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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 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.)

Marketing Software, For People Who Would Rather Be Building It

One of my favorite conferences every year is Microconf , because it focuses on small software businesses, which is where my heart and soul is businesswise.  I know a lot of folks can’t justify a trip out to Vegas (though you should really come in 2014 if you possibly can — 2013 is only a few days from me posting this and already quite sold out), so I always ask Rob and Mike (the organizers) for a copy of my video so I can produce a transcript and put it online.  My 2012 talk focuses on building systems to achieve marketing objectives at a software company.  I’ve been successful at doing things at a variety of scales, from my own one-man software business to consulting clients with 8 figures a year of revenue.  A lot of the tactics covered are wildly actionable if you run a SaaS business.

[Patrick notes: As always, I include inline notes in my transcripts, called out like so.  If you'd like to see my 2011 talk, see here.  It focused on how to run a software business in 5 hours a week, including scalable marketing strategies like SEO/AdWords/etc.

Video & Slides (Transcript follows)

Transcript: Marketing, For People Who Would Rather Be Building Stuff

Patrick McKenzie:  Hideho everybody, my name is Patrick McKenzie, perhaps better known as "Patio11" on the Internet.

I sometimes get asked what I do, and I'm kind of confused at it myself. I was going to Town Hall recently to file my taxes, and I was across the street from Town Hall, the light was preventing me from getting across the street. By the way, I live in Japan. A guy comes up to me on a cycle, stops right next to me and says, "Psst!  日雇い労働ですか?" [Patrick notes:  I corrected the Japanese here with reference to a dictionary, but don't remember this as being his phrasing.]  My brain started to flip through all the possible things that could be, and a high probability for those characters, hiyatoi roudou is day labor, “Are you a day laborer?”

I was like, “Wow, there’s only one way I can answer that. ‘Yeah, but my rates are probably a little high for you.’”  [Patrick notes: Unstated background knowledge here: I live in Ogaki, where roughly 90% of foreigners -- who are rather scarce -- are blue collar Brazilian Japanese who largely work in electronics/car parts factories.  Unemployment among these folks has been rather high for the last couple of years, so if you were doing things purely on a statistical basis, "Day laborer" is a much less insane guess for a foreigner standing outside city hall than "Owner of a software company."]

[laughter]

If you were here last year, you heard the grand arc of my transition from really overworked Japanese salary man to totally‑not‑working‑all‑that‑much Bingo Card empire guy. It’s really not all that great shakes compared to some of the things that people have done up here, but it’s the little website that could. It has over 200,000 users and 6,056 paying customers.  [Patrick notes: Current counts as of posting are ~300,000 and 8,249.  The last twelve months have been pretty good.] I’m pretty happy with where it got me to, and just for a little update on this story for last year, if you weren’t here for last year, it’s on the blog somewhere.

I’m sure people will tweet out the link to that video if they’re very, very nice and kind to me. [Patrick notes: The Microconf 2011 writeup is here.] Just an update. The blue bars here are the 12 months before attending Microconf, and the red bars are the last 12 months, so after attending Microconf. Since my business is crazily seasonal, if the red bar is above the blue bar, I’m doing something right. As you can see, in the last six months, the red bar is routinely exceeding the blue bar, so I was doing something very right. The thing that I was doing was stopping working on Bingo Card Creator.

So my first actionable tip is, “If you have me in charge of your marketing,” like say Jason Cohen does, “you need to fire me, and your sales will go up by 50 percent.” We’re not going to talk too much about Bingo Card Creator today, we’re instead going to talk about systems. You heard earlier about building the flywheel, being a growth hacker. This is probably one of the most important things I’ve ever come across, but a job is a system that turns time into money, and a business is a system that turns systems into money.

I was once talking to a Japanese guy at a large automobile manufacturer in central Japan that you might know of, and I said, “T‑Corp is known in America as a company that makes cars, and Ford, or whatever, is a company that sells cars.” He patted me on the head like, “Oh, nice. Silly American. Ford might well be a company that sells cars, but T‑Corp is a company that builds organizations that builds cars.”

Why Engineers Get A Cheat Code For Starting Businesses

I thought that was a very profound distinction. All of us are in the business of building things that help us sell things that we build. I think we are ideally situated to this, because, as engineers, we build systems. You heard earlier about the term “growth hack,” which is just on the cusp of becoming a meme, by the way. You’re going to hear a lot about that over the next coming days, because there are huge platforms these days, everything from Pinterest to Twitter, to Google, to the App Store, that give you ready access to hundreds of millions of users, billions of users, many of whom have credit cards and will actually pay money for things.  [Patrick notes: I'm stealing this from 500 Startups' investment thesis, but I think it is equally applicable regardless of whether one is doing a high-growth startup or a one-man bootstrapped software company.  Again, the most niche app you could think of, run by an unknown guy living in Central Japan, just added 100,000 users last year while in maintenance mode due to effective use of Google as a platform.]

As engineers, we have the capability of exploiting those platforms in a scalable manner. Some of the ways to do it I talked about last year, and I don’t want to give all old content, so if you want to hear about SEO, which is the main reason my sales went up for this year, just watch the thing from last year. [Patrick notes: Or you can read my copious writeups of it in the Greatest Hits section under SEO or Content Creation.] We’re going to talk about new stuff. Oh, totally stealing a slide from last year. In addition to Bingo Card Creator, there were three really big things going on, and I just want to give you updates on them.

The most important one, down in the bottom there. Last year I said something out of school, it wasn’t planned for the talk or anything, it just slipped out of my mouth. I said, “The most important thing in my life right now is I’ve recently met a beautiful young lady, Miss Ruriko Shimada over there, and she is going to be the future Mrs. McKenzie.” That was the first time that thought ever got verbalized, even in the deepest recesses of my mind, so luckily it was not simulcast or anything. That’s official now, it’s happening June 26.  [Patrick notes: Ruriko's only comment on the presentation was "The 23rd, dear.  Be there."]

[applause]

Thanks very much. I don’t have a picture of kids, for obvious reasons, but can I just make a note about this? Everyone has shown a picture of their children or significant other. At a less charitable conference, people might be, “Oh, that’s the boring stuff, skip that, get to the good stuff.” All those other pictures, that is the good stuff. There’s a word in Japanese called mono no aware (もののあわれ), meaning “an awareness of the impermanence of things.” All this conversion rates and equity grants and profits and all this… Vegas?

[laughter]

This will all be dust and memories. The important part of our lives is our families, our friends, that is what we will be known for. If you have a successful business, and your family isn’t feeling it, something is going terribly, terribly wrong. I can’t just stand up in here and say, “My fiancee is the nicest, smartest, most wonderful, beautiful woman in the world,” for the entire hour.

[laughter]

#include <platitudes.h>… wait, the word I wanted is not platitudes, it’s compliments, drats. I don’t speak the Engrish. Anyhow, updates on other things that are going on. I got a slide up from Fog Creek, which was one of my favorite clients I can publicly talk about, but I don’t really have much content in this presentation about running a high‑priced consulting business. Is that something you guys are interested in? Let’s have a show of hands.

I’m a marketing guy, so let me give you the quick elevator pitch, and if you want to hear about this, we can talk about it at the question‑and‑answer session. Is it interesting to you how I turned down $700,000 a year to do conversion optimization for big software companies? Just raise a show of hands. Would that be fun? Oh, OK. We might talk about that before questions. We’re going to talk a little about “Appointment Reminder” stuff that I learned the second time I tried to make a software business from the ground up, and how you can apply it to your businesses.

This is my new thing, which is, by the way, in almost direct competition to somebody who was in the first session of tear‑downs. You might compare and contrast to the way I do it and the way he does it. I actually went up to him afterwards and tried to teach him what I know about this, because people helping people is what this event is all about. We all get better, even if we’re competitors, sharing knowledge. Anyhow, it makes “Appointment Reminder”, phone calls, text messages and email messages to the clients of professional services businesses.

Don’t Make My Mistakes In Picking A Software Business

This is a wee bit more sophisticated than my bingo thingy. Why did I pick this problem? This is the slide in which I give bad advice. The way you should actually pick a problem, skip back to your notes from Amy Hoy’s presentation. That’s the way you should pick a problem. This is not the way you should pick a problem, but it’s true, so I’ll tell you it anyhow. You see this jacket that I wear in all of my presentations, because the color red looks good on me, and I love this company, Twilio?

Twilio came out with this product that let Web developers basically script up phone calls and SMS messages. I thought, “Ooh, that’s kind of awesome.” I like to view the market, “The market” in the sense of the broad, capital‑C Capitalism sense of the market, as a placid lake, which incorporates everything we know about the world right now. When new information gets added to that, it’s like dropping a rock in the lake. Ripples in the lake are change, and the larger the ripple is, the more change there is, the more possibility there is to get outsized profits over the course of the world right now.

Because we learned from microeconomics 101, the natural state of profits in the system is zero. The steady state. Twilio was dropping a big F‑ing rock into the software world, because you can finally interface with the plain old telephone system without having to understand what an Asterix server is, and if anyone here has ever tried to hack Asterix, I’m sorry for you. What could I do with a telephone that I couldn’t do before? I made a list of 400 ideas and just sat on it, because I was still at the day job at the time. Since I spend 16 hours a day in front of a computer screen, my shoulders ache like crazy, so I sometimes go to massage therapists.

This one day I went into a massage therapist, and asked, “Hey, can I get a shoulder massage, because I’m an engineer, my shoulder aches like crazy.” She said, “It’s going to be about two hours,” and I’m like, “Oh, well I’m gainfully unemployed, so that’s no problem. I’ll just take my iPad, browse Hacker News in the corner here for a little while, then we’ll get the massage when you can do it.”

15 minutes later, she comes back to me and said, “Hey, I know I told you it would take two hours, but it would be really, really helpful for me if I could massage your shoulders right now.” I said, “Sure, no problem, can I ask why?” She said, “I had this slot booked up with somebody else, but he didn’t come in, and now he’s 15 minutes late. If I don’t start massaging your shoulders now, that’s going to throw off the schedule for the rest of the day, and I’ll never get the revenue from these next 45 minutes back.”

I’m like, “That’s interesting. Why don’t you call him?” Notable and quotable line from her, she says, “I’m a massage therapist. If my hands are on a telephone, they’re not on someone’s back, and if my hands aren’t on someone’s back, I’m not making money,” and I thought, “That’s interesting.” I asked, “If I had a system that could call someone automatically before their appointment with you, would that be motivational to you?” and she said, “Yeah.” I went through my list of 400 things, and thought, “This is the first one I’ve had an actual customer need for.”

How did I know it would sell, though? That’s one person. I did two things. One thing I did was just whipped up the MVP, Minimum Viable Product, read Eric Ries’s book “The Lean Startup.” Everyone should read that book, it’s amazing. I whipped up the MVP, which is a website, you can get to it, I’ll show you the link later. You give in your phone number, and it calls you, just like you had an appointment, and says, “Hey, you’ve got an appointment. Click ‘One’ to confirm.”

If you confirm it shows right on the schedule here, “This person confirmed.” If you cancel, it says, “This person canceled.” We would email you right now so you can re‑book the slot and save the money. I just threw this up on the Internet, and waited. People signed up for my pre‑launch list, and said, “That is exactly what my problem is.” The other way I did, was I went home to Chicago, which is where my family is from, and took out $400 from an ATM, and walked around downtown Chicago and looked for salons and other massage therapists, that sort of thing.

I walked in and said, “Hey, do you take walk‑ins?” “Yeah.” “Are you free right now?” “Yeah.” “Are you the business owner?” “Yeah.” “OK, I’ve got a weird proposition for you,” and no, not that kind of weird.

[laughter]

“What’s the rate on a 30‑minute shoulder massage?” She would tell me. It’s almost always a she. I would say, “OK, I’m going to pay you the rate for a 30‑minute shoulder massage, but what I’m really interested in, I’m a small businessman, I live in Japan, I’m interested in the business of massage therapy. How about we just skip to that post‑massage cup of tea that you’re going to offer me,” I have learned this over the years. “Skip to the cup of tea, I’m going to pick your brains about how you run your business, and then I’ll go, no massage needed, and you get your money?” Almost everybody took me up on that, and nobody called the police. Yay.

[laughter]

I would ask questions, like, “What do you use for your appointment scheduling right now?” “Pen and paper version 1.0.” “How many people cancel?” “Lots.” “Do you not like when people cancel?” “Yes.” “Do you phone call people every day?” “Well, yeah, I kind of do, but I sometimes forget,” yadda yadda yadda.

Then the money question. “If I had something that I could show you right now that would call, would you pay for it?” “Yes.” “Would you pay $30 a month for it, because $30 a month is close to your rate for just saving one appointment?” “Yes.” “Can I get your email address right now? As soon as this is ready, I’m going to come back to you and say, ‘It’s ready. Let’s get that $30 a month,’” and I just collected those.

I actually didn’t end up selling any one of those people, but the need was clearly demonstrated to me there. I’ve got a better way for doing it these days, because as I mentioned, I am in the talking‑to‑people‑about‑wedding‑things, and I’m learning stuff about selling wedding dresses, because I am the unwitting victim of that. There’s this thing called the iPad, and every salesman at a wedding venue or a wedding dress shop, or whatever, in Japan, is using the iPad. I predict within five years, that every salesman in the entire world will consider that their key sales tool.

The reason is, when you have a sales discussion with someone with the iPad, you’re sitting next to them, standing next to them, hunched over the shoulder in a very intimate, psychologically‑reassuring way, while they drive the iPad and flip through. “Oh, that’s a lovely dress. Oh, that’s lovely, I really like that one.” “You like that one? I’ll show you more like that.” When they get confused, you can just take over for them, do the little slide‑y slide‑y thing, and it is a very, very persuasive technique.

If you don’t know whether a software will sell or not, go to WooThemes, or go to ThemeForest, pay $15 or $70, or whatever it is, mock up three screens from it, or even mock up two screens plus the final output. Put them in a photo gallery on your iPad, and take it directly to people in real life. Stand out and then listen over the shoulder, it’s like, “Do you really have a wedding dress problem? We got these.” If you’re solving a problem people actually have, they will say at this point, “Shut up and take my money.”

[laughter]

If someone says, “That’s kind of interesting, tell me when that exists,” you have not successfully identified a problem that people actually have. Fail to identify problems prior to spending six months of your life building the solution to those problems that no actual human being, aside from you, actually experiences in their life. You will have much better success that way. Brief interlude on pricing. This was brought up in a few things, and we treated it at a high level, so I thought I would dig into the nuts and bolts, considering many of you are in the software‑as‑a‑service business.

How To Read A SaaS Pricing Grid (And Why You Should Charge More)

I thought I’d read a pricing grid. This one’s from Wufoo. You have seen similar things all over the Internets. I can’t tell you about exact results I’ve gotten from customers, but I talk to a lot of people about this sort of things, so if we’re just kind of anonymizing, here’s how you read it. Find the largest dollar‑amount plan. That plan generates 33 percent to 50 percent of gross revenue. Why? Because it’s sold to people who are not spending their own money, they’re spending a corporate budget. Spending your own money hurts, but spending a corporate budget is kind of the happy thing for a lot of people.

[laughter]

Because, check this out, if you don’t spend your budget, it gets taken away from you. If you’re trying to protect your home position at a company, you want to spend as close to the top of that budget as possible, so help people out. They’re trying to protect their status and job security, by helping them spend their budgets. $200 a month is nothing to a company that has actual employees. The cheapest possible fully‑loaded cost for a college graduate is about $4,000 a month.

$200 a month is five percent of that, so if you’re only spending one or two hours of employee time a month, $200 is a total no‑brainer. So’s $250. Anyhow, the one that has the most users. Nobody likes to be a cheapskate, boom, it’s this one. The one that has the highest support costs. Wufoo has a free plan, I’ll guarantee you they get more annoying emails from people on the free plan than anything else put together, probably squared.

[laughter]

The worst customers, I call them pathological customers, are attracted to things that don’t have a lot of money. It’s amazing how many people have told me this. You raise prices, and you deal with less crazy people. At 99 cents, people have very unreasonable expectations. “What? This flashlight app didn’t do my taxes! One stars!”

[laughter]

When you’re charging people tens of thousands of dollars a month for an enterprise‑level service, they say, “Hey, our business really needs this feature.” “Oh, thanks for the email. I would really love to implement that feature, but we are kind of constrained on time right now. Can I get back to you in the indefinite future, if we get time to do that?” You’ll get a one‑line email back, “Sure, that sounds great.”

Would you rather deal with the no stress and get the tens of thousands of dollars, or “One stars!” for 99 cents? It’s almost self‑explanatory. By the way, I’ve sold a semi‑B2C product for most of my life. I really do love teachers, even when they’re kind of exasperating, and can’t tell the difference between the blue Googles and the green Googles, and don’t understand why they can’t get a CD of the Internet. It actually happened to me today.

[laughter]

In terms of, if I had known then what I know now, I would never go into B2C. Charge businesses, charge them a price appropriate to the value you’re providing. By the way, big surprise about software‑as‑a‑service companies, almost every one has enterprise pricing available. Some of them don’t put it on your things, but I guarantee you there’s a way to go up to Wufoo, go up to almost any software‑as‑a‑service company, and pay arbitrary amounts of money for their product. For example, if you have a $500,000 budget, and you talk to somebody at Wufoo, I will guarantee you that they will find an option to spend $500,000.

Maybe it’s we send a trainer and teach everyone how to use their drag and drop form‑building interface, and then the cost of the trainer’s time is $500 an hour, and the business will say, “Oh sure, yeah, whatever.” By the way, you need to purchase a service level agreement with them, and the service level agreement runs $20,000 a month, and there are businesses that will happily pay that.

Software‑as‑a‑service economics 101, why do you want to charge closer to the top of these pricing points, instead of the bottom of the pricing points? Because you have to get a lot less customers to generate the revenue that you want, to either replace the day job, or to meet whatever your own personal goal is. How do you segment plans? First, align it with customer success.

Getting based‑on features can work, but if there’s a numeric thing that allows you to discriminate between customer classes, such that the more value they get out of the product, the more X number that they need, segment primarily based on that X number.

It doesn’t have to be linear segmentation, because the ability of Fortune 500 companies to pay is not linear, with respect to the size of the company. A 1,000 person company is not the same as collecting 1,000 one‑man companies and putting them all in a room together. They have orders of magnitude more money, so you should probably be charging them orders of magnitude more money.

“Names matter.” Back in my time as a Japanese salary man, I was given a project to run by my boss, and I was trying to buy, I think, “Crazy Egg” for it. I did the projection, I wrote up the proposal for my boss, and said, “By the way, we need the $9.99 hobbyist Crazy Egg plan, and could you please approve the purchase for that?”

Boss takes my printed out proposal for the project, looks down at “Hobbyist,” goes over to crazyegg.com, strikes it out in red, writes “Enterprise,” picks the top plan, which was $250 or $500 or something a month at the time, something like a quarter of my salary, and says, “OK, here’s the new proposal. Sign off on it, and then I’ll sign to my boss.”

I said, “Boss, boss, we don’t need the enterprise plan, our projected traffic is clearly under the hobbyist plan.” He says, “F if I’m going to tell my boss that I want a reimbursement request for the hobbyist plan, so we are under the enterprise plan.” I was like, “Can I get the enterprise salary?”

[laughter]

That did not work out so well. That’s why I no longer work there. Anyhow, feature segmentation can work, particularly if you have features where there’s a hard requirement among some customers, that they must have a particular feature. That segments people into, “Has a little money” vs. “Has a lot of money.”

For example, healthcare in the United States has more money than God, and something that a lot of healthcare customers are going to be very particular about is, “Is this HIPAA‑compliant?” Talk to me later if you want the full story on that one, but the magic words, “Is this HIPAA‑compliant?” means you can charge them as much money as you want.  [Patrick notes: The one-sentence explanation: Healthcare providers in the US are obligated to follow the Health Information Privacy and Availability Act to safeguard patient health information, which imposes some technical and process safeguards on anyone who handles most data for them.]

By the way, you can have a system where all accounts are actually HIPAA‑compliant, but you only tell people that the most expensive plan is HIPAA‑compliant. Because they’re not actually caring about HIPAA‑compliance, they’re caring about being able to sign off on the fact of HIPAA‑compliance. If you simply refuse to sign off on that fact for anything that costs less than $1,000 a month, all of your healthcare clients are going to go for the $1,000 a month plan. Which is, by the way, nothing in healthcare.

The Most Important Pricing Advice Ever: Charge.  More.

Charge more, charge more, charge more, charge more, charge more. Anyone have a question about pricing? You should charge more. You’re probably ridiculously underpricing. $4,000 a month is the cost of the cheapest possible employee, you are less than a tenth of that. You are probably creating a lot more value than many employees in the organization, so charge for the value you are creating.

I was doing tear‑downs earlier. Here’s what I put up for my pricing grid about a year ago, and since I haven’t had all that much time to work on “Appointment Reminder,” I made a lot of mistakes. I haven’t fixed them yet, so I’m going to tear‑downs some of my own pricing grid.  [Patrick notes: Compare and contrast this slide with the current version.]

I have a $9 a month plan.  That was a mistake. I actually have a lot of customers on the $9 a month plan. They account for about 80 percent of my customer support requests, and approximately 95 percent of my headaches, and they pay me approximately nothing, and don’t stick with the service for very long.  [Patrick notes: When I did the math recently, customers on the Personal ($9) plan had a churn rate which was literally double that of the Professional ($29) plan, meaning a single signup on Professional was worth more than 6 Personal signups.]

I have an enterprise plan that’s coming soon, any day now, a year later.  [Patrick notes: Appointment Reminder closed its first Enterprise account a few weeks after Microconf.  If you want to hear about this topic in a lot of detail, I talked about it at a presentation for Twilio several months later -- I'll post it in a week or two.]  There’s actually a plan that isn’t even on here. It’s $200 a month, I call it “Small Business 2,” because I’m very creative like that. It’s just small business, and I bumped this number up a little. Small Business 2, plus Small Business, create over half my revenues that are based on this plan. Oh, quick update on “Appointment Reminder,” it quadrupled in a year without me doing much work on it at all. Thanks. End story, just make systems that really help. A tactic you should all probably steal.

The Tactic All The Savviest Software Companies Use: Automated Marketing Email

Can you raise your hands, everybody? Just get a little stretching. Put your hands down if you have not emailed a lot of customers all at once this month. If you look around the room and you’re looking for speakers, you will find almost all of the speakers still have their hands up, and this is one of the things that consistently segregates the really savvy people from people who are not quite at that level of savviness yet, so of course I didn’t really seriously start collecting emails for six years.

This guy Ramit Sethi, one of the smartest people on the Internet in terms of marketing, he says “The one d’oh moment is that I was not building up an email list.” You heard earlier about an email list is creating your own recurring stream of earned media, because they are people who want to hear what you have to say. They trust you on a subject, and they are begging you to sell them on your solution, so you should be getting those emails. Let’s talk about how.

Why does email rock? Some people, because we’re all techies, might say, “If I want to get in touch with someone about a new blog post that I wrote, there’s RSS feeds for that, right?” Email is like RSS, except better in every possible way. Email is actually read. RSS is not read. Quick show of hands, who here is over 10,000 unread items in their Google Reader?  [Patrick notes: Dramatically less people than when I delivered this talk, I would expect. </rimshot>] I rest my case.

Email is actually read by real people too, and by “real people,” I mean folks who don’t come to conferences like this, and who have authority to sign off on $500 a month purchases without breaking a single sweat.

Email is a necessary time, whereas RSS reading is, “I don’t have anything important to do today. If I don’t have anything important to do I might read some RSS stuff,” whereas emails, if you’re an information worker like all of us, email is your job. You live in your inbox. Many, many things in the inbox get read, particularly when they sound interesting.

The psychology of email is really important. If I put a diamond in a trash store, you’re probably going to think that diamond is not worth so much. Think of the things that will be around your message in somebody’s inbox. It will be a lot of important work. If that’s all important, your message is probably important as well. Think of the things that are probably going to be around your blog post or content in someone’s RSS feed, or someone’s bookmark manager.

It’s probably going to be a lot of commoditized Internet dreck that they’re going to get to the first day after never. [Patrick notes: The following is a little brusque for my typical humor, but was an in-joke for attendees of Microconf from the previous year, where Hiten Shah and I had done live analysis of websites of several attendees.  One had a bookmark manager system with a bovine theme.] If you do free association for, say, “What’s the spirit animal of email?” It’s Thunderbird. It’s fast, it’s powerful, it does important shit. If you do free association with, “What’s an animal we can associate with bookmark systems?” What would it be, a cow? It’s fat, it’s stupid… it shits.

[laughter]

Do email instead. When I say “do email,” what do I mean? Really simple. Collect their email addresses, educate them over the email, and then sell them stuff. Let’s go into detail on that. For a successful landing page, you really only need a few things. Just ask for the minimum possible information from them.

Probably their email address and their name, because everyone likes hearing their name, and you should probably put it in subject lines, because that’ll increase open rates on your emails quite a bit. Give them a nice, attractive button that promises value, not pain. Get something cool. Does anyone here run a website for sadomasochists?

[laughter]

There are no hands up in the room, which means that nobody should have “Submit” as the text on their email button.  [Patrick notes: I use this line because it is punchy and inevitably gets a laugh, but seriously, you can pick up totally free double digit improvements by switching to [Get My Free Guide] or similar benefits-focused copy.  Try it in an A/B test if you don’t believe me.]

[laughter]

Minimize distractions on that page. You generally don’t want to be collecting email from your home page. Why? Because your home page has to serve many masters. You’re probably trying to get people into the trial, get them into the pricing grid. You should generally be collecting email on dedicated landing pages. What will you have on your dedicated landing pages? A sweetener. Because people don’t really care about you, they care about themselves, so tell them that giving you their email will accomplish something for them. Let’s go into ways to do that.

The simplest possible way to get permission from someone to send them email is when they’re signing up for the trial, say, “Hey! In addition to that trial, can I send you email?” Just takes adding one box. Downside, it’s going to minorly decrease your conversion rate to a free trial. Upside, you’ll get crazy conversion rates on this. By the way, who here hates email, and thinks, “Man, I hate getting email. I would never click on ‘Yes, I want to get email from you.’” Yeah, hands up. Real people don’t hate email. Some people like email a lot.

I have a newsletter that goes out to the bingo card people, and it goes out about monthly. I sent it out for October and said, “Hey, Halloween bingo cards! You make them by going to Bingo Card Creator and typing about Halloween stuff!” Then the November email is, predictably, Thanksgiving bingo cards. “You make them by going to Bingo Card Creator and typing about Thanksgiving stuff.”

I didn’t hit the “Send” button on the November email, because I just got busy that month. I got three messages from teachers in America, all of them saying, “Hey, I didn’t get the email from you in November. I must have missed it or something, or it got eaten by the Googles.”

[laughter]

“Can you please send me the email for November?” I wrote back, and I said, “There just wasn’t an email for November, because I got busy, but it was just going to be about Thanksgiving stuff.” They’re like, “That’s sad! I want to read about the Thanksgiving stuff?” Whoa! Missed opportunity. A better way to do things than collecting emails with your trials is to create some specific incentive. For example, Ruben from Bidsketch uses beautifully designed templates of proposals, and says, “OK, I will give you a beautifully designed template of your proposal.

You can turn around and make this into money, and all you need to do for that is to give me your email address, so I can email you a link to it.” Works very, very well. You can see incredibly high conversion rates to this, and the people who convert to, “I care enough about beautifully designed templates to give an email address, just to get a link for a download link for them” are not the kind of folks who hang out in Hacker News like it’s their job. It’s the people who really care about this. They make really great prospects for selling to. Third way…

Male audience member:  [Paraphrased] That doesn’t mention that he’s going to send you an email, though.  Isn’t that a no-no, permission marketing wise?

Patrick:  I think it actually does, I just cut it off with the screen grab.

Male audience member:  OK.

Patrick:  A different way, and this has vastly higher development costs, but you should consider doing it. Make a one‑off tool, gate access to the one‑off tool based on giving your email address. For example, WP Engine does this kind of well. [Patrick notes: See here.  Disclaimer: client.] They have a tool that will tell you if your website is slow, and it takes a few seconds to run and whatnot, so rather than just doing Ajax refresh, they’ll say, “Hey, we’ll send you a link to your report when it’s ready,” and they give you a little option there. “Hey, in addition to hearing whether if my website is slow, I’d also like to hear a one‑month course about how to fix that, and make it more scalable, make it more secure, and whatnot.” Get Jason drunk later, and ask if this works or not. This sort of thing can provide very focused, valuable leads for you, and it’s like a great transition moment into the first couple of emails from you. Let’s talk about that.

There’s a cycle here, of how sales‑y you get. Someone’s coming off the Internet, they don’t trust you, they don’t know you from Adam. For your first couple of emails over the course of a month, and you might send six emails or eight emails over the course of the month, depending on how much of a high‑touch complex sales process your service requires. For the first couple of emails you focus on trust building and education, and that’s it.

If you were just talking about someone’s website is slow, say, “Hey, thanks for signing up for the WP Engine one‑month course on improving your WordPress site. Here’s three ways you can make your website faster.” Very focused on value for the customer. Minimal, if any, sales content for WP Engine.

Then, over time, as you have built up credibility with the customer over three emails, they’ve seen your name in their inbox, they’re starting to associate it with your problem domain, and they’re getting value out of it, you start getting a little more sales‑y, and you push up that sales‑y to the maximum point. Then if they don’t buy it by the maximum point, they’re probably not ready for your offering. Back down a little bit, go more on the education again, and then try it again, but sell a different product offering. For example, a different plan.

I just threw up a random thing here for a template for an email that educates someone about something. It’s not really rocket science, it’s the three‑paragraph hamburger essay that you all learned to write in sixth grade. I hesitate to say this, but don’t be afraid of dumbing it down too much. You all live in your problem domain many, many hours a day, for months, weeks at a time.

Most of your customers are not super‑awesome ninja rock star experts at your problem domain, so teach them the basic stuff, because most people in your problem domain are beginners or intermediate, not super experts. Feel free to share of your knowledge, and answer basic questions that they have, and then at the end, just say, “Hey, do you have a question about this? Send me an email. I read all of them.”

Almost none of you have less than hundreds of thousands of customers, would feel any burden from getting email back from this, because most people think, “Oh, he doesn’t really mean that.” In fact, you will get emails saying, “Do you actually read this?” and then you fire back, “Yes! Signed, CEO.” I guarantee you if they have money, you’ve just got a customer for life. Even if you have hundreds of thousands of customers, like this for “Bingo Card Creator,” the email load is manageable, and you can give options for more and more things to do to convert.

When you’re getting into sales‑y hump on the graph, what do you do? First, you eliminate all decision making that they need to do, aside from, “Do I accept the offer, or no?” which means, if you have four plans, you don’t say, “OK, go to the pricing page and pick which of the four plans is worth it for you.” No, give them a recommendation.

Say, “Most of our customers find that this is the best value, you should buy this. Here’s the reasons why you should buy this. It will solve your problems, it will solve your problems, it will solve your problems, your life will get better, your problem’s solved. You, you, you, you, you, you, you, you.” Offer them a time‑limited bonus. “Yeah, you could have gotten to that pricing page at any time over the last 365 days, but if you take me up on this offer in the next seven days, I will give you something cool.”

It’s up to you what that something cool can be. For many of you, assistance directly from the CEO in integration is a really compelling offer, because wow, you can’t get that anywhere else. Wow, their perceived value for that is very high, and it immediately addresses one of the objections that they have for using your software. It’s like, “Oh god, I have to integrate that. I have to copy‑paste scripts into my web page.”

We’ll do the copy‑pasting for you, and thereby earn your loyalty for the next several years, and several thousand dollars of customer lifetime value, and it will actually be done by a freelancer that we’ve hired and told them how to FTP stuff. I think I stole that one from Rob, works pretty well. Pre‑answer all of their objections in the email, and on any page that you link them to. This is what we were talking about earlier in the tear‑downs.

When you’re talking to customers, you’re hearing their objections, “The price is too high.” Find the customer testimonial that says, “Oh yeah, I winced, but man, it’s so worth it,” and put that right on the page about answering the pricing objection with, “OK, here’s how you calculate the value for this. It’s a screamingly good deal for you. It will save you hundreds of hours of employee time, for only tens of thousands of dollars.” How do you learn about writing email and copy‑writing better? I suggest signing up for a lot of email and getting it from people, because they will convince you to buy all sorts of stuff.

Seriously, Ramit Sethi, did a call out to him earlier, he is a genius at this. He’s a friend of mine, I know he sells info courses for a living, and I’ve never bought an info course on anything. I was reading his email, I sent him an email at the end of it, because he says, “I respond to all of my emails.” I’m like, “Hey, Ramit, this is Patrick. I would crawl over broken glass right now to hand you my credit card. Wow.” Seriously, get his emails. They’re good stuff.

In addition to teaching you how to write email better, they are genuinely worth your time if you’re concerned with increasing your career and/or freelancing business. The Motley Fool does investment advice. It’s bad investment advice, but they sell it really, really well. For any sort of scummy market, like online nursing degrees or anything, people who are paying $100 plus just to get an email for that, probably know what they’re doing or they would be bankrupt already. See what works and use your powers for good, not evil.

Improving The First Run Experience Of Your Software

[Patrick notes: If you'd like to hear me talk about this in a lot more detail, go to training.kalzumeus.com and give me your email address.  I'll give you a 45 minute deep dive into this topic, totally free.]

More specific to software people, let’s talk about the first‑run experience of your software. Hands up, who here knows how many people come back to using their software after the first time, like that is something we check? OK, there’s a few hands going up here. Almost everyone should check that.

For those of you who aren’t checking it, I’m just going to tell you the numbers right now. It is between 40 and 60 percent of people come back after using it the first time. Which, subtract from 100, 60 to 40 percent of people never use the software a second time, because they did not perceive much value in the first‑time use of your software.

They got bored of it after 10 seconds, or within five minutes, so you should make that first five minutes of the software F‑ing sing. It is the most important five minutes in your lifetime, because every subsequent use of the software is gated based on surviving that first five minutes that most of your users are not surviving right now.

Can you just show your software here? Who here thinks that this is a fun first five minutes for software? Microsoft can get away with this, because your first five minutes with using Microsoft Word were probably in 1992, and you had to do it to pass a class, and Microsoft is Microsoft, and you absolutely have to use this if you want to work in the information economy, but it’s kinda sucky.

There’s just so many options here, it starts you with a blank screen, and you have no clue. If this was a free trial product, what do I do to get value out of Microsoft Word, to make the decision on the go or no‑go for buying this? Microsoft, that isn’t really a problem, because you’ve already bought this if you’re seeing this screen. If this reminds you of your software at all, if you drop people into a blank screen, that is a huge failure mode. You’re going to fix that. How?

You script their first five minutes like it is the invasion of Normandy. “You are going to do this, and then you are going to do this, and then you are going to do this, and then you are going to do this, and then you are going to be F‑ing happy.” Can I give you a great example of that? Who here has played “World of Warcraft?” OK, a few hands. Who here managed a raid guild in “World of Warcraft” for a few years? OK.

The first five minutes of “World of Warcraft” is literally, you talk to this guy, there’s a big exclamation point on his head, and it says, “Right click the guy with the big exclamation point.” You right click him, and he says, “You need to save the world from a wolf. There’s a wolf behind you, you can kill it with Z. Z! Z! Z! Z! Z! Z! Z!” So you Z, Z, Z, Z, Z, you kill the wolf, you go back to the guy, he’s got another big exclamation point, you right‑click, because you’ve learned that that works in the world.

He says, “Great job! Save the world, there’s 10 wolves, kill them! You get Z and X this time. ZX! ZX! ZX!” So you ZX, ZX, ZX, and you have a feedback loop where it’s both teaching you on how to use the software, and you feel like, “Yeah, I’m the powerful level one gnome mage that’s has got to spend the next 3,000 hours of my life playing this game,” but it’s a great, awesome experience for you.

At the end of five minutes, you’ve accomplished something, and you’ve learned how to use the software. All of your software should be that addicting. Sign up for the free trial of “World of Warcraft,” play the first five minutes, then stop!

[laughter]

You measure their activity, then you use A/B testing, like we talked about last year to change their activity. This is where the growth hacking comes in, and making sure the designing of their first user experience with the software is actually motivational. Here’s the, “If you’re going to do this, then you’re going to do this, then you’re going to do this, then you’re going to do this” funnel for “Bingo Card Creator,” instrumented out in KISSmetrics, which is, by the way, the way I would go if I had any budget at all to spend on it.

I don’t know what I spend on it, it’s probably like $150 a month, or, you know, nothing. [Patrick notes: I literally was unsure of this until I checked with my bookkeeping software a moment ago.  It was indeed $149.  Relevantly to other SaaS businesses: what does this suggest about the resistance to spending any figure between $50 and $500 at my business?  Right, I don't care in the slightest. So charge me closer to $500 than you do to $50.  If you provided as much value as KissMetrics does I'd pay without a second thought.] You can write arbitrary code to do something like this, and just throw it into a file if you need to. You can see here where people are falling out of the funnel, if you’re into Bingo Cards, like that’s your life, and you can try things to get them to actually work.

I don’t really have enough time to talk about what really worked here, but the punchline here is that a particular intervention increases the amount of people who successfully get through to printing a bingo card with “Bingo Card Creator” by 10 percent. From 60 percent to 70 percent, which is really powerful for me.

If you read my blog, I’ve blogged about what exactly this was. It actually didn’t increase sales, weirdly enough, but similar things that I did with only two hours of work increased sales by 16 percent for two hours of work, durably. About tens of thousands of dollars for two hours of work, very motivational, you should probably do it. You fix the weak spots in the funnel that you’ve identified, once you have the funnel‑analytics in.

Here’s just some examples of things that work for Bingo Card Creator. Probably not too motivational for you, but they paid for my wedding, so motivational to me. Dan gave a great example earlier in the Growth Hacking talk [Patrick notes: Dan Martell's talk is available here], about people that have just signed up, and they can tweet something, but they weren’t really planning on tweeting something, and they don’t know what to tweet so they don’t tweet, and then they go away and never use the app again.

You say, “Hey, you should tweet something right now. Let me give you 10 suggestions. Pick which one you like.” From six percent of the people went through and actually tweeted something, to 70‑plus percent of people tweeted something, which is a huge, epic win in activation. “Activations” means happy use of the software. I guarantee you if you haven’t optimized this at all, you can achieve extraordinary gains in activation for not all that much work.

The thing that worked for Appointment Reminder was implementing a tour mode. What’s a tour mode? Appointment Reminder has sub‑optimal things about the way the market uses it, in terms of getting people through their 30 day free trial. I actually collect credit card at the start, and then they get 30 days to decide whether they want to cancel or not. The problem is that people typically make their appointments for the customers well in advance.

By the time the 30‑day mark rolls around, Appointment Reminder might not have actually reminded a single customer about appointments, because they were scheduled that far in advance, so that’s sucky. They get to the last day, they get to the email, it’s like, “Hey, we’re charging your credit card in 24 hours. If you don’t want that, cancel.” They think, “Oh, this hasn’t really done anything for me, cancel.”

Rather than making it take six weeks for them to perceive value from Appointment Reminder, and to have people come in to their massage therapy practice, or whatever their business is, I wanted to expose that value to them in the first five minutes. So I dragged them by the nose through using the software. Instead of calling their customer, I made a special little mode that would call them instead, and say, “Hey, this is your fake appointment reminder. If you actually had an appointment, it would be five minutes from now. Click ’1′ to confirm it.”

Bing, they click ’1′. “Great. That’s the experience your customer gets, now let me show you how to do that generally.” It walks them through this crazy, obtuse interface, because I’m not an interface designer. Says, “Yeah, put in (555) 555-5555 for one of the clients, and we’ll schedule an appointment for them.

It walks through every step of the work flow, and tells them, “OK, and this is where someone might actually cancel your appointment. Normally that sucks, but we’re going to send you an email, and that’s going to make you money. Isn’t that great? You’re having fun now.” Tell people they’re having fun now. That’s a big secret in Vegas. I bet there’s people running around in skimpy dresses with a lot of alcohol in their hands, trying to tell you all the time, “Hey, you’re having fun! Hey, you’re having fun! Hey, you’re having fun!”

Because if you tell people they are having fun and getting value from the software, they will tend to believe you. Create value, but also tell them that you are creating that value. If there is a social or viral component in your software, if you tweet about using the software, if you invite your friends, if there’s some sort of friends‑list management, first you should probably pre‑populate that friends list using anything that you can possibly do, because people hate managing friends lists.

Make sure that that goes in in the first five minutes, because it will greatly increase your viral factor, and that literally makes or breaks businesses. Zynga obsesses about this. Not a win for the world. Dropbox obsesses about this, that was a win for the world. If, on the other hand, your software requires a lot of data entry, like you’re mocking up things, or creating documents, or making bingo cards for people, figure out a way to eliminate the data entry as a prerequisite for actually getting the fun use of the software.

Maybe give them sample templates that they can use, or just put in fake data, and give them a “Blow away the fake data” button. This is a very deep topic. I have a 45‑minute deep dive available at training.kalzumeus.com. I’ll tweet a link to that later. If you give me your email address, you can download the video at any time. I’m actually not trying to sell you stuff. In fact, when I actually have something to sell you, send me an email and say, “I was at Microconf,” I’ll give it to you for free.

A Brief Digression Into The Scintillating World Of Running A Software Marketing Consultancy

Patrick:  [After consulting briefly with the audience, I decided to talk about consulting for a moment.] What do I do? We talked about this earlier, the way to extract money from any company is to promise them one of two things. Either you’re going to increase their revenue, or you’re going to reduce their costs. I’m kind of terrible with firing people, and that’s the best way to reduce costs for most software companies. But I’m kind of good at scalably increasing revenue, so that’s what I do. By trade, I am a programmer. If I was less savvy about this, I might describe myself as, “I’m a Ruby on Rails developer who knows a few things about a few things.”  Ruby on Rails developers might be hard to hire right now, but they’re hireable. If you have $200 an hour, you can find Ruby on Rails developers. But don’t compete with all the Ruby on Rails developers in the world, because Github is lousy with them.

Instead, say that you are giving an offering that will increase their revenue by a lot.  I can point to particular customers of mine, that they will find very credible within their space, and say, “We worked with Patrick and then our revenue durably did a stair‑step function.” I said, “What is stair‑step 100 percent increase in sales of your software as a service product worth to your company, if you have $10 million of sales right now?” “Oh, that would make our sales $20 million.”

“Oh, great. Then I’m pretty cheap compared to the $10 million marginal revenue you’ll get,” and you get very little push back on prices, no matter how much you bump it up. Scarily low. Yeah?

Male audience member:  When you make that sale, how do you guarantee it, or say, “If I don’t reach this, you don’t pay more than that,” do you know what I mean?

Patrick:  No. [laughter]

I’m sufficiently credible about this thing. I think most of my customers actually succeed, because most of them invite me back. Let’s say a week of my consulting rate is similar to the fully‑loaded cost of hiring an engineer for a month. [Patrick notes: That was a good ballpark figure a year ago.  My consulting rate tends to increase over time as I get more successful engagements to use as references, get pickier about what clients I take on, and just start writing higher numbers on proposals.] If you have an engineer work for you for a month and the product fails, like most products do, the engineer doesn’t give his salary back, right?

Plus the pricing structure would be very radically different if there was downside to me, if it didn’t work out. If there’s downside to me if it doesn’t work out, there should be substantial upside to me if it works out, so if I double the sales for the company, I think as a close approximation I should own half the company afterwards. I’ve actually used that line on people before [Patrick notes: In case it is not obvious, no well-run company anywhere would even consider that payout structure], and they’ve been like, “Oh, that’s cheeky! But we’ll go with the cheap option.”

[laughter]

Where the cheap option is $20,000 a week, or whatever. That is just a representative number, that is not a quote.

[laughter]

How did turning down $700,000 work out? I went to a company in a far‑off land, which is not the United States, because the United States is a far‑off land for me, but a different far‑off land, and I did some stuff. Can I talk to you about what the stuff I did? Hmm. I can’t talk about specifically what the stuff I did, but if you’ve listened to my conference presentations or read my blog, you know that I really like A/B testing, and I really like Search Engine Optimization.  I really like, say, designing the first five minutes of software, and I really like, I don’t know, redesigning purchasing pages to extract more money from businesses that don’t care about how much money that gets extracted from them.

I did some combination of those things for a particular software company, and made them a lot of money. A company that was making X, so say eight figures of revenue, went to a different eight figures of revenue. But there’s a lot of play in the eight figures range.

[laughter]

That was after working for them for two weeks. The CEO said, “Hey, at the rate…” It’s kind of embarrassing for me, but the rate I quoted them was $20,000 a week. Why am I embarrassed? Because part of me has always thought that I’m really not worth that, and I’m just good at bamboozling people.  [Patrick notes: Nagging doubt monster!]

[laughter]

This engagement was the one that turned it around, because one of the things I generally insist on is, “OK, I like this metrics stuff, I’m going to get metrics for the before and after. We’re going re‑test, and we’ll see if this actually worked.” We came back two weeks later and we looked at the metrics, and I’m like, “Oh, I must have mis‑implemented that,” and he says, “The bank account disagrees with you.” I’m like, “Oh, oh, wow. Oh, wow. Oh, wow. Oh, wow.”

He said, “So, what was it? $20,000 a week, or whatever we’re paying you?” A CEO doesn’t even know, that’s not a motivational amount of money to a CEO at an eight figure‑a‑year company, despite the fact that it’s kind of a motivational number for me. He said, “What was it, $20,000 a week? So if you consult 50 weeks a year, that’s a cool million.

“But you can’t actually consult 50 weeks a year, so there’s overhead and whatnot, and you have downtime, and you have to go to conferences to meet people like me, so let’s call it a 30 percent haircut to that, so that would be what, $700,000? Is $700,00 a motivational amount of money to you?” [exhales loudly] I’m like, “Wow, wow, is that on the table?” It’s like, “I’m the CEO, we’re sitting at a table, bam!”

[laughter]

My life flashed before my eyes, and I’m like, “Wow! Wow! Wow! Wow! No, Wow!” I guess the follow‑up question to that is, “Why did I say no to that?” Consulting is the right thing for me right now. I have a wedding to plan for, I have two weddings to plan for, one in Japan, one in the US. People with iPads are successfully convincing me that I’m probably still in your position, but for the consulting business.

I’d love to help you by coming here and spreading knowledge, and talking to you, and taking your emails any time my email is up on the screen. Doing it as a day job again is not something that’s motivational for me, even for more tea than there is in China, I think is the expression. $700,000 is a lot of tea!

[laughter]

Patrick:  Sorry, not meaning to brag there. OK, questions?

Rob Walling:  Can we get a round of applause first? [applause]

[Patrick notes:

My recollection is that I said something here which unfortunately did not make it on the video, but it is more important than the rest of the speech put together, and since this is my blog I think I'll take a moment to say it again.  All the speakers at Microconf, and many of the attendees, receive substantial support from their spouses and families, both in the sense of "Hey honey, can I fly to Vegas to talk with some quirky software people?" and in the day-in-and-day-out support for the entrepreneurship career choice.  That's sometimes risky and sometimes involves annoyances to families that people don't generally have to deal with when their spouse is in 9-to-5 employment, in everything from quirky hours to weird comments from friends/family to the inconsistency relative to biweekly paychecks.  We should recognize the support of our families as being instrumental to our business/careers, and also keep in mind that they are, ultimately, stakeholders in the business, with a claim superior to even employees/investors/customers, because at the end of the day they'll be with us when the business is, as mentioned earlier, but dust and memories.

The attendees at Microconf joined me in giving a standing ovation to the (numerous) family members who had made it out for the conference, and also for the folks who were supporting attendees from home.]

Bingo Card Creator (and other stuff) Year in Review 2012

I’m Patrick McKenzie (occasionally better known as patio11). When I started my business six years ago, I was greatly inspired by a few other folks who published the minutiae of their software businesses, particularly actual sales and expenses numbers. I resolved to do it for Bingo Card Creator, my (first) software business, and then just kept up the habit. I traditionally post the year’s numbers and my reflections on what worked and what didn’t right before Christmas: see years 2006, 2007, 2008, 2009, 2010, and 2011.  (This year’s installment was slightly delayed.  Merry belated Christmas?)

Obligatory disclaimers: It is a good thing that I’m CEO and not the bookkeeper, because if I were bookkeeper I’d be fired for incompetence. When I do the official accounts for tax purposes I virtually invariably discover a few thousand dollars of extra expenses. (You might reasonably think “Then shouldn’t you outsource this?”, and you’re smart for thinking that, but sadly my part-time bookkeeper can’t always catch problems like “Patrick forgot to hand her a business trip worth of receipts.”)

On transparency: I’m weakly committed to transparency: it is nice to have but not one of my core values. I don’t impose it on other people, so when my business touches a partner or customer I generally err on the side of keeping their details private, absent specific permission to share. I also politely decline to discuss stats for Appointment Reminder, largely justified by “I don’t want this post quoted against me in a partner meeting” should I ever decide to raise money for it.

Capsule summary of 2012: I had a very good year, across all lines of business, in terms of personal satisfaction, value to clients, and profitability.   The big story was meat-and-potatoes execution: taking things which I knew how to do and knew to be effective, and applying them in fun new ways.  Some examples follow.  Profits roughly tripled from ~$70k to ~$200k (on total sales of ~$275k), exclusive of Appointment Reminder.  2013 looks to be very exciting indeed.

The Year In Brief

Bingo Card Creator was in maintenance mode for approximately 48 weeks of the year again, with two experiments done with a site redesign and incorporation of direct ability to charge credit cards (via Stripe) rather than using Paypal or Google Checkout. The experiments were, taken together, a smashing success.

I once again planned on spending most of my time working on Appointment Reminder, and (once again!) life decided to get in the way. Last year it was losing two months of the calendar to immigration issues. This year’s “distractions” were much happier: I took off approximately three months for my wedding and honeymoon, and my consulting business decided to grow like gangbusters. In any event, I was able to repay a lot of AR’s technical debt, fix the occasional technical issues the service had been experiencing, knock off a few new features, close my first enterprise contracts, and approximately triple the paying customer base on the published plans.

Speaking of consulting: As planned, I spent less time on acquiring new clients and assorted promotional activities (conference speaking, etc), and roughly the same amount of time on the boring mechanics of scheduling and delivering engagements. I also walked my rate up a few times.

There was an interesting outgrowth of the consulting business: over the last two years I’ve delivered engagements regarding email strategies for SaaS businesses several times, and had to turn down many more due to lack of availability, so I tried my hand at productizing consulting via creating a video training course about that subject. This worked out very well, both for myself and my customers.

An opportunity fell into my lap to try angel investing (as angel, not as entrepreneur). It’s a bit of a long story, so I’ll probably cover it some other day.  I also wrote a book, as previously covered on the blog.  It launched very late in the year, so I’ve got no interesting numbers to share about it yet.

Bingo Card Creator

Bingo Card Creator makes bingo cards, mostly for elementary schoolteachers. It had far-and-away its best year ever, despite being in maintenance mode. This was largely driven by organic growth of the business and huge increases in conversion rates following the redesign and Stripe integrations, covered here. The differences are very apparent if you look at conversion rates for any month after May and compare it to the year previous, which is necessary since BCC traffic and sales are very heavily seasonal. Or you could, you know, just take a look at the sales graph.

Stats:

Sales: 2,254 (up 55% from last year’s 1,451)

Refunds: 89 (up massively from 14 — the story is so good you’ll have to read it below)

Sales Net of Refunds: $64,791.81 (up 40% from $46,233.68)

Expenses: $26,193.40 (up from $23,003.19)

Profits: $38,598 (up 66% from $23,230)

Wage per Hour: Approximately $1,000, given that I worked for approximately 15 hours integrating the new design and spend approximately 20 minutes a week doing support.

Web Stats:

(All stats are from bingocardcreator.com unless otherwise specified.)

Visits: 1.08 M (up from 821k)

Unique visitors: 875k (up from 670k)

Page views: 3.4 million (up from 2.9 million)

Traffic sources of note: Google (56%), AdWords (12%), Binghoo (11%)

Trial signups for online version: 87,000 (up from 83,000)

Approximate online trial to purchase conversion rate: 2.4% (up from 1.8%)

Narrative version:

Overwhelmingly the best thing that happened in 2012, or for that matter the last several years for BCC, were the A/B tests where I reskinned the application and marketing site and where I introduced Stripe charging individual credit cards. This breathed quite a bit of life into a business that had previously simply been running on autopilot. I’m incredibly happy with how that worked out, particularly as I was able to get the actual design work done by someone else, and only had to do the Rails integration and a few tweaks to get it working.

What Went Right:

  • I’m almost totally superfluous to the day-to-day operation of the business.
  • The aforementioned A/B tests delivered major wins, on top of a half-dozen more minor ones. (A percent here, two percent there, it adds up when you keep doing it for six years.)

What Didn’t Work So Well:

  • I used the Stripe quick-start code to do my integration and did not build in server-side validation to stop duplicate transactions, trusting the client to only submit once, using Javascript to guarantee that. This is reliable as long as your client is not the IE Javascript engine running on a machine while it is being struck by a bolt of lightning. My poor customer got charged 36 times for Bingo Card Creator. I, of course, refunded the purchases when I caught them. (In case you’re worried: while a lot of electronics got melted, my customer was physically unharmed.)
  • In addition to the above, switching from Paypal to credit card orders increased the number of duplicate orders customers put through by more than an order of magnitude. Previously I just trusted people to not do this. Apparently… it is time to algorithmically suggest to customers that just because they didn’t get an email in 30 seconds doesn’t mean they should try the purchase again.
  • At some point in 2012, I started dreading doing customer support. I’m not sure why — I think I’m just really tired of answering the same questions for six years now. I’m going to try to pass off L1 support to a VA in 2013. I probably should have done this 5 years ago.

Appointment Reminder

Appointment Reminder does appointment reminding phone calls, text messages, and emails to customers of professional services businesses. I launched it in December of 2010, so it is just turning 2 years old right now. I go back and forth on whether I want it to be the Next Big Thing for me. Since I want to keep my options open on that score, I refrain from quoting numbers about it publicly.

My idea was that AR would be my primary business focus at the start of the year. That was the plan last year, too. Once again, my execution on it left a little to be desired: I think I got done about 60% of what I wanted to get done. This was partially due to distraction from the rest of the business, and partially from not understanding the difference between “single”, “engaged”, and “married” as well as I thought I did. (That’s not a complaint so much as it is a reflection about reality — marriage is far and away the best thing that ever happened to me.)

Revenue: Undisclosed.  The monthly revenue run rate on the publicly available plans is approximately quadruple what it was in December 2011. Enterprise sales went from “zero” to “non-zero”.

Expenses: Undisclosed.

What Went Right:

  • Technical issues: Last year AR had multiple customer-visible failures, and when AR broke it broke very badly, with failure modes like “DDOS someone’s home phone line” or “Failure to deliver time-sensitive reminders sent to patients by their doctors.” I spent quite a bit of tightening the system up, and had a much, much more stable year. We still had one major incident (the VPS it runs on became unable to boot after a distribution upgrade) which caused six hours of wall-clock downtime, but thankfully maintenance was timed so that this only resulted in about 15 minutes of downtime relevant to customers, and we only dropped ~6 calls. I’ve figured out a lot of architecture / tech stack problems prior to reaching extreme scale, which is probably for the best.
  • Email marketing: AR sent precisely one marketing mail on January 1st of this year: “Thanks for signing up for the free trial.” I frequently do email marketing for clients, and it is always more sophisticated than that, but I figured AR didn’t have trial numbers to justify extra work. When I was writing my video course on email marketing, though, not taking my own advice felt very disingenuous, so I implemented most of what I was advising. Wham, conversion rates and customer happiness up, just like advertised. (Best single win? A checkup at 3 weeks into the trial which, if the account looks likely to convert, tells them how much money they’re saving. If they’re unlikely to convert, it offers a one-month extension to the free trial if they speak to me about it. That single email has been worth low five figures. Want more suggestions? Buy my course about lifecycle email marketing.)
  • Redoing pricing/plans: Appointment Reminder launched with $9/$29/$79/Call Me Maybe pricing. (Hey I just met you / And this is crazy / But pay me ten thousand dollars / It’s enterprise software, this line won’t even rhyme.) The $9 personal plan was a mistake, and I knew that when I created it, and even despite that I suffered a year and a half of it anyhow. D’oh. That wasn’t the worst mistake, though — it turns out there was a substantial market segment who were at above the quotas that the Small Business ($79) plan addressed, but were unwilling to play the Enterprise pricing game. They do, however, fit in the Office plan ($200). The (new) most expensive plan now accounts for over 1/3rd of revenue from the publicly available plans.
  • Enterprise sales: It’s a long story, but surprisingly it isn’t impossible to win them as a one-man firm calling from Japan… you just have to make the most out of the utterly unfair advantages that gives you.  (A trump card I lay early and often: “I’m the founder.”)  If you’re interested in this topic, I recommend signing up for my mailing list, since I seem to write more about B2B topics than on my blog.

What Didn’t Work So Well:

  • My responsiveness: I have not been doing a great job this year at pursuing enterprise sales (i.e. only successfully get a decisionmaker on the phone a low percentage of the time even for inbound leads), partly because I get a lot of leads via voicemail, which I don’t deal with very well. Many of them are poorly qualified, and as a result I find myself dreading listening to voicemail to call back and talk for 10 minutes (at 2 AM in the morning) only to discover that they’re not good fits for AR. This is something which rationally speaking I should want to do, since it the path forward for the business, but I have been only sporadically successful at forcing myself to do it. Ideally, I will systematize the sales process and then offload it to someone, but this requires consistently executing on it myself first, and at the moment my successful sales have been all one-offs rather than anything resulting from a repeatable process. (n.b. Welcome to sales at any early-stage startup.)
  • Technical issues: Did I mention I had six hours of downtime and nearly gave myself a heart attack resolving it prior to the business day starting for my EST-based customers? That isn’t acceptable going forward. I still have more to learn about this (and likely always will).
  • General level of interest: Even in weeks that I have blocked off to work on AR, I often find myself just lacking any desire to do it. The business isn’t intrinsically more boring that e.g. Bingo Card Creator, but the sort of things that I need to do to move it forward seem to hit my desire to work with a damp towel. On the plus side, not having investors or employees means that I have 100% control over the schedule. On the minus side, not having investors or employees means that I have 100% control over the schedule, and AR has frequently lost out to pressing matters like consulting engagements, League of Legends matches, or wonderful opportunities to clean drains around my apartment.

Consulting

Like 2010 and 2011, I did a bit of consulting in 2012 for software companies. I increase sales of SaaS companies, and that’s all. Under that fairly broad brief, I do everything from writing software to support marketing objectives (Fog Creek has a case study coming out eventually, I believe) to doing lifecycle email campaigns to repricing plan offerings to A/B testing copy tweaks to… you get the general idea.

My guests and I on the podcast ended up talking quite a bit about consulting in the last few months, and I wrote an article about it.

Consulting Sales: ~$140,000  (this includes something like $20k of Accounts Receivable, for delivered engagements whose payments I will not constructively receive in 2012)

Consulting Expenses: $~40,000 (travel, conferences, and catch-all for anything which isn’t obviously for another line-of-business, like e.g. buying a business iPad)

Narrative Version

Where do clients come from?  I primarily source engagements by participating on the Internet (Hacker News, my blog, etc), speaking at/attending conferences (most relevantly to consulting, Business of Software), having word-of-mouth from previous happy clients or other folks who know me, and occasionally from nebulous reputational factors.  A new client and I would typically talk for an hour or two, and if they look like a good fit, I send them a one-to-two page mini-proposal for the engagement.  The prototypical “good fit” for me is an established software as a service company with revenues in the eight figure range, a few dozen employees, and a company culture which focuses more on the product/engineering side of things than on the marketing/sales side of things.

What are engagements structured like?  It depends on the engagement, but a fairly typical proposal for a new client would be for a 1 to 3 week engagement, delivered contiguously and on-site.  (I do remote engagements, too, but largely for existing clients.  Being on-site is a bit higher bandwidth, which is helpful in the getting-to-know-you-and-your-systems/products/people stage of a relationship.  People also generally tend to trust folks they’ve met in the flesh and broken bread with a heck of a lot more than they trust an email address with attached wiring instructions.)  I charge a flat weekly rate, generally in the five figure region.  The beautiful thing about the choose-your-engagement-length structure to proposals is that if the client has budgetary issues then we can address them by moving particular deliverables out-of-scope and shortening the engagement, rather than by compromising on the rate itself.

“What is it you do, exactly?”  It varies extensively depending on the engagement, and the specifics are often NDAed.  Broadly speaking, I make software companies money, primarily by increasing the sales of their SaaS products, usually through either a) applying engineering expertise to solve a particular marketing problem or b) just straight-up marketing expertise.  (If a client were to theoretically ask me to just crank out features for their Ruby on Rails app, I could theoretically do that, but more talented programmers are available for cheaper, so I’d advise them against it.)  Some specific tactical examples might be:

  • Designing and implementing the first-run experience for their SaaS application, with the goal of increasing conversion from free trial signups to paying accounts and increasing lifetime value of paying accounts
  • Implementing a drip campaign, such as allowing potential customers to sign up for a free one-month mini-course on $PICK_A_TOPIC, where the mini-course also duals as a sales channel for the SaaS product the company sells  (One of the rare engagements I can actually talk about was doing this for WPEngine — it meaningfully and permanently increased their sales.)
  • Re-writing marketing site copy or re-doing design (I do wireframes, their designers make PSDs and working code, most of the time) to increase conversions to a SaaS product, generally with the new work getting A/B tested versus the old stuff so we know whether it is working or not
  • Re-doing pricing / packaging options, or presenting them in a more effective light, to increase sales, average order value, and average customer lifetime value.
  • Teaching teams at clients to implement A/B testing, email, better pricing/packaging options, etc etc so that clients can get good at these rather than needing to rely on me.
  • Being a sounding board for product / UX / packaging / etc decisions.  (e.g. “We’re considering moving a very successful desktop application sold on a licensed model to the SaaS model.  That will cost us millions of dollars and, if we commit to it, would be our #1 strategic priority for next year, to the exclusion of all others.  Prior to committing to doing that, we’d like to have external confirmation that this isn’t insane.”)

What Went Right:

  • Leveling up: The advice I gave in the podcasts and the above article is largely distilled from my own experience. In general, as compared to earlier in my consulting career, I’m a bit smarter with regards to client selection and to the kind of projects I work on, and I charge to match. The increase in sales is totally driven by an increase in average bill rate — I actually cut down weeks worked. (There are broadly speaking three ways to increase consulting revenue: increase utilization rate (percentage of time you spend doing billable work), increase your bill rate, or hire people. I could schedule as many weeks of work as I wanted, but don’t really feel the urge to do so since it would conflict with my software businesses and life in general, and don’t really see myself managing other consultants… at the moment, anyhow.)
  • Working with great clients: I’m privileged to have had the opportunity to continue working with smart companies, with excellent products, which had good opportunities for applying my skills to our mutual benefit. A lot of the stress of consulting is dealing with client relationships which you shouldn’t be in in the first place. Being picky and choosy has been a major win for me, and as time goes on I’m getting better at it.
  • Delivering for clients: I have my own personal Nagging Doubt Monster. NDM often wonders whether e.g. I’m worth what I charge to clients. On balance, I’ve always thought the answer was Yes, but I have had troubled sleep about it, particularly as my bill rate hit arbitrary threshholds that flipped my “comfortable” bit. Earlier this year, a particular engagement, whose results I’m unfortunately not at liberty to disclose, sent the Nagging Doubt Monster into indefinite hibernation. In addition to that particular engagement, it has in general been a very good year. Clients are generally thrilled with what they got out of working with me, and I feel likewise.

What Didn’t Work So Well:

  • Legal Stuff: You know how every consultant ever tells you “Hire a lawyer to do contract review”? You should hire a lawyer to do contract review. Some clients and I had differences of opinions with regards to the meaning of some boilerplate, which (while they eventually were resolved amicably) caused me way, way more stress than necessary.
  • Scheduling Issues (Client-side): I had about three-ish weeks of availability this year where I intended to be doing consulting work, but didn’t end up billing anybody, because I didn’t move engagements through the pipeline fast enough. (That would be a decent-sized hit if I were a traditional consultant, who generally aim for about 35 weeks of work in the year, but since I generally shoot for about ten-ish…) In the future, I’m going to revise the proposal-and-present-contract dance to decouple it from engagement delivery dates. Previously, I’ve generally gotten the final greenlight within 2 weeks of an engagement starting, and if I blow that date that generally means I blow that week of availability. Random events can delay both contract signing and delivery, so I think decoupling them in the future will result in not having to spin my wheels.
  • Scheduling Issues (My side): Relatedly, I occasionally have anticipated availability evaporate. I took three months off for my wedding, but that was planned. I also had August marked off on the calendar for working on my course, but that ended up swallowing a lot of September, and that delayed contract negotiations scheduled for September and thus cost a week or two of my fall consulting season when that bubbled down the line.

Productized Consulting

I created and sold a video course which teaches SaaS businesses how to use lifecycle emails.

I have, historically, intentionally avoided selling anything to software developers. Partly this was out of wondering whether I had anything of value, partly this was thinking the market was terrible (penny-pinchers with not-invented-here syndrome), and partly this was out of lingering distaste regarding “selling shovels.”

There’s a persistent meme among software developers which says “The way to get rich in a gold rush isn’t to mine for gold, it is to sell shovels to gold miners.”  This meme is often deployed to suggest that shovel-sellers are exploiting naive gold miners.  I want to eventually write an anthropology paper on the gold rush narrative as applied to startups, because it is fascinating, but my brief sketch is that people often use an incorrect syllogism along the lines of “If you sell shovels, then your customer must be a miner, then there must be a gold rush, but gold rushes are either intrinsically bad or there is in fact no gold rush, so your business is either doomed, distasteful, or distastefully doomed.”

After seeing 37signals, Fog Creek, Ramit Sethi, Amy Hoy, and others all produce information products which actually seemed to create customer value (in many of those cases directly to technologists), I started to feel a little more open to the idea of doing it. So early in the year, I created an email list for folks running software businesses, with the idea being that I’d continue cultivating an audience by producing free things that they’d enjoy, and eventually offer them an opportunity to buy something a little more in-depth than my typical writing.

Concurrently with this, I was doing consulting engagements, and I kept my eyes open for recurring customer needs. One major one was that most SaaS companies don’t make effective use of email marketing. In particularly, they send next-to-no lifecycle emails (emails triggered off of customer actions in the software), and those are an incredible opportunity if you execute well on them. I implemented lifecycle campaigns for fivish consulting clients, in some cases making hundreds of thousands of dollars in sales off of individual emails, and thought that rather than hiring out that expertise by the week I could probably package some of it as a training product, so other companies could implement the campaigns without needing to hire a consultant to do it for them.

(Here’s a replicatable strategy for making several hundred thousand dollars with a single email: start with a revenue base of $X million a year.  Email all customers asking them to switch from monthly billing to annual billing, in return for some incentive you can offer, which can range from “a month free” to “15% discount” to “Hey, you can book the expense this calendar year, so that will save you money on taxes.”  Feel free to try this with any client or day-job of yours if they’re already at scale — “We made so much money the accountant/bank called us to complain” will make for a great bullet point at your next contract/salary review.)

Why bother doing a productized consulting offering when I have software businesses and standard consulting to keep me busy? Partially, I love trying new things and just wanted an excuse to experiment. Also, consulting is working out fantastically well, but it routinely requires me to spend multiple weeks abroad on business, and that is less and less attractive to me as I get more and more married. So if I could replace on-site consulting with a consulting-like offering that I could execute on here from Ogaki, that would be a bit of a win.

I eventually decided on making a study-at-your-own-pace video course as opposed to e.g. an ebook or a series of webinars, and then wrote out lesson plans and started recording. I anticipated about two weeks to do the recording (I was shooting for about 5 hours of video after editing, so perhaps six or seven hours of raw video) and two weeks for a freelance video editor to get things ready for me. (I wrote all the courseware and payment processing code myself — rationally speaking that should have been hired out, too, but I was really looking for a programming project at the time.)

The course was eventually delayed a few times (my original estimate was two weeks of work and a three week shipping schedule, but it ended up closer to four weeks of work and an eight week shipping schedule).  Nonetheless, it did successfully ship, and seems to have worked out pretty well for customers.  (Amy Hoy interviewed me about the process in detail, in case you want tactical advice.  I expect that interview to be up in a week or two.)

(You can find the course here.)

Course sales: ~$60,000  (My mental target was $20k, so this was a pleasant surprise.)

Course expenses: ~$6,000 (freelance video editing, payment processing, video hosting, etc)

What Worked Well:

  • Building an email list: About 5,000 folks asked to receive email from me. They mostly get free advice along the lines of what I’ve often blogged, except in a bit more detail. For example, I wrote about SaaS pricing and consulting, and subscribers have told me that they’ve used advice in those emails to substantial effect in their business. My basic brief is “Don’t ever waste their time”, mostly because I respect that people have invited me into their inboxes. (Also, I pay MailChimp about $100 every time I hit the Send button. That would probably change the character of my blog posts a bit…) In any event, when you have a “warmed” email list of people who have pre-existing reasons to like what you have to say, since you’ve been creating value for them for months/years/etc, doing product launches is a lot easier than “Build it and pray that they’ll come.”
  • Value for customers: One of the reasons I avoided doing this for so long was that I was concerned whether customers would actually get value from it or not.  For both genuinely compelling ethical reasons and not-nearly-so-compelling Nagging Doubt Monster reasons, I greatly prefer doing things which have highly obvious ROI for customers over things that don’t.  Feedback about individual companies’ results with lifecycle email has been tremendously positive, ranging from “We had this on the list for 2 years but never knew where to got started, but then we bought your course, gave it to an engineer, and shipped within 3 weeks” to “This made us six figures.”  (Seriously mindblowing: the sales copy made one customer six figures.  An engineer reading it thought one point I mentioned in passing was worth repeating and forwarded the mail to their bizdev guy.  The bizdev guy used it the next day to close a 500 seat license.)
  • Stripe: Despite some issues with, primarily, corporate American Express cards thinking that $2k charges for training materials were a little suspicious, Stripe was extraordinarily easy to integrate and reasonably priced, like usual.  In addition, unlike one might reasonably expect for a merchant account or Paypal, Stripe didn’t require either advance warning or an after-the-fact investigation when I suddenly had a considerable volume spike.  (I was expecting plus-or-minus $20k in sales in a short period of time and, if one goes from $3k a month of sales to $20k a month, Paypal will have words with you, sometimes freezing your account in the process.  This is, I rush to add, totally rational and solvable by e.g. submitting them a bit of documentation and waiting, but I had a lot on my plate, and not worrying about that was a boon.)

What Didn’t Work So Well:

  • Workflow issues with video: I’m a good writer and a fairly decent conference speaker / classroom lecturer.  It turns out that lecturing to a camera is another skillset entirely, both in terms of maintaining pacing / energy / interest / etc and in terms of stupid technical issues like “You need to worry about having scads of hard drive space and, by the way, good lighting for taking the video.”  I’d give the content quality (in terms of advice) an A- or an A, but the presentation was often a B-.  This will probably improve as I get more experience with projects in this form-factor.  For example, while I like my decision to avoid word-for-word scripting the videos, the next time I’ll probably create e.g. Powerpoint slides or something to give people something more meaningful to look at during the lessons than me talking at them.
  • Outsourced video editing: I hired somebody to do all the editing for these videos, which was a tremendous time-saving measure over doing it myself, considering that teaching myself the Adobe toolchain would have been a terrible decision.  Unfortunately, my freelancer (a good friend of mine from high school — and yeah, I hear you and you’re probably right) had a run of “bad luck” with regards to e.g. hardware failures and scheduling issues, which resulted in the work getting delayed quite a bit and only about 90% of the way finished.  (There are, e.g., videos which I shipped with known editing bugs in them, on the theory that shipping today was better than delaying launch by a non-deterministic amount.)
  • Writing my own courseware: The site (which handles both sales and fulfillment) is a built-from-scratch Rails application which probably took a week or two to write (I was doing it concurrently with filming videos so I don’t have a great breakdown of hours used).  It is, basically, the best possible project to ask an intermediate Rails consultant to bang out, since the behavior is very well-specified and there are no surprises.  While I was quite pleased to have the opportunity to write it — you know, it’s like a new car, a new programming project has that smell of fun to it — rationally speaking that was a poor decision which probably cost me time and aggravation versus a) hiring it out and b) doing a totally-for-jollies programming project which wouldn’t need boring-but-important-to-get-correct glue code like user management or Stripe integration.  (Relatedly: what the heck possessed me to put it on a VPS again versus doing Heroku.)

Goals for 2013

Bingo Card Creator

  • Given that I haven’t had a full year at the new-and-improved conversion rates yet, I reasonably expect BCC to coast to approximately $80k in sales on flat costs, for something like $55k in profit.
  • I want to outsource 90% of the customer service load for Bingo Card Creator, because I add zero value to most interactions these days (there’s no reason other than ego to have “Thanks for your email.  Bingo Card Creator doesn’t support pictures and we do not anticipate supporting pictures in the future.” come from me rather than from a freelancer), my response times are getting longer and my patience are getting shorter with each passing year, and the cognitive load of dealing with even trivial amounts of BCC CS email makes me procrastinate about opening my inbox and dealing with (much higher priority) email for my other lines of business.

Appointment Reminder

  • This goal worked out pretty well for me this year, so let’s try it again: 10X sales from 2012.
  • I want to explore flying to an industry conference as a sales channel for AR.  My back of the envelope math suggests that it’s probably straight-up worth it to just show up with an iPad in a target rich environment and take orders for the $200 a month plan on the spot.  (My expected LTV is over $2k and I can demonstrate the product in about seven minutes while standing on my head, so any decent close rate makes that a very good use of a day, right?)  Plus if I successfully execute on that plan two times then I can take the best-converting demo script, write supporting software, and then hire somebody with good interpersonal skills and a desire to spend time on the road to deliver it for me.
  • Now that I have a few marquis clients on enterprise pricing, I’d like to start closing more enterprise deals at true enterprise rates, rather than discounted-heavily-to-win-this-proposal rates.
  • In addition to walking up enterprise rates, I’d like to systematize the enterprise sales process, with the eventual goal of being able to have large parts of it executed by people who are not me.
  • I’ve neglected AR’s systematized marketing (e.g. content creation for the website, A/B testing, etc) horribly.  Need to rectify that.
  • Deliver more features which are needed for higher-end customers, like “upload CSV of appointment data” rather than requiring manual entry, group appointments, etc etc.
  • Continue improving service reliability.
  • Strongly consider whether Appointment Reminder needs to eat more of my business attention pie, given current results and growth prospects.  (e.g. At AR’s 2012 revenue rates, an opportunity which would generate $50k in revenue for a few weeks of work elsewhere made sense.  There are plausible scenarios for AR under which that would be economically irrational after some point in 2013, versus just continuing to execute on AR.)
  • Also, strongly consider gulp hiring.  Which I’ve been saying for two years now, but one of these years it will probably happen.
  • Continue to wrestle with the questions of whether “I devote 100% of my work efforts to AR, take investment, and  take a shot at an eight or nine figure exit five years from now.” sounds like an attractive option and, if so, whether now is the time to pull the trigger on it or not.  I go back and forth on this.

Consulting

  • $300k in sales looks like a decent number to shoot for, assuming I’m actively available for consulting all of 2013, which is not a given.  (That means that I have availability throughout the year, rather than meaning that I have 52 weeks of availability — consulting is a very part-time thing for me.)
  • Continue to adjust rates such that clients and I are mutually happy with engagement outcomes.
  • Schedule things better to pack work more densely into fewer, shorter trips abroad.  (Delta really enjoys me flying 100k miles a year but Mrs. McKenzie doesn’t, particularly when it means six weeks away.)  If this results in less availability, that isn’t an unhappy outcome.

Productized Consulting

  • Do more stuff along these lines, since it worked out pretty well in the experiment, I can only see it working better with improved execution, and the project ended up being a lot of fun.
  • Let’s pluck a number out of thin air for a numeric target: $200k in sales.
  • Offer better packaging options for later products, including some sort of scheduled, scalable live component like webinars, which would provide a lot of value for customers, justify higher price points, and not disrupt family life or the other businesses’ schedules too much.
  • Outsource more of the execution of collateral tasks in the future, like video editing and programming for the sales site.

A Brief Personal Note: Ruriko and I got married on June 23rd.  Words can’t express how wonderful she is, including tolerating my weird little hobbies, like entrepreneurship.

I think that, aspirationally, career/job/business/etc was never supposed to be my #1 priority, but be that as it may it sucked up a disproportionate amount of my twenties.  I have no immediate plans for retiring, but will work on having my stated priorities more closely match my allocation of time and attention in the future.

I Wrote A Book On Conversion Optimization For Software Companies

Long story short: I wrote a book on conversion optimization, SEO, and related topics, for software companies.  You can buy it here (Kindle, iPad, Nook, PDF) or on Amazon (Kindle).

For the last couple of years, folks have been asking for me to write about A/B testing, conversion optimization, and whatnot in book form.  I’ve never done it, simply because the notion of spending months of work with a publisher to write a book that would (all things being equal) likely fail to earn-out a $5,000 advance seemed to be a silly thing to do just to put “published author” on my resume.  I love writing and I like teaching, don’t get me wrong, but writing as a profession always struck me as work, and not even particularly fun work.

The folks at Hyperink convinced me to give it a try, though.  They are basically trying to make Publishing 2.0 work as a business model: provide authors with design/editing/etc using a workflow which was invented by people who grew up on Google Docs rather than manual typewriters, and create books relevant to niche audiences partially by republishing existing essays and partially by supplementing them with new material.  (The upshot for the authors is that royalties are split more equitably than 93-7-but-with-accounting-practices-that-would-make-the-RIAA-proud.)

What It Includes

  • ~ 20 essays that originally appeared on my blog, covering selling software, software pricing, conversion optimization, A/B testing, SEO, and the like, mostly of interest to software companies
  • ~ 4 essays which are totally new, including one on reducing churn rates
  • a follow-up or two on how some experiments worked out after I had written them up… including never-before-seen tales of abysmal failurebecause that sometimes teaches as much as the successes

Who Should Read This

  • Solo entrepreneurs running software businesses.  (I’d suggest actually having a working product — this book doesn’t cover product development, except when it is incidental to optimizing for marketing outcomes.)
  • Marketing / engineering / product folks at SaaS companies looking to synergize get some ideas of things which engineers can build that will make meaningful differences for the business
  • Anybody who has ever thought “Rather than reading through 600 posts in chronological order, could you just distill your blog down into the best twenty posts and categorize them for me?  My time isn’t totally valueless.  And put them on my Kindle/iPad/etc so I can read them on a plane.”)
  • My family.  (“You wrote a book?  I want to read it!  What is it about?”  “Conversion optimization for software websites.”  “I’ll pass!”)

Chapter List

  • Preface
    • Preface (new essay)
  • Selling Your Stuff
    • Introduction (new essay)
    • You Should Probably Send More Email Than You Do
    • Does Your Product Logo Actually Matter?
    • Dropbox-style Two-sided Sharing Incentives
    • Two-sided Referral Incentives Revisited! (new essay)
    • Engineering Your Way To Marketing Success
    • Selling Software To People Who Don’t Buy Software
    • Increase Your Software Sales
    • The Black Arts of SaaS Pricing
  • Increasing Conversions
    • Introduction (new essay)
    • Stripe And A/B Testing Made Me A Small Fortune
    • The Most Radical A/B Test I’ve Ever Done
    • Keeping The User Moving Towards Conversion
    • Practical Conversion Tips For Selling Software
    • Minor Usability Errors In Checkout Funnel = You Lose Lots Of Money
    • 10-Minute Tweaks to Boost Your Conversion
  • All About SEO
    • Introduction (new essay)
    • SEO for Software Companies
    • Strategic SEO for Startups
    • The Big Book of Getting People to Link to You
    • Developing Linkbait For a Non-Technical Audience
    • Why You Shouldn’t Pay Any SEO You Can Afford
  • Conclusion
    • Thanks for Reading, Lets Talk Churn Rates  (new essay)

Luckily, Hyperink Was In Charge Of Design, Not Me

If you’ve followed my blog or products for a while, you’re probably aware that I have the design sense of an addlebrained squirrel who fell into the Christmas eggnog and drowned.  Luckily, Hyperink took care of the book design and typesetting, so that it looks better on your e-reader or screen than anything I would have natively produced.  Here’s a sample (click to enlarge):

Formats Available

In Which I Explicitly Ask For The Sale

If you generally enjoy my writing and think a curated collection of twenty essays on the topic of making more money for your software business is of interest to you, please buy the book.  (It is, as far as I know, $9.99 everywhere you can buy it, but vagaries of the publishing industry mean that I can’t guarantee that this is true for you.)  If you don’t want to buy it, don’t worry, I won’t think any less of you — enjoy the blog, come back for more next year.  If you buy the book and enjoy it, I’d encourage you to leave a review on Amazon, as folks are really keen on seeing them.

Note to other potential authors: the folks at Hyperink are Good People and were a pleasure to work with in the discussion and editing process.  If you’ve considered trying your hand at writing a book but, like me, thought the traditional publishing industry is largely toxic and exploitative by construction, I’d encourage you to give them a whirl.

P.S. I traditionally post a Year In Review for my businesses, covering what worked and what didn’t as well as statistics, shortly before Christmas.  See, for example, 2011′s edition.  I will do it again this year, but owing to some bookkeeping hold-ups, it will be shortly after Christmas rather than before.  May you and your families have peace, love, and health this Christmas and always.

Bingo Card Creator (and etcetera) Year In Review 2011

I’m Patrick McKenzie (patio11 on the Internets) and for the last several years I’ve run a small software company.  My first product was Bingo Card Creator, my current product focus is Appointment Reminder, and I do occasional consulting for a variety of clients, mostly on helping them sell more of their software over the Internet.

Traditionally, right before Christmas every year I release an annual report.  See, for example, 2006, 2007, 2008, 2009, and 2010.  (Crikey, have I really been doing this for that long?)  I’ve also traditionally published live stats for Bingo Card Creator, but not my other lines of business.

Writing the annual report is partially to keep me grounded, partially to talk through my thoughts on the year and goals for next year, and partially to (hopefully) give other folks ideas that they can use in their own businesses.  I hope you find it interesting or, at the very least, mildly amusing.

Obligatory disclaimers: Assume any statistics that I give are “roughly accurate, to the best of my knowledge, at the time this report was written.”  There are still a few weeks left in the year.  Sales are typically low in the last two weeks, but the exact timing of credit card charges can cause a bit of jitter in the December stats.  From past experience, I have a high degree of certainty that there are about $1,000 or $2,000 of expenses (across all lines of business) which aren’t in the bookkeeping  system yet and won’t be until I sit down in March and check things for taxes.

Capsule summary: Best year ever, by a lot.  Broke $100,000 in sales for the first time and increased total profits to ~$70k.  2012 has inflection points coming for life and the business.

The Year In Brief

I put Bingo Card Creator into maintenance mode for approximately 48 weeks out of 2011: I only answered emails and kept systems running, but took no action to improve the product or marketing.  (The other four weeks I tried a few minor things out.)  This was, theoretically, supposed to free me to spend most of my efforts on Appointment Reminder…

… but that didn’t end up happening.  For a variety of reasons, most of my focus business-wise went into consulting.  Although I technically only did about 10 weeks of consulting during the year, I spent quite a bit of overhead time on e.g. arranging deals which ended up falling through, arranging the deals which did actually go through, and doing general promotion activities like speaking at conferences.  (I had the opportunity to speak at about a half dozen conferences this year, and assorted other events.  It is great fun, but since I generally have to fly to America for them, they tend to munch a full week out of my schedule each.  I spent almost three months of the year in the US, doing a combination of family events, consulting, prospecting, speaking, and meeting some Internet buddies to discuss plans for later.)

I also lost two solid months due to dealing with legal issues, mostly centering around Immigration.  I’d love to fill you in on the nitty-gritty, but have been asked not to by people close to the situation.  Suffice it to say that I was a shoe-in for a Japanese visa back when I worked at a large megacorp, was not a shoe-in for a visa when doing my own thing, and had a very hairy experience with getting them to approve me as a “self-employed engineering consultant.”  Tips of the hat to my Japanese clients, particularly Makeleaps / Webnet IT and myGengo, whose support was instrumental in getting Immigration to approve my renewal.

Despite not having nearly as much time to work on Appointment Reminder as I would have liked, I did manage to firm up its technical underpinnings, add new features requested by clients, and do a small amount of work marketing it.  I hope to make that more of my focus in 2012.

Bingo Card Creator

Despite being in maintenance mode, BCC continued performing like a trooper.  People always ask “Could you afford to live on it only?” and the answer is “Yes, but barely, and it would require a lifestyle adjustment, mostly in the don’t-fly-across-the-Pacific-so-often department.”  BCC did not meet the numeric goals that I had for the year.

Stats:

Sales: 1,539 (up 6% from last year’s 1,451)

Refunds: 14 (down from 22 last year, to .9% of sales from 1.5%)

Sales Net Of Refunds: $45,479.93 (up 5% from $43,398.55)

Expenses: $22,560.00 (up from $18,287.93, but largely just due to an accounting issue — I can’t split costs in my homegrown bookkeeping software, so the ~$3,000 I paid for servers for AR is hiding in that number)

Profits: $22,919.93 (see above accounting issue, essentially flat from last year’s $25,904.66)

Wage per hour: Let’s see, ~15 hours of programming, 20 minutes a week on customer support…  about $700 an hour.  Not too bad.

 

Web Stats:

(All stats are from bingocardcreator.com unless otherwise specified.)

Visits: 821k (up from 777k)

Unique visitors: 670k (up from 655k)

Page views: 2.9 million (up from 2.7 million)

Traffic sources of note: Google (46%), AdWords (18%), Binghoo (13%)

Trial signups for online version: 82,000 (up from 72,000)

Approximate online trial to purchase conversion rate: 1.8%

 

Narrative Version:

Aside from kicking up AdWords spend modestly (to no good effect) and running a few A/B tests, nothing really substantial happened with Bingo Card Creator this year.  I lost probably $1,000 to $2,000 of sales when the site crashed right during the middle of the Halloween rush for ~9 hours while I was on an airplane.  That was a little disappointing, but while it broke my candy budget it won’t exactly put me in the poorhouse.

Projections that BCC would continue to grow despite not being actively worked on turned out to be totally wrong.  I forecast 50% growth, reasoning “Hey, most of the systems work pretty much without my intervention, so I think the overall growth of the Internet plus a few A/B test means, oh, 50% or so.”  It mostly tread water.  I’m not hugely disappointed.

 

What Went Right:

  • Not having to work hardly at all for it.
  • Aside from the Halloween crash, the system was largely stable for the year.  I think I got woken up by the automated alarm maybe once.
  • SEO, AdWords, email marketing, and the usual scalable marketing stuff continued to be my bread and butter even when I was too lazy to actually cut and butter bread.

What Didn’t Work So Well:

  • Crashing on the third busiest day of the year, in such a way that it depresses my AdWords campaigns for the first and second busiest days of the year.
  • I integrated Stripe and expected a huge lift in conversions for going from Paypal to a simple CC-based payment system.  I tested this extensively in A/B tests.  I love everything about the Stripe system, but I have no evidence for “Stripe is better than Paypal/Google Checkout”, “Stripe/Paypal/Google Checkout is better than Paypal / Google Checkout”, etc etc.  That said, it might be something as simple as my buttons being ugly.  I’ll probably take a whack at it in the future, or better yet, have my designer take a whack at it.

Consulting

I did a few weeks of consulting this year, for several different clients.  Mostly, I do my engineering / marketing shtick for software companies, although some of my clients have been a wee bit farther afield.  I wrote up a fairly typical engagement with Fog Creek.  That one was a mutual success and we’ll continue to work together in the future.  (To the best of my knowledge, all of my consulting clients are happy with my work.)

One thing I’m going to do differently in the future is to work for less clients.  Don’t get me wrong: I love all my clients.  I was privileged to work with them.  However, it takes approximately X units of work to set up an engagement with a previous satisfied customer, 5X units of work to get a new prospect to the go/don’t-go decision on a new engagement, and I generally have to get three to four prospects to that point to actually wind up with a signed contract.  As my buddy Thomas at Matasano says, “That is life in the big leagues.”  However, since I’m not in a position where 100% utilization is a huge overriding goal of mine, I don’t need to keep the new prospect pipeline totally full… so I’m probably going to cut back on it quite a bit in 2012.  I’ll continue doing follow-up engagements for established clients where it makes mutual sense to do so, and I’m still of course available for interesting projects, but I’m not going to be doing six-week fly-across-America-four-times tours to drum up new business.

The following numbers are approximations only.  NDAs and having the sense God gave a tadpole constrain me from revealing my “going rate.”

Consulting sales: $55,000

Consulting expenses: $13,000  (mostly hotels and airfare for prospecting, which I pay for out of pocket.)

What Went Right:

  • Client selection.  I was, again, privileged to work for people who have interesting businesses, problems that I could make substantial contributions on, and the willingness and ability to pay all invoices in a timely fashion.
  • Raising rates.  My first guesstimate at my rate, back in 2010, was $X.  It turns out that I could do just about as much work as I wanted regardless of whether I charged $X, $2X, or $5X.  As a result, I typically quote fairly high rates and mostly stick with them, unless there is another reason I really, really want an engagement to happen.

What Didn’t Work So Well:

  • Disorganization.  At one point I was juggling something like five simultaneous proposals out while preparing for three conferences, two engagements, and six weeks of travel.  It got so bad that I showed up at a city once and checked at the airport for where I was staying, quickly seeing that I mistimed a conference by three days and thus had no hotel booked, booking a hotel from the taxi, and then arriving at the hotel to recheck my schedule and discover that I had used the previous year’s schedule and was actually simultaneously at a different hotel across Brooklyn.  (Shoutout to the Brooklyn Beta guys for saving me from my own stupidity that week.)  There were multiple points in the year where I found myself wishing for either a boss or a secretary or somebody to just say “Show up to X on Monday and Do Stuff and all the stuff that is not Stuff will be taken care of.”  My occasional slipups in dealing with the demands of a growing business caused me to drop balls in ways that were sometimes client-visible, too.  This is a major part of the motivation for cutting back next year.  (There is Plan B, of course: hire folks to do either the execution or the admin and take whichever part they’re not doing, but I don’t think I’m moving in that direction.)
  • Too much work!  Largely due to overhead and travel, plus the outsize distraction generated by the same, consulting munched a heck of a lot more time than I thought it was going to.  I wanted to have a solid eight months of the year to work on AR.  I think I probably got maybe two.

 

Appointment Reminder

I launched Appointment Reminder last December, with the goal of having approximately 200 customers and $10k in monthly recurring revenue by now.  I had planned on focusing for most of 2011 on marketing and selling it to more businesses.  That largely didn’t happen, but since I got the fundamentals of my SEO strategy in place (while largely ignoring the modestly more advanced content creation / etc that runs BCC and that I usually help clients with), the business grew despite my best efforts at totally neglecting it to focus on consulting and not getting deported.

AR has been hanging around at a crossroads for a while now.  There are two very different trajectories it could go down.  In one, I grow it organically, and it grows into a modestly profitable software business which will provide handsomely for my family and (in the fairly near future) employees.  In two, I take outside investment, and attempt to grow as quickly as possible to $N million a year in revenue, at which point options would include either a) selling to one of the larger players in the small business software space or b) continued operations at scale with a focus on growth.  Luckily, I have  the luxury of waiting on making that decision: my runway is infinite, the market opportunity is only getting bigger, and the perceived value of my involvement with a startup among investors does not appear to be depreciating.

This is one of the reasons I can’t be as open as I would like to be about the current status of the business.  BCC has essentially no secrets, and would not really benefit from having them, as — aside from elementary school English teachers — there is nobody out there who has something I want for BCC.  However, if I hypothetically wanted to take investment, then accredited investors suddenly have something I want very much and having secrets about AR gives me something with which to trade to get it.  (It is similar to not putting prices on an Enterprise Software website.  You can trivially get them, but the price of getting them is giving a salesman permission to give you the spiel.  Similarly, folks who ask about AR’s numbers these days are generally asking in the hopes that they eventually receive a phone call asking them for a check.)

The other reason I can’t talk about AR numbers so much is that I radically underestimated how important the enterprise market would be to the business, and you can’t spell enterprise without NDA.

So: I wanted to have two hundred customers by now.  For the publicly available plans, I currently have a few dozen paying customers.  There are ways to get things from me that don’t involve paying the numbers on the Pricing page.

AR is modestly profitable — it covers all of its own costs.  I plow most of the money it generates back into the business, though, rather than taking distributions.  For example, I’m now about 95% certain that I will have significant contractor or employee involvement on it in 2012.

Revenue: Undisclosed

Expenses: Undisclosed (very modest ongoing expenses, reinvested most profits)

Profits: I took about $5k just to have a number that would minimize disbelief at the tax office.

What Worked Right:

  • Twilio.  The Twilio API and service have been unalloyed epic wins for Appointment Reminder.  I had zero disruptions in service attributable to them, their customer support has been fast, responsive, and technically savvy (even helping me debug my own code at points), and they’ve been very supportive of me.  Plus they have these awesome red track jackets that they keep sending me, which you’ve probably seen if you’ve seen a picture of me doing any talk this year.  (I actually wear them mostly because I love the color red, but apparently I wear them so often that folks at the Fog Creek office thought the Twilio logo was my logo.)
  • Sendgrid: It’s like Twilio, except for email.  Great service.  No red jackets.
  • Unit testing & staging servers.  I am gradually getting more sophisticated in my engineering practices, and have been ramping up my testing activities since starting to code AR.  It has transformed the way that I do development, for the better, and made it easier to respond to customer requests to change things while decreasing the number of problems I have caused.  Total win.  See my presentation at TwilioConf for examples of the specific ways I use it for AR.
  • Exact match domain names.  “Hey Patrick, how is it that with no marketing budget and nearly no marketing work you rank #1 for [appointment reminder]?”  I told everybody that I was buying the .org specifically because that would happen but apparently folks didn’t believe me.
  • Using the self-service site as lead generation for enterprise sales.  Fairly self explanatory.
  • The service itself: AR solves a clear customer need, and my customers are raving fans of it.  There exist many services businesses which incur hundreds in direct costs and thousands in forgone revenue for a single missed appointment.  (Think, say, an HVAC company which sends a three-man team of tradesmen out to your house to replace your heater, which is a $2,000+ job, only to discover that you aren’t home to let them in.)  One of my customers reports that just the delta in no-shows since starting to use AR would pay for his mortgage and his daughter’s college education.  Many of my other customers report that their office managers, who previously did telephone reminder calls manually, are ecstatic to not have to do them any more.  Customer retention among folks who actually use the system (as opposed to signing up, doing a test call, and forgetting about it) is virtually 100%.
  • Talking to smart people for advice: Since I’ve been going back and forth on the investment question, I talked to a lot of entrepreneurs and investors whose opinions I respect.  I really appreciate their feedback, which ranged from “Are you kidding?  You’d hate it.” to “I want to invest in you, but realistically, you would lose nothing by waiting until you are sure.” to “Best decision I ever made.” and helpfully included a lot of actionable advice on how to do things in the meanwhile such that options remain open.

What Didn’t Work So Well:

  • Catastrophic engineering failures.  I had one combination outage/catastrophic failure in February (the details are recounted in that TwilioConf presentation) and a ~3 day period of sporadically degraded operations after my move to Rackspace, which I finalized over the Thanksgiving holiday.  Both of those were my fault, for architecting the system in a way which did not gracefully handle its multiple moving parts getting out-of-sync with each other.  I’ve since done significant work on making it more stable.  (Overall reliability for the year has been excellent, but those periods were easily the most stressed I’ve ever been about any business issue.)
  • Lack of focus: I’ve been commenting above on this, so I won’t belabor the issue, but I really didn’t get to work on AR as much as I wanted.
  • Enterprise sales: I’m actually fairly decent at Enterprise Sales, and am working with someone in the industry who has a deep Rolodex among folks who would be great candidates for AR, but (partly due to the focus issue and partly due to my own comfort level) I didn’t put nearly enough effort towards it this year.  What I should honestly do is go to a conference some time, prospect like a madman, and then make following up on those leads my only job until I’ve got contracts signed.  (The prices for enterprise SaaS make this very economically viable.)

Goals For 2012

Bingo Card Creator

  • I’d be happy with continued flatness ($~30k profits on $50k sales), maybe.  It isn’t the source of growth for my business anymore.
  • Continue using it as a laboratory for weird ideas I have on conversion optimization.
  • Don’t break it during Halloween.

Consulting

  • Do less work prospecting for new clients.
  • Do more work for existing clients.
  • Modestly increase billings, if that makes sense for where my overall business is.  (If I take external investment in AR, that will likely require shuttering the consulting business.)

Appointment Reminder

  • Figure out whether I want to take investment or not.  If so, do so.
  • Convince Keith (who I do my podcast with) to work with me, if possible.  (Don’t worry, he knows this is on the agenda.  We’re best friends.)
  • See about transferring responsibility for the engineering (particularly front-end) side of things so I can focus on marketing/sales.
  • 10x current sales numbers.  That seems to be a fairly safe bet regardless of whether I shoot for a small business or for a high-growth business.  (1,000x-ing would be another story.)

A personal note: The last 3,300 words ultimately matter much, much less than the next 3: she said yes.  We’re announcing to our family on Christmas, as per our family tradition.

How Running A Business Changes The Way You Think

A few months ago I had the opportunity to have dinner with Ramit Sethi.  We shot the breeze about business topics for a little while — optimizing email opt-in rates, A/B testing to victory, pricing strategies, and the like.  Writing and selling software is solidly in my comfort zone and is what I usually talk about on this blog.  If you want that, skip this post.  We are going deep, deep into the fluffy bits!

The conversation wandered into the softer side of things: psychology, and how running businesses has changed us as people.  I told Ramit a story, and he encouraged me to share it a little more widely, so here we go.

Knowing What Motivates You

Have you ever heard the expression “That really pushes my buttons”?  The notion that there is a particular set of things that uniquely motivates a person has always been a very powerful one with me.  I don’t always have the best handle on what I want in life, but I have enough introspection to know where my buttons are.  A big one, for as long as I can remember, is labeled “Praise To Release Dopamine.”  When I was growing up, I was a praise-seeking missile.  I got very good grades.  I got very good at getting very good grades — not because I wanted good grades for their own sake, and not out of some notion that good grades would get me something valuable in the abstract future, but mostly because I learned very early that parents, teachers, and other people I respected would say “Attaboy, Patrick” if I brought home the A.

That particular story might evoke shades of Tiger Mom parenting.  That would be overstating it: I love my parents deeply, they never pushed me into anything I didn’t want to do, and we’re rather paler than most of the folks in the Tiger Mom crowd.  (Though friends in high school often joked that we’re the most Asian white people they know — and seeing as how my siblings and I can together handle Japanese, Chinese, and Korean, that might not be totally off the mark.)

I realized something fairly early on, though: being a good, hardworking student and getting good grades are two very distinct skill sets.  I was not a particularly “good student”, I just got particularly good at being a student.  I got hooked on a lifetime love of optimizing systems when I realized that 89.5% rounds up to 90% rounds up to an A. That meant I could blow off one more homework assignment than if I didn’t understand decimal arithmetic. Math gives you superpowers.

That’s also why I got started writing.  You see, after you set a multi-year expectation of always getting good grades, the praise mostly dries up.  Drats!  But if you particularly impress a teacher with your flair for writing, and she reads it out to the entire class, then you get to beam a little bit and you collect a story redeemable for an Attaboy at the dinner table.  So I got hooked on writing.  Roughly contemporaneously, I got introduced to the Internet, which if you write well and enjoy having an audience praise your ideas is like your own personal Skinner box.  (If anyone ever wonders why I spend a wee bit too much time on message forums, well, there you go.)

Is there a point to that anecdote?  Sort of.  If you have a good handle on what really motivates you, you probably have a good handle on things which do not really motivate you.  At the top of the list for me: money.  Don’t get me wrong, I am fascinated by money, in the same fashion that the engineer in me is fascinated by bits and electricity and experience points and red blood cells and everything else that whirs around animating interestingly complex systems.  The notion of seeking money strikes me a lot like the notion of seeking red blood cells: ewww.  As long as I don’t drop dead from lack of them, honestly, I could take it or leave it.  (At least qua currency.  Money is also the convenient method of keeping score for optimizing businesses, which feels like a game to me.  I really enjoy winning games with complicated rules sets, especially by optimizing the heck out of play, because optimization is often as much fun as actually playing the game.)

Careers as a Multi-Dimensional Preference Space

My preference set is more complicated than the above micro-sketch, but suffice it to say that I have a good handle on what I value.  One would think I used that introspection to actually achieve happiness.  Was I happy a few years ago?  No, I was very unhappy.

There was a point in my life where I thought what I really wanted was a safe, comfortable, professional career at a big freaking megacorp.  I even had the position picked out: I wanted to be the Project Manager in charge of the Japanese version of Microsoft Office.  If that sounds like a curiously specific goal in life, just call me quirky: I had set about optimizing for a safe middle-class career and that looked to be the high-percentage route through the maze to the cheese.  Why was I so concerned with security at the time?  That’s a long story, but suffice it to say it was a combination of encouragement from my family, a culture that I was in which emphasized good grades to good college to secure employment as the thing to aspire to, and some other factors.  So, true to form, I did what I thought I needed to get to that pot of goal at the end of the rainbow: got into good university, check.  Studied Japanese, check.  Went to Japan to perfect business Japanese, check.  Got a job at a Japanese megacorp, check.  Became totally miserable, check check check.

Along the way, almost totally by accident, I discovered that you could open a small software business on the Internet pretty much without asking permission from anyone.  I discovered that I really, really liked almost every aspect of doing business, in the same way that I really, really did not like most aspects of working at a megacorp.

I worked for several years as a Japanese salaryman.  For those of you not acquainted with the term, it basically means that a company owns you body and soul in return for guaranteeing you gainful employment and social status until you die.  I was working 70 ~ 90 hour weeks for very little money doing “fun” things like translating Excel design docs into Java code and valiantly trying to fix programs delivered by an Indian outsourcing team working from design docs translated via Babelfish.  Why does anyone put up with this?  A lot of people, asked that question, would say “Well, that’s just the culture in Japan.”

Let’s talk about a different quirky culture for a moment: you go from a place you like being, surrounded by people you love, to a place where you do not really enjoy being, surrounded by people who you pretend to like but honestly wouldn’t choose to be friends with.  You stay there for half of your waking hours, five days a week.  Why does anyone put up with this?  I don’t know, it’s the culture or something.

I may have said this before becoming a salaryman, but I never truly understood it: the way we work is, essentially, arbitrary.  40 hour work weeks for middling-good salaries are no more a law of nature than 90 hour workweeks for middling-poor salaries.  The story we hear growing up about working hard to get into a good school so you can work hard at a good job so you can be well rewarded isn’t a lie, per se, but it is a story.  A narrative.  There’s a core of truth buried in it somewhere, but we don’t tell it because it is a true story, we tell it because it is a crackling good story.  If you’re committed to the world being a meritocracy, that story isn’t just good, it is practically mandatory.

The world isn’t a meritocracy.

Here’s a story which we’ve all heard before:

This isn’t a particularly true story.  I mean, let’s start fitting some points to the line:

The  graph isn’t to scale and the points don’t matter: pick your own examples if you disagree with these.  The point is that “work harder and you’ll make more money” is bunk, and we know it to be bunk, and yet we tell that story anyway.

There are many, many more points that we could add to that graph: you could theoretically pick from uncounted thousands of tradeoffs on making money versus working hard.  And that is with only two things under consideration!  What if you considered just one more, such as “Where I want to live?”  Maybe you so want to live in a particular small town in Kansas that you’re willing to accept a smaller salary.  Now we have a three-dimensional preference space.  The true preference space for careers has more dimensions than you can imagine, and sliced along most of them, the straight lines are a just a story.

So if we’ve got a mindbogglingly large solution space of possible jobs, some better in some areas than others, and some areas mattering more to us than others, why don’t we just we just make our mental graph just one wee bit more complex, and add in the 3,207th dimension, how happy we are with our lives if we work at that job?  And then optimize for that?  Heck, since the straight lines are basically not real, would that point even be a job, per-se?  Running your own business is an option — and a laundromat is very, very different from selling software to elementary schoolteachers is different from building the next Google.  Would it even be a point?  Maybe it bobs and weaves a little bit (or quite a lot), as we find out more about ourselves, as we explore new options, and as our preference set changes over time.  I cared about job security once, or at least thought I did.  I honestly could not care less about what “normal” people would consider a secure job now.  When we re-rate that, the points which look like good options for me change dramatically.

I’ve been an engineer, and a technical translator, and a teacher, and a paperboy.  These days, I guess I’d answer to “I own a software company.”  But my job, on any given day, is doing something which makes me happy.  (For, again, a complex definition of “happy”, which includes things not strictly related to me, such as “Is the world better for this having been done?” and “Are the people who matter to me well taken care of if I do this?”)

Because if you’re not happy, and you’re not moving to happy, you should do something else.  We should be happy.

It’s All Negotiable

I grew up in a world of simple stories with clear morals.  As far as careers were concerned, straight lines abounded.  Does anyone remember the day we learned that, say, a middle class man goes to work every single day, Monday through Friday, and that days not like that must be celebrations because they’re clearly the exceptions to the rule?  Were we ever told that, or did it just seep in, somehow?

Here’s a radical notion, let’s try it on: never work Thursdays.  Why?  It has a T and an H in it — T +H = no work, that’s just the way it is, end of discussion.

Would any company ever go for that?  Five years ago, I would have said that is ludicrous.  Everyone works Monday through Friday.  Well, OK, technically speaking university professors could schedule classes and office hours such that they never did anything on Thursday.  And most of the cafes in my town are closed on Thursday.  And teachers get three whole continuous months of Thursdays off.  But that doesn’t matter — the rule is, you work on Thursday.

There may well be excellent reasons why people work on Thursday.  Other people also work on Thursday, so that is very convenient to their company if their workers are around to answer inquiries on Thursday.  But what if the company just said “Sorry customers, no service on Thursdays.”  That would work much of the time — it does work, if you’re a sushi shop in Ogaki.  And it wouldn’t necessarily even be the entire company.  It could just be Bob.  T + H = Bob isn’t there on Thursdays, deal with it.

But what company would deal with it?  Isn’t it written in some book of laws or manual somewhere that Bob has to work on Thursday?  Probably not.  Actually, it might well be written down somewhere, but we ignore things that are written down all the time, so Thursday seems as good a thing to ignore as any.  This is one of the things being a business owner has taught me: there are two parties in any negotiation, and if they agree on one particular point, then that point goes the way they agree.  If Bob and the company agree that Bob doesn’t work on Thursdays, then Bob doesn’t work on Thursdays and damn what the “standard” contract says.  All Bob needs is negotiating leverage to convince his company that agreeing with him on the Thursday issue is in their interests.  Maybe he trades them a salary cut.  Maybe he’s just the best Bob there is and putting up with his idiosyncrasies is worth having him on board.  Maybe just, when push comes to shove, nobody really cares about Thursdays at all.  Whatever.  If Bob wants it, and asks for it, and gets it agreed to, Bob gets what he wants.

You can often get what you want.

Let’s take an example a wee bit less far-fetched than Thursdays.  Let’s say you’re an engineer and you want to be able to pick your technology stack, always.  You have many options here.  You can found your own company, and then you use whatever technology stack appeals to you.  You could consult only on the technology stacks you like.  You could work for a job and just tell them “I quit if you ever put me on a project using a stack I don’t like.”

That might be considered a little disloyal, for a certain value of disloyal which occurs only in the context of a particular type of commercial relationship.  Nobody expects the company to be loyal to their suppliers.  The company expects you to be loyal to them, largely because it is in their interest, and they will often do a lot to convince you that their values are your values.  Is this synthetic, external value really one of your values?   After much consideration, I’ve come to a conclusion about company loyalty: stuff company loyalty.  Companies are legal fictions which we find convenient to use to move capital around and balance accounting ledgers.  I’ll save my loyalty for people.  You’re welcome to your own preference set on this: stick with the company if that is more important to you than working with your favorite technology stack, but make that your choice, not somebody else’s.

Working five days a week?  Your choice.

A job which doesn’t excite you?  Your choice.

Money insufficient to buy whatever it is you want?  Your choice.

Thinking About Money

I come from a fairly modest background, and remember distinctly that one of the perks of my first job was that I didn’t have to worry any more about buying something below $5.  Then I got my first real job, and my care floor went up to $20.  Then my business started doing well, and video games slid under at $60.  Sometime recently I realized that trans-Pacific plane tickets were no longer an expense I needed to save for months for.  So it goes.

You can imagine that if $3.50 is a meaningful amount of money to you, you lead a fairly frugal existence.  I used to live like a monk, and I even idealized that a little bit, but I’ve come to realize that not-spending-money is not something I particularly value one way or another.  Back when my business had no budget, I would gladly do web designs by myself, even though I don’t particularly enjoy it and I am not particularly good at it.  These days, the business is doing rather well, so if I need a web design done I’ll just pay someone who is good at it and likes it, and I’ll get back to doing more important things like strategizing or doing marketing or maybe reading a supernatural romance.  (internal monologue: “But Patrick, you’re not allowed to read in the middle of the day! … Oh wait, I guess I am.”)

For a business, money is a tool to get things that you want.  That started creeping into my personal life as well.  Consider my apartment move in February.  I could have spent a week boxing things up and cleaning my apartment.  Or, I could have paid $2,000 and gotten people to do it for me.  Earlier in my life I would have thought $2,000 is an incredible amount of money (almost a month’s salary!) and that there was something vaguely lazy about not doing the work myself.  The businessman in me made the fairly simple calculation that I could pay the movers $2,000 and get back to charging customers something rather more, and I would not be exhausted and bored at the end of the day.  Here is the money, gentlemen, I’ll be programming at the cafe if you need me.

Confidence Issues

I have longstanding confidence issues.  I often feel like maybe I’m just getting praised for playing the game really well as opposed to demonstrating actual merit.  (I have since found that many, many people I respect likewise worry they’re faking it.  Anybody in my audience got the same issue?  If so, and if you respect me, there you go — you’re not alone on this one.)

I have found that actually showing confidence issues, on the other hand, does not do great things for one’s business.  For example, let’s say you’re doing pricing for a product or service your offering — maybe your software, maybe your labor, whatever.  If you have confidence issues, you will undercut your own negotiating position by underpricing.  Been there, done that, got the T-shirt.

I do consulting, on occasion, and it makes up most of my income and rather little of my day these days.  Consulting is a topic for it’s own post some other week, since I learned by a combination of mentorship and making expensive mistakes and would love to save other folks with less access to good mentors some pain.

At some point in discussing a consulting engagement, you have to quote a price to the client and get them to say “Yes.”  You could write entire books about the psychology of that fifteen seconds, but in a nutshell, you don’t want it to cause you to think “Oh my goodness I’m not really good at this and charging any money is basically stealing so maybe I’ll give them a discount to my lowball offer and then work extra hours to make up for how terrible I’m being right now.”

I got clued into consulting by Thomas Ptacek at Matasano, who has gone from Internet buddy to client to personal friend.  It’s a funny story: I spend too much time on Hacker News, he spends too much time on Hacker News, we both had reason to be in Chicago, so I suggested we get coffee and talk about… whatever message board geeks talk about when they get coffee, I don’t know.  He was very receptive to the idea, so back in December 2009 we grabbed a coffee and went back to his office to drink it.  He then locked me in his conference room for three hours and proceeded to interrogate me with one of his co-workers about everything I knew about SEO and marketing.  It was, seriously, the most fun I had all year.  (Remember, praise-seeking missile.  That entire situation was basically pure brain crack for me and I was getting a free drink out of the deal.)

At the end of the discussion, Thomas mentioned that, if I had phrased my invitation as “Why don’t I consult for you” rather than “Why don’t we grab coffee”, he would have gladly written me a check.  I had a vague idea that a semi-decent engineer (my mental positioning for myself at the time) was worth about $100 an hour, and mentioned that $300 didn’t seem to be enough money for either of us to worry about.  He told me that he would have paid $15,000, and it blew my mind.  (There was a bit of discussion on that point — his coworker thought that to justify $15,000 they’d really need a written report, but the petty cash drawer could have maybe swung $5,000 for it — and my mind got blown again.)

I would like to say that after starting consulting I went immediately to charging $5,000 an hour, but sadly for my bank balance, not so much.  I distinctly remember the first time I quoted someone, though, over email.  I typed a number, agonized over it for ten minutes, then typed a number 50% higher, then curled up in the fetal position for a few minutes, then impulsively hit Send and started hyperventilating.  Ten minutes later I got an email back and, to my enduring surprise, they did not hate my guts for picking that number that was 50% bigger than a number I was already barely comfortable with.

Since then, I’m gradually getting better at the confidence thing.  Partially, it is as a result of trying new things for me and realizing that, no matter how intimidating they were when I started, I largely don’t end up dead.  Consulting engagements go well.  When a new client asks what my rates are, I pick a bigger number.  They’re generally OK with it.  If not, oh well, it turns out there are often many ways to negotiate such that we’re mutually happy.  (Including me just letting them go.  I mean, I don’t need to work everyday.)

Speaking of confidence, sending email to people used to be a bit of a hurdle for me.  Even asking Thomas out was on the edge of my comfort zone.  After trying it many times since then, and observing the behavior of other people in business who I admire, I have come to realize that it is not a big deal.  (Relatedly, almost nothing is as big a deal as we think it is.)  This comes up over and over for young engineering-types on Hacker News so, if you get one actionable piece of advice out of this, get comfortable with sending email to people and asking them to give you what you want.  This will virtually never cause a mortal catastrophe.  I still have a ways to go to do it routinely, but it gets easier every time I do it.  Definitely explain to them why giving you what you want is in their interest, but ask.  They might say “Not interested”, or they might not reply, but they’ll very rarely put a contract out on your head.

Can Your Job Change Who You Are?

After you have asked a CEO or two to coffee and not gotten your hand bitten off, you would be amazed how less scary “Say, why don’t we have dinner together two weeks from now?” is.  That could, possibly, have been the most important sentence of my life to date.  She didn’t put a contract on me, either.

(I generally keep my work life and personal life fairly compartmentalized, so I won’t talk too much about that, but a funny anecdote: we were talking about money one day and future career plans.  She told me she’d continue working at an office job which she doesn’t particularly enjoy so that we’d have enough money to support a family.  I was confused for a few seconds and then started laughing: I had shared less with my girlfriend about my finances than I routinely publish on the Internet.)

And if you’re getting comfortable with addressing folks as your equal and reaching mutually acceptable solutions, why ever stop?

I have to deal with city hall from time to time.  I used to be very timid about it, afraid that I was wasting their time or about to step on a bureaucratic landmine.  These days, they’re a service provider and I’m a customer — a customer with limited options for changing providers, granted, but a customer.  CEOs get what they want.  When I go to city hall, I put on my suit, slide into professional mode, and get things accomplished.  They can’t do something?  Of course they can, or they can find someone else to do it, or there is a particular fact which they need from me to justify doing it, or maybe I’m just asking the wrong way and I should try again.  And I don’t have to be intimidated or embarrassed about doing this — it’s just a negotiation, and not even a really important one, at that.   Plus, if worse comes to worse, I could always just send a lawyer to do it.

I missed a flight a month ago, and got one sentence of a very stern dressing-down from the clerk at the Delta counter.  Years ago, that would have paralyzed me.  I was totally unphased: my brain immediately supplied “They likely sold the seat to someone on standby and, if not, Delta’s revenue maximization is not your moral imperative.  You paid them for a service.  The price of your ticket and standard social graces is the maximum extent of your obligation to them.”  I immediately cut in with “Sorry for the inconvenience ma’am, these things happen.  What are our options?”  (It turns out that if you fly ~100,000 miles a year, your options include them putting you on the next flight, for free, and getting a discount on your hotel room that evening.)

My friends also tell me that I’m almost a different man these days than even two years ago.  The most striking quote to me, from my best friend: “You look… healthy.”  Apparently the old day job was beating me down so thoroughly that I looked about as bad as I felt, and even on those days when I wasn’t dog tired I walked with a bit of a stoop.  These days, I even stand straighter.  I think that is almost too convenient to be true, but hey, it’s a story.

This Actually Can Matter

If you don’t have a good handle on what you want, or even worse, you don’t actually consult it, you could make decisions which are not really in your interests.

I have been somewhat seriously kicking around the idea of taking investment recently.  Thankfully, at Microconf, I got the chance to bounce some ideas off some smart people, including Hiten Shah.  He asked a very perceptive question: why did I want to take investment?  And honestly, I didn’t have a really good answer for that.

“I have the ‘ran a small business’ merit badge already, and am looking for new challenges.”

“Is 10x-ing your business a challenge?”

“Yeah.”

“Do you need investment to do it?”

“Nope, I have done it before.  Besides, even 10x-ing it wouldn’t produce a favorable outcome for most investors.”

“Then why not skip investing and continue doing what you love?”

“…”

The business is growing quickly.  I’m bringing someone on in August.  My life is better than it has ever been.  Taking investment would commit myself to a few years of a very different trajectory, including some things that I have no reason to assume I would enjoy, like managing employees, getting involved with intrapersonal conflicts, and having to give up ownership (not the equity, the responsibility) of parts of the business that I genuinely enjoy to focus on CEO-ing.  In return, yeah, I guess you get a quirky kind of social status and a shot at getting a lot of money, but if I had so much money that a dragon would be embarassed sleeping on it, very little about my life would change.

I’m pretty happy with where I am.  Today rocked.  Bring on tomorrow.

 

Software Businesses In 5 Hours A Week: Microconf 2011 Presentation (1 hour)

Rob Walling (who wrote a book on starting software businesses that I enjoyed) and Mike Taber produced Microconf, a conference for small solo software entrepreneurs.  That sounded right up my alley, and I was extraordinarily happy when asked to speak at it.  The organizers have generously given me permission to post the slides and video of my talk.  (Sidenote: editing videos is going on my Never Doing This Again list.  I should have just thrown a few hundred dollars at someone and saved six hours.  It probably would have ended up better, too.)

If you have an hour free, I recommend the video.  I am told that it was funny, though the genre of humor was very different than my Business of Software presentation.  If you can’t take an hour to watch it, though, you can certainly just read the slides and my commentary below.

How I Ended Up In Central Japan

I have long wrestled with fairly severe self-confidence issues.  (The psychology of entrepreneurship is the major theme of an upcoming post, inspired by a talk I had with Ramit Sethi, who also spoke at Microconf.)  When I was in college, I knew I wanted to be a software engineer, but I was worried about my job prospects competing with 100,000 engineers graduating every year in China and India.  My family was very big on me getting a nice stable job at a megacorp, and I didn’t think I had the chops for it.  So I played the Venn Diagram game: if I could do one very hard thing plus engineering, the intersection of those two would be only a half dozen people, and I’d be set for life.

Learning languages is very hard, so I went down the list that my university offered, and Japanese jumped out at me.  The US and Japan trade billions upon billions of dollars of high-tech stuff every year.  Virtually no Americans speak Japanese.  Practically no Japanese people are fluent in business-level English.  Bingo, if I spoke Japanese and can do engineering, I thought Microsoft (my favored employer at the time) would have to put me in a nice safe job in the Office group for the rest of my life.  So I doubled majored in the two.

Quick tangent: A major multinational advertising firm with an anomalously high number of PhDs on the payroll recently approached me about being a Product Manager in Japan, so this strategy really does work.  It’s funny, three years ago that would have been my dream job and now it was totally untempting.

Anyhow, after graduating college, I was still not confident in my business Japanese, so I decided to go to Japan, work in a Japanese office, and firm it up.  Did I think I could actually call the VP of the multinational who gave me his card and said “Call for a job when you graduate?”  No, confidence issues.  So instead I applied to an international exchange program, which places mostly English teachers and, crucially, some translators at Japanese governmental and quasi-governmental institutions.  One of them was the prefectural technology incubator in Gifu.  (I’m not comfortable telling you which one, but suffice it to say that really narrows it down.)  They took me on as a technical translator, in the expectation that their quickly-growing incubated companies would need technical translation to close big deals with foreign companies and governments.

Gifu is the Kansas of Japan, with more rice and less white people.  I’ve lived here for the last seven years and love Ogaki, my adopted home town, to pieces.  Being a technical translator, however, was not very professionally fulfilling.  Professional ethics require you to translate everything exactly, without elaboration.  I like to think I have something to add to the conversation, so when my contract elapsed in 2007 I switched to being an engineer at a Japanese megacorp.  Prior to doing that, though, I launched Bingo Card Creator.

From Humblest Beginnings

BCC was originally the hobbiest of hobby projects.  One of my assorted job duties as a heavily-underused technical translator was to help out the prefecture’s 200-strong mailing list of (foreign) English teachers, who didn’t speak Japanese and as a result often had issues with coworkers, landlords, government, and the like to muddle through.  Someone asked the mailing list how to make bingo cards for an activity she had planned for later in the week.  I told her to Google it.  She told me that she had and that Google was showing her solutions which were grossly inadequate to her needs.  So I got permission from my boss and spent the rest of the day putting together what might today be called the Minimum Viable Bingo Card Creator.

It was terrible: a Java swing app, distributed as a .jar file, which would accept words in one text-box and, when you hit Print, dump a directory of card0.html … card29.html and ask you to print them from IE because I didn’t know how to actually do that in Java at the time.  But it did actually create bingo cards, and they were of sufficient quality to give to a 7 year old Japanese kid without feeling embarrassed, so I sent it to the mailing list, and went home for the day.  I thought that was the end of it.

The next day, I had 60 emails in my inbox when I got into work.  They were split 50/50 between “THANK YOU!  BEST SOFTWARE EVER!” and “THIS SUCKS!  IT DOESN’T WORK ON MY MACHINE! FIX IT BECAUSE I NEED IT NOW!”

So later in June 2006, when I decided to create a business on the side to try my hand at the SEO/AdWords/etc stuff I had been reading about, bingo jumped out at me as a good topic for software.  I mean, if I could find 60 people who wanted it in Gifu, surely there must have been a market back in the US.  So I budgeted $60 (one video game) and one week to rewriting and productizing it (outside the day job this time, naturally), and set myself a goal: some day, after months of work, I wanted to make $200 in sales a month.

Since I had been inspired by other tales of success on the Internet, I started blogging (you’re reading the result, 5 years later) and publishing my statistics, including sales.  You can see annotated graphs in the slides, so I won’t put them in this post.

Early Days: Filling A Hole In The Internet

BCC exceeded $200 in sales in its second month, largely on the strength of two pages I wrote about Dolch sight words bingo.  (Not an English teacher?  No problem.  Dolch was an English pedagogist who compiled lists of the 220 or so words early English learners need to know on sight.  Teachers know they should teach these but often don’t know which words are on the lists for what year.  I put lists of them online and monetized them with self-ads for the strongly-related bingo activity, on the assumption that almost any teacher wanting to teach them would want a review activity, too.)

This was a good thing, since I had no budget at the time for AdWords.  The success of the content marketing also clued me into one of the core features of the software: writing pre-made word lists that shipped with it, so that teachers didn’t have to type up their own.  So I spent the next year or so in very part-time fashion improving the software, launching new versions, polishing the site, and generally learning more about running a business.  (“Schedule C?  What is that?  Ooooh.”)

Got Google AdWords To Work

In 2007, I started trying my hand at AdWords.  It was a fistful of fail — I could not seem to get either positive ROI or meaningful volumes for the life of me. A buddy of mine from the Business of Software forums advised me to try the Content Network (i.e. ads on sites other than Google.com).  I had turned this off, as prevailing sentiment on the Internet was that the Content Network was a hive of scum and villainy, filled with spammers and MFA (Made For AdSense) sites which sent traffic that did not convert.  But my buddy was sufficiently credible that I trusted him…

… and that ruined my summer.  (His advice ended up turbocharging my business, so I’m retroactively happy for it, but try telling that to me at the time.)  See, every day after coming home from work I would check into AdWords, and every day I would have a new list of spam sites to have to manually ban.  They sent non-converting traffic and I didn’t want to subsidize them.

Towards the end of summer, Google came out with Conversion Optimizer.  In brief, it automatically increased your bid on sites/keywords which sent traffic that converted and decreased it on sites/keywords which didn’t.  This meant that non-converting traffic from spam sites essentially got optimized away without me having to manually ban it.  I loved that, and became an early adopter, writing a pair of blog posts on it.

Concurrently with adopting Conversion Optimizer, October rolled around.  Halloween happens at the end of October, and hundreds of thousands of teachers look for a Halloween activity to play with class.  (Why Halloween, over every other holiday?  Because it is kid-focused, because kids are in school for it, and because as a largely secular holiday it can’t get public school teachers in trouble.)  This meant that sites with content responsive to Halloween bingo, like about.com (which was a content farm before content farming was cool), suddenly had hundreds of thousands of page views to sell AdSense against.  And who was in the front row of the auction for halloween bingo ad impressions?  Me, because Conversion Optimizer figured out that I was making out like a bandit and aggressively moved to spend my money.

Sentiment on the Internet towards Conversion Optimizer had been primarily negative, but I was killing it with it.  My blog post also ranked #3 for Conversion Optimizer right below two posts on google.com… above much of the official documentation.  I think that was probably what clued the Product Manager into talking to me.  Anyhow, to my total surprise, Google asked to do a white paper about my experience with the product.  That was my proudest professional accomplishment for a while, actually.

Content Marketing Seems To Be Working Out… Let’s Scale It

So I was doing well for Halloween bingo in spite of not having any page about it (remember — AdWords ads only), and had done even better for Dolch sight words.  If only I could make a page about Halloween bingo, and Thanksgiving bingo, and addition bingo, and any kind of bingo a teacher could possibly want to play.  Then instead of paying Google to lease the traffic, I would get it for free myself, forever.

This struck me as an unachievably huge amount of work while full-time employed, so I decided to partially automate and partially outsource it.  I taught myself Rails and rewrote the website as a Rails application (rather than 100% HTML-written-in-Notepad), then wrote a script that would populate the Cards table by reading in text files.  Each card got its own page on the website, complete with image of the card, downloadable PDF of 8 randomly created cards, and copious oppotunities to download the free trial of my software.

Creating the GIF and PDF was originally very difficult: you had to use BCC, print to a virtual PDF-ing print driver, open the PDF, screencapture it, crop the capture manually, and then send me the words you used, the resulting GIF, and the PDF.  Repeat thirty times over.  My freelancers understandably got bored, so I had someone write a script which would use a particular Windows macroing utility to drive my laptop’s mouse and do the work.  This took about an hour to get through 30 cards, and required my presence if the script broke in the middle (which was “often”), but it still cut production time down by 90%.

This ended up working out scandalously well for me.  See Scalable Content Creation under Greatest Hits if you want the story in detail.  (I also did a video with Andrew Warner and AppSumo on the topic, if you want it described in a more organized fashion than my blog’s usual stream-of-consciousness approach.)  Eventually, after optimizing the process, I had nearly a thousand pages like this created.

I also have a variety of micro-sites written on exact match domain names, like my favorite, Halloween bingo cards.  Honestly, they’re not that material to my strategy anymore, but if you want to hear more about them see the blog from a few years back.

On Being A Salaryman

Around this time my contract elapsed at the cushy translation job, where I left at 4:00 most days, and I got a job as an engineer at a megacorporation in Nagoya.  No, not that one… not technically, at any rate.  Somewhat to my surprise, the job they offered was as seishain,  which means full-time company employee.  The more commonly known coinage for this status is salaryman, because the job is designed to take over your life.  And take over my life it did.

I rush to point out that I have no ill-will against my old employers: they treated me fairly, by the standards of Japanese corporations, and I learned a lot at that job.  I had my eyes wide open going into it, too — I just didn’t realize how bad 70 ~ 90 hour work weeks would actually be.

This was intended more as a tangent for the speech, but I did more than a bit of venting in the video, much of it humorous.  See that for the full version.

Web Applications Are The Bomb

By 2009, I had advanced sufficiently in my Rails and web programming skills that I could re-release BCC as a web application.  That decision roughly doubled sales, largely due to increased conversion rates both to the trial and from trial to purchase.  I strongly, strongly, strongly suggest developers build web applications in preference to desktop apps, for reasons I have gone into before.  Or, alternately, see this bingo card:

Web apps: do ‘em.

Quitting The Day Job

The combination of these and a hundred other smaller improvements (A/B tests, etc) eventually got my sales to the point in late 2009 where I could seriously consider quitting the day job.  I went home for Christmas, talked it over with my family, then came back and told my bosses that I was through.  They let me go with a mere four months notice.  (Theoretically, the law only requires two weeks in Japan.  In practice, well, see the video.)

Also at Christmas I had a conversation with Thomas Ptacek at Matasano (conveniently in Chicago, close to my family), who opened my eyes regarding consulting.  I owe Thomas a lot for that, because consulting turned quitting from a dicey proposition (a dip in sales could have imperiled my ability to fly home or expand the business, to say nothing of making rent) into a total no-brainer.  Last year I made a bit more from BCC than consulting.  This year I’ll make quite a bit more from consulting than BCC.  The goal is still building a software product business (my current focus on that score is Appointment Reminder), but as of late the caliber of clients, work, and paychecks for consulting has been so attractive that I have been unable to say no.

Tactical Advice

The last half of the presentation was tactical advice on running a small business in one’s spare time — over the first 4 years of doing BCC, I averaged about 5 hours a week on it.  (This last year, even less: it is in maintenance mode.  I send out customer support emails and that is about it.)

The five quick hits:

Charge more money.

Most engineers severely undercharge for their products.  This is particularly true for products which are aimed at businesses — almost all SaaS firms find that they make huge portions of their revenue from the topmost plan which is bought by people spending other people’s money, but instead of optimizing for this we optimize for charging “fair” prices as determined by other software developers who won’t pay for the service anyway.  This is borked.  Charge more.

Make it a web app.

Covered above.

Put more of your iceberg above the water line.

Businesses create value with almost everything they do.  The lion’s share of the value is, like an iceberg, below the waterline: it cannot be seen from anywhere outside the business.  Create more value than you capture, certainly, but get the credit for doing so, both from Google and from everybody else.  This means biasing your business to producing value in a public manner.  Did you write software not core to  your line of business?  Great, OSS it.  Get the credit.  Have you learned something novel about your customers or industry?  Write about it.  Get the credit.  Are your business’ processes worthy of emulation?  Spread what you know.  Get the credit.

37Signals is amazing at this.  You can do it, too.

Get good at SEO.

I talk about this extensively on my blog.  In a nutshell:

  1. You need more links.  Create ways to justify people who aren’t in a commercial relationship with you linking to you anyway.  My favorite way for doing this is getting the credit for things you do, as described above.
  2. Create quality content at scale which solves problems for people in your niche.  See earlier discussion on Scalable Content Creation.

Optimize Everything

I’ve blogged extensively on A/B testing and funnel optimization (see Greatest Hits).  The big take away is, as Steve Pavlina said, all factors in the success of a software business are multiplicative.  If you increase conversions to the trial by 10% and conversions to sale by 10%, your sales go up by 21%, because 1.1 * 1.1 = 1.21.  This is awesomely powerful, particularly for businesses which don’t require hockey-stick trajectories.  You can hill-climb your way to very, very nice places in life for a one-man shop or small company.  (I mean, what real company offers 70% raises per year just for doing an A/B test every week and collecting a +5% improvement on one out of every four?)

Outsource / Automate / Eliminate To Actually Do It In 5 Hours A Week

I have previously written about Outsource / Automate / Eliminate extensively on my blog, so see here and here.

Comments?

I’d love hearing what you thought of the presentation.  I sincerely enjoy talking to people about this and other topics, so if there is a topic you’d like to hear more (or less!) on in the future, tell me and I’ll try to work it in to future presentations.  I never deliver the same one twice.

The Hardest Adjustment To Self Employment

I apologize in advance for spelling mistakes, because I am writing this on my iPad on the bullet train to Tokyo. Wonderful device, not so great for writing lengthy blog posts like my usual.

I am on the way to Tokyo because a high school friend is there this week. As soon as I heard, I told him to pick a day and I would be there. What day? Literally any day. My schedule is infinitely flexible.

That is what scares me the most about this job. Like most people, I have lived an entire lifetime conforming to schedules. They exist like the Greek gods: you didn’t ask for them but they are there, there is no negotiating with them, and prolonged association means you are likely to get your dignity violated by a bovine.

But schedules are structure, and structure helps. Be at school at nine AM. Seminar starts at 10:30, do not be late. Work starts at nine, Patrick, waltzing in at ten annoys people even if you are contractually permitted to do it and even if you will still be here at 2 AM. (Regardless of start time. If you thought the gods were rational, you have been reading the wrong mythology.)

At the very least, schedules put you and everyone else on the same page as to what you should be doing. Gainfully employed young men should be working at 2 PM on a Wednesday. I was having a late lunch and reading a novel at the coffee shop. The waitress asked me, confused, whether I was a student or not. Students have social license to do bugger all for a few years prior to working for a living. I told her I run a software company, and one of the perks is that I get to have lunch whenever. She was impressed, but asked how my customers and employees stand that.

That’s the the thing about schedules: once you have one everyone else needs to, too, preferably as close to yours as possible. My customers do not share my schedule: most use my software when I am asleep, and mail me with their urgent issues at 3 AM in the morning Japan time. I spend lots of effort decoupling their happiness from my personal availability. This does wonderful things for site uptime but it also means, perhaps regrettably, that there is generally no compulsion to work today.

My freelancers largely don’t share my schedule either. I just got the front page for Appointment Reminder redone after several months with placeholder graphics. The extraordinarily talented designer I worked with (Melvin Ram at Volcanic Web Design, a web design company) “met” with me for a total of perhaps twenty minutes, and we worked (him on having graphical inspiration, me on wrangling it into a functioning product) in temporal isolation for the rest of the project. This is the arrangement I almost always use for freelancing. It is wonderfully productive except in that it lets me off the hook for causing forward progress.

That is the other part about scheduling: with the debatable exception of my consulting work, I am terrible about setting and keeping multi week schedules for milestones. This never came up when I was employed, since I had managers to crack the whip and avoided doing anything multi week for my business, but it is now biting me with a vengeance. I wanted to have AR in beta six weeks ago. Between consulting, vacation, and BCC, I haven’t made almost any forward progress on engineering.

I know that to be true for AR because code isn’t getting written, but I always think it to be true for BCC. It turns out that I am smoking something: I ran a shell script to compare my productivity (commits, A/B tests, etc) prior and post quitting. I thought it would show me spinning my wheels. Turns out I am getting more done than ever. This is normally the point where I would paste a graph but, sorry, iPad. Suffice it to say I have run more A/B tests this summer than in the last year. (Interesting finding of today: Google Checkout really does increase conversion rates over having only Paypal as an option. I strongly suspected that, but now I know.)

Sales are up, too. Why doesn’t it feel this way? I think after a couple of decades of living by the clock I have become habituated to measuring my productivity that way. Insane and irrational, I know.

I am looking for ways to hack this: the discipline and social validation of having a schedule, without actually having to work at nine. I have been considering getting an office just to have mental separation between work and non work. (They give them away in this town if you work in tech. I could pay the rent with the savings in my iced cocoa budget.) Plus, if I have an office, I have an offsetting factor the next time I am accused of being unemployed. Sounds funny until it happens from a police officer who does not quite understand immigration statuses. (You know that controversial immigration policy in Arizona? Don’t ask me my opinions about it around sharp implements. Suffice it to say I can vividly imagine what getting stopped under it will feel like.)

Another way is, and you might laugh, a little iPad app called EpicWin which gives me fake RPG loot for making progress. Will it work? No clue, but one week in, I seem to be getting more of my “boring” chores accomplished. (I had considered building this into my business for a while, but resisted because I thought it would cause neglect of my nonbusiness priorities. It turns out that, if anything, I have the opposite problem now that I have infinite scheduling flexibility.)

And I just earned 100xp for this blog post.

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