of increasing data requirements due to the growth of my service in the year, I overestimated how much data compressed/deduplication would happen because I was storing both plain text files and also their compressed formats and compressed files do not re-compress anywhere near as efficiently as non-compressed files.  Whoopsie!  Simple error in assumptions in my Excel modeling, Tarsnap actually cost 4X what I thought it would.

By which I mean that instead of costing me $0.60 a month it actually costs me $2.40 a month.

This error is symptomatic of what Tarsnap forces every single customer to go through when looking at their pricing.  It is virtually impossible to know what it actually costs.  That’s a showstopper for many customers.  For example, at many businesses, you need to get pre-approval for recurring costs.  The form/software/business process requires that you know the exact cost in advance.  “I don’t know but we’ll get billed later.  It probably won’t be a lot of money.” can result in those requests not getting approved, even if the actual expense would be far, far under the business’ floor where it cared about expenses.  It is far easier for many businesses to pay $100 every month (or even better, $1,500 a year — that saves them valuable brain-sweat having to type things into their computer 11 times, which might cost more than $300) than to pay a number chosen from a normal distribution with mean $5 and a standard deviation of $2.

So the pricing isn’t clear/transparent, but is it fair?  “Fair” is a seriously deep issue and there are all sorts of takes on it.  As happy as I would be to discuss the intersection of Catholic teaching on social justice and SaaS pricing grids, let’s boil it down to a simple intuition: people getting more value out of Tarsnap should pay more for it.  That quickly aligns Tarsnap’s success with the customer’s success.  Everybody should be happy at that arrangement.

So why price it based on bytes?  Metering on the byte destroys any but the most tenuous connection of value, because different bytes have sharply different values associated with them, depending on what the bytes represent, who owns the bytes, and various assorted trivialities like file format.

Here’s a concrete example: I run two SaaS products, Bingo Card Creator and Appointment Reminder.  Bingo Card Creator makes bingo cards, sells to $29.95 to elementary schoolteachers, is deeply non-critical, and is worth tens of thousands of dollars to me.  Appointment Reminder is core infrastructure for customers’ businesses,  sells for hundreds to tens of thousands per year per customer, is deeply critical, and is worth substantially more than tens of thousands of dollars.

So the fair result would be that BCC pays substantially less than Tarsnap for AR, right?  But that doesn’t actually happen.  My best guesstimate based on Excel modeling (because BCC never bothered implementing Tarsnap, because I’m not mortally terrified that I could wake up one morning and Mrs. Martin’s 8th grade science bingo cards created in 2007 could have vanished if my backups failed) is that BCC would pay at least five times as much as Appointment Reminder.

What other intuitions might we have about fairness?  Well, let’s see, my company is engaged in arms length dealings with Tarsnap and with many other vendors.  I think it sounds fair if my company pays relatively less money for non-critical things, like say the cup of coffee I am currently drinking ($5), and relatively more money for critical things, like say not having all of my customer data vanish (Tarsnap).

I recently did my taxes, so I know with a fair degree of certainty that I spend more than $10,000 a year on various SaaS products.  (Geeks just gasped.  No, that’s not a lot of money.  I run a business, for heaven’s sake.  By the standards of many businesses I have never even seen a lot of money, to say nothing of having spent it.)

This includes, most relevantly to Tarsnap, $19 a month for Dead Man’s Snitch.  What does DMS do for me?  Well, scroll back up to the entry from my crontab: it sends me an email if my daily tarsnap backup fails.  That’s it.  Why?  Because “the backup did not happen” is a failure mode for backups.  Tarsnap does not natively support this pretty core element of the backup experience, so I reach to an external tool to fill that gap… and then pay them 10X as much for doing 1/1000th the work.  What?

(Let me preempt the Hacker News comment from somebody who doesn’t run a business: Why would you use DMS when you could just as easily run your own mail server and send the mail directly?  Answer: because that introduces new and fragile dependencies whose failure would only be detected after they had failed during a business catastrophe and, incidentally, be designed to avoid spending an amount of money which is freaking pigeon poop.)

So how do we charge for Tarsnap that accomplishes our goals of being predictable, transparent, and fair?

  • We’re going to introduce the classic 3 tier SaaS pricing grid.  This will give the overwhelming majority of our customers a simple, consistent, predictable, fair price to pay every month.
  • We’ll keep metered pricing available, but demote it (both visually and emphasis-wise) to a secondary way to consume Tarsnap.  It will now be called Tarsnap Basic.  Tarsnap Basic customers are immediately grandfathered in and nothing about their Tarsnap experience changes, aside from (perhaps) being shocked that the website suddenly looks better (see below).
  • We honor Colin’s ill-considered price decrease which he awarded customers with following the recent AWS/Google/Microsoft/etc platform bidding war.

We’re going to use our pricing/packaging of Tarsnap to accomplish price discrimination between customer types.  Our primary segmentation axis will not be bytes but will instead be “level of sophistication”, on the theory that quantum leaps in organizational sophistication/complexity roughly correspond with equal or higher leaps in both value gotten out of Tarsnap and also ability to pay.

Here’s some potential packaging options as a starter point.  These don’t have to be frozen in time for all eternity — we could always introduce them in April 2014, keep them around for 6 months, and then offer a new series of plans at that point in response to customer comments, our observations about usage, the degree to which they accomplish Tarnsap business goals, and the like.

The questions of what the pricing/packaging is and how we present it to customers are related but distinct.  This is the version for internal consumption — actual design of the pricing grid took more than 15 minutes so I decided to nix it in favor of shipping this post today.

Tarsnap Professional Tarsnap Small Business Tarsnap Enterprise
$50 / month $100 / month $500 / month
All of Tarsnap Basic All of Tarsnap Basic All of Tarsnap Basic
10 GB Unlimited storage, up to 500 GB of media Unlimited storage, up to 1 TB of media
Priority support Priority support
Onboarding consultation Onboarding consultation
Custom legal / compliance documentation
POs & etc

That’s the offering at a glance. What changed?

We’re de-emphasizing “count your bytes” as a segmentation engine. I picked 10 GB for Tarsnap Professional because it feels like it is suitably generous for most backup needs but could plausibly be exceeded for larger “we want our entire infrastructure to be Tarsnapped” deployments. Importantly, I’m *not* segmenting by e.g. number of machines, because I think the market is moving in a multi-machine direction and Tarsnap is so effective and elegant at supporting that sort of incredibly valuable and sticky use case that I don’t want to impede it. (Tarsnap also must implement multi-user accounts and permissions for larger businesses, because that is a hard requirement for many of them. They literally cannot adopt Tarsnap unless it exists. That’s a natural addition at the Small Business or Enterprise level, but since that feature does not currently exist I’m punting from including it in the current packaging offering. Once it’s available I say put it on Enterprise and then grandfather it onto all existing customers to say “Thanks for being early adopters!”, and consider adding it to Small Business if you get lots of genuinely small businesses who both need it but balk at $500 per month.)

We’ve added “effectively unlimited” storage to Tarsnap.  I think Colin just blew approximately as many gaskets at this change as I blew when I heard he was lowering his prices.  Revenge is sweet.  See, Colin has always priced Tarsnap at cost-plus, anchoring tightly to his underlying AWS costs.  Tarsnap is not AWS plus a little sauce on top.  AWS is a wee little implementation detail on the backend for most customers.  Most Tarsnap customers don’t know that AWS underlies it and frankly don’t care.  If you assert the existence of strangely technically savvy pixies who have achieved redundant storage by means of writing very tiny letters on coins guarded by a jealous dragon, and Tarsnap used that instead, Tarsnap would be the same service.

Tarsnap isn’t competing with AWS: the backups being safely encrypted is a hard requirement for the best customers’ use of Tarsnap.  I can’t put my backups on AWS: instant HIPAA violation.  Stripe can’t put their customers’ credit cards on AWS: instant PCI-DSS violation.  We both have strong security concerns which would suggest not using unencrypted backups, too, but — like many good customers for Tarnsap — we never entertained unencrypted backups for even a picosecond.

So we’re breaking entirely from the cost-plus model, in favor of value-oriented pricing?  What does this mean for customers?

They don’t have to have a to-the-byte accurate understanding of their current or future backup needs to guesstimate their pricing for Tarsnap anymore.  You could ask people interviewing for position of office manager, without any knowledge of the company’s technical infrastructure at all, and they would probably correctly identify a plan which fits your needs.  Stripe is on Enterprise, bam.  Appointment Reminder is on Small Business, bam.  Run a design consultancy?  Professional, bam.  Easy, predictable, fair pricing.

Why have the media limit in there?  Because the only realistic way you can count to terabytes is by storing media (pictures, music, movies, etc).  Colin is in no danger of selling Tarsnap to people with multiple terabyte databases — there’s only a few dozen of those organizations in the world and they would not even bring up Tarsnap to joke about it.  (That’s, again, said with love. AT&T will not be using Tarsnap to store their backed up call records.)  You won’t hit a terabyte on e.g. source code.  If someone does, ask for their logo for the home page and treat their COGS as a marketing expense.

How does Colin justify the “media” bit to customers?  Simple: “Tarsnap is optimized for protecting our customers’ most sensitive data, rather than backing up high volumes of media files.  If you happen to run a film studio or need backups for terabytes of renders, drop us a line and we’ll either custom build you a proposal or introduce you to a more appropriate backup provider.”

Colin probably blew his stack about Tarsnap no longer being content neutral, because this requires us knowing what files his customers are storing in Tarsnap.  No, it doesn’t.  You know how every ToS ever has the “You are not allowed to use $SERVICE for illegal purposes” despite there being no convenient way to enforce that in computer code?  We simply tell customers “Don’t use this plan if you have more than 1 TB of media.  We trust you.  We have to, since the only information our servers know about your use is $TECHNICAL_FACT_GOES_HERE.”   If this trust is ever abused in the future Colin can code up a wee lil’ daemon which checks customers accounts and flags them for review and discussion if they hit 30 TB of post-compression post-deduplication usage, but it’s overwhelmingly likely that nobody will attempt to abuse Colin in this fashion because serious businesses take stuff that you put into contracts seriously.  That’s 99.54% of why contracts exist.  (Most contracts will never be litigated.  If anyone ever abuses Colin and does not correct their use when told to, he’ll simply point to the “We can terminate you at any time for any reason” line in his ToS written there by any serious lawyer.)

I will briefly observe, with regards to cost control, that if every customer used 100 GB of data then this would cost Colin single-digit dollars per customer per month, that 100 GB of (de-duplicated, compressed) data is actually incredibly rare.  Since the happy use case for Tarsnap involves virtually never downloading from the service (because backups are inherently write-seldomly-read-very-very-very-infrequently) AWS’ “bandwidth free incoming, bandwidth cheap outgoing” will not meaningfully affect costs-of-goods (i.e. Colin’s marginal expenditure to have the Nth marginal client on Tarsnap).

I will also briefly observe that Colin does not currently have a terminate-your-account option in his ToS.  Why?  Probably because no lawyer was involved in creating it, a decision which should be revised in keeping with positioning Tarsnap as a serious business which transacts with other serious businesses.  Lawyers will occasionally ask technologists for silly contractual terms which have no relation to technical reality.  Reserving the right to terminate accounts is not that kind of term.  If any clients strongly object to it, they can have their own lawyer draw up a contract and pay Enterprise pricing after Colin’s lawyers have reviewed and negotiated the contract.  You want to hear why SaaS businesses should always keep a no-fault-terminate option available?  Get any group of SaaS owners together and ask for horror stories.  A surprising number of them involve literal insanity, involvement of law enforcement, threats, and other headaches you just don’t need to deal with for $29/$50/whatever a month.

What does priority support mean?

It means that Colin will answer emails to prioritysupport@ before he answers emails to support@.  That’s it.

I know, I know, this blows geeks’ minds.  Is it OK to charge for that?  Of course it is.  You advertised what they were getting, they accepted, and you delivered exactly what you promised.  That’s what every legitimate transaction in history consists of.

Why would customers buy this?  Perhaps because they have company rules such that they always purchase the highest level of support, and the difference between $50 and $100 a month is so far below their care floor that that avoiding requesting an exception is worth the marginal cost to them.  Perhaps because when their backups have a problem a difference of a few minutes is actually an issue for them.  Perhaps because it isn’t really an issue for them (if it is, Tarsnap’s SLA is a nonstarter, seeing as Tarsnap has no SLA) but they like to see themselves as important enough that it is.  Perhaps because they’re worth billions of dollars and run credit card transactions for hundreds of thousands of people and why are we even having this discussion of course they want priority support for our backups.  (That’s called “price insensitivity” and every B2B SaaS ever should take advantage of it.)

What is an onboarding consultation?

Nobody buys Tarsnap because they want to use Tarsnap.  They buy Tarsnap because they have a burning need in their life for encrypted reliable backups (or a need for not losing their data in event of a breach or a fire or a hard drive failure or all the other ways you can lose data).  Tarsnap is a piece of the puzzle for meeting that need, but it isn’t all of it.

Can I confess ineptitude with UNIX system administration?  I founded a company, but I’m not a sysadmin.  My first several days of using Tarsnap were marred because the cronjob entry which I thought was supposed to do a timestamped backup every day was failing because of improper use of backticks in bash or some nonsense like that.  Whatever.  Now that it works it doesn’t matter what the problem was, but back when I implemented Tarsnap, that was a problem for me.  I guarantee you that Colin could have dealt with that problem in seconds.  I would love to have had him available to do that.  Now in actual fact I could probably have just sent Colin an email and he would have gladly helped me, but I didn’t do that because I’m a geek and I hate imposing on people, so why not make that offer explicit?

There’s many other ways to fail at backups other than screwing up your crontab.  Did you want to backup your MySQL database?  Did you backup the actual data files rather than a mysqldump?  Sucks to be you, but you won’t know that until the most critical possible moment, likely several years from now.  Did you forget to print a hard copy of your Tarsnap private key?  Sucks to be you, but you won’t know that until your hard drive fails.  etc, etc

Colin is a very smart guy and he has more experience at backups than many of his customers, so why not offer to make sure they get up and running on the right foot?  He does consulting anyhow (or did, back when Tarsnap was not paying the bills), so just do it in the service of the product: ask customers about their businesses, make sure they’re backing up the right information on a sensible schedule, and offer to assist with the non-Tarsnap parts of the puzzle like monitoring, auditing, compliance, etc etc.  (That would, incidentally, expose Colin to real-life justifications for features which should absolutely be in-scope for Tarsnap, like monitoring.)  It makes it easier for clients to justify using Tarsnap, easier for them to succeed with using Tarsnap, and easier for them to justify to other stakeholders why they went for the Enterprise plan rather than the Professional plan.  Businesses are quite used to paying for experts’ time.

(From Colin’s perspective, by the way, the effective hourly rate on these free consultations will eventually absolutely ROFLstomp his highest hourly rate.  I charged $30k a week back when I was a consultant, and onboarding Appointment Reminder customers is still monetarily a better use of my time.  “Hundreds of dollars a month” multiplied by “many customers” multiplied by “years on the service” eventually approaches very interesting numbers.)

What does custom legal / compliance documentation mean?

Many larger businesses require certain contractual terms to buy software, even SaaS which those contractual terms do not contemplate.  (e.g. “You should provide us with media containing the newest version of the software on request, delivered via courier within 7 business days.” <– an actual term I’ve been asked to sign for SaaS).  Instead of saying “We have a ToS which is a take-it-or-leave-it proposition”, say “We’re willing to have our lawyers look over any terms you have, and will either counteroffer or accept them depending on whether they’re reasonable.  This is available at our Enterprise pricing level.”

If your organization is sophisticated enough such that it can afford counsel and layers of scar tissue that generate custom language required to use software, it can afford Enterprise pricing.  If it’s not, you can use the easy, affordable options in the other columns.  (And while we won’t say this in so many words to clients, if you think you get custom legal work done for you at the lowest price, you are irrational and we do not desire your custom.  I’ve had clients ask me to sign their handwritten-and-scanned contracts which all but obligate me to give them my firstborn if Microsoft eats their Googles… and could I get the $29 a month pricing, please.  I’m not even going to waste my lawyer’s time with looking at it for less than $500 a month.)

In addition to improving Colin’s ability to get people up to Enterprise pricing, this opens new markets up for him.  For example, an IT company working with US healthcare clients might ask Colin to sign a BAA.  (I think, as a founder of a company which has to care about that, that Tarsnap is likely out of BAA scope, but somebody might ask him to sign that anyhow.  Better safe than sorry, etc.)  Rather than saying “No.”, Colin should say “Let me one that run by the lawyer.”, who will advise him that while it’s a paperwork hassle the first time it exposes him to zero legal risk.  So Colin would gladly cash that $500 a month check while mentioning explicitly on the website “Do you need HIPAA compliance for your backups?  We can accommodate that!”

Speaking of which: there should, eventually, be a Tarsnap in $INDUSTRY pages on the website for all of the top use cases.  On the healthcare page you could brag about HIPAA compliance, on the payment processing page about “Stripe uses us!” and DCI-PSS compliance, etc etc.

What is the transition strategy from metered pricing?

Simple.  Metered pricing is now called Tarsnap Basic and is available from one weeeeee little text link somewhere on the pricing page, or alternately by contacting Colin directly.  It has everything Tarsnap has as of the writing of this article.  Nobody who has ever used Tarsnap Basic has anything taken away.

Colin will be shocked and amazed at this, but very few customers are going to actually search out and find that link, he will not experience significant decreases in the number of new accounts he gets per month, and — I will bet pennies to picodollars — he discovers that, amazingly, the people who prefer Tarsnap Basic are, in fact, his worst customers in every possible way.  They’re going to take more time, use the service less, and in general be more of a hassle to deal with.

We grandfather in existing Tarsnap Basic clients.  If there is anybody paying Colin more than $100 or $500 a month for Tarsnap currently, Colin can either a) advise them that they should upgrade to one of the new plans (if they’re not using media files), b) immediately upgrade them to the new plan himself, or c) tell them “You’re now on a special variant of the new plans, such that you have no limit on your media files.  Otherwise it just purely saves you money.  Have a nice day.”  I feel that all of these are the right thing to do, and they might be the only recommendations in this post which Colin actually won’t object to.  Yay.

Why grandfather in clients?  It will cost us a bit of money in opportunity costs, but a) keeping commitments is the right thing to do, b) we can justify it as being a marketing expenditure to reward the loyalty of our early adopters, and c) the portion of customers receiving deeply discounted Tarsnap services will quickly approach zero because Tarsnap has yet to even scratch the surface of its total addressable market.

Why keep Tarsnap Basic at all?  Honestly, if this were a paid consulting gig, I would be pulling out my This Is Why You Brought Me In card here and going to the mattress on this issue: Tarsnap’s metered pricing is a mistake and should be killed, not rehabilitated.  You pick your battles with clients, but this one is worth fighting for.  Unfortunately, I believe that years of ragging Colin about picodollar pricing has caused him to dig in his heels about it, such that he feels it would be a rejection of the core of Tarsnap if he were to go to better pricing options.  Since I hope that Tarsnap actually improves as a result of this post, I’d be more than happy with an incremental improvement on the pricing.

What is a PO?

A PO is a Purchase Order.  It is a particular document enshrined as part of the purchasing ritual at many businesses, which often require a bit more ceremony to buy things than “Give us your credit card and we’ll Stripe it.”  Colin can now respond to any requirement for heightened purchasing ceremony with my magical phrase “I can do that with a one year commitment to the Enterprise plan.”

Can we pay with a PO?  “I can do that with a one year commitment to the Enterprise plan.”

Do we get a discount for pre-paying? “I can do that with a one year commitment to the Enterprise plan.”  (Let’s be generous: $500 a month or $5k for the year.  Cheaper than a week of a sysadmin’s time!)

Can you help us work up an ROI calculation for our boss?  “I can do that with a one year commitment to the Enterprise plan.”

Do you accept payment in yen?  “I can do that with a one year commitment to the Enterprise plan.”

Can we pay you with a check?  “I can do that with a one year commitment to the Enterprise plan.”

Tarsnap’s clients and Tarsnap will both benefit from Tarsnap charging more money

More money in the business will underwrite customer-visible improvements to the business, such as e.g. buying actual insurance for data which is in his care.  It will allow him to prioritize features that core customers really need, like e.g. the recurring billing thing which has been on the back burner for several years now.  It will let him not have to worry about cash flow as much as he is presumably doing currently, allowing him to take customer-favorable actions like not deleting all of your backups within days of a transient credit card failure.

It will allow Colin to buy his way around the bus number question.  (“What happens if you get hit by a bus?”  Currently: Nothing immediately, but eventually the service might fail.  We hope we fail at a time convenient for you to not have any of your backups?  Later: Don’t worry, we have systems and processes in place to cover business continuity issues.  Our lawyers have a copy of our credentials in escrow and we have a well-regarded technical firm on retainer.  In the event of my death or incapacitation, contracts activate and the business is wound down in an orderly fashion, such that your data is never lost.  You’d have several months to decide whether to keep your backups with a successor organization or migrate them to other providers, and our successor organization would assist with the migration, free of charge.  We have this described in a written Business Continuity Plan if you’d like to take a look at it.)

It also, frankly, compensates Colin better for the enormous risk he took in founding Tarsnap (as opposed to e.g. working in-house at any of his clients).  I know Colin is pretty happy with the living Tarsnap currently affords him.  Bully for him.  I hate attempting to change anyone’s mind about core philosophical beliefs, but on this particular one, Joel Spolsky did me an enormous favor back in the day and I’d like to pay that forward to someone else in the community.  (Particulars elided because it was a private conversation, but Joel convinced me not to just get BCC to the point of self-sufficiency and then retire, and part of the rationale is relevant to Colin.)

What we’re fundamentally concerned with here is an allocation of the customer surplus — the difference between what customers would pay and what they actually pay — between the customers and Colin, in his capacity as Chief Allocator For Life Of All Tarsnap-related Surpluses.  Colin is currently deciding that his customers are the most deserving people in the entire world for those marginal dollars.

Is that really true?  Appointment Reminder, LLC is a force for good in the world, I hope, but it certainly doesn’t match my intuitions as the highest and best use of marginal funds, and it really doesn’t care about the difference between the $2.40 it currently pays and the $100 it would happily pay.  That won’t even cause a blip in business.  As the founder, the LLC’s bank account is very much not my own pocket, but I’m probably the best informed person in the world about it’s balance, and I’d literally not be able to notice the difference after a month.

Can I tell you a story about Anne and Bob?  They’re trying to divide a carrot cake fairly between the two of them.  Carrot cake, if you’re not familiar with it, has delicious carrot-y goodness and is topped with very sugary white frosting.  In the discussion of the fair division of the cake, Bob mentions “By the way, I’m severely diabetic.  I can’t eat sugary white frosting.  If you give me any of it, I’ll scape it off.”

There’s many fair ways to cut that carrot cake, but (assuming that Anne likes sugary goodness and would happily have all of it if she could), any proposed allocation of cake that gives Bob one iota of frosting can be immediately improved upon by transferring that frosting to Anne’s piece instead.  This is true regardless of your philosophy about fairness or cake cutting, or whatever Anne and Bob might contemplate regarding the delicious carrot-y portions.  Even stevens?  That works.  Give Bob extra cake because Anne isn’t particularly hungry?  That works.  Anne has a lethal allergy to carrots and so wants none of the cake?  That works, too.  Anne and Bob belong to an obscure religion founded by cryptographers which dictates that in case of conflict over resources ties go to the person whose name has the lexicographically lower MD5 hash when salted with the name of the resource at issue?  That works too!  Just don’t give Bob the frosting because that’s just not the best way to cut the cake.

This stylized example uses absolutes, but in the real world, Colin and his customers are cutting a cake composed of encrypted-backup-so-your-business-doesn’t-fail goodness iced with whole-tens-of-dollars-a-month.  The customers mostly don’t care about the frosting.  Colin should take all of it that is available to him.  Aggregated over hundreds or thousands of customers it is absolutely lifechanging for Colin, Tarsnap, or whatever people or organizations are implicated by Colin’s terminal values.

Even if Colin desires to subsidize people whose use of Tarsnap is economically suboptimal when compared to Appointment Reminder’s (and thus who can’t afford the $50 a month), Colin should not cut prices on Appointment Reminder to do it.  He should instead charge AR (and hundreds/thousands of similarly situated organizations) $100 a month and then use the $100 to buy, hmm, “a shedload” of AWS storage, allowing him to charge nothing to whatever people/schools/charities/etc he wants to benefit.  You could call even put that on the pricing page if you wanted to.  Tarsnap Dogooder: it’s free if you’re doing good, email us to apply.

Colin has twice proposed that there should be a special optional surcharge if customers feel like they’re not paying enough.  Let’s run that one by the 6 year old with the lemonade stand: “Why don’t you do this?” “Because few people would pay for it, and it would complicate the discussion about buying lemonade, and it would make them feel really weird, and if they wanted to be charitable they’d probably have a markedly different #1 priority for their charity right now than middle class kids with entrepreneurial ambitions.”  All true, 6 year old!

I might also add, as someone who was dragged kicking and screaming into being a responsible grownup running a serious business, that while I personally can choose to donate money the business can’t.  If it isn’t necessary it isn’t a business expense (that’s phrased 必要経費 — quite literally “necessary business expense” — by my good buddies at the National Tax Agency — and yes, for the 43rd time, I really can read Japanese).

Memo to OSS developers: I can pay money for software licenses, even if the license is just “MIT, but we invoice you”, but I cannot just put business funds in your tip jar.

Tarsnap Needs A Fresh Coat Of Paint

I have abominable design skills.  That said, I still wouldn’t ship Tarsnap’s design, because it is the special flavor of poorly designed which could actually cost sales.  (Many non-beautiful sites do not cost sales.  Example: look at every bank or enterprise software company ever.  Very few would win design awards.  They just have to waltz over the very low does-not-scare-the-customer-bar.  Tarsnap trips.)

Here’s what I’d tell a contract designer hired to re-do the Tarsnap CSS and HTML: “Competitors to Tarsnap include Backblaze, SpiderOak, Mozy, and the like.  People who could make the decision to use Tarsnap might be familiar with and generally appreciate Twilio, Sendgrid, and Stripe.  Steal liberally from their designs and keep nothing of the current design.  Heck, you can even copy their mistakes, like using carousels.  No mistake you copy from those folks will be anywhere near as bad as it looks right now.  Lorem ipsum out the text.  If you have any question about a visual element rather than asking Colin or I you should ask any Project Manager or Team Lead you know ‘Would this cause you to run away from the screen in revulsion?’ and you can keep absolutely anything where the answer is ‘No.’”)

A visual redesign will probably cost Colin four to low five figures.  That’s cheap at the price of the business it will bring in within even the first month, but hey, let’s hypothetically assume it isn’t in the budget.  In that case, we go to Themeforest and buy any SaaS template which isn’t totally hideous.  Here’s one.

Pardon me for ten minutes while I pay $20 and deliver a quantum leap in visual experience…

And done.

Old: 

New:

Seriously, I have live HTML for that, and it probably took a whole 20 minutes.  Rewriting the entire Tarsnap website from scratch would be roughly one day of work.

That testimonial from Patrick Collison is, by the way, legit.  It could easily be accompanied by a logo wall of customers in a redesign.

I’m really ambivalent on what could go in the large image that I placeholder’d out, by the way.  Literally anything.  A stock icon enterprise shot would work, a skewed listing of arbitrarily database backups could work, a photo of some model exuding “I feel the thing that can only be felt by people who did not just lose all of their backups”, anything.  Even “This space intentionally left blank” is more professional than the existing Tarsnap site.  That could be fixed after fixing re-occuring billing or the cronjob which goes around deleting people’s backups.

Ordinarily I would suggest A/B testing designed changes, but Colin won’t ever actually run an A/B test and this is a clear improvement, so in this case I’d settle for shipping over certainty.

Getting Started With Tarsnap — Slightly Improved

Get Started Now is probably not my most innovative call to action button copy ever, but it’s an improvement over the existing call to action button… principally because the current site has no call to action button.  If you’re good at scanning blocks of text, you might find the link to [get started with Tarsnap].  Go ahead and load that in a new window, then come back.

Can you tell me what you need to do to get started with Tarsnap?  Feels like an awful lot of work, right?  That’s partially because it actually is a lot of work, and partially because it’s communicated poorly.

The Getting Started guide for software which assumes the user knows what a man page is includes the actual text “Go to the Tarsnap registration page, enter your email address, pick a password and enter it twice, and agree to the Tarsnap terms and conditions. Hit Submit.”  Is there any crusty Unix admin in the entire world who needs this level of detail in instructions to get through a form?  All this does is make the process feel more painful than it already is.  Also, why is that button called Submit?  I lack any information that customers for Tarsnap are masochists and accordingly Submit-ting is probably not what they came here to do, so how about we re-use that CTA “Get Started Now” or something similar.

We then go to the client download page.  Wait, scratch that, the instructions-for-building-from-a-tarball page.

“Hey kid, if instead of lemonade, you were selling a paper cup, a sugar cube, and a lemon, how much of that would you sell?”  “Mister, you ask really dumb questions.”

Colin should pick any five distributions and have the packages ready to go for them.  Heck, you can give people copy/paste command lines for getting them up and running, too, if you’re feeling really generous.

You can demote the build-from-tarball UX for advanced users or people using obscure distributions.  This will substantially ease the user experience here.  Even folks who are quite comfortable with reading pages of instructions to compile software don’t do it for fun.

After successfully getting the client installed, we then have to configure our server’s key pair.  That can (probably?) be integrated into the get-the-right-package described earlier.  (If you wanted to be really clever, you could come up with something such that the user never has to e.g. plug in their username and password because you already know it since they just gave you their username and password prior to navigating to the instruction page, but hey, that will actually take a few hours/days of programming.  We can do it a few months from now.)

There is a really important instruction in the Getting Started guide which is easy to overlook, even with being bolded:

STORE [THE KEY FILE] SOMEWHERE SAFE! Copy it to a different system, put it onto a USB disk, give it to a friend, print it out (it is printable text) and store it in a bank vault — there are lots of ways to keep it safe, but pick one and do it. If you lose the Tarsnap key file, you will not be able to access your archived data.

Tarsnap will appear to work if you ignore that instruction.  Ignoring it will, almost certainly, mean that actually using Tarsnap was for naught, because if your machine dies your ability to access your backups dies as well.

1)  At the very least, Colin should email everyone who signs up a new machine 1 hour later asking them to confirm that they have, in fact, moved their key file somewhere safe.  I guarantee you that this mail will catch many people who didn’t.  (I only noticed that instruction two weeks into my use of Tarsnap because, like many people, I don’t read on the Internet.)

2)  I know Colin currently conceptualizes Tarsnaps as “backups for the paranoid” and this resonates with some of his users, but as long as we’re moving to Serious Business, let’s give serious businesses their choice of levels of paranoia to embrace.  You can default to the current “You manage your key and, if you screw it up, well I guess then you’re totally hosed” but supplement that with “Optional: We can hold a copy of your keys in escrow for you.  [What does that mean?]”  This gives people who prefer Tarsnap to be absolutely 150% unable to decrypt their information to be able to get that, but also lets folks trade modest security for reliability.  Many businesses care about reliability more than the modest security tradeoff.

For example, where do you think my Tarsnap keys are?  Storage on my person is out of the question, and storing in a physical location is difficult when I split my time between two continents, so they’re somewhere in The Cloud.  I’m taking a gamble that that cloud provider and I are at least as good at securing that key file as Colin would be.  I trust us, but I trust Colin more, so I wish there was a simple “In case of emergency, get Colin on the phone and have him securely transfer a copy of the key files backed to me” option in case disaster strikes.  (And again, that sort of thing is historically something people are happy to pay for.  If I were to hypothetically use the “print out a copy of the key and put it in a safe deposit box” option that actually costs more than Tarsnap does currently.)

What Happens After We Install Tarsnap?

Currently, absolutely nothing happens after you install Tarsnap.  It just leaves you to your own devices.  There’s a very lackluster getting started guide which barely reads you the command line options.

Does the user want to read command line options?  No.  Probably 90% of users need one of, hmm, five things?

1)  I want to back up my database.  How do I do that?

2) I want to back up my source code.  How do I do that?

3) I want to back up this entire freaking server.  How do I do that?

4) I want to back up my website.  How do I do that?

5) Somebody told me to get the important stuff backed up.  I’m not sure what is important.  Any help?

It doesn’t hurt the experience of Crusty UNIX Sysadmins (TM) an iota to write a decision tree into the website which would give handy, detailed instructions for people encountering these very common needs.  They’d be more likely to get Tarsnap into a place where it is useful, more likely to spend more money (on Tarsnap Basic), and more likely to ultimately achieve success with having restorable, usable backups via adopting Tarsnap, as opposed to muddling their way through backing up MySQL and accidentally getting files which can’t actually be restored.

What Else Could We Change About Tarsnap?

Lots.

  • The marketing site includes no testimonials or case studies.  Solicit and add them.  Stripe seems to be an easy layup here, since they’re already on the record as loving Tarsnap.
  • There’s no reason to go to Tarsnap or cite Tarsnap except if you want to use the tool or you personally like Colin.  Colin’s a likeable guy, but he could also be a likeable guy building the Internet’s best set of instructions for backing up arbitrary systems.  How to back up a Rails app!  A WordPress site!  A Postgres database!  etc, etc . They’d get him highly qualified traffic from people who are very motivated to learn about robust, secure ways to back up their systems.  Too knackered to write these pages, Colin?  I sympathize, what with all the exhausting work lifting money off the table and into your pockets, but now that you have lots of money you can pay people to write these pages for you.
  • There’s an entire Internet out there of companies whose businesses implicate backups but which do not want to be in the backup business.  Let’s see: Heroku, WPEngine, substantially every SaaS with critical data in it, etc.  Colin could approach them serially and offer easy integration options if they are willing to trade exposure to their customer bases.  It’s a win-win: target company gets the world’s best answer to the “Is my data safe with you?” question, Colin gets scalable customer acquisition, target company’s customers get our-data-does-not-vanish.
  • Tarsnap assumes as single-user-with-godmode privileges, which doesn’t map to the understanding of many businesses.  Accounts should have multiple users and access controls.  Audit logs and whatnot are also options.  All of this will help people justify Enterprise pricing and also help people justify using Tarsnap in the Enterprise at all, since — at present — Tarsnap fails a lot of company’s lists of hard requirements.  (You don’t need every company in the world to be able to use you, but there’s plenty of features which unlock hugely disproportionate value for customers and for Colin relative to the amount of time they take to make.  Multiuser accounts doesn’t double the complexity of Tarsnap but it probably singlehandedly doubles Tarsnap’s exposure to dollars-spent-on-backup, for example.)
  • Tarsnap doesn’t currently do the whole backup puzzle.  It doesn’t have monitoring, it doesn’t have convenient ways to restore, etc.  Tarsnap could easily create more value for users by filling those sub-needs within backups and could potentially even consider branching out some day.

Ten thousand words, crikey.  OK, I’ve said my piece.  If you’d like me to do something similar for your business, I’m not actively consulting anymore, but you’d probably be well-served by getting on my email list.  I periodically go into pretty deep coverage of particular areas of interest to software companies, and — occasionally — there’s an announcement of commercial availability of this sort of advice.  Speaking of which, I should get back to building the stuff that people pay for, in anticipation of fun new ways to give Tarsnap more money.

Kalzumeus Software Year In Review 2013

I’m Patrick McKenzie (and often go by patio11 online). I started the world’s least ambitious software business in 2006, and it took over my professional life.

Every year I publish my stats and my thoughts on what worked well and not. Other folks tell me it has helped them, and the act of putting words to virtual paper helps me think through things — since I’m a one-man shop this post is the closest thing to strategic planning that ever happens.  Here are the writeups for 2006, 2007, 2008, 2009, 2010, 2011, and 2012.  (Hint for Googlebot: if someone is looking for the Bingo Card Creator Year in Review 2013, this is the right post, but BCC is a small portion of the business these days so I’m re-titling it.)

Capsule summary: 2013 was mixed from a business perspective. Sales fell at several of my lines of business, for various causes, not all bad.  Appointment Reminder, on the other hand, doubled sales, both on a per-year and on a monthly revenue run rate basis. I’d call it a pretty good year by any objective standard and a minor disappointment with regards to my personal goals.

Sales for Kalzumeus Software were approximately $112,000 and profits were approximately $60,000 *.

* Explaining That Asterix: As of 2013, I actually went ahead and formally incorporated my businesses. Appointment Reminder, LLC runs that product, and Kalzumeus Software, LLC runs everything else. Like in previous years, I’m not disclosing the Appointment Reminder numbers.  In 2010 and 2011 Kalzumeus Software dominated my personal income, so the health of that business was a bellweather for my overall financial situation.  This is no longer true.

Things Which I Suck At: Bookkeeping/Accounting: I used to do all my own bookkeeping and accounting, both for Japan and the United States. I’m still in charge of it for Japan but, thankfully, I have competent professional advisers for the US. Unfortunately, I did not get them hard numbers consistently enough for them to get me hard numbers by the end of the year, so it is likely that the below numbers will not match the “official” numbers I put on my tax returns. Treat these numbers as ballpark rather than audited  financial figures.

The Year In Brief

Bingo Card Creator was in maintenance mode for the entire year. I successfully transitioned myself almost entirely from working on it. Traffic and accordingly sales declined by about a quarter.

Appointment Reminder was theoretically my main focus in 2013. This was, again, more theory than practice. The bad news is that competition from consulting in the early half of the year and health problems in the later half of the year made it impossible for me to give AR the sustained focus that I wanted to give it. The good news is that despite my only sporadic ability to move forward on the business, sales doubled.

I quit consulting in approximately May of this year, to focus on my product businesses. It produced no new revenue, aside from collecting outstanding invoices, though did consume a bit of time/focus prior to winding down.  The full story is below.

I experimented more in 2013 with delivery of productized consulting in a variety of form factors, including writing a book on conversion optimization (technically written back in 2012 but released in the last weeks of it), continuing to sell the course on lifecycle emails which I released last year, developing a new course on software conversion optimization, and running a few online workshops through partnerships with other software entrepreneurs. It’s funny: when you phrase it like that the year sounds really really productive and yet sometimes it doesn’t feel that way. Hmm. Anyhow, feedback from customers has been overwhelmingly positive and the line of business has mostly achieved the free-me-from-the-consulting-treadmill goal I had for it.

I continued angel investing in a very limited fashion in 2013. I now have a grand total of two investments, in Stormpulse and Binpress. One to two a year seems to be a good fit for the amount of bandwidth I have available for software companies which I don’t own, considering folks typically want my advice a lot more than they want my wee little checkbook.

Bingo Card Creator

Bingo Card Creator is a freemium SaaS application (with a deprecated-but-still-used downloadable client) which makes bingo cards, mostly for elementary schoolteachers.

BCC was in maintenance mode for the entire year. “Maintenance mode” means that I do the minimum work required to keep the business up and running, rather than attempting to create new systems to e.g. improve marketing outcomes or substantially improving the product.

My only substantial work on it was spinning up two processes to allow me to work even less, to whit, transitioning front-line customer support from myself to a virtual assistant (the illustrious Sugar from Pepper VA Services, without whom I’d have long-since lost my sanity) and hiring Nick Disabato to run A/B tests every month so I wouldn’t be tempted to do it myself.

Bingo Card Creator’s traffic has fallen substantially this year, including large declines in organic search and AdWords traffic. This is the direct cause of BCC’s substantial decline in sales.

BCC Stats:

Sales: 1,734 (down 23% from last year’s 2,254)

Refunds: 57 (down from last year’s 89 — most were caused by a carder ring which ran ~30 fraudulent charges through us before we convinced Paypal to lock them out)

Sales Net of Refunds: $50,156.16 (down 23% from $64,791.81)

Expenses (estimate, pending bookkeeping): ~$27,000 (down slightly from $29,145.20)

Profits (estimate, pending bookkeeping): ~$23,000 (down substantially from $35,676)

Wage per Hour: I think I spent approximately 10 hours on process improvements for BCC over the year and approximately 10 hours on customer support, so the hourly wage is on the order of $1,000.  (One significant digit since I don’t keep anything like accurate time cards.)

BCC Web Stats:

Visits: 770k (down from 1.08 M)

Unique Visitors: 630k (down from 875k)

Page views: 2.4 million (down from 3.4 million)

Traffic sources of note: Google (50%), AdWords (14%), direct (12%), Binghoo (11%)

Trial signups for online version: 61,000 (down from 87,000)

Approximate online trial to purchase conversion rate: 2.6% (up from 2.4%)

BCC: What Went Right

Outsourcing front-line support has been a long time coming to Bingo Card Creator. I used to genuinely love responding to customer emails every day. Some time in 2011 or 2012 I started to dread it, because after 5 years of saying e.g. “Thanks for the email Miriam. I’m sorry, Bingo Card Creator does not support using clip art. Have a nice day.” I was going absolutely spare. My business friends told me that every time we got to talking I’d recount more exasperating CS anecdotes (“You won’t believe what someone told me today!”), which should have suggested I was burning out. My replies were getting less helpful, my responsiveness dropped from 99.X% of customers getting a reply within a day to avoiding checking email for days at a time, and, here’s a confession from the dark recesses of my soul, I occasionally felt contempt for my customers.

So I decided last year that I was finally going to bite the bullet and outsource front-line customer support. It isn’t rocket science, but I never actually made getting it done a priority until early this year.

Steps to outsource support:

  1. Stop using Gmail as my primary customer support platform, because “share Gmail with someone other than me” is a non-starter for me. I instead redirected our primary CS inboxes to Snappy, a helpdesk SaaS product. (I also tried ZenDesk but my VA felt it was hard to use. Snappy is a breeze, for both of us.)
  2. Write up a statement of principles and standard procedures for CS. My statement of principles is so that Sugar, or any VA I later bring into the company, understands “who we are” despite not being in the trenches with me since 2006. The standard procedures tells her how to operate the systems (our backend, Snappy, etc) that she has to use to do her job, how to write in the company voice, how to answer our most common questions, how to get help from me when she can’t answer a question, and how to help evolve the standard procedures document. I flagrantly stole this idea from the guys at the Tropical MBA podcast.
  3. I made some minor tweaks to my backend admin area to make them more user-friendly for someone who isn’t me. You might need to actually make a CS dashboard if you don’t have one already.
  4. Shadow Sugar as she does the job for a few weeks, by simply reviewing the tickets she worked in Snappy. I offered feedback on some responses and updated the standard document in response to others. (e.g. “You didn’t think you could answer this question and referred it to me for resolution. We will tend to get this question a lot, so we’re going to add it to the standard procedures document. Also, in the future, notice how my resolution here is in keeping with our company’s principles? You could have guessed I was going to do that, right? Great. If you feel in the future that you absolutely know the right answer, you don’t need to have me tell it to you. Go ahead and take action on it. I trust you. Don’t be afraid of not doing exactly what I would do, either — if we’re on the same page about principles, then a tactical mistake here or there doesn’t matter.”)

All that sounds pretty high-level, right? OK, concretely, here is our standard procedures document. The only thing I’ve taken out are credentials for our backend. Feel free to pattern your own on it if you’d like. Also feel free to improve it — this was a one-day project for me, not a heartbreaking work of staggering genius.  (n.b. That’s a frozen copy, not the live Google Doc, because while I’m a pretty transparent guy I don’t want to have to constantly censor credentials or what have you in the future.  If you’re viewing this post years after the publication date, it is likely out of date.)

As you can see, neither the Bingo Card Creator CS operation nor outsourcing it was particularly complicated.  It does, however, save me substantial time and focus, since I no longer have to worry about the product more than once or twice a week, when Sugar runs into something which she can’t handle.

Outsourcing A/B testing has also been a qualified win, mostly in that rather than spending my own time doing conversion optimization for BCC (a huge win historically — e.g. 60% more sales last year as a direct result of it), that happens without having me in the loop, and I’m freed up to work on more important projects. When Nick Disabato announced he was doing A/B testing expertise as a product I simultaneously a) facepalmed for not having done it years ago and b) signed up to be his first customer.

So what did Nick do for me? Great question. I have no clue and that’s exactly the way I like it. However, since that is a bit unsatisfactory for those of you reading this, I actually logged into Visual Website Optimizer to check up on his recent tests.  A representative example: in December, he ran some tests testing the layout of my Christmas landing page.  I’d normally think that’s likely a loser from a conversion optimization perspective, but the stats apparently disagree with me: conversion to the free trial increased from 15% to 19.5%.  That’s not a hugely useful result in and of itself, given that that page doesn’t get the volume to justify huge amounts of effort, but repeatable processes which collect wins like that are worthwhile for me.

I figure Nick is likely to eventually achieve results which more than pay for his efforts in perpetuity, and it also gives us the opportunity to work together on BCC (which is low-risk for me), get a good working relationship and base of shared knowledge, and then start systematically applying that to higher-leverage opportunities like e.g. Appointment Reminder.

BCC: What Went Wrong?

Traffic fell off a cliff: The only major problem in Bingo Card Creator has been the substantial decline in traffic as compared to 2012.

I have not dug deeply into why this has happen, because it’s strictly irrational for me to do so at this point.

Why? Let me share an item from my todo list for later today: “Call $HAPPY_CUSTOMER and apprise them that their credit card failed for the last month’s charge of Appointment Reminder right before Christmas, so that we can charge them $2,400 this year like we did last year.” I anticipate that phone call to take 5 minutes or less. $2,400 is approximately equal to an entire month’s profits of BCC. Any questions?

I rather suspect that it is just down to the ebb and flow of Google algorithms rather than any specific named algorithmic change (Panda/Penguin/etc) or penalization.

Appointment Reminder

Appointment Reminder is a SaaS application which makes reminder phone calls, text messages, and emails to the clients of professional services businesses (accountants, lawyers, doctors, HVAC installers, etc).

As in previous years, I am going to take the liberty of not disclosing exact numbers for Appointment Reminder. This is largely for two reasons: one, I go back and forth on taking investment for it someday, and having numbers publicly available complicates getting investment. Two, a significant fraction of Appointment Reminder’s revenues are through Big Freaking Enterprise Sales, and contract sizes are such that, when I win one, detailed granularity on my sales numbers would let an interested party figure out who just bought AR and how much they paid. I’m generally not contractually at liberty to disclose that, and (frankly) publishing it would be quite against my interests in getting the next contract.

What I can say:

  1. Appointment Reminder’s revenue for 2013 is approximately double it’s revenue from 2012. Monthly recurring revenue, which is my main metric of interest, is also about double on a YOY basis.
  2. The enterprise pipeline looks better than I could reasonably expect it to be, given my slackadasical efforts with sales in the last 6 months.
  3. We’re absolutely smashing my projections for COGS, which were approximately 20% at the design stage. (COGS is “cost of goods sold”, which in the AR context is dominated by the underlying telephony services we purchase from Twilio on behalf of our clients.)

Appointment Reminder: What Went Right

We had rock-solid technical performance in 2013, after having some severe issues in 2011 and hiccups in 2012. I’m sufficiently confident in AR’s systemic reliability and our monitoring setup to represent it as ready-for-mission-critical-use for customers while not causing me as much stress as being on 24/7/365 pager duty would ordinarily entail.

I don’t believe, off the top of my head, that we had any extended customer-visible downtime in 2013.  (Edit: Spoke too soon — I had misremembered the date of a partial outage.  In connection with the Ruby on Rails January of Fun (TM), I applied a series of security patches at 3 AM in the morning Japan time, and in the process managed to cause a partial outage to the service for several hours before realizing my mistake and fixing it.  This luckily did not severely impact any customers.)

At the same time, AR is not yet where I’d like it to be. We’re mostly covered on system-level issues, but we still have application-level errors on a handful of phone calls every month. The denominator is large, but my target for errors is zero, not “so few that customers are unlikely to notice.”

In conjunction with doing my course on lifecycle emails last year, I “hired” myself to do a proper job of email marketing for Appointment Reminder, which previously had “the absolute minimum required to ship the product.” One would think that “Psst, doing this would make you a lot of money” would be more successful inducement than “Advising people to do something that I don’t do in my core product feels wrong” but, in fact, that second factor was the one which lit a fire under my hindquarters. Our conversion rate is up and our churn rate is down, which (eventually) translates into a large portion of the 2X increase in revenue.

I’m quite happy with several security improvements I made in 2013 for the benefit of customers (and myself), including a) improving our HIPAA story, b) getting an E&O policy to cover the business, c) formally incorporating the LLC, and d) migrating from Rails 2.3 to a commercially supported version of Rails.

I didn’t commercially exploit a lot of these to the degree that I could have — for example, only a single digit number of customers even know that Appointment Reminder is insured — but they’re peace of mind for me and, knock on wood, I’ll retool processes in 2014 to take more systemic advantage of them.

Also, I couldn’t do it at all without Twilio.  In the spirit of full disclosure, I’ve hit a growing pain or two with them over the years, but at the end of the day they’re probably my favorite vendor ever.  (I’m told that some people operate under the assumption that I’ve taken their shilling due to how much shilling I do for them, so for the avoidance of doubt, the only consideration of value that I’ve gotten from them is three track jackets, which if you compare to my monthly Twilio bill must make them the most expensive track jackets in Japan.)

Appointment Reminder: What Went Wrong

I did not execute well on my plan to do enterprise sales for Appointment Reminder. I did not end up attending any conferences for target customer segments. I was insufficiently diligent in following up with many leads, which resulted in AR getting written out of a lot of sales processes where, if executed properly, we would have had a decent shot of winning. A lot of this was due to distracted focus, for reasons I’ll discuss in a moment.

I did not deliver an awesome experience with regards to customer support for Appointment Reminder customers consistently in 2013.  When I got very busy or stressed, one of my coping mechanisms was avoiding opening email, out of an irrational fear of finding more work or stress in my inbox.  This does not play well with email being the primary support channel for a business!  It only cost me a handful of accounts which I know of, but commitments are commitments, so I should be better at this going forward.  At present Gmail is reconfigured to force me to deal with AR email first, and I’m working on managing stress levels to avoid having a burnout-related relapse in inbox avoidance.

I was not successful in hiring for Appointment Reminder this year. There are a few places where AR could probably justify a full-time employee. Product development is one: I think AR probably got, hmm, call it 4 weeks of full-time development effort within the product, where I could easily have done the entire year full-time if I didn’t have other things to do.

I’d also really like to have someone for combination customer support and concierge onboarding — e.g. walking every single trial customer through getting their office up and running on AR from their current workflow for appointment management. My very limited experiments with doing this for customers make it pretty clear that it is stupendously valuable.

So why didn’t I hire? A combination of fear of the unknown — I’ve never had an actual employee, and worried about that fundamentally changing the character of the business — and just having way, way too much on my plate to get any portion of the business to the point where I could comfortably hand it off to an employee who didn’t have founder-level amounts of discipline/drive/skill.

For example, take a look at the Bingo Card Creator description for what it takes to outsource just routine T1 customer support. I was successful in that because I understand the task in my bones, could do it blindfolded, and have produced substantial systems and processes which mean you don’t have to be me to succeed at doing it for me.

I am successful at customer onboarding for Appointment Reminder at the moment, but it’s still at the flying-on-seat-of-my-pants level of improvisation and willingness to e.g. crack open the Rails console while on a phone call and update things in real time rather than just having a sympathetic ear, good product knowledge, and a bunch of knobs to twist.

Maybe in 2014. Maybe not. We’ll see.

Consulting

Since quitting my day job in April 2010 I consulted with a variety of software companies, mostly selling B2B SaaS, on ways to improve their sales. In broad strokes, my shtick was applying engineering to improving their marketing/sales outcomes. For specific examples of engagements, see last year’s post.

I got really good at it. After having made clients millions of dollars, I had a sufficiently good understanding of where the points of leverage were in software businesses and how to credibly explain them to potential clients that I was routinely selling new engagements at e.g. $30,000 per week.

I quit consulting this year. Why? It’s complicated.

Partly, I felt like I had achieved what I set out to achieve in consulting. My internal Nagging Doubt Monster was quite loud in 2010 that I might know enough to run a toy business like BCC but that the skills probably would not generalize to “real” software businesses. It turns out that my Nagging Doubt Monster is an idiot and that my skills generalize impressively well up the sophistication chain. By the end of my consulting career I was working with very smart folks like Fog Creek, Matasano, WPEngine, Wildbit, and 37signals, and to the best of my knowledge my clients generally had very successful outcomes.

So what was next? Well, continuing to do ten-ish weeks of consulting a year for clients like that was certainly an option. If I wanted to grow the business, I could have titrated off of my own products, hired employees for the consultancy and trained them in my bag of tricks then set them loose at client engagements, or moved up to the next level of clients.

NDAs prevent me from naming names, but suffice it to say I grasped for a brass ring at a Very Large Software Company. If that engagement had been knock-out-of-the-park successful, my consultancy would likely have been captured by their business, in the manner that e.g. Lucky Strikes sort of subsumed the Mad Men advertising agency.

That didn’t happen. What did happen? NDAs happened.

I was a solo consultant with a part-time consultancy, so my pipeline was not all that deep at the time I was trying to put this deal together. Since we were contemplating a success outcome where my consultancy’s available bandwidth went to zero, I began turning away prospective engagements in anticipation of the deal happening.

So fast forward to May, where a) I’ve been absolutely wracked by stress for several months, b) I have no consulting pipeline, and c) I come to the realization that the brass ring deal will probably not happen.

I talked to a lot of my friends and mentors, and they kept asking “Why do you do consulting?” Previously when asked this I had great answers, like “I love the opportunity to work with smart people on new challenges!” and “I have a wedding to pay for!” It had been a while since I won a new challenge merit badge, and my wedding was paid for. But like many people, I felt sort of pot-committed to justifying my present state of affairs, so I felt substantial inertia to continue the consulting business.

The straw that broke the camel’s back was a conversation with Ruben Gamez, a buddy of mine, at Microconf. We were chatting about what I’d say in my presentation about my consulting business, and everything I had planned to say had the ring of falsehood to it.

So I put an “I Quit” slide into my presentation, and that was that.  Quitting a consultancy with no active engagements turns out to be really easy: all you have to do is stop saying Yes.  (Conversely, starting a consultancy is fairly easy if you’re known to be good at something with high utility to potential clients, since all you have to do is stop saying No.)

Consulting: What Went Right

Quitting. My level of work-related stress declined drastically. I felt substantially less worried about the constant treadmill of refilling the pipeline. I get substantial amounts of personal satisfaction from being able to say that my family only eats every month because I’m really good at shipping products.

Consulting: What Went Wrong

The particulars of that NDAed engagement belong here, but obviously I can’t tell you them.

Quitting was poorly timed. Although transitioning away from consulting was a decision months/years in the making, the exact timing of it was very impulsive. It was, in hindsight, more risky than I normally tolerate, and exposed my family and I to substantial avoidable stress.

Last year I had ~$150k of consulting billings, which represented almost half the revenue of the company. This year I had close to zero, aside from converting some accounts receivable into actual cash ($15k or so, which I didn’t include in this year’s total because I already put them in last year’s as accounts receivable). Going cold-turkey to zero would have been an interesting ride no matter what the timing. I picked uniquely poor timing during the year to decide to do it.

Remember how I suck at accounting? I have historically run my businesses on a cash basis. This makes a lot of sense in software: if money in minus money out is a positive number for a month, and that positive number is enough to live on, yay. I never prepared for my own use anything like e.g. a balance sheet for the business. Why bother? I knew how much cash was in the bank account.

There are a bunch of things which would be on a balance sheet which were not reflected in my bank account. I was peripherally aware of them, in the way I was peripherally aware of hundreds of things about the four lines of business I run, but when I got busy/stressed/etc they were not at top of mind. One thing, in the Liabilities section, is Accrued Tax Liability. For example, if you have your best year ever in 2012, when 2013 rolls around, the mechanics of progressive taxation mean you’ll have to cut a few fairly large checks — in my case, to both the US and Japan.

When were those checks due? Right around when I quit consulting. At the start of the slow season for Bingo Card Creator. Coincidentally, when I made a few large capital investments in Appointment Reminder. Also with the product pipeline for productized consulting totally dry. And with large one-off expenses in my personal life.

This ended up being a perfect storm of a cashflow crunch for me.  I went from having a nice cushion in my checking account and thinking “I’m going to close the largest deal in the history of my business any week now” to owing high five figures at credit card interest rates while staring down an empty sales and product development pipeline.

My business-related stress level (probably 7 out of 10 during the worst of the consulting rigamarole) spiked. By August it was 8 to 9 for weeks on end.  This directly contributed to me becoming severely ill, which is a subject for another post.  Getting ill doesn’t help your stress level or help you execute on the business to ease the financial considerations that are causing the stress which is exacerbating your illness, by the way.

In hindsight, here’s what I should have done given the epiphany “I’m ready to quit consulting.”

  1. Call up my top five clients.
  2. Tell them that I’m quitting consulting but want to make sure that they have any loose end projects tidied up before I become totally unavailable.
  3. Booked three projects at $1X0,000, which would have given me an easy glide path out of that line of business.

At the time, I felt doing this would keep me attached to the treadmill. That’s silly. I’m disciplined enough to execute on a commitment like that, and it would have been so much easier than playing a game of chicken with my bank / credit card statements.

(To avoid worrying anybody: The cash flow crunch eventually worked itself out, since it was caused by transient timing issues rather than structural problems.)

Productized Consulting

One of the things I experimented with last year was moving from a pure services model consultancy, where I worked for clients on defined engagements for (generally) a weekly rate, to introducing some products where the core customer base and customer goal was the same (the client is a software company and they want to use engineering to drive marketing outcomes) but it didn’t require weeks of my time to deliver the services component.

This was quite successful last year, and I wanted to continue experimenting with the model this year. Under that general rubric:

  1. Rather than just throwing blog posts out into the ether, these days I focus most of my writing effort on my email list. (If you’re not on it, you can sign up here.) It’s the minimum form of engagement with my business where somebody could affirmatively opt to not be a stranger.  Topics range from enterprise sales for developers to SaaS pricing to A/B  testing to whatever strikes my fancy when I’m writing.  I shoot for every Friday but it more typically comes out once to twice monthly
  2. Above the dreaded penny gap, I have a book which I wrote on software conversion optimization.
  3. Last year, I released Hacking Lifecycle Emails, a 5 hour video course on doing drip email campaigns and lifecycle email optimization, which was one of my most common consulting gigs.
  4. I also did, if I recall correctly, three online training events, one on email marketing with Joanna from CopyHackers and Colin from Customer.io, and two with Brennan Dunn on creating recurring revenue for consultancies. (If only I had been thinking more on that subject at the start of the year!)
  5. This year, I started work on Software Conversion Optimization, a video course with interactive elements, including a higher tier which is basically a mini-consulting engagement.  It hasn’t shipped yet, as of January 6th 2014.

It might superficially appear that there’s a ladder of sophistication/engagement there, from targeting the least engaged customers with free email to offering the most engaged customers a $2,500 mini-consulting gig. That appearance is mostly an accident, as all of these products were planned in isolation from each other. I also don’t do anything particularly sophisticated with cross promotion of them.  That’s probably something I should fix this year, come to think of it, since they have synergistic effects and most of the people who could buy one could buy all of them without perceiving any difference in cost.

Productized Consulting Stats

I’ll report the sales by product and the expenses consolidated, since the products share the same systems/resources for delivery, which dominate cash expenses.  I don’t keep web stats for the productized consulting business — pure oversight on my part.  D’oh.

Book Sales: 1,239 units, for royalties of approximately $5,000. Many of the units were actually sold in 2012 but I didn’t even hear about that until 2013 because, in the publishing world, 6 weeks is an acceptable amount of time for a SQL transaction to require. (This is no slight against my publisher, Hyperink — it’s the legacy players in the industry who currently dictate the pace.)

Hacking Lifecycle Emails Sales: 41 sales for $18,927

Software Conversion Optimization Sales: 46 pre-sales for $15,922

Workshop Revenue (my cut only):  $22,000 (rounded and aggregated to avoid revealing financial information of third parties)

Total gross revenue: ~$62,000

Expenses (estimate, pending bookkeeping): ~$10,000

Productized Consulting: What Went Right

My emails to my mailing list have been some of my best writing in years, which is enormously motivational for me as I had previously felt like my blogging in roughly the 2010 to 2012 range was not as consistent or as informative as it had been in previous years.  The great thing about email as opposed to blogging is it is a truly bidirectional format, so people will often write me to say “I tried this advice and it actually worked!  We just closed a $500k sale using one of these tactics.”, where I never really had consistent, high quality interaction with people through my blog comments.  This has lead me to actually write more consistently for the mailing list than I’ve managed for the blog in years, which is in general a win for my personal happiness, for the business, and (I hope) for you guys as well.

Customers have taken the ideas from these things and ran with them.  This makes me enormously happy, as they’ve meaningfully changed businesses they’ve been implemented in.  It was always fun when I was a consultant to hear that a client closed e.g. $100k of new business as a result of part of an engagement, but at many of my clients, that wasn’t a transformative outcome.  Some of the results I’ve heard from productized consulting customers have been transformative — 20% increases in MRR for SaaS products, $0 to thousands in recurring revenue for one-man consulting shops, etc.  I do a little happy dance every time I get one of those emails.

I hooked up an autoresponder sequence to my email list, which just sends people who are newly arriving at it the four or essays that I personally like the best.  One of them has a brief plug for my lifecycle email course in it.  Adding that made a clearly visible bump to the residual sales of the course without requiring any huge amount of effort to do dedicated sales.

Stripe.  I occasionally kick myself for custom-rolling my own delivery application rather than just using Gumroad like any sane individual, but the Stripe integration has performed flawlessly.

As compared to Appointment Reminder, where I often have to force myself to do what needs to be done, working on these projects has been invigorating for me.  I often reflect on a bit of advice Peldi gave me prior to launching Appointment Reminder: “Is optimizing the schedule of dentists’ offices your passion?  No?  Then why are you committing to working on that for the next several years?!”  These projects let me write/teach, both of which I find enjoyable regardless of the topic, and they let me focus disproportionately on the MarkDev (somebody make a convenient word for this, please) rather than the rest of the business, which doesn’t excite me quite as much.

Productized Consulting: What Went Wrong

I originally intended to launch the Software Conversion Optimization product in August, but delivery dates slipped due to severe illness.  I alluded to it above and will probably talk about it at length in a separate post.  Anyhow, that delayed the project by several months.  It will (knock on wood) ship this January, as I promised when I opened pre-sales in late December.

My friends, including Amy Hoy, advised me to apologize and call off the launch earlier than I did.  I should have taken that advice — instead, I attempted to soldier on through despite being sick, which accomplished absolutely nothing for my customers and was damaging to my stress levels and health.  More broadly, I should have stuck to one of my rules, which is Never Pre-Commit To A Ship Date.  (That rule is even in the standard operating procedures document, for crying out loud!  Maybe I need to bold it a few more times until it will sink in.)

This is the only work day in January where shipping Software Conversion Optimization is not my main/sole task.  I’ll be happy to have it ready, because I’m excited to hear what people do with it, and because I’m keenly aware that I currently have the Unearned Revenue liability on the balance sheet until I do.

I’ve experimented with form factors for productized consulting, and not all experiments panned out.  In particular, I’ve learned that for live, online training sessions, having long presentations with text-packed slide decks presented back-to-back is not maximally in the interest of the audience or the presenters.  Lesson learned.  (You would think as a former classroom teacher I would have been able to predict that one.)  I much prefer the more organic conversation style that I’ve been using recently, with smaller groups and more cross-talk.

Overhead

In previous years I just threw everything that wasn’t either BCC or AR under the consulting category, but I no longer have a consultancy, so I think I’ll break this out explicitly.  My business has substantial expenses which are not related directly to a particular product.  Examples might include my errors and omissions insurance, fees for registered (and renewing) the LLCs, accountant / bookkeeper fees, business travel, my blog’s hosting bill, and the like.

Of note for those of you wondering how to calculate how much revenue you need to make it as a solo entrepreneur: The single biggest cause of it is me being in Japan, since I have substantial travel expenses to e.g. attend conferences (almost invariably requiring a $1,500 plane ticket for me), and my tax/legal/etc situation is far more complicated than it would be if I lived in the US (where the majority of my business is concentrated).  But for this factor it would likely be below $10,000 at my business’ current level of sophistication.

Ballpark estimate, pending bookkeeping: $25,000.

Goals For 2014

Bingo Card Creator

  • I’m honestly happy to let Bingo Card Creator coast to whatever number the Google gods, in their infinite wisdom, decide to give me.  If that’s $25k profits on $50k revenue again, that’s a happy number, as long as it doesn’t require a huge time investment.
  • I would consider spending a few hours getting a new freelancer up and running on content creation, which has been stalled for the last few years.  It isn’t a huge priority for me, though.

Appointment Reminder

  • I’ve long had a particular number in mind for Appointment Reminder for where I feel like I would have “made it.”  It is at approximately 4X the present run rate.  I think this is an aggressive target for 2014 but could be achievable if I’m able to devote 6+ months of solid work to AR, finally, for the first time ever.
  • I’d like to successfully land a 6 figure a year Big Freaking Enterprise deal for AR.  The economics of the company work without it, but that would be a fun merit badge.
  • No progress on this from 2013, so let’s try it again: I’d like to get a systemized pipeline in place for AR enterprise deals rather than running them all myself by the seat of my pants, such that I could eventually hand execution of that to someone else.  I’m not sure I necessarily would want to do that, but the capability of doing it could only make my options better.
  • As an intermediate step to hiring, I need to find a Rails consultancy that I’d trust and enjoy working with, and get them to start doing in-application tactical projects for me.  The only problem with this is that the codebase is currently a disaster and fixing that (or at least documenting which parts of it are likely to explode if touched) will probably cost a month.

Productized Consulting

  • Ship Software Conversion Optimization, and sell (a total of) $80,000 of it (which is on the order of $60,000 more beyond existing pre-orders).
  • Explore the possibility of doing more products this year, if I have the time and desire to.  At this point last year I thought I’d ship four full courses a year, but seeing the amount of work it has taken me to do one to my standards, that’s crazy talk if I also want to work seriously on AR.
  • I still think $200k is a reasonable number to shoot for for this line of business, assuming I ship 2 courses in the year and residual income for pre-existing products continues to be as meaningful as it was in 2013 (one of the big positive surprises for the year, by the way).

Business / Personal Grab Bag Goals

  • I am mostly over the immediate flareup of the medical issue from earlier in the year.  Staying healthy is one of my key priorities for 2014.  Concretely, I want to get back to going to the gym three times a week for 45 to 90 minutes.  Also concretely, if my subjective stress level goes and stays above 5, I’m hitting the Big Red Button on whatever is doing that, rather than just trying to tough through it again.
  • It’s been over a year since  I’ve done any substantial OSS work.  Hopefully I can carve out a few weeks in 2014 to do that, or at least cause that to happen by exchanging money for the time of skilled developers.
  • Get the bookkeeper/accountant/etc what they need to do their jobs throughout the year, rather than just at the end, so that I don’t get bushwhacked again by issues which they would have seen coming.  Also, find a good accountant for the Japanese side of things.
  • Keep making a meaningful contribution to the businesses (and where possible, lives generally) of other software entrepreneurs, which is a major point of personal satisfaction for me.  It seems like a good thing to make the focus of my career for the moment.

Far more important than any of the above: I’m enormously blessed to have my wife Ruriko in my life.  No list of goals for myself is complete without “Be a better husband.”  (And, knock on wood, maybe I’ll be able to write “Be a better father” in next year’s installment.)

Kalzumeus Podcast Episode 6: Teaching As Marketing

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 vegetarians do not give great advice on pricing hotdogs, and Hacker News comments about the inadviability of selling information very rarely come from people with actual budget to buy information
  • Why having multiple packaging options (for example, at an X / 2X / 5X ratio) increases total revenue from products
  • Why you don’t have to be “Internet famous” to build an audience via teaching, and perhaps use that to sell things down the road

If You Want To Listen To It

MP3 Download (~90 minutes, ~82MB) : Right-click here and click Save As.

Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

Transcript: Teaching As Marketing

Patrick McKenzie:  Hi to everybody. This is Patrick McKenzie, perhaps better known as better known as Patio11 on the Internets. Welcome to the, I think, seventh edition of the Kalzumeus podcast. [Patrick notes: 6th!] I’m joined here by special guest Nathan Barry, author of “Authority,” founder of ConvertKit, and a guy who has a few other things in his expanding product empire.

[Patrick notes: If you sell software, information, or consulting services, take a look at ConvertKit.  I started using it recently for one of my businesses.  It bakes a lot of acquired smarts into an email marketing workflow tool.]

Nathan Barry:  Thanks for having me.

Patrick:  Thanks very much for being here. I think we’re probably going to be talking about info products today, primarily. Let’s ask the obvious question first. Do you like the term “info product”?

Nathan:  I think it’s a little degrading. I tend to just refer them as courses or books. “Info product” always brings up the scammy Internet marketer.

Patrick:  Right. The whole “make money online” niche.

Nathan:  Right, exactly. I just try to write things and teach things that provide value. “Info product” doesn’t demonstrate that very well.

Patrick:  That’s something I totally agree with. I try to call mine “productized consulting” because the book was like a consulting engagement except delivered with less of my hours of unique attention attached to each delivery. I think you were also a consultant before you got into being a publisher, right? How did the arc of that transition go for you?

Nathan:  I did some freelancing in college, and then after I left college, I did a year freelancing full time. That worked pretty well for me, but then I went on an extended five or six week international trip. Didn’t do any work. Came back. It was the beginning of 2009, and there was a recession going on in the US, so nobody wanted to work with me then. I ended up taking a job leading the design team at a local startup, and I worked there for three years. That was a really great experience. Learned a lot of things. Learned a lot of things not to do.

I ended up building a few little iPhone apps on the side. Got those to making a few thousand dollars a month a month in revenue, and then used that to quit my job and go back to what I would call then “consulting.” Where before I referred to myself as a freelancer, after that point I referred to myself as a consultant. I think I brought a lot more value to each of my engagements, having more experience.

After leaving that job, I launched my first book, which was “The App Design Handbook.” That’s when everything changed for me. I went from these iPhone apps that were making anywhere from $1,000 maybe up to $4,000 a month, but really uneven revenue. A lot of it was chance. There wasn’t a great marketing strategy there or anything but then with the first book, things started to make sense as far as marketing and product launches, and I was able to make about $12,500 off of the book sales on the first day, and I never looked back. I actually never took a consulting project after that, because, as you call it, productized consulting pays really, really well.

Patrick:  It kind of cannibalizes the business too. After you’re capable of waving the magic wand and getting another one out the door, there’s increasingly less and less impetus to go out and grab another client engagement.

Nathan:  Exactly.

Patrick:  Keith and I just…the last episode of the podcast was on how this could potentially be a way for people to get out of consulting, which since we’ve already done that topic to death, we’re just going to do more deep dives into how to actually execute on it, rather than saying, “Yeah, it would be a great idea to get away from crazy client issues, and chasing invoices, and yadda yadda.” Can you just refresh my memory, when did you launch “Designing Web Applications,” which was your first book basically?

Nathan:  The first book was “The App Design Handbook,” which was focused on iOS applications.

Patrick:  Oh, that’s right. Sorry. I’m getting the chronology wrong.

Nathan:  That one came out September 4th, 2012, so as we’re recording this, it’s been out for about nine months or so, and then the second book was “Designing Web Applications,” and that came out December 12, 2012, so just about 90 days later.

Patrick:  That is pretty impressive. I kind of got the impression from just following your stuff on the Internet that you have been doing this for many, many years, and that I have to break myself to actually do the math. It’s like, “Wait, that’s 10 months.” Granted, you have a career before that, and you’re able to leverage what you learned from that, but the public portion of the career, or “public,” the so-called “Internet celebrity” portion of the career is just the last 10 months.

You Don’t Have To Be “Internet Famous” To Cultivate An Audience

Nathan:  Yep. That’s right. There was one key thing or habit that I formed that made that really, really easy to do, and that came from Chris Guillebeau. He writes a bunch of books and has a popular blog and stuff, but he kept telling me the idea of writing 1,000 words a day, basically the idea of making slow, consistent progress on whatever you’re trying to do. I built up a habit of writing 1,000 words a day, and that’s how I actually finished my first book. I tried to write a book in the past, and I’d never made it past the first three or four pages, so by working on it consistently every single day, I was actually able to finish it pretty quickly, and I kept track of it in a little iPhone app how many days in a row, and 1,000 words a day…

What happened is I launched “The App Design Handbook” in September, and I had a streak of 85 days in a row at that point, or 70 days in a row, or something, so then the next day after launch, my phone popped up and said, “Are you going to write 1,000 words today?” I went, “Well, I have 85 days in a row, so I don’t want to break that chain, so yeah, I’m going to write 1,000 words, but what am I going to write it about?”

I thought, “You know, I really like…I talked about designing iPhone applications, but I’ve spent a ton of time designing web applications as well, so I should write about that,” and basically I just rolled right into the next book, because I had this habit of writing 1,000 words a day. Anyway, it’s just continued, and it’s turned into another book after that, and I think I’m about a month away from hitting a full year of writing 1,000 words a day.

Patrick:  Wow. Congratulations.

Nathan:  Thanks.

Patrick:  I really think that the determination and stick‑with‑it‑ness there is valuable to a lot of people. My business was no great shakes back in the day, and the reason that it’s something larger than no great shakes now is just not stopping, even when I was just very, very part‑time in it, and couldn’t muster up for more than up to five hours a week, I was trying to grind out one A/B test every week, rain or shine. I don’t think I hit my streak numbers nearly as often as you did, but that was definitely one of the factors that kept it going in the right trajectory prior to actually quitting the day job, having more time to work on it.

Let’s see. Something that I often hear from people who I advise, “Well, if you don’t love the day job or don’t love consulting, maybe you could try this productized consulting thing,” that, “Well, yeah, maybe that works for ‘Internet famous’ people like you, Patrick, but I do not have a platform, or a reputation, or 7,000 Twitter followers, yadda yadda yadda.” In your experience, do you need to be “Internet famous” to actually make this work?

Nathan:  No. Not at all. It certainly helps in some areas, but I was not Internet famous just before I launched my first book. People hadn’t really heard of me. I didn’t have credibility and expertise. I designed a lot of software, but nothing…I didn’t design the Facebook mobile app, or anything for major startups, or things like that. It’s a fascinating topic of how you can gain credibility and authority, and one that I’ve worked on quite a bit, but just by teaching, you gain this perceived expertise. One story that I like to tell for me personally is, back in 2006, I was doing web design, standard marketing websites, so I spent a lot of time getting pretty good with CSS, fixing cross‑browser bugs, coding up everything.

I came across this site when it first launched called css‑tricks.com, and it was by Chris Coyier, and I remember looking at his site and going…I read a couple articles and I went, “Oh, I know that. He’s not much of an expert because I already knew that,” and I gave myself a little arrogant pat on the back or whatever.

He kept coming out with more articles, and I kept seeing that I already knew that, so we were basically at the same level and we were learning at the same pace. Over some time, other web design friends would ask me a question, and I would…instead of answering it, I would think, “Oh, Chris already wrote about this, so I’ll forward on his article,” because it was pretty good.

This continued on. Finally, Chris launched a Kickstarter campaign years later, so he’s been helping people out and writing articles about CSS for years. He launches a Kickstarter campaign saying, “I’m going to redesign css‑tricks.com, and I want to be able to raise $3,500 bucks so that I can focus on it, on doing a great redesign for a month, and I don’t have to worry about clients, or jobs, or anything like that.

Basically telling his audience, “Will you help me out so I can do this? As a reward, I will record all these screencasts of the process and tutorials, and everybody who backs the project will get access to that.”

I don’t have the exact number in front of me, but it was something like $85,000 that he raised out of his $3,500 goal, and that made me really sit up and realize there’s something else going on here. It’s not about skill, because Chris and I were at the same level. We started at the same point.

Because he was teaching, I think he got better than I did, and I definitely learned some stuff from him over the years, but he wasn’t that much of an expert than I was skill‑wise, but I did not have the ability to flip a switch and come up with $85,000 in effectively product sales, in whatever, 20 days, in what his Kickstarter campaign was.

That made me realize that the difference between he and I is that we both got better at the same level, but I kept that knowledge to myself, whereas he shared it with everybody. He was teaching, and that gave him authority, and that gave him a following. That’s the moment that made me finally sit up and go, “I need to be teaching.”

Patrick:  I totally agree with you there. I think teaching gives you both breadth and depth, breadth in that the size of the community and the size of your following increases, and depth in that you, just by the nature of teaching things, tend to learn them better than if you did not have to explain them to better. One of the reasons I originally started my blog back in the day is that I was worried that if I just had to bat an idea around in my head, that I could deceive myself very easily, whereas actually forcing the discipline of seeing that idea in print would mean that I would have to confront the internal logic of it more.

It turns out that when you are routinely confronting the internal logic of your ideas, of the marketing direction for your software product or whatnot, and seeing that, “OK, I posted in January about this being the plan. It is now July. Let’s see if the plan, and the actions subsequent to the plan, and the results actually match up together,” and then course correcting based on that is much, much more effective than just doing natural human thing to retrospectively construct a narrative that supports what you’ve been doing all along.

Yeah, big fan of teaching, obviously for…it’s a good thing to do for one’s self, clearly. I think it’s also a net benefit for the community and whatnot.

I don’t swing quite as hippie as some of the community do, but I think that open source and the cross‑pollination of ideas that happens with the Internet, with the communities that have started on the Internet and moved offline, like the Business of Software forum community used to be just a message board on Joel Spolsky’s site back in the day, and then a bunch of us know each other in person now.

The Amy Hoy crowd of friends [Patrick notes: I'm an honorary member] is growing and meeting each other offline these days. Hacker News meetups are moving offline. The ideas are getting mixed in these groups, and then between groups and whatnot, in a way that combines them to something that’s larger than some of the parts, I think.

Nathan:  One thing that I want to add on that, because we talked at a really high level about teaching is important, but when it comes to actually launching a product and building that credibility, I would say the first thing that’s really, really important is to say, “I’m writing a book. I’m putting out this course,” and put up a landing page for it, and just by doing that, as a very first step, you gain some credibility. For me, I was a random designer who occasionally blogged about useless stuff, but when I made the transition to, “I’m writing a book about designing iPhone applications,” I think there were a bunch of people that sat up a little bit and looked, and just because I put up that landing page and said I was writing a book, that gave me the start of some credibility.

Patrick:  I totally agree with that, and that people’s framing for value propositions are very important. The same way that people frame a newspaper article is ipso facto worth more than a blog post, someone who’s a published author, or soon to be a published author, on a topic is ipso facto more authoritative, more credible, better informed with regards to that topic than somebody who isn’t. Just putting that “author” word on your sleeve is a better positioning for yourself than having other, less useful words on your sleeve, like, say, “blogger.”

Nathan:  You do need to follow up the landing page with a statement of credibility, with something that actually demonstrates expertise, like some really in‑depth blog posts on the topic, sample chapters from your book, things like that. You do need to actually be good at it and show the world.

Patrick:  It’s kind of like all marketing. There’s the up‑front promise, and then you have to actually deliver at some point, the promises your marketing is making, because the Internet has a short temper and a long memory. You only get one reputation these days, not to say that your first product is going to be the end‑all, be‑all of every book ever published in the history of man, but you can’t put things which are terrible attached to your name, because you only get one of them.

That conflicts with another piece of advice that I often give, which is, “Ship things even if they’re crappy.” How can I resolve that contradiction? Definitely do ship things even if you think they’re crappy, because I think other people will think they are substantially less crappy than you.

[Patrick notes:  This might not have come out entirely correctly during the audio.  What I mean is that you shouldn't let excessive obsession with making the product perfect get in the way of delivering V1.0 to paying customers.  One of the worst pathologies of software entrepreneurs is being perpetually 6 months away from the minimum viable release.  It is much much better, both for you and for your customers, to ship something in a month and then spend 5 months polishing it in response to real user feedback then either spending 6 months in the BatCave then shipping or, worse, spending 6 months in the BatCave then not shipping.]

I think as creators, we often have kind of that Dunning‑something‑or‑other effect going on, where we see all the warts. We don’t have the view from outside our own head of how useful this is to someone who is just getting started, or has never seen curated resources on this topic, or has not been living this for the last 90 days of 1,000 words a day like we have.

Nathan:  I think when it comes to the reputation, if you’re trying hard to put out something that’s good, people will give you a lot of credit for it, and I think if you’re putting out something that’s scammy, or charging a lot for it when there’s not the value there, that’s where it’s going to hurt your reputation, but if you’re earnestly trying, and shipping things often, and trying to deliver a lot of value and help people, then putting out an early version of your product is not going to hurt your reputation.

Information Wants To Be Free Hates Being Anthropomorphized

Patrick:  That’s something that prevented me from publishing for the longest time, was just being scared of being seen as taking advantage of people. Partly was due to the natural engineer distrust of charging money for anything, and partly something that I would not have said that I agreed in, but a little voice inside of me was agreeing with anyway, was, “Information is free on the Internet. How could you possibly charge money for it?” Which, being older and wiser now, I’ve learned that, especially when you’re talking in a B2B context, this: Anyone who has employees, and accordingly must pay salaries every two weeks regardless of what they are doing, is literally incapable of finding things for free on the Internet.

Because if you tell one of your lead engineers to spend two weeks researching a topic, and you pay them $10,000, regardless of whether the blog post they were reading were “free,” creates a lot of value to a curated topic, and gives them resources of a known quality and an easy digestible format.

Rather than having them have to spelunk and do the curation step themselves, or do the, “Before I actually get to doing the work that I’m supposed to doing, I’m designing this web application or writing this email campaign, I have to first design a curriculum to teach myself that, and I will take my own curriculum, warts and all, and then I will do the implementation, and then we will actually get back to selling the thing that makes this business run.”

Nathan:  That’s where if you’re teaching a skill that other people use to make money, and you’re teaching it to people who have money, so that can be programming, design, marketing, anything, if it meets those two criteria, then people will happily pay to save even a little bit of time, because they’re businesses and they’re looking at profit, and loss, and those factors. That’s how it’s easy to justify a price of $250, or $500, or more if you can demonstrate that it delivers far more value than that and saves far more time.

Patrick:  Yeah, definitely. And there will be people, when you announce, that say, “Oh, you jumped the shark. You sold out. Nobody will ever buy this. Yadda, yadda, yadda.” Everything I’ve ever done, from Bingo Card Creator on down, I had at least a few people saying, “Nobody’s going to buy this.” At some point, I’ve just come to accept it. There exists that psychograph of people who just are fundamentally unhappy with the notion that products sell. That they’re empirically not that good at predicting that because all products ever have sold. So, I would just discount that opinion when people say it to you.

Nathan:  I’m going to, I think, misquote you when I say this but you mentioned it in a Hacker News comment on…I think it was for my book “Authority,” when it came out. There was somebody complaining about pricing and other things about it. Your comment was something along the lines of, “This is like the vegetarians complaining about the prices from the hot dog vendors.” Basically, these aren’t the people who are buying your product or who have any interest in your product and so their opinion is not really relevant.

Patrick:  I released a video course about life cycle emails last October, I think. It was largely focused for people who had businesses at a certain amount of scale. My typical consulting client was, at the time, 10 to 50 million dollars a year in sales. When I had an idea of the person I was writing for, it was really someone who had the official title, “Chief Marketing Officer,” or “Head of Product,” or something like that at a business that was at or near the scale of my consulting clients. Maybe at a million dollars a year of sales or at the low end a couple hundred thousand dollars a year of sales.

And then, there being many folks in the Internet who do not have several hundred thousand dollars a year of sales, people were, in the context of, “I am a $30 an hour freelancer” saying “$500 seems like a whole lot of money.” Whereas it just doesn’t, when you’re selling software licenses and they cost $20,000 a pop.

It was hilarious feedback I was getting because I was getting the, “Oh, it’s crazy to charge money for this free blog post on the Internet. Yadda, yadda, yadda.” And the feedback I was getting from some of the potential customers where it was like, “We are literally incapable of tracking a number this low on our systems. The expected value of a single lead exceeds the price of this course by several times. That is making it difficult for me to convince my boss to buy it.

Somebody literally asked whether they could just write an extra zero on the invoice.   That is two requirements: A, get an invoice but B, write an extra zero on it to convince the boss that it was worth the money.  Amazing, right?

Have Multiple Packages At Different Prices

Patrick: That segues neatly into the next question, packaging. One thing that’s worked out very well for you is having…I don’t know what the word is. One project, one overarching brand for a product but having multiple ways to deliver that product or multiple packages at different price points. Can you walk us through how you got started with that and how you think about packaging?

Nathan:  Yeah. Really quickly, the idea is…Or how it’s come out in practice is I have a book. We’ll take “Designing Web Applications” as an example. The book, to me, is the core product. It’s going to be…Not that this matters, but 150 pages of content. That’s where I put the majority of my effort. But then, there are other things, other useful things that could go with that. I’ll price just that book at $39. But then I think, “What other things could I include that will save someone time?” Because there are people who value their time far more than they…They value it at a higher rate. And so, I want to think, “What can I include that will save them time and they’d be willing to part with a little bit more money for?”

And so, that’s things like much more specific video tutorials on specific actions or Photoshop templates, code samples, all those kind of details. I also think about what would provide additional value, just as an educational resource. It may not save time but it’s more things. And my favorite there to do is interviews. I don’t like interviews as the product themselves. I like them as a value add to an existing product.

And so, I’ll get a bunch of different, fantastic people to sit down for half an hour or an hour and I’ll interview them about the topic. So for “Designing Web Applications,” I interviewed Ryan Singer and Jason Fried from 37signals who are fantastic product designers. I interviewed Trent Walton who had just redesigned Microsoft.com. And just was able to gain a lot of insight into their workflow and process, but also bundle that up and include it with a top tier package of “Designing Web Applications.”

And so, what I ended up with taking the book and all that other content and dividing it into three packages priced at $39 for just the book and I think there was a few other little things in there with it. And then $99 for the book plus some of the video tutorials and some of the interviews. And then everything, all the interviews, more tutorials, more code samples at a price like…I went with $249.

What that does is it lets your customers segment themselves. The freelancer who makes $30 or $40 an hour can buy just the book, get a ton of value out of it, hopefully implement all the stuff, and be a really happy customer. Maybe the design consultant who charges a lot more, values his time a lot more, can go with the middle package. Get more stuff out of it, $99 might not be that much to spend for him and the extra value is definitely worth it to him.

But then that $249 package is fantastic for real businesses because to them, once they’re holding that company credit card in their hand, there’s really no difference between $39 and $249, so long as it’s below that magic threshold of, “I have to ask my boss for approval.”

Patrick:  Which, FYI for anybody who hasn’t heard me say this 100 times, that magic threshold is generally under $500 or $1,000.

Nathan:  Yeah, exactly. If you’ve made a decision to buy this product and it’s just a matter of which version to buy, at that point…And I know this from buying stuff for my design team at the last company I worked for. I would look at it and go, “Is this higher package, a more expensive product, going to save me a couple hours worth of time?” I would do some quick math on it. “How much effort and time will this save my team?” If it was more than a couple hours, then it was totally worth it. There was one time I was buying a WordPress plug‑in that I needed for the marketing site. I only needed a single site license, but I was thinking about it and going, “Well, at some point in the future I might need a multisite license. I could see…There’s a decent chance of that.”

And so, I bought the multisite license for the company well in advance, just to make sure that I wouldn’t have to come back to the site and remember my log in information and sign back in and make another purchase because I knew what my time was worth to the company. I knew what they paid me. And I knew that just me coming back and making a second purchase was more expensive to the company than me upgrading to the multisite license right then.

Patrick:  It’s one of those mindspace shifts where people…Both of us come from modest means. We were talking about this prior to the podcast. You get the feeling ingrained in you when you are just doing commerce for yourself that if you’re from modest means and have a very frugal mindset that a $12 purchase versus a $20 purchase is something you think about and consider and weigh the pros and cons carefully because that’s eight dollars that you could save, right? Where in a corporate situation basically nothing under the cost of one week of a fully loaded employee’s time is a meaningful amount to the company. My business these days is running at a fairly high clip of revenue and expenses. I wrote a $10,000 check on less than two hours of thought in the recent past.

Given that as my pricing anchor of how quickly I can spend money when it is justified by value to the business, $49 and $249 and $749 all round to zero for me, basically. That’s not bragging. Bingo card greeter and all this kind of a blip on the scales of a “real business.”

If you haven’t had a P and L responsibility at a company yet, it’s kind of difficult to make the shift and figure out ultimately how little pricing matters from your perspective. It makes a great difference, a great, huge difference from the perspective of the person selling it because being smart about pricing and smart about packaging can really juice your returns from doing the same amount of work.

Nathan:  Yeah, and I’ll share some numbers on that in just a second. My favorite story related to expenses and business and that kind of thing is a friend of my dad’s growing up was an engineer at a very large printer and computer manufacturing company. He had a story of in their R and D lab, they had this series of drawers, a whole bunch of different nuts and bolts and all these little parts that were all separated out into 30 different drawers and labeled perfectly and all that. He was walking along and he bumped into it and knocked the whole thing on the floor and made this disaster. Everything’s mixing together of all these parts. And so, another engineer jumps up to help separate it all out and so he fixes it. He just grabs a broom and a dustpan and sweeps it all up and throws the whole thing away. The engineer’s like, “But those parts are worth money.”

He’s like, “How much are they really worth? $15? And we’re going to spend an hour’s worth of time, both of us, separating this out and cost the company $300 or more? Not going to happen. Throw it away and move on.” That just shows how, when you have a sensible approach to pricing, it makes a big difference.

But referring to how it makes a difference on the seller’s end, “Designing Web Applications” made $26,500 in the first 24 hours after it came out. Had I just used a single price point, so had I not given the people who wanted to pay more an option to pay more because if the $249 price wasn’t there then I wouldn’t have had fewer sales, necessarily, or I wouldn’t have had more sales. It’s just those people who would have paid $249 would have just given me $39 instead. Had that not been there, I don’t have the exact number in front of me but it would have been about $8,000.

Patrick:  So essentially, for similar amounts of work to develop the product, you made and extra ‑‑ let me do the math in my head ‑‑ 220 percent or so because you were savvy about your pricing strategy for it.

Nathan:  Yeah, exactly. Every time I’ve seen multiple packages in use, both when I do it and when other people do it, it consistently doubles revenue if not triples revenue.

Patrick:  Right. This is something where it’s very rare to find tactics which are just magic win buttons that work in every situation. This is one of them. Sort of like charge more, which, by the way, charge more. That’s both for the people listening to this and, honestly, I think the two of us could hear it, too. I remember Keith, my co‑host, had to talk me out of pricing my first product at $79 and then eventually went up to $249 for the early adopter discount and then basically $500 for the ongoing sales of the product. That obviously created a significant value for myself and my customers.

So, A, charge more but the multi‑tiered structure for packaging, much like the multi‑tiered structure for Software as a Service, is very, very good at reducing the absolutely absurd amount of customer service that these products would otherwise generate. The case where we’re selling something to a business for $49 which they’re going to turn around into several hundred thousand dollars worth of additional business for the company.

Nathan:  Yeah. My favorite part about it is, you can get more revenue based on the value you’re providing. Every company does not get the same amount of value of your product. You could let them pay based on the amount of value they’re likely to get, and you don’t have to exclude the people at the bottom end level. The freelancers can still afford my book at $39. I don’t have to completely exclude them.

Patrick:  That’s, also, for some people, been that particular point, has been a way to assuage their inner worries about charging more. For example, some people are very concerned about distributional access to their things. They don’t want to exclude folks who are starting a business or less well off than other people. Given that you know you have an affordable entry point into the product, then there’s no reason to feel guilty to about charging $500 or $1000 to the firms who can afford it. I’ve seen a lot of people be pretty successful at that. Personally, I almost intentionally wish I could. Like Mark, something that I very nearly did last time and I might do this time for my product, was asking a quick four question questionnaire, like “Do you already have a business that is making at least “x” amount of dollars? Check this box. If you do not, check that box.” So it physically not let you buy it because it depends on the kind of product. You’re delivering advice on the product. It’s only going to meaningfully create value for people who are already operating a business at scale. Obviously, both their point of view and from my point of view, I would prefer not to sell to people who are not going to get the value from the product.

Nathan:  Yeah. I think that’s good.

Patrick:  So echoing your tale of just put a packaging structure in place it being an auto-win, you can do something which we would call in software a “site license.” Instead, you can buy it for yourself or, if you want, to share it with your team. It’s not DRM‑ed or anything. You can download it and put it on your server. Just by the, I think I called it the corporate package, which was four times the price. There was, absolutely, nothing about the product during the implementation. There was no DRM on either version so it was, either, files which you could download, and watch and do whatever you can normally do with files, or files which you can download, and watch and do whatever you normally do with files, but could explicitly show it to other people. Now, I know you haven’t had quite as much success on the site licenses I have. What was my success on that? I was selling these site licenses of between $1000 and $2000. I think just for the cost of putting one extra paragraph on my page I got, I remember, it being like low five figures of marginal revenue associated with that. I would have to run SQL in order to verify that. It was, obviously, clearly, worth doing for me. And, clearly, worth buying for the company because a lot of them said, “Oh. Yeah. We listened to advice and turned it into a six figure campaign. Congrats.”

At that point, the $1,000 price tag really isn’t all that much compared to how much they got out of the advice.

Quick Tips on Selling Team/Site Licenses For Your Products

Patrick: Anyhow, the reason why I think the site license worked better for me than it has for you is, both, mine was competing with less options. You already have the sophisticated tier structure in place with  three different tiers. Then you had the up sale to the site license which was presented in parallel to those three.

You didn’t give it the same weight in either the copy, or the visual presentation or anything. You would have, really, had to work to find the site license on your site.

Whereas on mine, it was given equal visual weight to the core product. Also, in terms of who we sell to, your market is largely designers, mine was by construction just B2B software firms. B2B software firms have a very particular notion about the importance of intellectual property in terms of the makeup of the people who work with them, their business models, the way they treat things internally. A lot of them will err on the side of caution when given, even, a nudge in the direction of “BTW. This is intellectual property, you can’t just put it in the company drop box like I know you’re going to want to do, but that’s something you could buy.”

And then a lot of them, seeing that will be “Oh. That is something I can buy. That is something I will buy.” This comes naturally to folks working at a software company.

Nathan:  I think it’s important to think about, like you said, who the target is and how much they care about intellectual property and copyright. That said, I think that my audience, there’s enough design teams, that would be interested in the product, that I think it could have been a good fit. I think the area that, maybe, not as many people would have gone for the site license as a percentage as with your products just because of the fit and focus. But I think the biggest mistake that I made…And this copy is still on Nathanbarry.com/webapps if you want to look at the copy and design for that part. Pay attention in order to find the site license. That’s part of the mistake is that I just said one line about, “If you like to share this with your team, buy the site license for $1000 dollars.” I went with the 4x price, as well.

I don’t think it triggered any red flags for people as far as on the copyright side of things. Like, looking at your copy, it triggers something of, like you said, “Hey, this is an intellectual property issue. You need to pay attention.” Whereas mine says, if you want a site license go buy it. It doesn’t trigger any thoughts of if you share this with a lot of people, it’s a copyright violation. So copy matters.

Patrick:  Copy definitely matters. That’s something that we see over and over again in our work, both, for ourselves and for other people. I’m going to read out the copy that I use for this because I like it. You can see it at lifecycleemails.com if you plug that into your browser. My sales page is still up and still making sales. It’s probably something we should talk about in a moment. “Do you have a few people at your organization who would benefit from taking this course? No, problem. We sell group licenses, too. You can either grant your coworkers access to the course on our site or you can download the material and host it internally. One corporate license covers up to 100 people within the same organization. We trust you not to abuse our confidence. No DRM is involved.” That positions it as it mentions like obliquely the IP related thing. It doesn’t wham them over the head with it.

As long as we’re talking about IP, and DRM and whatnot, what’s your stance on piracy? I know a lot of people are like, “Oh. God. You’re selling files? People can copy files? You’re going to lose all your money to people copying it for free.” Empirically, how’s that working out for you?

Nathan:  I make money from my products. People by them. They’re quite available on torrent sites. You can go check them out. Go Google “Designing web applications,” I don’t know, “Free download.” Whatever you would add on to the end of that. Actually, you can just probably Google the product name, and click to the second page and you’ll get free downloads. You might get some viruses along with that. It’s widely available to pirate. I didn’t add any DRM. I am quite happy with the amount of money I’m making. I just don’t worry about it. I don’t want to give my customers the idea that I don’t trust them. I don’t want to frustrate them with DRM or anything like that. Basically, I don’t want to potentially jeopardize a relationship with somebody who I care about and who cares about me in order to potentially stop somebody who will probably never buy my product.

That said, it might be worthwhile to hire a freelancer to get Google to delist some of these, at least so they don’t show up on the first page of results, but otherwise, it’s just not worth the effort.

Patrick:  I think more than the minimum of effort placed to secure things is probably a loss. Especially, in our industry/things we are selling. I’m a heretic on DRM with regards to software programmers in that I understand why it’s valuable for people in the content industries like video games, and movies and whatnot. They have a sales cycle which is dominated by the first 48 hours and first one week of sales. Even if they can delay the appearance of a crack by six hours, that makes a meaningful amount of revenue for the business. For sole proprietors like us who have products like these, it’s basically, anything above the minimum amount of work to keep honest people honest is a net loss to you. The minimum amount to work is requiring a credit card to download and don’t make the link copy, pastable to other people. I think you use Gumroad for fulfillment, right?

Nathan:  Yeah. I do. They’re fantastic. I love the team over there and highly recommend them.

Patrick:  I met them through the BaconBizConf where they were one of the speakers. Ryan Delk, I think he’s the founder, came out to there, we got to… [crosstalk]

Nathan:  Yeah. He’s the head of their business development.

Patrick:  Got you. Yeah. It was great fun and they’re style of folks. I did all of my delivery/fulfillment through an application which I coded largely because, at the point, where I was launching this list year, I hadn’t done any hard core programming in a while and really wanted to. It’s absolutely the wrong choice. Nobody, is not buying your thing because it doesn’t have the custom coated shopping cart.

Nathan:  Right. You hear people, somebody said this the other day where they, really, liked Gumroad’s implementation of the check‑out process, which is fantastic. But what they didn’t like, is government charges a five percent fee so that includes the credit card processing plus, I think, 25 cents. Whereas “Stripe” charges 2.9 percent plus 30 cents or 25 cents, somewhere right in there. So “Stripe” is 2.1 percent cheaper. So this person was going to rebuild on their own, because they had the technical skills, the Gumroad checkout process almost exactly in order to save 2.1 percent on each transaction.

Patrick:  Right. It’s absolutely insane like you’re committing yourself to doing the barebones implementation of doing something like this is between three to five days of work. If you figure you’re first info product is going to sell so you’re fairly successful with it because you’ve heard from Nathan, and Brennan and myselfand you’re not making all the mistakes we did on our first one. So you sell $100,000. You saved yourself of $2,000 of tax write‑offable costs for a week of your time. Whereas, if you had spent that week, you know your existing consulting business, you would presumably have made a lot more. Or if you had spent that week rather than duplicating the table stakes to entrance, you had just worked on your copy, you would be at a multiple. It’s absolutely insane how important copy is, like headings and whatnot, the calls to actions on buttons.

I’ve seen people who have coded their own shopping cart and it was more important to them that it worked than all of the little details received adequate attention. They left the button on the buy page be “Submit”.  [Patrick notes: Elements of this story have been changed to protect the innocent guilty.  And, as always, I will cop to having made mistakes at least this forehead-slap inducing before.]

Nathan:  [laughs]

Patrick:  Where, I’ve got eight years of A/B testing experience, at this point. I can pretty much tell you that if you had thought to change that button, that would be worth like 20 percent of sales. But you didn’t think to change that button because you had just spent a week building a shopping cart when you should have just been pulling one off the shelf from Gumroad or any of the numerous scripts you could drop in and get this to work.

Nathan:  Yeah. There are all kinds of other factors. Like its fascinating talking to Ryan from Gumroad about all the stuff they do on fraud prevention. There’s a lot of stuff that goes into processing payments that you don’t see in an interface.

Patrick:  Yeah. I tend to think, and again, do what I say, not what I do, unless you are very sure you’re going to add value to your implementation, go with one of the people you can buy to do this.

Nathan:  Unless you really want to code a shopping cart.

Patrick:  Unless you really want to code a shopping cart.

Nathan:  Go for it.

Patrick:  The Gumroad guys did try to sell me aggressively a few times. I told them, one of the reasons I said, “No,” was I said, “Look. It’s my professional competence to build check out flows because I do that for consulting clients.” So the experience of coding one more where I can actually share the results of doing it adds value to me. I don’t think that’s totally a self‑serving excuse because I wanted to build a shopping cart, but there are perhaps those two things together in solution.

To change topics briefly, you mentioned a few minutes ago that you threw interviewers into one of your top tiers on your packages. I want to talk a little more about interviews because, I think, interviews are underappreciated as a promotional tool. One of the reasons that a lot of people do interviews to either supplement a product or as the product itself is that, candidly, the creation costs for interviewers are less than writing an equivalent amount of stuff yourself.

Nathan:  Absolutely.

Patrick:  I guess, you turn on the camera, get an expert in front of the camera, hit record, talk for 30 minutes, stop hitting record and that has a certain amount of perceived value which, generally, tends to scale up with the perceived expertise of the experts and what they say in the interview. In addition to the content creation costs being lower, if you are interviewing experts, experts typically already have their own following. The first thing they do when you release your thing and say, “Hey. Thanks for being a participant in my designing web applications. Your interview is in the top package, and I released it today.” They will promote that to their audience/their community, which since they typically have a larger audience community than you do, and many of that audience community will follow them wherever they go, that gets you exposure to people who are willing to buy your thing because that expert or that person they trust was in it.

Nathan:  Yep. Absolutely. You give them a copy of the whole product, which since it’s just information, that doesn’t cost you anything, and you include that with an email of, “Thank you so much for being a part of this. I really appreciate it. Here’s a free copy of the book and everything. Here’s the link if you want to share it.” In general, that’ll get, at least, 50 percent of the people you interviewed to share it. At least, and that’s worth a ton.

Patrick:  Every time I get interviewed in something, I, at the least, tweet it out and I generally send a brief notification on my email list on the next scheduled email, “By the way, if you guys want to hear more from me, I was interviewed in this book thing.” I’ve heard from people who use unique tracking, everything, that just the tweet can be worth 20 sales. It takes me a minute to compose, and then all of 10 minutes to compose the email to me asking for it so worth it at the margins right?

Nathan:  Yeah. It’s also a fantastic way to get to know people who can deliver a ton of value to your business and all kinds of things.

Patrick:  Because after you’ve done something together, you’re no longer strangers.

Nathan:  Actually, a perfect example is you and I, where I think we exchanged some comments on “Hacker News” and, maybe, an email about pricing. I think your exact comment was something like your pricing is the first non‑stupid pricing I’ve seen on “Hacker News,” or something like that.

Patrick:  Yeah. I was very impressed with it going on.

Nathan:  [laughs]

Patrick:  That’s right. This trajectory has happened a lot for me in recent years. Get to know someone through “Hacker News,” swapping an email occasionally. Then you interviewed me for one of your products, I think, “Designing Web Applications?”

Nathan:  Yeah. Because I wanted to cover the business marketing side of it. I always give people an introduction to that. So we had that brief exchange about pricing. Going back to the pricing conversation for a second, I had lower prices for the “App Design Handbook.” Based on your feedback, I increased them to the 39.99 to 49 prices that we talked about earlier. Yeah. We did an interview, included it with “Designing Web Applications.” It’s just a great way to get to know people because you and I have talked a lot since then, hung out at conferences.

Patrick:  Yeah. We’re definitely moving past Internet buddies into that professional acquaintances/friend stage of the relationship which it sounds a little odd, sorry.

Nathan:  [laughs]

Patrick:  I can be a little socially awkward at times. I’ll own it. It’s a real thing, right?

Nathan:  Yep. Exactly.

Patrick:  There are definitely people who…Some of my good friends are people who “I met on the Internet.” If you hang out with somebody for a few years, there’s no other word for it. You’re friends or you’re not. Anyhow, obvious to the two of us, but perhaps not obvious to the people listening to this. When you’re approaching 10 different people to do interviews, what sort of monetary incentive, are you offering them to do these interviewers?

Nathan:  I get this question a lot. The answer is zero.

Patrick:  I think we’ve both covered this topic in depth with other people. But somebody, not you, but a different person who was asking me for an interview for a book that they were launching which they were going to price it like $20 asked what number they would need to offer me from that to make it worth my time. And I said, “Look. I like you. I like the idea for this project. It was something I’m doing, making a SaaS in a sense like a sideline, side project. I said, “I like you. I like the project. I will do the interview. Candidly, there is no amount of money that you could reasonably offer me from this project that makes a darned bit of difference to my financial situation for this year. So don’t.” I think you got Jason Freed to do an interview with you. You could ball up your entire business and my entire business and drop it in the 37signals bottom line and I don’t know if anybody at that company would notice. Offering $3000 to get on the phone with you would not necessarily move any needle for Jason Fried et al.

Nathan:  Yeah. Exactly. He’ll do it because he wants to help out, business people, people putting out products, and he’s a nice person and generally wants to be helpful. But as soon as you start talking money and how you’re going to offer him five percent of your product that may or may not make anything, it just gets weird. Don’t ever bring that up.

Patrick:  It’s that thing, predictably, irrational where people have one schema for evaluating monetary transactions and they have the other schema for evaluating non‑monetary transactions and they operate in different fashion. I’ve got a rule…This is by the way a hack around for me having issues with socializing when I was younger, I always say yes when people invite me to do things. Unless I can articulate a good reason to say no, I say yes. If you invited me out to a party that was happening later today, I would say yes. Then maybe think about whether there should be any reason for saying no rather than doing the thing that I would default to when younger which is saying no just because my brain would cook up some rationalizing, but it was really I’m terrified of going to the party.

Nathan:  [laughs]

Patrick:  So if you ask me, “Can we hop on a Skype chat and I’ll record it and put it in this product?” Like 99 percent of the time, unless I have a date with my wife or something that you’d be bumping, the answer is yes. But if you ask me to do a business proposition, then the cold blooded business man in me comes out and very few business propositions are going to be worth my time.

Nathan:  Well, a classic case of this is with people doing open source software development, you’ll get some really top notch developers who will pour hundreds and hundreds of hours into these projects, all for free, never get any money directly out of it. So somebody will come in and go, you’ve put all this time in, I just need something slightly different. Can I pay you $25 to make this change? As soon as you say that, “Well, hold on. I’m a $200 an hour consultant.”

Patrick:  It’s like boom, slapped in the face.

Nathan:  “Not only am I not going to do it, you’re offending me. You don’t value my time at all.” If you ask them to do it for free, chances are they would do it, but you’re right, it’s that two totally different mindsets. If you want to interview people, if you want to help somebody, ask very nicely with a pitch very specific to them, that you didn’t just copy and paste to a whole bunch of people, and most likely they’ll do.

Patrick:  The single best thing that can convince me to give the rest of the email some thought is some serious thought in the first few sentences I follow you, I’m familiar with your work, and have a reason why you in particular should be contributing to this thing in particular, rather than, “And clearly I wrote a list of 10 people who have a name in our space and am emailing it out to all $10.” I hate to sound like I’m an Internet celebrity, because I’m not. There are people like…Nathan and I are much closer to you, podcast listener, than we are to the 37signals or the Joel Spolskys of the world. But, it is a fact of nature, we do have a certain amount of audience.

If you are doing a product on A/B testing, conversion optimization or running a small software business and you can tie that to things that I’ve written before or things that I’m clearly passionate about, than I want to say “yes” to that.

Whereas if you’re just doing “How to Start a Start Up,” or “How to Get Venture Funding,” than I don’t know if Paul Graham is too busy to get interviewed for something like that. But Paul Graham would be a much better person to interview than I would be. “How to Get Venture Funded”…I don’t know.

Nathan:  You have a lot of experience that area…not.

Patrick:  Get into Y Combinator. That will help grease most of the skids for that. If you had a question then, “How to Get Into Y Combinator,” and being on “Hacker News,” like it’s my job, might give me some idea of what to tell you. I don’t think that would be something that I would make people pay for the advice for. Anyhow, wow, D, we’re at about an hour and we got more to cover, so mind if we move on to the next topic?

Nathan:  Sounds good.

Patrick:  The beating heart of both of our businesses is an email list. I think that even when I say that it is the beating heart of our business and probably, in my case, I think if I were to produce a formal statement of assets and liabilities, my email list would come in right under the accumulated value of my IP. For the business I think, you might…with circumstances for your business it might actually be the other way around. And yet people do not understand this, so let’s wax rhapsodic, or whatever even more about how you should have an email list and be sending stuff to it. You first.

Nathan:  I put having an email list as the second most important business realization that I’ve ever had, the first being that you should teach. Email lets you teach to people in a reliable way, and reliable and consistent. What you said about business assets, I would consider my email list, and it’s not massive, right now it’s 7,000 people, to be the most valuable asset that I own. It’s probably more valuable than everything else I own combined, more valuable than my cars and whatever else, not that I have a lot of assets, but it’s worth a ton, and I can’t understate that.

I can’t say that too strongly, but I should point out it’s not that I have 7,000 emails separated by commas that I can download and do something with. It’s that I’ve built up a relationship, and I’ve taught useful things to 7,000 people over time.

Patrick:  I think, when we talked about it in marketer speak, that just the phrasing of list, it gets people…like that obscures the fundamental relationship, which is that… Maybe the better way to think about it is not that you have a list of 7,000, but that you have 7,000 relationships created with people who trust Nathan Barry as their go‑to guy on these subjects, not just any 7,000 people, but largely 7,000 people who have a deep amount of interest and need for the sort of thing that you make, and ability in many cases to pay money to buy it.

Nathan:  I guess the important thing that I want you listeners to take away is that how email…the consistency of it. I asked at the Bacon Biz conference, it’s a room full of bootstrap‑ers, and software people, and all of that, and I asked, “Who likes recurring revenue?” and there’s a good chuckle from everybody, as everybody raises their hand. Recurring revenue is awesome because it’s predictable, your customers who love you the most keep paying you, in theory, it grows over time, you’re going to have a certain amount of loss, and so long as you can exceed that with growth, then you make more money than the previous month, all kinds of awesome things.

I had a realization that email is like recurring revenue for traffic and visitors. I looked at my traffic stats for my blog, and they were all over the map until I started building up a good email list. I could have traffic that went up a huge amount one month, because of a story went viral or whatever, and then drop significantly the next month. It was crazy and all over the map, but email, I could just keep consistently growing that list.

I’d lose some every time I sent an email, but so long as I gained more than that, my list grows every time. I have a relationship with each one of those people, so to me, email is the same idea as recurring revenue, but for getting visitors and engaged readers to your content.

Patrick:  I totally agree with everything you just said. One of the reasons I created my email list after years of not doing it, which are years that I very much regret now, because there were hundreds of thousands of people who visited my blog over that time that I have no way of getting in touch with ever again, like you, I had a blog. There were many articles which were very well received on it, and there were, on any given day, 500 or 1,000 people would make it a habit of checking to see whether I posted a new thing.

But aside from those folks who are like in the inner circle of really love everything you do and want to hear about it, there was no way for me to grow that number effectively other than just publish, publish, publish, and no way to reach people in any more deliberate manner than just posting something and hoping that it got good distribution on Hacker News and whatnot.

Partly as a business owner, no matter how much you like any distribution channel, you never want to be totally locked into them, and then partly as just like a regular old Hacker News denizen, it’s weird, but I occasionally ask for my things to be on the front page less, just because I never want to burn people out with them or give people the impression that I’m explicitly using Hacker News as the “Me, me, me all the time” marketing channel.

One of the benefits of having the email list was that, by construction, since people have asked to get it from you, it can be the “Me, me, me” show, as long as…well, it shouldn’t be the “Me, me, me” show. It should be the “You, you, you” show, that every email to them creates value for them, whether you’re teaching them new things or potentially giving them some sort of sales message for something that would create value.

It can be a…how do I want to phrase it? It can be rather more focused on things I am doing than, say, blog posts could be without coming off as quite self‑absorbed.

Nathan:  Yeah, because they opted in to hear from you, and at any time, they could opt out, so you can guarantee that these people want to hear from you.

Patrick:  Right. Speaking of opt‑outs, by the way, a great line I heard from Joanna at Copy Hackers was that the unsubscribed is not something you should take as a mortal insult. It’s just like the email equivalent of hitting the “back” button. We’ve all see the stats for our blogs. We know that a lot of people won’t read it, they’ll just hit the “back” button and whatnot, and we’re OK with that, but then we get the report from MailChimp that says, “You sent out the mail to 7,000 people and five people unsubscribed,” and then we get that feeling in the pit of our stomach, like, “Oh God, what did I say?” It’s not something you have to worry about at that level.

It’s like, one percent of the list on every email, then you have to worry about it, but some people are going to decide that it wasn’t for them, and that’s OK. I’ve said it in various degrees of seriousness, but 500 people who don’t like what you’re doing and three dollars will buy you a cup of coffee, but three dollars might not actually buy you a cup of coffee these days.

Nathan:  Yeah, and something…I think this is from Ramit Sethi, where he talks about actively trying to get people to unsubscribe, just because if somebody doesn’t want to be on the list, then they’re never going to buy anything from you, and you don’t actually want them on the list. That’s why you make it super easy to unsubscribe, and Ramit goes as far as sending out email saying, “1,000 of you should unsubscribe.” I think he had that as a subject line.

Patrick:  Can we go back in the time machine from…do you remember back when you had no email list? What was the first thing you did to start growing?

Nathan:  I put up a landing page saying, “I’m writing a new book called ‘The App Design Handbook,’ and put in your email address to hear about this book when it comes, and to hear about the process,” which, by the way, if you put together a landing page, the email opt‑in form is the most important thing on the landing page.

Patrick:  By far.

Nathan:  By far.

Patrick:  Headline email opt‑in form. Everything else is quite secondary for a page that doesn’t have much content on it.

Nathan:  Yeah, and you don’t need a lot of content. An email address is…you’re not trying to get them to spend hundreds of dollars, so there aren’t a lot of objections to overcome, other than, “We won’t spam you. I promise.” I put up that landing page, and I tweeted it out to my 412 followers, and I got 10 or 15 people who went to the page and said, “Yeah, that’s cool. I want to hear about that.” Those 10 or 15 people started at the list. A few people posted links to it. I emailed a few friends who were designers and said, “Hey, could you share this?” Through just kind of that activity, I got, I think, 30 or 40 people who said, “I want to hear about your process making this book, so I can hear about it and maybe purchase it when it’s ready for purchase.”

The great thing about that approach is you’re not getting random people who may or may not be interested in a product. They already told you, “I’m interested in this product,” so it’s not a matter of coming out with a product later and wondering if your audience will want it. If you start with product first, then you’re going to get higher conversion rates from email to paid, just because they already expressed some level of interest.

From there, the landing page got shared around a little bit. I think it made it on Hacker News, on the home page for just a little bit, and that brought in 150 email addresses, so I was sending out like 200 then. Then I wrote a detailed blog post about designing iPhone applications, and at the bottom of that blog post was that same email opt‑in form. “I’m writing a book. If you want to hear about it when it comes out, and hear from me a little bit in the meantime, drop in your email address.”

Patrick:  It’s the great underused technique for getting emails. How did that work out for you?

Nathan:  It continued to grow, and an important note is that this email list didn’t grow in silence. I knew that those initial 200 people, that they wanted to hear about designing iPhone applications, so I wrote this tutorial and I sent to them, and I said, “This is kind of related to the book. I think you’ll like it.” With that, I said a short paragraph of like, “Here’s how’s the book is coming along,” just so that three months, when I said, “The book’s here. Buy it,” they will have a clue who I am, because I stayed in touch and provided value throughout the process.

Patrick:  That’s honestly one of the biggest stumbling blocks for people with email, to keep the list warm by continuing to deliver value to it.

Nathan:  Yeah. Those blog posts that you put out…well, first, I guess what I should say is, linking to a landing page for a book, people will do that, and they’ll share it around, but it doesn’t actually provide any value right away. It doesn’t provide any value to the reader. If I share it with my Twitter followers, I tend to do it more as a favor to the author, because I think it’s a cool thing they’re doing, rather than because I’m like, “Oh, my readers really need to see this,” because it’s just an email opt‑in form.

Patrick:  I think you can…that’s true, the way most people do it. I think there’s definitely ways to structure the page, even if it’s just an opt‑in form, such that linking it to your audience does provide value to you. For example, so much of social sharing is based on trying to project an image of yourself to people. That’s why there’s like 600 political related thing in my Facebook feed right now, and not so much that someone was like, urgently, “This particular post is the best thing I have ever read about issue X,” but rather, “I have a position on issue X which I want to broadcast to people, so I will share this post.”

If you had an opt‑in form which, even with just one sentence, a really focused copy, like planted a flag in the ground, if that was something people wanted to sign on with, I think they would retweet that just to sign on for that movement, and to demonstrate to people that that represented them. What’s a good example to come up with that?

Somebody I know just recently put up an opt‑in page for a book on Ruby on Rails security, a topic near and dear to my heart, and they said…their one sentence of arresting copy was, “Your Rails application is broken,” like security‑wise, and that’s not the exact copy, but, “All applications are guilty until proven innocent. You’re not doing it right. I will teach you how to do it better. Give me your email.”

A lot of people retweeted just because they endorse that message of, “If you haven’t seriously thought about security, if that hasn’t been the number one issue on your plate for a while, then yes, your application is broken.” Does that make sense?

The other thing that works really well for getting distribution for landing pages is to have some sort of free goodie that you can give people in return for their email address, and then plug that goodie in other places, for example, doing guest posts with a, “If you’re interested in this topic, go here, and I will give you a one‑hour‑long video on blah, if you give me your email address.”

Or for people who do conference presentations, just having a bit.ly URL to your landing page, and put on the last slide of your conference presentation, “If you’re interested in this topic of the conference presentation, you can get…the term of art is a premium, but you can get this free valuable thing from me by going here and giving me your email address.” If there are 200 people in the room, you can get 20 emails like that…

Nathan:  They do.

Patrick:  You can put that in podcasts as well, do the Rob Walling kind of podcast tour to drum up interest in your thing, which kind of makes me want to ask, do you have any landing pages that people should be on?

Nathan:  If I was going to follow up with that right now, I would say something like…it’d be better if it worked into the conversation, but I have this email course on how to launch products, and if you go to nathanbarry.com/launch, you can get in on that free email course, and over three weeks, get some awesome content on exactly how to launch products.

Patrick:  That would’ve been a much smoother way to introduce it, but yeah, exactly like that. That’s something that you can do in virtually everything. You can also give that pitch to people in one on one, when you’re just shopping around your idea in your local community. I think the AppSumo guys were very smart about it. They said, “How do people get their first 100 customers, or 100 sign‑ups to an email list?” and it’s largely just by banging down doors like that.

Nathan:  One thing that I did very recently is I wrote an article for “Smashing Magazine,” and it was titled, “How to Launch Anything.” It’s my exact product launch plan, kind of my formula that I followed for three books now, exactly how to do it, but at the end…I always feel weird in guest posts. It’s kind of lame in a guest post to say, “If you want to learn more about this, buy my book.” That’s kind of an awkward transition, I think, and a lot of editors on sites will be like, “Really? That’s too self‑promotional.”

A great transition, and one I did on the “Smashing Magazine” post, is at the end, I said, “I don’t want your education on product launches to end here. You just read a 3,000 word article. That’s great. There’s much more to know. We could dive a lot deeper, so I put together this email course just for you guys. It’s at nathanbarry.com/launch. Go check it out, sign up, and we can continue this conversation, and we can dive a lot deeper over the next few weeks,” and that did very, very well.

Patrick:  I think that is excellent, excellent positioning. There’s multiple parties that have to be happy with that, and the circumstance we’re using, someone else’s audience, obviously the editor at “Smashing Magazine” has to be happy, you have to be happy because, ultimately, it’s your work and your business, and the readers have to be happy, and that’s kind of a meeting of those three. Sometimes conflicting interests where it works for everybody.

Nathan:  Yeah. And then, in that email course, later on in the process, I can pitch my products, and that’s totally fine.

Patrick:  Yeah.

Nathan:  So long as the email course provides a bunch of value on its own. But, two, three weeks in, I can give a, after casually introducing my product, later on I can give a hard pitch for it, and that works great.

Patrick:  Right. And people have less, not like memory a human would have memory, but memory in the homeopathic sense that homeopaths think that water has memory, which it doesn’t. But people on an email list have even less memory than water in that sense. While they’re a good source of traffic and bad sources of traffic given roughly consistent user demographics and whatnot, and connection of the need that got them onto the email list in the first place, their behavior downstream doesn’t strongly reflect how they got into it, a guest post versus a post on Twitter versus yadda, yadda. With, again, that very importantly given roughly similar demographic and need fit.

If you assume that folks on Smashing magazine are also designers, they are likely to be just as good for fits with the Nathan Barry ecosystem as folks who are coming in from a hacker news thread or yadda, yadda.

Just to give a story from my own experience, when I realized last May that I wanted to start an email list, not May a couple of months ago, but 2012 May, the first thing I did was put together a 45‑minute video on designing the first run experience of web applications because that’s something I have a good deal of expertise in and went fairly well as a video format and was something that I hadn’t done to death before, to be honest. I said, if you give me your email, I will give you this 45‑minute video.

It was not planned. Sometimes things just seem to fall into place retrospectively. I thought I was eventually going to be releasing some sort of product to the list after I had it. The priority at that point was to have the list and not have a use for it rather than have a use for it and not having it.

But it turns out that I eventually had a product that had a lot of video. By construction, if I’m asking people to sign up for the list to get a free video, it’s going to be people who appreciate consuming video rather than don’t. There are some people who listen to podcasts but don’t do texts. A lot of people will read hundreds of thousands of words from me but hate…

I’ve been told that my voice grates on people, or they just don’t listen to anything or whatever. And similarly, there are video people out in the world, so if you’re going to be selling video, attracting video people is a useful thing.

It also, the first video, you can still see it at training.kalzumeus.com. It was really, really rough. My equipment, my process for taking the video and whatnot were not exactly where they are right now. But that gave me an opportunity to get the kinks out of the process and a 45‑minute free video rather than the five hours of paid video where quality issues would be more apparent and looked on in a harsher manner.

Nathan:  Exactly. The takeaway from that is, if you’re using a free incentive to get people on your list, have it be similar in style and media type to a product that you think you might offer down the road.

Patrick:  Right. I think media type, character, tone, audience, yadda, yadda. It would be a bad, bad decision to get Magic: The Gathering players together onto your email list if you’re eventually going to be selling enterprise software. There is some overlap there, but the closer to 100 percent overlap that there is between your audience and the people you sell to, the better. Which, that segues into our next topic.

Both of us are kind of weird for business in that we have a product portfolio rather than just the one thing that we do. I have a very, a product portfolio which comprises a lot of disparate groups of people. Like the elementary school teachers who buy my Bingo Card Creator have zero interest in my authorship activities about selling more software for B2B SaaS companies.

Those folks have zero interest in Appointment Reminder, which helps scheduling at doctors offices and other places that need to send automated phone and SMS reminders to their clients to come in on time.

You have a much more focused product portfolio in that you’re kind of Nathan Barry, the person who teaches designers to be better at what they do and are branching out a little bit. But I really like your approach more than my approach just in terms of being able to cross‑sell to the same people over and over and over again, having a focused brand and more focused in your activities.

Nathan:  I think focusing in on your audience is really important. I wish I did a better job of it. To some extent, I have taken the approach of this is what I’m interested in. Hopefully I’ll get people who are also interested in the same things. So I’ve got a book on designing iPhone applications. A book on designing web applications. There’s a pretty good overlap between those two, designers. It may not be 100 percent overlap, but it’s pretty high. But then I branch out a little bit. I’ve got an email marketing application called ConvertKit. Some of those designers are going to care about selling products, so they will be interested in using email to do that. If we assigned a random number, there’s maybe 30 percent overlap there in some level of interest.

And then, I also happen to talk a lot about writing and publishing e‑books because I shared all the stats from my books. I’ve got some of those soon‑to‑be authors in my audiences. My latest book is called Authority and it’s on building an audience, building credibility and authority, and then how to write and sell e‑books, information products, I guess.

There’s great overlap with ConvertKit because, if you’re following my methodologies, you’re using email, ConvertKit’s designed exactly for my process. There’s not a lot of great overlap for the design stuff, but there is some. I’ve got plenty of people who have purchased all three of my books. It’s not as tight as I would like it to be. I think the person who does this best is Brendon Dun. He’s been on the podcast before.

Patrick:  Right. Brennan just passed a…Freelancers and consultants, they’re his bannermen and they will follow him into war. Sorry. I was watching Game of Thrones yesterday, if you couldn’t tell. But it works very well. There’s a consistent confluence of interest between what he’s working on any given day and what they’re interested in.

Nathan:  And the only way he differentiates is maybe what scale they’re on in their business, where he’s got some products for people who are brand‑new freelancers and then he’s got some for people who are building up an agency or a consultancy. He can run that spectrum of $40 product to $1,200 workshop, but it’s all within the same audience. The closer you can get to that the better. I have an iPad application that I made a few years ago. It made some money that helped me quit my job, so I’m very, very grateful for it. I learned a ton from the process.

But now, it’s targeted at speech language pathologists, which has nothing to do with, there’s no overlap whatsoever between them and designers or product marketers, anything like that.

It’s this product that’s sitting out there. It makes me $800 to $1,200 a month, which I’m certainly not complaining about, but it has no overlap in my ecosystem and I just don’t know what to do with it. If I was being smart, I would probably sell it off for a tiny amount of money to get rid of it or just shut it down or, you know, because it just doesn’t fit. As much as you can get a single audience, the better.

Patrick:  I think my candid and public advice for you would be either sell it for 10K or try that for two weeks and, if you don’t get any takers, then it’s probably the case that the ongoing focus drain that it requires from you would be better deployed at other points in your business. But given that there’s an installed customer base and whatnot, it would be better for them if you were able to successfully sell it to someone. Maybe someone who wanted to get into the app game and yadda, yadda.

Nathan:  Hopefully someone who had speech language pathologist as an audience, as customers.

Patrick:  That would be a great choice. Something I often see in small software companies is a husband and wife team where one of them is the domain expert and one of them is the programmer. If there is a programmer out there whose spouse is a speech language pathologist, and given that we know several thousand programmers, there’s at least somebody who’s in that combination.

Nathan:  Send me an email.

Patrick:  Please send Nathan an email.

Nathan:  Yeah, nathan@convertkit.com.

Patrick:  Speaking of which, so we’ve been talking mostly about info products, but both of us have significant SaaS experience. You’re running ConvertKit. A lot of people often ask me how you get the idea for a SaaS product that will actually sell to people. I really like ConvertKit as an example for this because it’s not a product that sprang out of your forehead Athena. Wait, no. Was it Athena or Aphrodite that came from the forehead…Athena from Zeus’. It’s a natural extraction from the business you already happen to be running. Obviously the designing web applications and whatnot are a technology‑focused business but they’re not a “tech business” in the way people usually think of where you have this pre‑existing business. It was obvious there was a recurring need in the business that could be better be met with technology than by the existing processes you were doing.

So you created that technology and you were basically customer number one for it. Given that you knew that knew that this process that you had been using was generalizable across your industry and across other industries, then you knew that there would be a market for it rather than just throwing something at the dart board and praying it stuck.

Nathan:  Absolutely. I know, since I built a tool that I want, for a process that I know makes money as far as how to email market and a lot of the stuff we’ve just been talking about, I knew that I would be a customer at the very least. Even if nobody else wanted it, I knew that I could use this tool to sell other books and products and make money. But the other fantastic thing that I love about building products for yourself is that you can actually use them like a real customer instead of using them in some artificial way. I had a tool years ago that was used by…

It was a SaaS application used by sign language interpreting agencies to schedule and manage all their freelance employees. I would go through, we’d release new features and I’d go through and test it. I would fill in all this fake data. I would click through things, but I wasn’t actually using the tool because I had no reason to use the tool.

It was all artificial use whereas, with ConvertKit, because I’m the biggest fan of the software and the person who is chomping at the bit to get new features in and all of that, I’m using it every single day and improving on it, testing it. It’s just a much better spot to be in then trying to use some tool that you don’t care about in an artificial way.

Patrick:  Given that I run Bingo cards for elementary teachers and scheduling software for the office managers at plumbing firms despite no longer being an elementary school teacher and having no experience in office management for plumbing firms, I can definitely tell you that the experience of developing a product where you’re using it “in anger” in your own business is much different than trying to guess what people are using it with. For those folks who are not building something for themselves, and I think that’s a totally valuable way to go about things, you have to have much more of your cycles devoted to being in the room with the customer, whether that’s a literal fact or kind of spiritually in the room with them, seeing how they use it in their business, rather than slinking off to the Bat Cave and coding up features that may or may not actually share on the ground correspondence with the way they use it or the way their business is run.

Nathan:  You certainly can, especially if you focus on solving a painful problem, you can definitely build software for other people. You’ve shown it with appointment reminder quite successfully, and I’ve done it on some other projects, it’s just I’m really loving the process with ConvertKit, building for myself.

Patrick:  Definitely, that’s still on my to do list. I want to try doing a course through that and see if it…obviously it’ll work. The big question for me is whether it will work in a transformatively better way than the processes I already do for it. Again, the fact that I had processes was not a reason for you not to make the tool, right? There are a lot of people that it’s their first time doing this or they don’t have a consistent way of doing email courses. You kind of get to bake in all the best practices you know from having done it for the last year and had significant success. Kind of a 37signals line having an opinionated product that delivers not just a pleasing UI and a nice experience, but also has like mini Nathan Barry whispering over your shoulder.

“The right way to do it. Here you’re going to do it like this. You’re going to put up a formula that looks like this and you’re going to schedule a course that looks like this.” You hit “go” and it will be magic. I really like everything about the product and the meta‑products around it, the strategy and where it fits in your business and in the business of your customers. On that note, just time check. We are passed the hour and a half mark, so we probably want to be wrapping it up in the next few.

Nathan:  Yeah, sounds good. Oh, I’d like to address validating the market for a product before you build it.

Patrick:  That could be a podcast in itself, but let’s definitely address it.

Nathan:  We’ll try to talk about it really quickly. Jason Cohen and a few others talk about if you can sell your idea and actually collect money from a handful of people before you build it, that’s really, really important. When I was trying to figure out what to build for ConvertKit, or what angle to take and if people wanted it, I went around and asked a bunch of people, “Is this a painful problem for you, with auto responders?” A lot of people said, “Yes.” You were actually the one person who said…I think what you said is, “You should build that software, but I would not buy it.” The reason is because you have all your own processes and that kind of thing. So, I went around and asked a bunch of people, “Is this a painful problem? Would you buy it?” Then I took it a step further and I asked, “How much would you pay for it?” And I got a number. Some people it was 50 dollars a month, some people it was…I think the highest number I got was 300 dollars a month.

Then I went further and said, “Would you pre‑order it? Would you pay for this before it was ready?” A lot of people said, “Yes,” with varying levels of certainty. There was two people that I was 100 percent certain would pre‑order it. The only problem is I didn’t have a way for them to pre‑order it right then. So what I did is I said, “OK, cool. Thanks for your time. I will check back with you in a few weeks, when I have a way for you to pre‑order it.”

I did that. I came back and the moment I came back and said, “OK, here’s a Gumroad checkout page. You can pre‑order it now.” That’s when I started to get real feedback. That’s when I started to get the, “Oh, well, it doesn’t have this feature.”

Patrick:  “It won’t actually integrate into my system. I don’t actually have enough time to start running a campaign tomorrow. I’m just not ready for this.”

Nathan:  Yep, exactly, and it was, “Well, it would be a lot of work to switch away from my existing tool.” I started to get real feedback and the people that I was dead certain would pre‑order, never did and they still don’t use the tool today. Luckily for me, a bunch of other people did pre‑order it and so I got validation from other sources. But just one of the most critical lessons that I learned this year is that you don’t get real feedback unless you ask for money.

Patrick:  Yep and you don’t even necessarily need to be able to physically take the money, but actually asking for it is important. One thing that Jason Cohen did, which I did before, my validation for the Appointment Reminder market. I went to the Gold Coast/Magnificent Mile area of Chicago, which is an area that I happen to know has lots of high end retail. At the time I thought Appointment Reminder would largely be sold to massage therapists and salons and things like that. They’re thick on the ground over there.

I took out $400 from an ATM and would just go in to every salon, every massage therapy practice, ask if the person behind the counter was the owner. If yes, ask if they accepted walk‑ins. If yes, say, “OK, I would like to get your 30‑minute service, but I don’t want to actually have the service. I’ll pay you for the 30 minutes and I just want to talk about the industry for a little bit because I’m interested in it.”

Then we would have discussions about what their scheduling practices were like and what sort of software they used. Most of them were on pen and paper. Did they do reminder calls? What was their no show rate? What percentage of their business was recurring appointments? Yadda yadda yadda.

At the end of this I would demo the two page demo application I had for Appointment Reminder and said, “This will be available eventually. Is it something you’re interested in to solve this no show problem that we’ve established that you’re having?”

If they said, “Yes,” I would literally ask, “Can I put you down for the first month of it at…?” I picked a number. For most of it was 30 bucks. The pricing still is today, on the low end.

A bunch of them said, “Yes” and then I would follow up with, “Can I get a check for it?” That can you get a check question changes the conversation quite a bit, like you’ve noticed.

By the way, when you’re doing pricing, pricing is generally not something you should ask customers for, in my experience. That’s something you should announce to them and get the up‑vote or down‑vote on it. I think you would’ve had better results if you had said, “It’s going to cost a hundred dollars. Is it worth at least a hundred dollars for you?” Rather than pick a number without any sort of anchor attached to it. Because…

Nathan:  Yeah, I think that’s true.

Patrick:  If you went in to my consulting clients and said, “What’s the value of a lead for you guys?” “Twenty thousand dollars.” “OK, it’s going to cost a thousand dollars. Assuming it generates a lead every month, is the thousand dollars worth it for you?” They’d be like, “Um…” Scratch, scratch, “Yes.” And you’d have a different pricing structure than you do currently and a few people paying you quite a bit of money. That’s neither here nor there, I still really love what you’ve done with the business.

Anyhow, well, I think we’ve covered a lot of ground and to avoid boring people with our voice anymore, I’ve kind of cut this short. But we should definitely do another one sometime.

Nathan:  Sounds good.

Patrick:  Alright.

Nathan:  It was a lot of fun.

Patrick:  Yep, thanks so much for sharing your insights with us, Nathan.

For the people who are in my ecosystem, but not in yours yet, the easy entry point for them is nathanbarry.com/launch. Then that will get them on your email list and get them all the wonderful goodness that you give people for free with the obligatory there might, eventually be a sales pitch in there. For the two people who are listening to this but are not on my email list yet, you should be on it: see training.kalzumeus.com. Alright folks, thanks very much for sticking with this podcast through our kind of inconsistent schedule and occasional technical glitches. We’ll be back in a few weeks, so thanks much and see you next time.

 

[Patrick notes:  Still reading?  I've been working this August (and soon to be September -- bah, I always underestimate timelines) on a new project, about conversion optimization for software companies.  As part of the project I've been teaching a brief email mini-course on the subject. People have told me they're getting the 10% increases in conversion rate we've been shooting for.  Click here to sign up.  Totally free, cancel any time, yadda yadda.  There will probably be a more commercial announcement in a few weeks.]

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

MP3 Download (~75 minutes, ~68MB) : Right-click here and click Save As.

Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.

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.

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