Patrick notes: Hiya long-time blog readers. Last year I wrote two articles on career advice for young engineers, largely informed by conversations with a buddy of mine, Ramit Sethi.
Over the last twelve months, I have tagged every message in Gmail I’ve gotten from someone who applied the advice in those articles to effect in their careers. Sample comments: “Your advice made me $20,000 in two minutes.”, “Your advice made me $35k”, etc etc. The running total is at about $280,000 (a year!), which makes those two articles probably my highest ROI ever from just writing blog posts. (n.b. If this were the whole of my business I’d need to have a quick heart-to-heart with myself about obvious inefficiencies in that monetization model but, luckily, the business does well enough to cross-subsidize the blog.)
Ramit offered to do a series of interviews about freelancing/consulting, which I know is of interest to many of you, so I naturally took him up on the offer. (Though I think much of what we talked about applies just as well to the software business, to be honest.)
If you weren’t already aware: I don’t talk about it on my blog that often, but I do high-end consulting, typically for improving the engineered marketing of software companies. Ramit is a NYT best-selling author who makes a living teaching people how to do this sort of thing better. Ramit is extraordinarily credible on this topic — in addition to his take on most things jiving with mine, I have word-for-word stolen some suggestions from him for e.g. client proposals, to the mutual benefit of my clients (they took the engagement) and myself (they paid $$$ for the engagement).
This is the first in a series of three interviews — the other two will be out later. Want to make sure you don’t miss them? Either subscribe to the podcast (details below) or to my email list.
If You Want To Listen To It
MP3 download (~50 minutes, ~120 MB): Right click to save.
Podcast format: either subscribe to http://www.kalzumeus.com/category/podcasts/feed in your podcast reader of choice or you can search for Kalzumeus Podcast in the iTunes Store.
Podcast: Play in new window | Download
Transcript: Ramit and Patrick on Acquiring Your First Customer
[Patrick notes: Shoutout to CastingWords for this transcription, which I paid $75 for. I always use them for transcription and then make a hand-pass to make things flow a bit better and format for the Internet.
Can I mention they have an interesting pricing strategy, since it is relevant to y’all? They price per-minute, but there are three levels based on how rapid you want the estimated turn-around to be. I picked $1.50 a minute for the 6-day turnaround. You can also buy 1-day turnaround for $2.50 a minute. The same exact service, sold for a 67% premium based on expressed customer urgency. I sometimes even get 1-day delivery when I paid for the 6-day delivery, but you understand I’m not paying for outcomes, I’m paying for predictability of outcomes, right? If I need a video transcripted for a paying client with delivery scheduled for two days from now, I pay for the express service. If, on the other hand, I have flexibility as to when I publish a podcast, then I can pay for the standard service. That’s beautiful market segmentation. You can do very similar things for your software applications (and, yes, consulting gigs) and your clients will thank you for the opportunity to pay more to get guarantees of things which are valuable for them. In addition to delivery timeframes SLAs are often useful pricing levers in that way — including SLAs which just formalize a guarantee of something which is, in fact, available on a best-effort basis to people without the SLA, too.]
[Patrick notes: I’ve included somewhat extensive commentary in-line with the transcript. It is all called out like this.]
Patrick McKenzie: Hideho everybody. My name is Patrick McKenzie, and I might be better known as patio11 on the Internet. I’m a small software entrepreneur who, over the last couple of years, has run a consulting business largely focused on making software companies more money by delighting their users. I’ve invited my friend, Ramit Sethi, here today to talk to us a little bit about how you might be able to supercharge your freelancing and or consulting business. Ramit’s going to do a bit of a self intro now.
Ramit Sethi: Thanks for having me, Patrick. My name is Ramit Sethi. I run a site called iwillteachyoutoberich.com. It’s a very modestly titled site, and I have a New York Times bestseller by the same name. My background is in psychology and persuasion. I help people use psychology to change their behavior and change other peoples’ behavior, whether it’s with money or with their careers or learning how to negotiate.
The way that I run my business is actually through information products. About 98 percent of my stuff is free, and then, occasionally, I will release a course. Usually, these courses take me a couple of years to develop, and then they tend to be pretty premium prices. If people join them, great. They might use them to earn more money or find a new job or find their first profitable idea.
And so, Patrick and I became friends, especially talking about marketing and pricing and just shaking our heads at some of the stuff we see on the Internet. Hopefully, we can share some of our stories from behind the scenes that we haven’t revealed before, which might help you raise your rates, get more business, and get better clients.
Patrick: Yeah, and all this sounds very good. I think some people might feel a bit of disconnect in getting advice from us because for some reason, and this surprises me more than anybody. I seem to have fallen into that “Internet famous” thing, where people think that I’m some untouchable celebrity, which is absolutely not the case. And you are…
Ramit: You are a celebrity to me, Patrick. I had to go through 10 assistants just to get this time with you on the phone.
Patrick: [laughs] Those were all your assistants. You’re a New York Times bestselling author, but honestly, the techniques we’re going to talk about worked for us when we were much earlier in our careers. They helped get our careers to the point where they’re at right now. They’re generally applicable even to people who might not have an audience or any asset built up yet. (Although there is no time like the present to start building…)
Ramit: Yeah. I think that’s exactly right. I think one of the biggest psychological barriers people see is they see advice from people, whether it be here or on Mixergy or any other place, and they say oh, well, that might work for him because he has an email list of 100,00 people or whatever it may be, but really, these techniques can be applied, maybe in a smaller setting.
If I say, and I’ll tell you how I collect 100,000 data points for one of my courses. You don’t need that. You can start with 20. It’s, frankly, very effective, and then at a certain point, you’ll be able to get 50 or 500 or 5,000. Patrick, what do you say we start off by actually addressing that main thing, which says, “Hey, sounds great, Patrick, but I’m not an Internet celebrity like you. How do I get my first customer?” What would you tell them?
Getting Your First Job When You’re The Outsider In The Middle of Nowhere
Patrick: Before anyone on the Internet knew who I was, before I even started commenting on the forum that I was on before the forum before the Hacker News (that I gained a lot of my audience through), and way before I had a blog, I worked at a technology incubator in central Japan. I’m in Gifu Prefecture, and I love Gifu Prefecture. Gifu Prefecture’s contribution to the world is a particular type of bird [Patrick notes: ukai (鵜飼) – I had to look it up after the interview, apparently the English is “cormorant”] where you leash the bird, take the bird to the river, and have the bird fish for you… then you make the bird regurgitate the fish. Gifu is not exactly, like, high tech central. [Patrick notes: This is a slight exaggeration for comedic effect – we might have more iPhone developers per capita in my town than almost any city in the world. Ask me why some other day – it’s a great story. In general, though, I generally tend to laugh at suggestions that I enjoy an anomalously privileged access to the IT industry.]
I got my first job in software because I was working at a tech incubator here, and somebody needed 3,000 PowerPoint slides translated about CAD software. If you’re not familiar with CAD software and PowerPoint slides and technical translation, it’s the most boring job ever.
But I did good work on it. There’s no reason to work on stuff if you’re not going to do a good job on it. When my contract expired for that day job, and I was looking for the next thing for me, I went to the guy who I had over delivered on the 3,000 slide PowerPoint presentation and said, “Hey, I find myself needing a job in the next couple of months. I know you might not be hiring right now, but you know a lot more people in this neck of the woods than I do. If you know anyone who needs a programmer or needs a technical translator, would you mind introducing me to them?”
Ramit: What happened then?
Patrick: He took me to a meeting with two of his clients, and the meeting was…It was explained to me that the meeting was like a job interview, and it took me years to figure out what actually happened. But basically, behind the scenes, he went immediately to two of his clients and said, “Look, I have an American. He’s an engineer. He’s done great work for me. He’s got this list of successes behind him at his old company. You’re going to hire him as a favor to me.”
And so, we went to this “job interview,” and I thought I was doing the whole interview dance. I wondered why they were not asking many questions of me. We got to the end of it, and I said “I’m a little uncertain of where we are in the conversation right now.” They said “You were hired before you walked in the room. We’re just getting to know you right now.” This surprised me.
When I tell that story to Americans, people say that, “Wow. Those Japanese people, they’re so weird and wacky.” But honestly, man, the truth of the world is that that is how a lot of jobs are allocated in America, too. It’s not based on the whole resume dance and the “Did you meet the 16 bullet points we put in our advertisement. Send in a resume. Maybe if we like you, we’re going to interview you.”
There are lots of jobs passed along on the private communication level where you’re scratching somebody else’s back that’s done something for you. So definitely, if you’re just starting to get into the business, whether you’re looking for a job or you’re looking for a freelancer/contracting/consulting engagement, find the people who have some reason to respect you, to feel a little bit of a social obligation towards you. And just ask them, “Hey, can you help me out on this?”
Ramit: I love that because I love the part about oh, those crazy Japanese people. Because we always hear these great stories, and then the first thing we naturally psychologically do is create an us versus them. We say that could work, but XYZ. I call that the special snowflake syndrome: “That could work, but I work at a nonprofit.” Or “…but I work in Kansas.”
You worked in the most remote place I could imagine, and it worked for you. One of the reasons I was so excited to talk to you was I want to expose what happens at high levels of business to everybody. I want to open that veil. It’s funny, because the way…for example, the way that jobs are gotten is very similar to the way you get clients.
There’s something I always teach my students, which is 85 percent of the work is done before you ever sit down in the room.
Patrick: Absolutely.
Ramit: That applies to a negotiation, that applies to getting clients, that applies to getting a job. Many of my students who go through my career course, by the time they sit down for an interview, it’s not an interview. It’s a discussion. By the way, it’s a discussion with someone they’ve already been out to coffee with two or three times.
Think about the caliber of that discussion or the contours. They’re completely different than you genuflecting and saying please, give me a job, please. Instead, it’s like the job is assumed. Now let’s discuss the details. Let’s actually talk about that in terms of clients, Patrick. You’ve done a lot of client work. I’ve done some client work as well, and I’ve taught a lot of people how to get clients.
When it comes to getting your first one, two, or three clients, what are some important things to note, and what are some common mistakes that people make?
Don’t Underbid to Get Early Clients – It Hurts Your Pocketbook And Credibility
Patrick: The most common mistake I see when I’m talking to other engineers is that people radically undercharge for the first client. This often comes from a perceived desire that goes like: ”I need to make my bones before I can start charging what I’m worth, so I’ll do this for you for really cheap, 10 bucks an hour or whatever.”
I was similarly overly needy with my first few clients. I undervalued myself in the first couple of engagements. We’re going to talk about pricing in general later [Patrick notes: upcoming in the second installment of this interview], but you don’t want to ever come off as needy:
- It will hurt your financial situation in a very direct manner.
- It will also compromise your client relationship, because when a customer gets something for $10, they assume it is worth other things which cost $10.
$10 is not a meaningful amount of money to any business. [Patrick notes: I hear you, bootstrappers – I started a business with $60. But after you’re selling something, $10 which buys something additive to revenue is a joke.] If you’re charging Starbucks latte money for your consulting offering, you’re never going to get buy‑in at the CEO level of a software company to get your initiatives adopted. You’re going to be treated like somebody’s kid’s nephew’s brother and only allowed to make copies.
If you actually wanted to make copies, you can get a low skill job anywhere to do that. But we got into this business to be respected for our advice and to be valued and to actually do stuff that matters. Charging 10 bucks an hour is not on the easy, straightforward path to doing stuff that matters. People that do stuff that matters have a ground floor which is higher and then they go up from there. [Patrick notes: I think there’s actually an interesting “social justice” type of point to make here, in that to the extent that there exist durable social classes in America, one quick way you can identify them is whose ground floor starts at minimum wage or menial gruntwork and who never has to do that, even when they’re unskilled labor, due to a combination of credentialing and connections. That’s neither here nor there, though, and I almost hesitate to mention it because I think “Waily waily, I have neither credentials nor connections, life is unfair.” tends to obscure choices that we can make to better our situations.]
Ramit: I want to emphasize a couple of things you mentioned. One, if you’re charging 5, 10, 20 bucks an hour, it’s very, very difficult to go from that to charging 200, 300 an hour or 10,000 a week. It’s very difficult to make that transition. If you do it when you come in, that can happen. But going from one level to another is extremely difficult.
[Patrick notes: This is, if anything, an understatement. There exist multiple paradigm shifts which separate $20 an hour from $X0k a week, and it is vanishingly unlikely that any client will make that transition with you. Thumbnail sketch: You can get from $20 to $100 by getting serious as a professional, and you get from $100 to $200 by getting really good as a professional (or working in a high-demand speciality), and then somewhere between say $150 and a weekly rate in the tens of thousands you probably repositioned your offering such that it is no longer directly comparable to what you were doing before. Concrete example: you can sell Rails programming at $20 an hour (to bad clients, as a newbie freelancer who screams please-take-advantage-of-me), and then you can sell Rails for $100 an hour (baseline clueful Rails programmer in 2012), and then you can sell Rails at $150 an hour (intermediate/senior consultant on a strategically important project, say). Can you sell Rails at $50k a week? I’m going to go with “almost certainly yes.” I think there are probably people who do that, and if you listened to them pitch clients, they would speak a language that holds very little in common with what you hear from a $100 an hour Rails developer. Want to speak that language? Keep reading for some thoughts. (It will also help to get pretty darn good at Rails… though I think most people in my audience probably overestimate how skilled you have to be to move up that ladder.)]
Ramit: I happen to know that because on a product side, the first product I ever sold, the information product, was a $4.95 eBook. One of the last products I sold was a $12,000 course. I’ve gone the entire gamut of information products. When we talk about pricing, I’ll go into more detail on that. But suffice it to say, it’s extremely difficult to climb that ladder.
Never Work For Free As A Software Developer (Asterix)
Ramit: The other thing you mentioned is how many people go in saying, “I’ll just do this first, and I need to make my bones.” And you know what? There is a time and a place to do free work. I do believe in free work occasionally. But I always tell people if you’re going to do free work, make sure you are clear about your messaging.
For example, let’s say that it was my first time out there getting my first client. Let’s say I just want to build a portfolio so at least I have something to point at. Now, I’m generally not a fan of free work, but I can be strategically. This is what I would say to the client. I would say look, my normal consulting rate is $85 an hour, or whatever format of pricing you’re using.
However, I really like what you’re doing, and frankly, I want to build up my portfolio. I would be willing to do this for three weeks for free if, in exchange, you agree that if I do an extraordinary job, then we can discuss working at my normal rate. Well, who’s going to say no to that? If you do an extraordinary job, everyone’s going to want to pay you.
But in this case, yes, you are working for free. But you are explaining why. That is so important. It separates you from, frankly, the people who are new. They’re new, and you can tell that they’re asking to be taken advantage, because they’re like OK, I’ll work for free. It’ll be fine. Somehow, I’ll go from free to $500 an hour. Doesn’t work. Explain your messaging. Explain your positioning, and people will respect you way more for it.
Patrick: I’ve got to be totally honest with you. I don’t think I would ever work for free as a developer, just because of the way the market is laid out right now. You just don’t need to. Hypothetically, if you’re going in for free, you should have a larger upside than just having a pot-at-the-end-of-rainbow outcome be working at your full rate. You might make it a condition of the free work that the works gets discussed publicly. This gets you a public case study that you can use for your portfolio and the social proof that you have done this meaningful work for another company in the industry.
[Patrick notes: You will then aggressively leverage this portfolio when attempting to get work at your current billing rates. I have projects which I did at $X per week which I will use to justify new $5X per week projects at new clients. If clients ever picked up on the discrepancy – which would require me being stupid like mentioning that somewhere publicly… wait… d’oh – I would say something like “My previous client took a chance on me earlier in my career, when I didn’t have a track record of delivering results to people just like them. I now have that track record, which is why you are paying the sticker rate. After I deliver a win for you, if you give me permission to mention it publicly, it will go into a presentation just like this when I tell another person why they have to pay $10X rather than $5X.]
Patrick: In addition to that publicity being a benefit from you, that the public/private distinction there makes a very natural thing to charge around. You mentioned that 98% of your material is free. I do a whole heck of a lot of stuff for free. I’ll speak at conferences for free. My blog posts are free. I do open source software, which is free.
If you want me to do something so competitively sensitive that you don’t want me shouting it from the rooftops to anyone I can get to listen to me, then that always has a price tag attached to it.
Research The Customer To Win The Engagement Before The Interview Starts
Ramit: That’s right. I want to talk about one of the secret sauces of my business, and it’s something that actually nobody really cares about. People think they care about it, but they don’t care about it. It is the research that I do going into building a product or getting a client. And I know you’ve done this as well.
It’s funny. The other day, I was asking people, “Hey, if I speak at South by Southwest, what would be a good talk?” Somebody wrote back on Twitter saying, “You should talk about your research methodology.” I said that would be great… for the three people who would attend.
Research is what allows me to charge 100 times what my competition charges… but nobody cares. Nobody wants to see [the hard work which goes into] how the sausage is made. They just want to see the shiny tactic – the A/B test where you tested the color of this button. [Patrick notes: I have to tweak Ramit’s nose here and mention that he got a 60% increase in sales from A/B testing literally in the week which we recorded this interview. But hey, I sympathize with his general point that people want to hear quick fixes rather than actually doing the work. Oh, let me bang my favorite drum – how many of y’all actually run A/B tests? They’re Ramit’s mental characterization of a magic-bullet no-effort-required diet-pill-of-business-success and I can’t even get people to swallow the freaking pill.]
Ramit: Let’s actually talk for a few minutes about customer development and research going into a product.
I’ll talk about on the product side, and I know you’ve done quite a bit of work on the client side as well. For me, when I build information products, they can be anything from an eBook all the way up to a full‑featured, eight week course with gigabytes and gigabytes of video and thousands of pages of material. So when I start off, for example, with my course on earning more…
I have a course called Earn 1K, and it’s about how to take your skills and turn them into freelancing income by getting multiple clients and earning 1K. Many of my successful students earn 5K or 10K in a month on the side. So, very relevant to the people listening here. When I started off doing this research, I actually didn’t even think of doing an “earn money” product. [Patrick notes: Ramit started in the personal finance space. Read I Will Teach You To Be Rich, but his wheelhouse would be passive investing, creating systems to move money around, and maybe a bit of optimization about e.g. credit card rewards.]
But when I went on book tour [for IWTYTBR], I went to all these cities around the country and I asked people, “Hey, what do you wish I wrote more about?” Almost to a person, they said, “I love your stuff on automation, but I really want to know how to learn more money.” I was surprised. I was like, really? Isn’t that scammy?
They were like, “I don’t care. I just want to know how to make more money.” And so, I started doing research, and I pulled my team together. The first thing we did was basically just what we call cloud research. We wanted to understand the dynamics of the market.
There’s about five or six ways to earn money.
You can negotiate your salary. You can get passive income, which for most people, never works. You can get freelance income. You can blah, blah, blah, blah, blah. [Patrick notes: Ramit would probably round out this list with 1) buy real estate and rent it to people, 2) invest in the public capital markets, and 3) start an honest-to-goodness business.]
We looked at it, and we’re like, “OK.” We think we’re really good at freelancing, and we think that the market is particularly bad at that. And so we started asking people survey questions.
Now, you can get good survey data with as few as 20 responses. For all the engineers listening, listen closely: Statistical significance is irrelevant when you’re doing customer research. I don’t give a damn about P values and anything like that. It’s almost all qualitative. That’s what I care about. I want to hear the words they use. [Patrick notes: Engineer reporting for duty as audience stand-in! Oof, critical hit, advice totally warranted by actual experience!]
We started off by saying…We didn’t say here’s a key insight as well. When you’re doing customer research, I’ve seen a lot of early surveys. They’ll say something like this. They’ll ask a fake question. They’ll say, “Ramit, if I told you I could solve all your storage needs in five hours for less than 25 picodollars, would that interest you?” [Patrick notes: Ramit is making a reference to Tarsnap, which is a technically jawdropping backup service which has abysmally bad pricing. Ramit does not know what Tarsnap is or why he’d care about it – he literally only knows it “We should bring up an example of how engineers are terribly bad about connecting prices to business value, like that picodollar bullshit. Seriously. They don’t even price gestures to the dinner we are eating potato chips in picodollars. And you know why? Because if you went into any restaurant and offered to buy potato chips for a penny apiece – which is, like, a lot of picodollars, right? — they’d throw you out.”]
Ramit: Look, guys, [asking leading questions] is BS. That is the worst type of marketing. Because you don’t really want the answer. You’re trying to sell them. Instead, you should ask open-ended questions like “Tell me about your biggest frustration. Tell me what you’ve done in the last six months to improve your financial situation.
“Have you ever thought about earning money? If so, how have you thought about it? Have you ever tried it? What happened?”
We start to understand the words that they used. We collected approximately 50,000 data points, through everything from chat, email, surveys, one-on-one interviews, phone calls.
Now, you don’t have to do 50,000. Honestly, 100 gets you farther than most people do. [Patrick notes: I think talking to ten individual people who could actually buy your product prior to writing a line of code puts you ahead of the curve, judging from my inbox. You’ll learn a million times more from 10 people than you’ll learn from your IDE when coding a product built for nobody.] Now what happens is most people will retreat into a room for six months, they’ll build their product or their service and realize that they got it completely wrong. Just to give you a sense, Patrick, for us, Earn 1K on the side. It took us six months to figure that out that title: “Earn 1K”. Why didn’t we call it “Earn 10K”?
Because most people don’t believe that they can earn 10K, even if they can. On the side, because most people believe if they have to earn more money, they have to quit their job and the start the next Google with venture capital. That’s not true. The research is really what allows you to distinguish yourself from your competition so that when someone comes to your site. They start nodding their head uncontrollably, and they say yes, and price becomes a mere triviality. I’m curious if you’ve had that experience.
How To Parlay Interests And Expertise Into First Consulting Gigs
Patrick: Absolutely. I told you how I got my particular job in the past, but I didn’t talk about my first consulting client yet. I used to be active on forum for lots of SEOs, search engine optimizers, who often, they have a side business themselves or their main source of income is publishing a particular thing and then getting traffic to it via SEO.
Many of them are less than technical or they have enough skills to, like, hack together a site in WordPress, but they don’t know how to take that to the next level. The natural engineer thing to do in this circumstance is to ask someone OK, what are your technical problems? Oh, you have problems with WordPress sites? I’ve done WordPress sites before. Let’s talk WordPress, WordPress, WordPress.
No SEO wakes up in the morning and thinks, “Damn, I have a WordPress problem.” They wake up in the morning and say, “Damn, I have a business problem.”
[Patrick notes: This is generalizable to any group of business owners. Even software companies. Pick a software CEO you admire, I can guarantee you that they don’t wake up with software problems. Heck, freebie for you: solve identification and sourcing of highly talented programmers and every software CEO I know will write you a check for last month’s gross revenues. After hiring, the next biggest problem most of them have is selling more of the software they have already written.]
Patrick: The SEO continues: “My business only made however many thousand dollars last month, and if I could get more pages on the website, then I might have more traffic and be able to drive more revenue for it. But I don’t see a clear way to doing that without me doing all the writing myself. “
After you can talk to them and establish that rapport, that you are actually listening to the problems that they are talking about, you can suggest how to address those problems in ways that you are uniquely capable of doing.
I might tell the SEO, who is a potential client: “You’ve gotten this level of traffic so far with your existing site. You want to double that over the course of the next year. You were saying that the roadblocks that are stopping you are a) you’re on an outdated architecture where you, personally, have to write everything, and b) it’s been impossible to find someone who is a subject matter expert at this who can also make web pages, because that combination of interests just does not exist.”
Ramit: Yes. I’m nodding my head right now. I’m like yes.
Patrick: Yeah. “I totally understand that it is impossible to find someone who is both good enough of a journalist in the space to work for a genuine published magazine and also can edit HTML pages. I have an idea for you. I’m going to make a CMS for your website. That’s just a page that they can go into, like WordPress, and they can do their writing like they do so well. The CMS will ship it over to you, and you figure out which business model that you experimented with will work well with this content. “[Patrick notes: In context, I’m suggesting that the SEO will either have in-house advertising, display advertising, an affiliate/lead-gen relationship with another publisher, or products of their own with which to monetize marginal traffic.]
“You click two buttons to hook it up to that page, and boom. That’s it. It’s live on the Internet, and Google will start sending people to it. Does that sound like it’s something motivational to you?”
By this point, the SEO is going “Hell, yes.” I’m like, great. Now this project, I think I can deliver the minimum version of it in two weeks from now. Two weeks from now, you get the CMS. You can start having your magazine quality writers putting stuff in, which will look beautiful, have pictures on it, and start generating traffic on Google.
By that point, everything else about the engagement is a detail. They want it.
Ramit: That’s right. They want it. That is the number one thing. Do they want it? Not what does your website look like, not how big is your button, not how optimized did you get your conversion funnel. Most of us could focus more on building something that people want.
That comes with the early research. I love the way you talked about how you communicate with a client, because it shows you really listen.
Actual Experience From Someone Who Pays $X00,000 Yearly For Engineers
Ramit: I want to emphasize something, especially for the engineers listening to the call. I am a client that I work with engineers. I have engineers on staff.
Ramit: I pay them pretty well. I have passed on hiring engineers who may be more technically proficient, but they didn’t understand what I wanted. Honestly, guys, as a business owner, do you think I care if you’re using this technology or that? I just don’t give a damn [about technology]. I really don’t.
What I care about is, is my business going to generate revenue? Am I serving my customers? Is my website going to go down, and I have to be the one who tells you? Or can I go out on a Friday night and not worry about my business?
Those are the things I care about as a client. I’m reminded of a great story that somebody…one entrepreneur told on a Mixergy interview with Andrew Warner, and is it a great story. He was in the relationship market. His buddy actually started an information product in the relationship space, for women. [Patrick notes: No clue what interview this is referencing – feel free to drop me a note if you remember it. By the way, you should be listening to Mixergy. It is what the New York Times would produce if the NYT cared about producing value for people in our line of work. It occurs to me that mentioning the NYT in the same breath with Mixergy is likely the most positive thing I’ll ever say… about the NYT.]
Ramit: The guy was doing very well. I believe he was making either 40k or 400k a month. He was doing very well. This guy got pretty interested, and he said, “Hey, I’ve got to take a look at this market.” He spent about four or five months really doing deep research. Lots of stuff, including ad words, including customer research, including buying all the other products.
He finally built his own product. Within two or three months, it was making more than his friend’s. It never stopped. I happen to know that that business is now a gigantic business. Why? What separated him from his friends?
His friend called him, frustrated, like “Hey, I don’t understand why your site’s making more than mine.” He said that he had found some very subtle things in the research that his friend had not. I will tell you that we had that same exact thing happen. When I built my Find Your Dream Job course, it took us about three or months to build the first version, and we’re pretty experienced at this.
When we went out to test it with about 20 people: The first person failed. The second person started crying. And the third failed as well. At first I thought, “They’re just dumb. They don’t know what they’re doing.” No, then five people failed. Then 10. It took us about…I believe it was 15 or 16 versions to get it right. When we looked back, we had skipped over some very subtle things in the research process.
Once we got those right, sales skyrocketed. [Patrick notes: cough read writeup in Fortune Magazine cough] I’ll just say that it’s very, very important to understand the words that your client or your customer is using and be able to explain how and why you can help them.
Patrick: I think we don’t pay nearly enough attention to the exact words people use. Maybe we would if we came from a communications background. Nothing motivates people like having their own words repeated right back to them, which is something that you should try to do more often. It’s just an easy conversational hack to sound more persuasive.
[Patrick notes: Engineers take heed: your clients will often make mistakes about engineering reality when talking to you. You will feel the urge to correct their misconceptions about engineering reality, perhaps by rewording their requests such that they match the way the world actually works. Don’t do this. You will never delight a client by teaching them what a web service actually is. You will absolutely delight clients by mentioning that the “web service” (cough iframe cough) which you implemented for them, allowing them to get data from System A onto System B (cough displayed on pages served by System A, they never talk to each other cough), provably increased sales by $200,000 in the last quarter.]
Patrick: But you have to make your prospective clients feel like you understand where they’re coming from. And that starts with both understanding where they’re coming from, and then communicating like you understand where they’re coming from. Even if you’re building a website for someone, it’s not just a website, right?
There is some particular need that they have for that website, whether it’s for their business purposes or because a lot of business owners are very personally invested in their business. You need to communicate to them that you understand that they are personally invested and that you are also capable of treating this website like it’s important, like it’s more than just bits on a server somewhere.
Here’s a hypothetical example for you. I live in Japan. I happen to have lots of Asian friends, so I just know that there is one particular niche market in America, that if I really wanted to stop my business right now and start a totally new market, I could do it. A lot of people who might not be English as first language themselves have a worry that they are going to have children who do not learn how to speak their native language, and as a result, will never be able to communicate with their grandmothers.
And so, there’s this market in America for schools to teach the children the language of their parents, basically. [Patrick notes: The term of art is “heritage language school.” I think I probably butchered it during the interview… I don’t get much practice speaking my own heritage language out loud these days, what can I say.] If you’re building websites for those schools, you’re not really building websites, so much as you are selling the person who runs that school on getting a website done. She [Patrick notes: overwhelmingly female and underserved by technology available to her, where have I heard this song before…] is generally exquisitely sensitive to the emotional needs of her clients, who are typically mothers.
Rather than focusing on the technical aspects of the project — it’s going to have pages and an admin system and a this and a that – you sell that you understand the business and the emotions driving the business. The business purpose here is that success for your business, the school, is primarily dominated by how many new students it can enroll. [Patrick notes: This is overwhelmingly the case for almost all educational businesses which do not receive direct state subsidy, by the way, from “piano tutor” all the way through “second tier universities.” First tier universities are anomalies in that they’re actually choosy about who they let in.] I understand that parents enroll students in your school because they feel that there is a connection to a trustworthy source of authentic information about their heritage.
[Patrick notes: This is the money-line for this particular pitch. I manage to execute on a gets-to-the-heart-of-the-business line that good in only one out of three or so of my pitches. If I get a line that good into the interview, the engagement is sold. I can even point to identifiable moments of time when a company has hit me with one of these, and seriously, in the full knowledge that I’m being successfully sold to, if you get me that well I’m in and damn the price.]
Patrick: I might hypothetically continue “Because I do lots of work in this space, I can deliver a website that embodies trust, authenticity, and tradition for you.” If you can present that pitch, you will be 10,000 times better than anybody who might be better at technical infrastructure, better at the design, whatever. If you can empathize with them on where they’re coming from, you’ll be better off.
Patrick: In the same fashion: you were asking earlier about some problems people have in their first couple of clients. I was a little too overeager for work, and I worked with people whose businesses I understood on an intellectual level but did not understand on the feel it in my bones level. I’ve since gotten a bit more choosy about that.
Almost all my customers run software businesses. But, at one point, I worked with an eCommerce company, which was also a startup, so I thought “close enough.” They were an eCommerce company in the men’s fashion space. Let’s say they sell dress shirts. Ramit, you’re a pretty nice dressed guy, but I’m wearing a t‑shirt right now with a startup logo on it. Haute couture is not my strongest skill.
When someone says “OK, you need a fine-cut silk, black shirt,” [Patrick notes: is that even a thing? Heck if I know. I’m pretty sure they come in “silk” and “black”, give me a third attribute you can group shirts by.], my eyes just glaze over. My ignorance was even hurting my ability to execute on parts of the engagement that I actually understood, like say site architecture for SEO purposes. I literally told the client “You’re going to silo some pages around that. like, fine silk shirt, blah, blah, or blah, blah, or blah, blah.” With the blahs in there.
My client has made this his life’s work. You could literally see him disengaging from the conversation as I was dismissive about the subject. I was kicking myself. So one thing that I did to get better, in terms of that particular client relationship, when I realized that I really didn’t know anything that I was talking about, even when it was material to his business, was to say, “Look, you know me. I’m not going to lie. I’m not exactly a fine dresser. Can you just tell me, a geek who knows nothing about this, what is the one thing I should learn about men’s shirts? If I only learn 10 minutes of material about dressing myself in my entire life, what would those 10 minutes be?”
Bam, his eyes lit up. His life’s work is men’s shirts. Do you think he likes talking about men’s shirts? Oh, heck yes. He loves to share that knowledge to people. (If I was savvier about it, I would have asked for that at the initial interview.) [Patrick notes: If a client talks about nothing but themselves for the entire interview, you will get the job. They’ll remember you as being tremendously responsive to their needs, and people care a heck of a lot more about themselves and their businesses than they care about you and your business. Conversely, if an interview is ever the you-you-you show, you probably will lose that engagement.]
How Startups Fail At Communicating With Customers
Ramit: It’s amazing how powerful it is when you actually put yourself inside the mind of your prospect. I want to talk about this for a few minutes. You see very similar copy on most startup websites, similarly terrible. Here’s what it says. It says easy, fast, free. Those three words should never, ever, ever be the headlines or sub‑headlines on your page.
Do you know why? They don’t mean anything. Easy? What does that mean? When you say easy to me, to me, that means I don’t have to check my text messages on a Thursday night when I’m out with my friends at a bar. To a 45 year‑old mother of two, it means something very different. I don’t have to learn this weird HTML syntax with these brackets. [Patrick notes: Ramit co-founded PBWiki.]
Easy is not a descriptive word. It’s a word that engineers use or even amateur copywriters because they don’t have anything else to say. Why? Because they’ve been lazy. They haven’t actually figured out the words that people use. People don’t say I was really looking for an easy, fast, and free solution. They say I was looking for a way to earn more money, and I was sick of getting scammed.
Therefore, that’s why if you go to one of my pages, you’ll see the fact that I was on the Today Show or the fact that I’ve written for the New York Times. That’s not just there to feed my very large ego. It’s there because the customer indicated that it was important to them. I’ll give you another story about communicating with your clients.
Doing $80k of Engagements In 8 Weeks In The Super-Lucrative Field Of Violin Tutoring
Ramit: One of my star students is a young woman named Jackie, and she lives in the Midwest, and she’s a violin instructor. Now, she’s quite good at violin, but that wasn’t really what interested me. The fact was she had clients, but she came to me saying, “I want to learn how to grow my business.”
And so, she had a few clients, but it was just like middling, and it wasn’t doing very well. I said, “Who’s your client? Who’s your client?” This is where most people stop dead. They say, “People who are looking for storage solutions.” Oh, really? What type of person? What gender? What age? Other people will say, “I’m building a product on love.” “Oh, really? Who’s your customer?” “Oh women between the ages of 27 to 54.”
A 27 year‑old woman has nothing in common with a 54 year‑old woman when it comes to love, clothes, or virtually anything else. The way they describe love is completely different. Her customers were kids, parents, moms, dads, everybody. I said no, no, no, no, no. I worked with her. This is what happened. I’ll cut to the chase.
In eight weeks, she was able to generate $81,000. How did she do that? She quickly found out who her customer was. Any idea who the customer was, Patrick?
Patrick: I’ve read this story from the year before, so I have a good idea. But want to spoil it for the rest of the people?
Ramit: The customer was not the 10 year‑old kid. It was the mother of the 10 year‑old kid. By the way, that mother tended to be ethnic, tended to be Asian. Not a surprise when you think about it. But this isn’t obvious prior to starting to do the research. Now, by the way, what does this Asian mother want? She doesn’t really just want her kid to play like Yo‑Yo Ma.
Why does she want that? Because she wants little Timmy to get into Harvard. And so, when you deeply understand that, then everything about your positioning, your marketing can change. For example, imagine a new testimonial which says: “My son used to be really shy and withdrawn. Now, after going to Jackie’s class, he’s so talkative. He’s made so many friends. I can already see his grades going up because of the new discipline that he’s learned.”
[Patrick notes: I know every engineer in the room just got the willies, because you think that using that testimonial to sell violin tutoring is somehow unethical. It is perfectly ethical if Little Timmy’s mom actually reported that as her experiences. This is, in fact, how middle-class parents justify virtually every extracurricular. You have probably used a variant of this exact sales pitch yourself, except it was probably promoting video games rather than violin. Video games help teach problem solving and hand-eye coordination, not just that you should Spirit Rush to Charm/Deathfire Grasp the Corki outside of Baron for the easy ace so you can push mid for the gg, right?
(Man, that might be my best double coded joke ever.)
(P.S which somewhat spoils the joke: If you’ve cottoned onto the fact that that is actually a totally comprehensible statement and feel repulsed by it welcome to being every client ever. Those of you who play League of Legends just went “Dude, what’s wrong with you, was Spirit Fire on cooldown?” and those of you who don’t are zoning out almost as fast as a has-money-but-can’t-program client does when told about Ruby DSLs and test driven development.)
<Sidenote type=”semiPolitical unfortunateReality” forwardLookingPromise=”thisBarelyEverHappensOnThisBlog”>
P.S. To people who might have a Little Timmy in their life: from the perspective of someone who knows how the admissions game is played, Little Timmy should really be looking for ways to sound like anything other than Asian-smart-kid as possible, because Harvard has a declared policy of racial discrimination, and because in addition to racially discriminating against Asians they have a particular narrative stereotype of an Asian who they think they have quite enough of already. That stereotype gets good grades, plays violin/piano, and has no personality. I mention this to accurately summarize the preferences of bureaucrats whose professional competency is racial discrimination rather than to agree with them. “Talkative” helps him – quite a bit! I would actively avoid mentioning violin at all… unless you can write with humor (and a touch of pique) about how you abominably suck at violin, hate the stereotype, and enjoy subverting things, because humor and subversion play much better in admissions essays, and because humor/subversion are good mental hooks to make you stand out against the other Asian applicants you’re explicitly judged against whereas “smart, good grades, violin player” do not provide hooks.
Even if you haven’t won genetic lottery that Harvard optimizes for, it is still within your power to market your existing product offering (and/or tweak it to make it more marketable) such that you can improve your chances of passing their (biased) decisionmaking process. I think that is largely a more productive use of a single student’s time than lamenting that Harvard’s admission department is unfair (which it is, no question, but if you really want to go to Harvard I’d suggest betting your chips on making you more acceptable to Harvard than making Harvard stop systematized racial discrimination in admissions in time to benefit yourself).
</Sidenote>
But that’s neither here nor there, from the perspective of selling Little Timmy’s mother on the value of violin lessons. She wants to buy violin lessons. OK. Customers wants do not always align with their needs — often, selling them successfully involves a) understanding their wants, b) getting to the root issues behind them, and c) proposing to deliver solutions to those root issues by — wham, switcheroo — giving them what they actually need.
Some of my most successful projects were exactly not what the client first thought of engaging me to do.]
Ramit: Wow! That speaks directly to the heart of what her clients want. By the way, it’s not a lie. It’s completely accurate. This is marketing at its best, where you are actually listening to the customer and then delivering value on what they want, totally ethically.
So, for all of us, when we’re writing worthless copy like easy, fast, free, stop. You’re being lazy. Go out and talk to your customers and figure out their real pain points and write you don’t have to check your pager every Friday and Saturday night. That is a very, very powerful message.
Or “silk shirts that don’t wrinkle when you’re getting off the subway.” That is very powerful to the businessman in Manhattan. All right? So that’s all I’ve got to say about copy when it comes to relating to your customer.
Patrick: I totally agree with that. Also, something that people don’t realize is that this is particularly easy for engineers to do. They think I am trivially capable of doing this, or I am trivially capable of using from free open source solution for doing for their…Therefore, no one else in the world wants it.
My original claim to quote, unquote fame on the Internet is a little program called Bingo Card Creator. It makes Bingo cards for elementary school teachers.
To this day, despite the fact that I’ve been publishing about this for six years with a constantly updated stats graph that shows, like, $200,000 plus of Bingo cards getting sold, people ask me: how could anyone possibly need that? You can do it in Microsoft Excel in, like, five minutes. All you need to do is know how to use Microsoft Excel, like someone that has an engineering degree.
People with engineering degrees don’t teach elementary English. That’s just a fact of life. The reason I know that teachers really genuinely need that is because I’ve talked to literally thousands of teachers by this point, and I know that they have a very particular need for getting ready for class tomorrow.
It isn’t bingo card software. They have a particular need to teach a particular lesson plan that they already have laid out about, say, the American presidents, and they want an easy to use activity that they can just slide into that. And, at no point, do they start thinking of OK, I can open up Microsoft Excel and start scripting up some quick macros, and only two hours from now, I will have something that works for my kids.
They want something that they can go to their local Google, type “American presidents”, pause for a second and remember back to their class about incorporating more fun activities in the classroom, type in “bingo”, hit enter, and get something on the first page that works. And that’s fundamentally why that business works.
Ramit: Love it. What you said when you said like, I can just open up Excel with my extremely simple knowledge of macros betrays a complete lack of understanding about the customer. In fact, this is what I want…I’d like to talk about stepping out of your own comfort zone and understanding the other people, the people that you’re trying to serve.
Most people are not builders. Engineers, understand that. Most people do not talk or think like builders. They do not want to sit around and build a bunch of stuff. I’m talking about myself. I hate building stuff, except the stuff that I’m really good at, building courses and stuff like that. Do you think if you put a bunch of LEGOs in front of me…I’m going to pick that box up and throw it straight in the trash.
I just don’t care. I don’t like it. I don’t want to build a macro. I don’t want to do all that stuff. The second thing is I have a limited amount of time, and if your customer, for example, has a family, they have extremely limited amounts of time. So for them, paying 5, 10, 20, 100 dollars is nothing. Because to them, they get…especially if you’ve segmented your customer to people who have income and are willing to spend it, as opposed to people who have no income and have unlimited time and unlimited technical skills…
Hint to anyone building stuff for other engineers, who haven’t segmented out their pricing or positioning, that’s bad. I like to talk about this. I was just reading something on Hacker News. There was a comment about email newsletters, and the funny comment to me was who still uses email newsletters? It just made me smile, because it’s a classic, classic mistake we make of thinking that our world is everyone’s world. Just to give you a sense, I make over 98 percent of my revenues through email.
Patrick: I facepalmed quite a bit when I heard that line, too. [Patrick notes: I’ve sold a couple hundred thousand dollars of software with email campaigns. I will – hopefully by the end of September – have a product offering to help software companies do this without having to bring me in for consulting. If you want to hear more, give me your email address.]
Ramit: Yeah, you almost cannot pay me money on my site. My conversion funnels are pretty sophisticated, and we’ve built them and tested them for many, many, many years. Email works very well. However, in this day and age, when people talk about oh, you’ve got to get on social, got to get on Facebook, get a Twitter account, my suggestion for people trying to get your first three clients, forget everything that will not immediately get you three clients.
So, if you’re putting up a Twitter feed, ask yourself how is this going to get me clients? And then you’re going to start realizing that you’re giving yourself BS answers, like, I’m getting into the conversation. I need to be at the top of mind. Really? Is that going to help you get three clients or is reaching out to 10 people with custom emails, showing how you already understand their business and suggesting a couple things, is that going to help?
There are the things we talk about in earn 1k, but you can do them anywhere. When I first started off writing copy about four or five years ago, I started studying the really, somewhat dark arts of long copy pages. My sales pages are approximately 40 to 50 pages long.
People say, “Ramit, that doesn’t work.” Really? I have the data. I know for a fact that it does work. In fact, there’s a very sophisticated marketer. His emails are about 20 or 30 pages long. People said [laughs] who reads these emails? Does anyone actually read this? He laughed and said [laughs] only the buyers.
Patrick: [laughs] I love that line.
Ramit: It’s really incumbent upon you to stop thinking that your worldview is everyone’s worldview and realize that marketing works for a reason. As one of my professors said…in communication, she said, the value in this material is not in the difficulty of it. It’s in the usefulness of it. It’s not important how hard it is, what you’re doing. It’s important how useful it is to your customer.
Patrick: This ties back into how…really understanding who, exactly, can afford to buy your product or service offering is, and how important that is. For example, I’ve slagged on social media quite a bit, and I have not slagged on it nearly enough. The person who has the authority to buy your offering at, say, a company which…
By the way, guys, for all the engineers in the audience, you sell engineering services to for profit companies because they are the only people who can pay actual professional engineer rates. There are vanishingly few private individuals and or non-profits who will actually pay engineers the going rate.
Anyhow, so who at the company has the authority to make the decision to bring you on? It’s probably not someone who has a Twitter feed. People look at my business, and they might naively think that I get lots and lots of leads off the blog or on Hacker News, but if I’m getting brought in by, like, the CEO level, or the head of product or the head of marketing at a company, they’re probably, well, a little bit older and have…They would tell you in so many words, I’ve got better things to do with my time than to stay on Hacker News.
I don’t, apparently. But [laughs] I don’t meet those type of people typically off Hacker News. I’ll often meet them at something like a conference that’s organized for the explicit purpose of generating more sales for software companies, which by the way, people who pay $2,000 to go for a conference whose tag line is “Sell More Software” are often interested in paying money to sell more software. [Patrick notes: I was thinking, in particular, of the Business of Software conference, but I’ll bet you there are a dozen of these in any industry you care to name. If your prospective clients go to those conferences, you should probably try to go, too.]
They’re meeting people for conversations in between the…the lectures at that place is a great use of my time, I have found. “Who still uses email and newsletters?” Gahhhh… multi‑billion dollar industries are multi‑billion dollar industries for a reason. You need to have an appropriate level of business awarenesss to back up your technology skills [and if you had that level of awareness, you would not be skeptical about email.]
I would not have a business but for being technologically good at what I do. I would not have a business if I was not able to actually deliver on the things that I offer to my customers. But there’s a huge business knowledge that needs to be present to also successfully run a business.
That starts with knowing the market outside of your narrow specialty. If you don’t already know what businesses are likely to have websites that drive huge amounts of their total business value, then you’re not going to be successful at selling people on engagement to improve their website such that their business gets more revenue.
You need to know, like, what the transactional model for the business looks like. Take two industries which look similar to each other, say insurance or retail finance. Thank God I don’t actually have to do work with either of these. But play along for a second [Patrick notes: I don’t endorse the following conclusions about this, just making an example]: if you want to sell engagements to these guys, you should understand e.g. that an insurance company might have a very, very direct path to revenue via the use of their website.
They can actually take leads on the website and start converting those directly into transactions and or into applications for their high-margin insurance products with very little work on top of that. The core business at say, a bank might be more relationship based, where they have longer sales cycles, and they’re only capturing the lead generation on the website or only doing low margin services like checking accounts or whatnot.
[Patrick notes: Checking accounts are loss-leaders with godawful terrible margins, used mostly to get people in the door for credit cards and home loans. Ironically, the only checking accounts which make appreciable amounts of money are the ones used by the bank’s “worst” customers, who get eaten alive by fees and penalties. Ask Ramit about that stuff, though, he’s the finance expert.]
Patrick: If you were looking at two similarly situation businesses, you would go with the one that you could provide more value to. So you need to know that about the business. If you can’t sketch someone’s business model on a napkin, I don’t think you can ever sell them anything worthwhile.
Learning Long Copy And Other Unexpected Sources Of Business Value
Ramit: It reminds me of something I call going from D to C. And that means going from Disparagement to Curiosity, and when you see a comment that says who still uses email newsletters. That’s disparagement. You’re basically saying I’m smarter than this company. Who would ever use email newsletters, which is ironic, because this person happens to be exactly wrong.
And it, therefore, makes them look far more foolish because they’re disparaging something they simply do not understand. I would, instead, rather have people say, “Wow, these guys are using an email newsletter.” They seem to be doing pretty well. They get a lot of press. They seem to have a lot of customer testimonials. What do they know that I don’t?
From D to C. Stop the disparagement and start the curiosity. Like I said, when I started studying the dark arts of long copy, I first looked at these long copy pages, infomercials, and I said these things are scams. I started off with a disparagement model. But as I started getting deeper and deeper into it and learning what works, what doesn’t, what is ethical and what is not, I learned that there are very, very good reasons that direct response marketers have been using long copy for over 100 years.
What do they know that I don’t know? The answer is they know a lot. They know a lot more than I could ever hope to learn, and it’s all encompassed in this knowledge in direct marketing. So instead of disparaging things that we don’t understand, let’s actually try to say, hey, for 15 minutes, I’m going to try to understand that maybe these guys know something I don’t.
When you can do that, why…for example, of the reasons I moved to New York was all my Silicon Valley friends said it’s all about direct ROI. Those companies are so stupid that pay for ads in Times Square. I looked at them like that’s interesting, because those companies have been around for 50 years. Why does Louis Vuitton have billboards that they spend $200,000 a month on or 500,000?
What do they know that I don’t? As I moved here, the answer is they know a lot. They know a lot more, in terms of brand, and not everything is directly measurable. It’s important to be able to say, “Look, I may not know everything. Let me try to at least understand the basics of it.” When you do, you’ll see entire worlds open up. Like for me, I saw entire worlds of pricing, monetization, long copy, upsells, cross sells, AOV.
I saw all these things open up that I had never, never, never had an idea of. It was all because I first was disparaging them, and then I said all right. I better learn what these guys are doing. And that changed everything for me.
Patrick: I’ve had similar experiences myself. Something that I often see in our industry is people have a fascination for the new. So anything that smacks of the old way of business or that technology is so last year or that thing tends to turn people off. Here’s a heuristic for everybody: it is entirely possible that you are the smartest person in a particular industry… but I would heavily bet against that.
If everyone in an industry does something in a particular way, like if every enterprise software company doesn’t put their prices on the website, and you think “That’s so stupid. I would never buy anything without the price being on the website”, consider the somewhat radical notion that every enterprise software company since ever is not simultaneously making the exact same mistake and that maybe there’s something about that model you don’t know yet.
Ramit: God, that is the best example ever. Because I see it all the time. Oh, whenever I see a site where they don’t give me the price, I just close the page. And then you say to yourself OK, that’s great. What is your budget, by the way? Oh, I don’t have a budget. I’m just looking around. I could just build this on my own. You’re not the customer. You’re not the customer. The customer…
Patrick: “How many millions of dollars in software purchases have you authorized in the last quarter?” [laughs]
Ramit: Exactly. Like, are you kidding me? I’ll give you an example of a purchase I made just this week. I have been looking at some retention issues and improving some retention flows in my funnels, and I happened to be on some newsletter that I signed up for years ago, which by the way, I read once in a while.
They happened to release a new eBook on retention. It has 75 pages of charts and retentions and strategies and this and that. The email came. I read…It was, I would say, about a four page email. I read the first 15 percent, clicked the link, looked a couple pictures, saw a couple of keywords in the bullet points, like how XYZ company plugged their retention problems. I sent it to my assistant.
I didn’t even buy it myself. I sent it to my assistant. I said buy and add to cal, which means add to my calendar for me to review it later. That was it. The purchase was about $199. It took me less than 15 seconds to make that purchase decision. But why? Because I was the right customer at the right time. I had a burning pain point, and I had the budget.
So no matter what their website looked like and all that, yeah, that may have mattered a little bit. The most important thing was they understood their customer, they understood the code words and the problems I have, and it was already sold before I even looked at it. It was already a sold thing for me.
Patrick: I’ll give you an amusing anecdote about that. So there are tools I use in my own business, right? One that I use a lot for designing mockups of user experiences is called Balsamiq Mockups, and I think their entry level pricing is, like, 80 bucks or something. A lot of my engineering friends say “Wow, 80 bucks is a lot for something that’s like Microsoft Paint++”. [Patrick notes: The sarcasm drips from my voice here.]
Anyhow, so I frequently sit down with consulting clients looking at three pages of mockups that I’ve prepared that the engagement. The story that I’m trying to sell them on is “OK, if we do it like this, our revenues for the next quarter are going to go up by 20 percent.”
I got a question from someone who is similar to me at the company. Techy guy, young 20s, et cetera. He said, “That looks cool. What’d you make it in?” I said, “Oh, Balsamiq Mockups. It’s this thing that a company puts out which lets you mockup pages very quickly.” “What, you paid money for that?” And the CEO says…by the way, notable and quotable… “Get one for everybody. Put it on the company card. You were talking about the plus 20 percent in revenue, Patrick?”
It’s two totally different mindsets looking at the same artifact, right? The CEO only sees it in the “This is the tool that someone I trust is doing something incredibly valuable with me on. It is cheap at any reasonable price.” Whereas the person who could potentially have, given the next two years of his life, actually implemented that tool, is valuing it at nothing…because clearly, he didn’t have anything planned for the next two years.
Ramit: Cost versus value. This is something that we’ll talk more about in pricing. But if your first inclination when you look at something is how much does it cost, chances are you’re not the customer. And chances are you would be a terrible customer. In fact, I did this just yesterday. I did a web cast where I actually opened up a new course.
I was testing it. People when I start talking about the course, there will be some people on these webcasts. There’s usually hundreds of people there. They’ll say what’s the price? What’s the price? How much does it cost? What’s the price? I quickly tell them if your first question is about price, this course is not for you.
Because if all you’re concerned about is price, then you haven’t even factored in the calculus of value. If my course can teach you how to negotiate a $10,000 raise, then does it even matter what it costs? It could 100. It could be 500. It could be 5,000. If you believe in the material, and there’s a guarantee, then cost should be one of the last things.
Now, here’s the key. Certain people think like that. Businesses think in terms of value. Generally, individuals do not. And so, that is when you start choosing who are the customers I want to go after? Are they people who have no money or people who complain about money all the time or people who have no time to actually use this?
Or are they people who look at a…an information product or an engineering project and say, you know what? This might cost me $10,000, but I’m going to make back far more. Maybe I’m going to make back more money. Maybe I’m going to get peace of mind. That is value versus cost.
Patrick: Amen. And that’s, by the way, a good heuristic when you’re looking at customers. So you’re going to be selling them on a relationship which is going to, at the end of the day, there will be an invoice delivered, and that invoice is going to have a bunch of zeroes in it. So you are probably not going to be the first professional relationship someone has ever had.
In fact, if you are, that’s a bad sign, because they have no idea how to work with you. They are not going to have a maximally happy result no matter how well you execute on that relationship. So look at how they comport their business in other ways. If someone has an accountant that they’re paying $300 an hour for, they understand that an accountant is generating some value for the business that is worth $300 an hour.
If someone doesn’t have an accountant, and if you ask them “Just curious, why don’t you have an accountant?” And they say something like “Heck if I’m going to pay $300 an hour when I could do it for myself in QuickBooks”, that’s a leading indicator that this person is not going to value your time as a professional either.
Ramit: Exactly.
Patrick: Now, conversely, if someone says that they pay their accountant $300 an hour because accountants provably make the business money but that the riff‑raff techie guys are just crazy for demanding 40 bucks an hour, then also, again, leading indicator. Have a nice, firm handshake and try to get introduced to someone else, hopefully someone a little more sane. But you’re not going to have a successful commercial relationship with them.
Ramit: That’s right. Focus on taking your B+ customers/prospects to be A customers. Don’t focus on the D people, trying to turn them into A customers. It will never happen.
Patrick: Never happen.
Ramit: It will never happen. I will talk to you and Patrick will talk to you more about this. Patrick, I love how many times in your life you’ve used the word pathological customers online. I, myself, have many of those as well. And, in fact, I will talk about how I turned down over one million dollars in revenue per year to avoid the type of customers I do not want.
We’re going to talk about that in our next call, which will be on pricing. But for now, let’s leave our URLs so people can find us. Patrick, do you want to go ahead and start? Where should people find you?
Patrick: Sure. My blog is at http://www.kalzumeus.com/blog [Patrick notes: You found it!]
Ramit: What can they find when they go there?
Patrick: I largely talk about the business of making and selling software. If you want the specific deep dive into that, as in whatever I happen to be thinking about at any given day, that would be at https://training.kalzumeus.com. [Patrick notes: Ramit and I touched on the topic of how email makes serious money for businesses earlier. If that subject interests you, or you would like to learn more about how you can use engineering to improve the marketing of your software business, I strongly suggest trading me your email address. I promise not to waste your time.]
Ramit: I love Patrick’s blog because not only does he talk about selling software, but I sell information products. I don’t sell software. But I find so much relevance in what you talk about, and I love how you delve into the psychology of being able to turn your worldview around and deliver value to people, and then charge accordingly.
I’ll share my URL as well. I actually put up a special page for anyone listening to this, to give away some free stuff for you. It’s http://www.iwillteachyoutoberich.com/earn1k/kalzumeus-start/. That’s a mouthful. You’re going to get some stuff there on how to find your first few clients, including a free video and a free mini course that I put together for you. So take a look. I hope you guys enjoy it. We’ll talk to you on the next call.
Patrick: All right. Let me give just a quick mini testimonial for Ramit. We met for the first time a couple of years ago in New York and had dinner together, and some of the advice that he gave me at that dinner was extraordinarily valuable. It took me off of one trajectory that I was on with my consulting business and put me on a much better trajectory.
I’ve always known him to say really, really valuable things when I’ve talked to other engineers about some of the advice and, like, salary negotiation that he’s given me.
I have a stack of emails in Gmail, like I think it’s somewhere 20 something, and the running total is 200 and X thousand dollars of extra money that that’s made my readers. I really trust Ramit. There is no BS here. You can’t possibly waste your time on it. [Patrick notes: Usual disclaimer: no money exchanged hands for that recommendation.]
Ramit: Appreciate that. All right, Patrick, we’ll talk soon.
Patrick: Talk soon. Bye bye.
Ramit: Thanks.
Recent Comments